Commissioner Of Income Taxchennai v. Haritha Seating Systems Ltd.8 Haddows Roadchennai – 6

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 09 - 4 - 2011 Coram : THE HONOURABLE MR. JUSTICE ELIPE DHARMA RAOAND THE HONOURABLE MR. JUSTICE M. VENUGOPALTax Case (Appeal) No. 106 of 2008 Commissioner of Income TaxChennai. ... Appellant vs. Haritha Seating Systems Ltd.8 Haddows RoadChennai – 6... Respondent TAX CASE (APPEAL) filed under Section 260A of the Income Tax Act,1961 against the order of the Income Tax Appellate Tribunal Madras'A' Bench dated 29.11.2006 made in I.T.A. No. 1663/Mds/05 for theassessment year 1997-1998 against the order of the Commissioner ofIncome Tax (Appeal)-III, 121, Mahatma Gandhi Road, Chennai dated15.3.2005 and made in ITA.No.346/2004-05/A.III against the order ofthe Deputy Commissioner of Income Tax CO-Circle II-2, Chennaidt.30.3.2004 in G.I.No.HX2008 for the Assessment year 1997-98. For Appellant : Mr. K. Subramanian For Respondent : Mr. R. Venkatanarayan for M/s Subbaraya Aiyer JUDGMENT(Delivered by ELIPE DHARMA RAO, J.) This Appeal is filed by the Revenue in respect of the assessmentyear 1997 – 98 against the order dated 29.11.2006 passed by theIncome Tax Appellate Tribunal, "A" Bench, Chennai in I.T.A. No.1663/Mds/05 and was admitted on the following substantial question oflaw: "Whether, in the facts and circumstances of the case,the Tribunal was right in holding that the issue as towhether the labour charges, miscellaneous income andsale of materials are part of business income or notfor the purpose of deduction under Section 80HH is adebatable issue and the same cannot be decided in thehttps://hcservices.ecourts.gov.in/hcservices/rectification proceedings under Section 154." 2.The facts of the case culled out from the statement offacts filed by the Revenue goes as follows: The assessee is a Private Limited Company whose return for theassessment year 1997-1998 was processed under Section 143(3) of theIncome Tax Act (hereinafter referred to as the "Act"). As gatheredfrom the facts and circumstances of the case, an Assessment Order,which is not filed in the typed set of papers, was passed againstwhich an appeal was filed in ITA No. 80 of 2000, which was disposedof by the appellate authority Commissioner of Income Tax by orderdated 20.9.2000, to revise as per Section 80 HH of the Act.Accordingly, the Deputy Commissioner of Income Tax, Company CircleII, took the matter and passed an order dated 14.3.2002 deducting sixitems, viz., (1) PF employees contribution; (2) PF employerscontribution; (3) Excise duty not added to furnished goods; (4) Leavesalary now allowed; (5) Labour charges allowed and (6) Profession Taxnow allowed. Originally, as per the Assessment Order dated20.9.2000, the total income assessed was Rs.3,19,27,380/- and, afterexcluding the above said income, it came to Rs. 3,10,85,920/-.Accordingly, the Deputy Commissioner of Income Tax came to theconclusion that the balance payable is Rs. 50,470/-. After passingthis order, since an objection was taken by the Revenue audit, theDeputy Commissioner had once again taken the issue stating thatdeduction under Section 80 HH of the Act on some other incomes waswrongly allowed and since the same was required to be rectified,notice under Section 154 of the Act was given for rectification ofthe mistakes. Thereafter, after hearing the representative of theassessee, the order dated 14.3.2002 was revised on 30.3.2004 againstwhich an appeal was filed before the Commissioner of Income Tax, who,on consideration of the facts and circumstances of the case, by orderdated 15.3.2005, passed the following order:- "3.2.The rival submissions have been considered.The appellant filed copies of CIT(A)'s order and thecase law cited supra before me during the course ofappellate proceedings and I have perused the same. TheCIT(A)-VI, Chennai in its ITA No. 13/1999-2000 dated1.10.1999 has decided the issue in favour of theappellant. In his order, the CIT(A) has stated asunder:"I have found that the excess capacity of theindustrial undertaking of the appellant companywas utilised by the appellant in processing theraw materials brought in by the customersmainly group companies who did not have muchfacility, and for conversion of such rawmaterials, the appellant received substantiallabour charges. Such labour charges /processing charges earned by the appellant weredirectlyderivedfromtheindustrialhttps://hcservices.ecourts.gov.in/hcservices/undertaking of the appellant–company andtherefore these have to be held as gains derived from the industrial undertaking. As aresult of this finding, the appellant–companywould also be entitled to exemption u/s. 80HHon the labour charges earned by it, providedthe industrial undertaking of the appellant–company accordingly." 