Commissioner Of Income-Tax (Special Range I) Coimbatore v. M/S.palani Andavar Cotton & Synthetic Spinners Limited Udumalpet

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 27.08.2007 CORAM: THE HONOURABLE MR.JUSTICE K.RAVIRAJA PANDIANANDTHE HONOURABLE MRS.JUSTICE CHITRA VENKATARAMANTax Case (Appeal) Nos.96 to 98 of 2004 Commissioner of Income-tax(Special Range I)Coimbatore... Appellant in all the casesversus M/s.Palani Andavar Cotton &Synthetic Spinners LimitedUdumalpet... Respondent in all the cases Tax Case Appeal Nos.86 to 98 of 2004 are filed under Section260-A of the Income-tax Act, 1961 against the orders of theIncome-tax Appellate Tribunal, 'B' Bench, Chennai made inI.T.A.Nos.2759, 2767 and 2768(Mds)/1993 for the assessment years1988-89, 1989-90 and 1990-91 respectively against the order of theCommissioner of Income Tax (Appeals) Coimbatore dated 24.8.93 andmade in I.T.A.Nos.514-C to 516-C/93-94 against the order of theDeputy Commissioner of Income Tax, Special Range I, Coimbatore(i) dated 12.3.1997 and made in PAN/GIR No. CQ-9013/SR-I/CBE and(ii) dated 29.3.1996 and made in PAN/GIR No.OX-2306. These appeals are preferred by the Revenue in respect ofassessment years 1988-89, 1989-90 and 1990-91 against the ordersof the Tribunal allowing the appeals of the assessee on the groundthat the orders passed under Section 143(1)(a) could not be thesubject matter of rectification under Section 154, as the questionraised is a debatable one. https://hcservices.ecourts.gov.in/hcservices/ 2. The assessee filed returns of income disclosing a loss anda book profit under Section 115J of the Income Tax Act, 1961. Thereturns were considered and processed under Section 143(1)(a). Ongoing through the records, the Deputy Commissioner found that theprofit available for adjustment had been taken into account afterreducing 30% of book profit by wrongly applying Section 115J(2).Treating this as a mistake apparent on record, proceedings wereinitiated under Section 154 of the Income-tax Act, 1961. Aggrievedby the orders of rectification, the assessee preferred appealsbefore the Commissioner of Income-tax (Appeals) contending thatwhile computing the income for the purposes of Section 115J, aportion of the depreciation had not been allowed in the AssessmentYears 1988-89 to 1990-91; that the said depreciation should beallowed to be carried forward to successive assessment years. TheCommissioner of Income Tax (Appeals), however, dismissed theassessee's appeals on the ground that the assessable loss had beendetermined in accordance with the provisions of the Income TaxAct, 1961. However, 30% of the book profit was taken as deemedtotal income, as it was higher than the assessable income or lossunder the provisions of the Act. The Commissioner of Income Tax(Appeals) also took the view that it could not be assumed that thedepreciation was not allowed to the extent of computation of thebook profit. The assessee preferred a Second Appeal before theIncome Tax Appellate Tribunal contending that while computing theprofit for the purposes of Section 115J, the depreciation claimedwas not allowed, which resulted in an assessment on a higherdeemed income. The assessee submitted that the extent ofdepreciation claimed not allowed for the purpose of Section 115Jmust be allowed to be carried forward in the subsequent year. Theassessee also contended that the issue sought to be touched underSection 143(1)(a) by taking recourse to proceedings under Section154 was an arguable issue; as such, the orders of the AssessingOfficer as well as the Commissioner of Income Tax (Appeals) weretotally erroneous. 3. By order dated 28[th] October 2002, the Tribunal passed acommon order in respect of the Assessment Years 1988 89 to 1990-91and allowed the appeals of the assessee, taking the view that theorders passed on rectification were totally unsustainable. TheTribunal took the view that at the time the intimation underSection 143(1)(a) and the order under Section 154 was passed, theissue was a debatable one; as such, the Tribunal held that whatcould not have been a possibility under Section 143(1)(a) couldnot be done by invoking Section 154. The Tribunal further pointedout that this Court rendered a decision on 19[th] November 2001 inthe case of CIT Vs. FAB EXPORTS PVT. LTD. reported in 258 ITR 56on the question that even where tax is levied on book profits, theloss and depreciation in the computation of statutory profits forthe year would not be available for carry forward and set off tothe extent to which it is absorbed against statutory income of the https://hcservices.ecourts.gov.in/hcservices/ year. The Tribunal held that the decision of this Court came muchlater to the date when the orders under Section 143(1)(a) andSection 154 were passed; as such, the proceedings taken weretotally unsustainable. The Tribunal referred to the decision ofthe Apex Court reported in [1971] 82 ITR 50 (T.S.BALARAM, ITO Vs.VOLKART BROTHERS), that a debatable issue could not be made asubject matter for taking recourse to Section 154. 