Commissioner Of Income Tax, Tiruchirapalli v. M/S.thirumalai Fertiliser & Co. Kulithalai

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 18.07.2006 Coram : THE HONOURABLE MR.JUSTICE P.D.DINAKARANANDTHE HONOURABLE MR.JUSTICE P.P.S.JANARTHANA RAJA Tax Case (Appeal) No.146 of 2003 (Appeal No.137 of 2003) Commissioner of Income Tax,Tiruchirapalli...AppellantVsM/s.Thirumalai Fertiliser & Co.Kulithalai. ..Respondent Appeal under Section 260A of the Income Tax Act, 1961 against theorder of the Income Tax Appellate Tribunal, Madras, 'A' Bench in I.T.A.No.864(Mds)/2000 dated 19.03.2003 for the assessment year 1994-95against the order of the Commissioner of Income Tax (appeals) XIII 121,Mahatma Gandhi Road, Chennai-600 034 dated 24.2.2000 and made in ITANo.153 & 154/1999-2000 against the order of the Income Tax Officer,City Ward II (1) (con) Tiruchirappalli, dated 16.8.99 and made inG.I.No.341-T (coy) TRY for the Assessement Year 1994-95. For Appellant : Mr.J.Narayanaswamy Jr. Standing Counsel IT Dept.For Respondent : Mr.N.Quadri Hussain JUDGMENT (Judgment of the Court was delivered by P.P.S.Janarthana Raja, J.) The present appeal is filed under Section 260A of the Income TaxAct, 1961 by the Revenue against the order passed in I.T.A.No.864/Mds/2000 by the Income Tax Appellate Tribunal, Madras, 'A'Bench. On 21.10.2003, this Court admitted the appeal and formulatedthe following question of law. "1. Whether in the facts and circumstances of thecase, the Tribunal was right in holding that theassessment could be rectified u/s 154 of the IT Actto ensure that the statutory provisions of Sec.44AEwere complied with or it would amount to a redoing https://hcservices.ecourts.gov.in/hcservices/ 2.The facts leading to the above question of law are as under: The relevant assessment year is 1994-95 and the accounting yearended on 31.03.1994. The assessee is a registered firm. The assesseeis a dealer in fertiliser and also derived income from plying 3lorries. The assessee filed return of income for the said assessmentyear on 13.02.1995 declaring a total loss of Rs.2,18,712/-. Later, anotice under Section 143(2) of the Income Tax Act (hereinafter referredto as the "Act"), was served directing the assessee to furnish details.After the details were furnished by the assessee, the Income TaxOfficer completed the assessment under Section 143(3) of the Act,accepting the total loss return by the assessee. Further, he madeaddition by estimating the business income from 2 lorries under Section44AE at Rs.48,000/- and declared the assessment as 'N.A.'. Later, theIncome Tax Officer was of the view that there was a mistake in theregular assessment on the ground that, instead of estimating the incomefrom 3 lorries, income from 2 lorries were alone estimated and further,the deductions-expenses relating to the lorries were to be disallowedwhile resorting to estimating income under Section 44AE of the Act andhence, the same was to be rectified. In consequence, he issued anotice under Section 154 of the Act to the assessee on 15.2.1999 andagain a reminder was also issued on 06.05.1999. In response to thesaid notice under Section 154 of the Act, the assessee informed theAssessing Officer that the assessee had maintained proper books ofaccount in respect of the income from lorry business and there was nomistake in the regular assessment passed by the Assessing Officer underSection 143(3) of the Act. Rejecting the contention, the AssessingOfficer rectified the order making additions, and held as follows: https://hcservices.ecourts.gov.in/hcservices/ Aggrieved by the order, the assessee filed an appeal to theCommissioner of Income Tax (Appeals). The C.I.T.(A) allowed the appealand deleted the additions made in the rectification order. Aggrievedby the order, the revenue filed an appeal to the Income Tax AppellateTribunal (hereinafter referred to as the 'Tribunal'). The Tribunaldismissed the revenue's appeal and confirmed the order of the firstappellate authority. https://hcservices.ecourts.gov.in/hcservices/ Aggrieved by the order, the assessee filed an appeal to theCommissioner of Income Tax (Appeals). The C.I.T.(A) allowed the appealand deleted the additions made in the rectification order. Aggrievedby the order, the revenue filed an appeal to the Income Tax AppellateTribunal (hereinafter referred to as the 'Tribunal'). The Tribunaldismissed the revenue's appeal and confirmed the order of the firstappellate authority. 3.The learned standing counsel appearing for the revenuesubmitted that, not following the statutory provision earlier by theAssessing Officer, amount to mistake apparent on the face of the recordand hence the same was subjected to rectification under Section 154 ofthe Act. The learned standing counsel relied on the Madhya PradeshHigh Court judgment reported in 274 ITR 225 to support his contention. 