3.2.1.In the case of CIT vs. Tamil Nadu HeatTreatment & Felting Services Pvt. Ltd. (104 Taxman210), Madras High Court has held that the business ofreceiving from clients untreated crank shafts,forgings, castings, etc. and subjecting them to heattreatment, in order to toughen them to requiredstandards, so that they could be sold in the market,is a manufacturing activity, entitling it to claimdeduction as contemplated under sec. 80HH and 80I.3.2.2.Respectfully following the same, I directthe Assessing Officer to allow exemption u/s. 80HH onthe labour charges received by the appellant. Theappellant succeeds on this issue." Against the said order, an appeal was filed by the DeputyCommissioner of Income Tax before the Income Tax Appellate Tribunal.The Tribunal dismissed the appeal by order dated 29.11.2006 and thesaid order is impugned in this appeal. 3.Heard the argument of the learned counsel on either sideand perused the materials on record. 4.In the present case, the Assessing Officer, by invoking thesuo motu power, after service of notice to the assessee, passed anorder revising the taxable income by modifying the deductions claimedby the assessee under Section 80HH of the Act. On appeal, theCommissioner of Income Tax, allowed the appeal preferred by theassessee and found that the deduction claimed under different headsby the assesseee are allowable. On further appeal, the Tribunal, onthe question of jurisdiction to re-open the assessment on the groundof rectification of mistake, held that the restriction in thededuction under Section 80HH proposed by the Assessing Officer underSection 154 of the Act was not at all a mistake apparent from recordand rather, it was quite debatable. Ultimately, the Tribunaldismissed the appeal on the ground of want of jurisdiction by theAssessing Officer. 5.On the aforesaid factual scenario, it has to be seenwhether the Assessing Officer has rectified the mistake in view ofSection 154 of the Act or decided the issue on merits. 6.We have perused the Revision order passed by the AssessingOfficer. In the order, it was mentioned that deduction under Section80HH on some other incomes was wrongly allowed and it was required tobe rectified under Section 154 of the Act. It was further indicatedhttps://hcservices.ecourts.gov.in/hcservices/that the original assessment order dated 14.3.2002 was revised after 5.On the aforesaid factual scenario, it has to be seenwhether the Assessing Officer has rectified the mistake in view ofSection 154 of the Act or decided the issue on merits. 6.We have perused the Revision order passed by the AssessingOfficer. In the order, it was mentioned that deduction under Section80HH on some other incomes was wrongly allowed and it was required tobe rectified under Section 154 of the Act. It was further indicatedhttps://hcservices.ecourts.gov.in/hcservices/that the original assessment order dated 14.3.2002 was revised after hearing the assessee's representative on 30.4.2004. Except theaforesaid facts, nothing has been indicated in the Revision Order.The Assessing Officer has not given any reason for revising thededuction amount claimed by the assessee. In the absence of givingany reason for revising the order, we do not know as to on whatground the Assessing Officer had come to a conclusion that thededuction claimed by the assessee does not fall under the purview of80HH of the Act. If one examines the scheme of the Income Tax Act,as it stood at the material time, one finds a clear dichotomy betweenSection 154 and Section 147 of the Act. Section 154 deals withrectification of mistake. Section 154(1), inter alia, states that,with a view to rectify any mistake apparent from the record, anIncome Tax Authority may amend any order passed by it under theprovisions of the Act, whereas Section 147, inter alia, states thatif the Assessing Officer has reason to believe that any incomecharged to tax has escaped assessment for any assessment year, hemay, subject to the provisions of Sections 148 to 153, assess orreassess such income which has escaped assessment and which comes tothe notice of the Assessing Officer subsequently in the course ofproceedings under the said section. 