Commissioner Of Income Tax,Faridabad v. Surat Singh

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. --- Income Tax Appeal No. 15 of 2008Date of decision: 30.5.2011 Commissioner of Income Tax,Faridabad --- Appellant Versus Surat Singh --- Respondent CORAM:HON’BLE MR. JUSTICE ADARSH KUMAR GOELACTING CHIEF JUSTICE HON’BLE MR. JUSTICE AJAY KUMAR MITTAL --- Present:Ms. Urvashi Dhugga, Senior Standing Counselfor the appellant-Revenue. Mr. S.P. Chahar, Advocatefor the respondent-assessee. --- AJAY KUMAR MITTAL, J. This appeal under Section 260A of the Income-Tax Act, 1961 (for short “the Act”) has been filed by the Revenue against theorder dated 16.1.2007, passed by the Income Tax Appellate TribunalDelhi Bench-I, Delhi (in short “the Tribunal”) whereby six appeals, i.e.ITA Nos. 2602 to 2607 of 2005, relating to the assessment years1994-95 to 1999-2000 were disposed by a common order. 2.The appeal was admitted by this Court for determinationof the following substantial question of law: “Whether on the facts and circumstances of the case, theorder passed by the CIT, Faridabad under Section 154 ofthe Income-tax Act, 1961, subsequent to the order underSection 263, was not within the provisions of Section 154,in view of Apex Court’s judgment in the case of ITO vs.Bombay Dyeing & Mfg.Co.Ltd. (34-ITR-143)” 3.The facts, in brief, necessary for adjudication as narratedin the appeal, are that the dispute herein relates to six assessmentyears, i.e. 1994-95 to 1999-2000, in respect of an individual. Inresponse to notice issued under Section 148 of the Act, the assesseefiled his returns relating to the aforesaid assessment years whereinhe had calculated interest received on the amount of enhancedcompensation, on accrual basis. The returns were, however, later onrevised by taking the said interest on receipt basis. Assessments forall the above said assessment years were completed by a commonorder dated 22.3.2002 and the income as returned by the assesseewas accepted except for assessment year 1999-2000 in whichagricultural income was taken at Rs. 30,000/- against nil agriculturalincome declared by the assessee. In the wake of the passing of thesaid order, an order under Section 154 of the Act was passed on28.3.2002 whereby an amount of Rs. 9,01,153/- was determined tobe refundable to the assessee. Thereafter, the Commissioner ofIncome Tax, Faridabad [for short “the CIT”], having observed that theorders dated 22.3.2002 and 28.3.2002 passed by the assessingofficer were erroneous and prejudicial to the interests of the revenue,cancelled the same vide order dated 23.3.2004 in exercise of itspower under Section 263 of the Act. The order dated 23.3.2004 was further rectified by the CIT by order dated 31.3.2005 and a directionwas issued to the assessing officer to pass assessment orders inrespect of the interest payable on the amount of enhancedcompensation, on actual receipt basis in the year of receipt fromHUDA. The relevant observations are as under: further rectified by the CIT by order dated 31.3.2005 and a directionwas issued to the assessing officer to pass assessment orders inrespect of the interest payable on the amount of enhancedcompensation, on actual receipt basis in the year of receipt fromHUDA. The relevant observations are as under: “It has been brought to my notice that during the courseof proceedings before the AO consequent upon the orderu/s 263 it came to light that he assessee had receivedtotal amount of interest of Rs. 1,15,31,770/- pertaining tothe period from 15[th] March 1989 to 15[th] August, 1998relevant to the assessment year 1989-90 to 1999-2000as against the total interest on enhanced compensationshown at Rs. 9,37,888/- (i.e. 1/5[th] of interest of Rs.46,89,444/-). When the total amount of interest of Rs.1,15,31,770/- is proposed to be bifurcated on year to yearbasis it is seen that the interest of Rs. 50,88,357/-pertaining to the assessment year 1989-90 to 1993-94remained untaxed in view of the fact that the assesseehas not filed returns of income for the assessment years1990-91 to 1999-2000 on year to year accrual basis. Theu/s 263 was passed based on the facts on the date oforder available on record but as of now keeping theinterest income of Rs. 1,15,31,770/- in view, it is apparentfrom the records that the assessee has not made a fulland true disclosure of his income. Considering thesefacts and the judicial pronouncements, the income needsto be assessed on actual receipt basis and not on accrual basis. With a view to amend the order u/s 263, a noticeu/s 154 was given to the assessee on 31.3.2005. Inresponse to which Sh. Raj