4.The learned counsel appearing for the assessee submitted thatthe Assessing Officer admitted the loss return by the assessee andfurther to the acceptance of the loss return, he also made additionestimating income from lorries. Eventhough the said estimated additionis not warranted in law, the assessee accepted the estimated additiondue to the smallness of the amount and also in order to purchase peacewith the Department. 5.Heard the counsel. Section 44AE of the Act, was introduced bythe Finance Act of 1994 with effect from 01.04.1994. The relevantprovision of Section 44AE, stands during the accounting year reads asfollows: "Special Provision for computing profits and gains ofbusiness of plying, hiring or leasing goods carriages.44AE. (1) Notwithstanding anything to the contrary containedin sections 28 to 43C, in the case of an assessee, who ownsnot more than ten goods carriages and who is engaged in thebusiness of plying, hiring or leasing such goods carriages,the income of such business chargeable to tax under the head"Profits and gains of business or profession" shall be deemedto be the aggregate of the profits and gains, from all thegoods carriages owned by him in the previous year, computedin accordance with the provisions of sub-section(2). (2) For the purposes of sub-section (1), the profits andgains from each goods carriage,- (i) being a heavy goods vehicle, shall be an amountequal to two thousand rupees for every month or part of amonth during which the heavy goods vehicle is owned by theassessee in the previous year or, as the case may be, anamount higher than the aforesaid amount as declared by him inhis return of income; (ii) other than a heavy goods vehicle, shall be anamount equal to one thousand eight hundred rupees for everymonth or part of a month during which the goods carriage isowned by the assessee in the previous year or, as the casemay be, an amount higher than the aforesaid amount asdeclared by him in his return of income. (3) Any deduction allowable under the provisions of sections30 to 38 shall, for the purposes of sub-section(1), be deemedto have been already given full effect to and no furtherdeduction under those sections shall be allowed: (4) The written down value of any asset used for the purposeof the business referred to in sub-section(1) shall be deemedto have been calculated as if the assessee had claimed andhad been actually allowed the deduction in respect of thedepreciation for each of the relevant assessment years. (5) The provisions of sections 44AA and 44AB shall not applyin so far as they relate to the business referred to in sub-section(1) and in computing the monetary limits under thosesections, the gross receipts or, as the case may be, theincome from the said business shall be excluded. (4) The written down value of any asset used for the purposeof the business referred to in sub-section(1) shall be deemedto have been calculated as if the assessee had claimed andhad been actually allowed the deduction in respect of thedepreciation for each of the relevant assessment years. (5) The provisions of sections 44AA and 44AB shall not applyin so far as they relate to the business referred to in sub-section(1) and in computing the monetary limits under thosesections, the gross receipts or, as the case may be, theincome from the said business shall be excluded. (6) Nothing contained in the foregoing provisions of thissection shall apply, where the assessee claims and producesevidence to prove that the profits and gains from theaforesaid business are lower than the profits and gainsspecified in sub-sections (1) and (2), and thereupon theAssessing Officer shall proceed to make an assessment of thetotal income or loss of the assessee and determine the sumpayable by the assessee on the basis of assessment made undersub-section(3) of section 143." The said section provides the method of estimating the income from thebusiness of plying, hiring or leasing trucks owned by the assessee.The section applies to persons owning not more than ten trucks. Theincome from each truck, being a heavy goods vehicle, is estimated atRs.2,000/- for every month or part of a month. The income from eachtruck, other than a heavy goods vehicle, is estimated at Rs.1,800/- forevery month or part of a month. The estimate is a comprehensive one.As per Section 44AE(3), any deduction allowable under the provisions ofsections 30 to 38 shall, for the purposes of sub-section(1), be deemedto have been already given full effect to and no further deductionunder