7.It is well recognised law that any erroneous assessmentcannot be the subject matter for rectification under Section 154 ofthe Income-tax Act. The erroneous order of assessment can berectified only under procedure known to law by carrying the matterbefore the appropriate authority by way of appeal to rectify theerroneous order or revise it as per law. A debatable point cannot bea reason for rectification under Section 154. Further, in order toinvoke Section 154 for rectification of the mistake, the mistakesought to be rectified should be a mistake apparent on the record andmust be an obvious and patent mistake and not something which couldbe established by long drawn process of reasoning on the point inissue on which there may be conceivably two opinions. A decision on adebatable point of law cannot be regarded as a mistake apparent onthe face of the record amenable for rectification under Section 154of the Income-tax Act. 8.Insofar as the case on hand is concerned, it involveschange of opinion. From a perusal of the record, it is clear thatthe original Assessment Order was passed by the Assessing Officer on29.3.2000 and on appeal in ITA 80 of 2000, the Commissioner of IncomeTax (Appeals), by order dated 20.9.2000, directed the AssessingOfficer to exclude the income on certain heads under Section 80HH ofthe Act. The Assessing Officer instead of carrying the matter tothe Tribunal by way of appeal, complied with the order of theCommissioner by passing the revised order dated 14.3.2002. When anobjection was raised by the Revenue Audit, the Deputy Commissionertook up the matter stating that a mistake had occurred andaccordingly, passed the order dated 30.3.2004 after issuance ofnotice under Section 154 of the Act. Therefore, merely because anobjection was taken out by the Revenue Audit, the officer, whohttps://hcservices.ecourts.gov.in/hcservices/succeeded the previous officer should not have undertaken theexercise of revising the order issuing notice under Section 154 of the Act. Therefore, we are of the view that the revised order dated30.3.2004 passed by the Assessing Officer is in violation of theorder dated 20.9.2000 passed by the Commissioner of Income Tax. 9.Further, the assessing authority has no authority to revisethe assessment order is the principle laid down by the Supreme Courtin T.S.Balaram v. Volkart Bros [(1971) 2 SCC 526]. In the saidcase, the Supreme Court, after considering the fact that the mistakerectified was not an error or mistake apparent on the face of record,observed as follows :- "5..... A mistake apparent on the record mustbe an obvious and patent mistake and not somethingwhich can be established by a long drawn process ofreasoning on points on which there may conceivably betwo opinions. As seen earlier, the High Court ofBombay opined that the original assessments were inaccordance with law though in our opinion the HighCourt was not justified in going into that question.In Satyanarayan Laxminarayan Hegde v. MillikarjunBhavanappa Tirumale (AIR 1960 SC 137) this Court whilespelling out the scope of the power of a High Courtunder Article 226 of the Constitution ruled that anerror which has to be established by a long drawnprocess of reasoning on points where there mayconceivably be two opinions cannot be said to be anerror apparent on the face of the record. A decisionon a debatable point of law is not a mistake apparentfrom the record—see Sidhramappa v. CIT, Bombay (21 ITR333). The power of the officers mentioned in Section154 of the Income Tax Act, 1961 to correct “anymistake apparent from the record” is undoubtedly notmore than that of the High Court to entertain a writpetition on the basis of an “error apparent on theface of the record”. In this case it is not necessaryfor us to spell out the distinction between theexpressions “error apparent on the face of the record”and “mistake apparent from the record”. But suffice itto say that the Income Tax Officer was wholly wrong inholding that there was a mistake apparent from therecord of the assessments of the first respondent." 10.The appellate authority while considering the appealpreferred against the order of revision passed by the AssessingOfficer, on the facts of the case, has considered each and every headof deduction claimed by the assessee and came to a definiteconclusion that the assessee is entitled for the deductions claimedunder Section 80HH of the Act. The said finding of the appellateauthority has also not been interfered with by the Tribunal. In view of the above, in the light of the decision of thehttps://hcservices.ecourts.gov.in/hcservices/Supreme Court referred to above, we do not find any question of law,much less, substantial question of law, for entertaining this appeal and hence, we are not inclined to interfere with the concurrentfinding arrived at both on the question of facts and question of law.Therefore, the Tax Case (Appeal)is dismissed. Sd/Asst. Registrar /true copy/Sub Asst.RegistrargriTo1.The Assistant RegistrarIncome Tax Appellate TribunalBench A, Chennai2.The Commissioner of Income-Tax(Appeals) III Chennai3.The Deputy Commissioner of Income-TaxCompany Circle II (2) Chennai4. The Commissioner of Income Tax, Chennai1 cc To Mr.K.Subramanian, Advocate, SR.257381 cc To Mr.R.Venkatnarayanan, Advocate, SR.25653T.C.(A) No. 106 of 2008 MBS(CO)SRA (06/06/2011)