4. Aggrieved by the said order, the Revenue is on appealbefore this Court contending that since the issue is now settledin favour of the Revenue by the decision of this Court reported in258 ITR 56 (CIT Vs. FAB EXPORTS (P) LTD.) as well as by thedecision of the Supreme Court reported in 258 ITR 770 (KARNATAKASMALL SCALE INDUSTRIES DEVELOPMENT CORP0RATION LTD. Vs. CIT), thelaw declared by the Apex Court is presumed to have always been thelaw of the land. Consequently, the rectification proceedings takenwere maintainable. The Revenue contended that the application ofwrong provision or an erroneous application of the provisions ofthe Act will amount to a mistake apparent from the record amenablefor correction or rectification under Section 154. Consequently,the Revenue submitted that the view of the Tribunal merits to bereversed. 5. A perusal of the order of the Tribunal shows that thereturn was originally processed under Section 143(1)(a) on18.9.1991. Subsequently, on 31.5.1993, the order of intimation wasrectified taking the view that there were no provisions underSection 115J(2) to reduce the 30% book profit from the availableprofit for setting off and carried forward losses. Against thisorder dated 31.5.1993, the assessee preferred appeals before theCommissioner of Income Tax (Appeals). 6. Learned counsel for the respondent placed reliance on thedecision of this Court in the case of COMMISSIONER OF INCOME-TAXVS. NONMAG WIRES P. LTD. reported in (2007) 292 ITR 557 (Mad) aswell as the order dated 31.1.2007 in T.C.No.144 of 2003, wherein,under similar circumstances, this Court held that in a case ofadjustment under Section 143(1)(a), a debatable question of lawcannot be a subject matter of rectification under Section 154.This Court further held that the claim, which has to be consideredon a debatable question, must necessarily be dealt with by theOfficer under regular assessment proceedings relevant under theAct. In those circumstances, learned counsel for the assesseesubmits that the order of the Tribunal has to be upheld on thelimited question as to the availability of jurisdiction underSection 154. 7. A perusal of the order of the Tribunal shows that theTribunal held that as on the date of the proceedings taken underSection 143(1)(a) as well as under Section 154, admittedly, therewas a dispute with reference to Section 115J book profit workingand the carry forward of loss and the depreciation. The law onthe said question was settled by this Court on 19[th] November 2001and again by the Supreme Court on 3[rd] December 2002. While thereis no dispute as to the proposition of law that the law declareddates back to the inception of the provisions, yet, with theuncertainty existing as on the date when the proceedings underSection 143(1)(a) was subjected to Section 154, the jurisdictionunder Section 154 is not available to correct the illegality in anassessment. The exposition of law by the Supreme Court does notmake an error as one apparent from the record for the authority toassume jurisdiction under Section 154. An apparent error must beone which is glaring, obvious or self-evident mistake. Thedebatable issue cannot be a ground for invoking jurisdiction underSection 154. It is not denied that there are provisions under theAct which permit the Revenue to take up and keep alive assessmentseven on debatable issues which are awaiting decisions before Courtof law. An issue, which required a long process of reasoning andwhere there are already conflicting views, cannot offer a platformfor a resort to Section 154 proceedings. In similar circumstances,in a decision reported in 292 ITR 557 (COMMISSIONER OF INCOME-TAXVS. NONMAG WIRES P.LTD.) to which one of us is a party (CHITRAVENKATARAMAN,J.), this Court held that a debatable issue on apoint of law is not a mistake apparent from the record. Placingreliance on the decision of the Apex Court reported in [1971] 82ITR 50 (T.S.BALARAM, ITO Vs. VOLKART BROTHERS), this Court heldthat "a mistake apparent on the record within the meaning ofSection 154 of the Act must be "obvious" and "patent" and notsomething which could be established by a long drawn process ofreasoning of issues on points on which there may be more than onereason. A decision on a debatable point of law certainly is not amistake apparent from the record. " 8. An impression formed on the scope of the provisions couldnot be a mistake or an error apparent from the record so as tojustify the exercise of jurisdiction under Section 154. Theinvoking of the provisions of Section 154 presupposes a mistake oran error which is patent or obvious and does not involve a longdrawn process of reasoning on a point which is already a debatableissue. Considering the fact that the decision of this Court wasavailable much later to the proceedings under Section 143(1)(a),we do not find any error in the order of the Tribunal to set asidethe rectification proceedings. In the circumstances, we confirm the order of the Tribunal andthereby dismiss the Tax Cases. There will be no order as tocosts. Sd/-Asst. Registrar. /true copy/ Sub Asst. Registrar. uskTo 1. The Asst.Registrar Income-tax Appellate Tribunal Chennai. 2. The Commissioner of Income-tax (Appeals) Coimbatore. 3. The Deputy Commissioner of Income Tax Special Range I, Coimbatore. 4. The Commissioner of Income TaxSpecial Range I, Coimbatore 1 cc to Mr.N. Muralikumaran, Senior Standing counsel for IncomeTax, sr. 53429 Tax Case (Appeal) Nos. 96 to 98 of 2004 NG (CO)kk 18/10 https://hcservices.ecourts.gov.in/hcservices/