those sections shall be allowed. The scheme is optional. If theassessee produce evidence that profits and gains from the business of https://hcservices.ecourts.gov.in/hcservices/ plying the lorries during the year is less than the profits and gainsspecified in Sub Sections (1) and (2), the Assessing Officer shouldproceed to make the assessment and determine the total income or lossunder Section 143(3) of the Act. The said option is given to theassessee under Section 44AE (6) of the Act. 6.In this case, the assessment was made under Section 143(3) ofthe Act and the Assessing Officer accepted the return of loss filed bythe assessee. Further he estimated the income by way of addition ofRs.48,000/- from lorries under Section 44AE of the Act. From therecords it is seen that the assessee maintained books of account andfiled profit and loss account, which was considered by the AssessingOfficer in determining the income. Once the books of account wereaccepted, it is wrong on the part of the Assessing Officer to estimateunder Section 44AE of the Act. Eventhough the Assessing Officer waswrong in estimating the lorry income, the assessee did not prefer anappeal against the assessment due to the smallness of the amountinvolved and also to purchase peace with the Department. The AssessingOfficer trying to make assessment under Section 44AE by invoking therectification proceeding under Section 154 of the Act, is notjustified. It amounts to reassessing the income, which is notpermissible under Section 154 of the Act. Section 154 is meant forcarrying out rectification of mistake which is apparent on the face ofthe record. Applying the provision of Section 44AE to the present caseby the Assessing Officer, by invoking under Section 154 of the Act, isa controversial and debatable one and hence there is no mistake thatcould be rectified under Section 154 of the Act. While interpretingthe scope of rectification under Section 154 of the Act, the SupremeCourt, in the case of T.S. Balaram, Income Tax Officer, Company CircleIV, Bombay Vs. Volkart Brothers and Others, reported in 82 ITR 50, heldas follows: "A mistake apparent on the record must be anobvious and patent mistake and not something whichcan be established by a long drawn process ofreasoning on points on which there may beconceivably two opinions. A decision on adebatable point of law is not a mistake apparentfrom the record." From a reading of the above Supreme Court observation, it is clear thatonly apparent mistake and non-debatable issue, would be the subjectmatter of rectification under Section 154 of the Act. In the presentcase, the issue as to whether Section 44AE will apply or not, is itselfa debatable one and hence, the Assessing Officer has no jurisdiction torectify under Section 154 of the Act. The Madhya Pradesh High Courtjudgment relied on by the learned counsel for the revenue reported in274 ITR 225 is not relevant to the facts of the present case. In thatjudgment, no statutory provision was followed when completing theassessment. Later, the revenue rectified the assessment by followingthe statutory provision. On the facts, it was held that the Assessing https://hcservices.ecourts.gov.in/hcservices/ Officer was right to rectify under Section 154 on the ground that theAssessing Officer had not followed the statutory provision. Notfollowing the statutory provision, amount to mistake apparent on theface of the record and hence the rectification under Section 154 isapplicable. In the present case, the facts are different and hence thejudgment relied on by the learned counsel for the revenue, is notrelevant to the facts of the present case. 7.Both the lower authorities rightly held that the AssessingOfficer has no authority to rectify the assessment order under Section154 of the Act. In view of the foregoing reasons, we are of the viewthat there is no error or infirmity in the order of the Tribunal andthe same does not require interference. Hence, we answer the questionof law in favour of the assessee and against the revenue and the taxcase is dismissed. No costs. /true copy/kmTo Sd/Asst.RegistrarSub Asst.Registrar 1. THE ASSISTANT REGISTRARINCOME TAX APPELLATE TRIBUNALIII FLOOR, RAJAJI BHAVAN,BESEANT NAGAR , CHENNAI 90 2. THE SECRETARYCENTRAL BOARD OF DIRECT TAXESNEW DELHI. 3. THE COMMISSIONER OFINCOME TAX, TIRUCHIRAPPALLI. 4. THE COMMISSIONER OFINCOME TAX (APPEALS) XIIINO.121, MAHATMA GANDHI ROAD,CHENNAI 34. 5. THE INCOME TAX OFFICERCITY WARD II (1) (CON)TIRUCHIRAPPALLI. 6. THE ASSISTANT COMMISSIONEROF INCOME TAX, COMPANY CIRCLE,TIRUCHIRAPPALLI. +1cc to Mr.N.Muralikumaran, Advocate Sr 31551+1cc to Mr.N.Quadri Hussain,Advocate Sr 31710 VC (CO)km/6.9. T.C.(A) No.146 of 2003