Karan Jakhar, CA along withSh. Y.P. Bahl, C.A., and Sh. Madan Mohan s/o assesseeappeared and filed the written reply which is placed onrecord. In the said reply, the counsel for the assesseehas submitted that the assessments of the assesseeshould be completed on accrual basis only as theassessee has declared the whole amount of interestreceived on enhanced compensation without anyconcealment. As already stated, the assessee hasdeclared the sum of Rs. 9,37,888/- for the assessmentyears 1994-95 to 1999-2000 against the actual receipt ofRs. 1,15,31,770/- on account of interest of delayedpayment of enhanced compensation. The contention ofthe assessee is, therefore, found to be incorrect as theassessee has not made a full and true disclosure of hisincome in the assessment years i.e. 1990-91 to 1999-2000 in keeping with the concept of accrual on year toyear basis. It is important to rely on the judgment of theHon’ble Madras High Court in the case of CIT vs.Govindarajula Chetty 87-ITR 22 wherein it was held bythe said High Court and subsequently approved by theHon’ble Supreme Court in 165 ITR 231 that theassessibility of income on accrual basis or on receiptwould depend on the basis of the method of accountingemployed by the assessee and, therefore, the interest on enhanced compensation is taxable on receipt basis incase where the assessee maintained no regular books ofaccounts and the same is taxable on accrual where theassessee maintained his accounts on mercantile basis.The assessee is agriculturist and during the relevantperiod did not employ any method of account.Considering the facts and circumstances mentionedabove, the assessing officer is directed to pass theassessment orders in respect of the interest on enhancedcompensation on actual receipt basis in the year ofreceipt of interest from the HUDA. The order passed u/s263 on 23.3.2004 stands amended to this extent.” enhanced compensation is taxable on receipt basis incase where the assessee maintained no regular books ofaccounts and the same is taxable on accrual where theassessee maintained his accounts on mercantile basis.The assessee is agriculturist and during the relevantperiod did not employ any method of account.Considering the facts and circumstances mentionedabove, the assessing officer is directed to pass theassessment orders in respect of the interest on enhancedcompensation on actual receipt basis in the year ofreceipt of interest from the HUDA. The order passed u/s263 on 23.3.2004 stands amended to this extent.” 4. Assessment under Section 143(3) of the Act in respect ofthe above assessment years was completed by the assessing officeron 31.3.2005 at an income of Rs. 68,43,803/- and Rs. 47,67,968/- forthe assessment years 1995-96 and 1999-2000 respectively, and atnil plus agricultural income relating to remaining four assessmentyears, keeping in view the directions of the CIT in the orders passedunder Sections 263 and 154 of the Act. 5.Appeal carried at the instance of the assessee before theCommissioner of Income Tax (Appeals) [for short “the CIT(A)”],challenging the order of the assessing officer was dismissed videorder dated 4.1.2006. The Tribunal, however, accepted the appeal ofthe assessee by an order which is the subject matter of the presentappeal. 6.We have heard learned counsel for the parties and haveperused the record. 7.Learned counsel for the Revenue submitted that recourseto exercise of powers under Section 154 of the Act by the CIT in itsorder passed under Section 263 of the Act, was justified whereas theTribunal has held contrary, which is unsustainable in law. Learnedcounsel submitted that by invoking jurisdiction under Section 154while rectifying the order under Section 263, the CIT had directedthat the interest which was received by the assessee on theenhanced amount of compensation was taxable on receipt basis andnot on accrual basis which was originally done in the order passedunder Section 263 of the Act. On the other hand, learned counsel forthe respondent supported the order of the Tribunal and submittedthat there is no error of law in the said order and, thus, no scope forinterference therewith by this Court. 8.We have given our thoughtful consideration to thesubmissions and find substantial force in the submissions made bythe counsel for the Revenue. 9.Section 154 of the Act deals with rectification of mistake apparent on the face of the record. The relevant provision thereof,i.e. sub-section (1) of the said Section is reproduced as under: “154. (1) With a view to rectifying any mistake apparent from the record an income tax authority referred to insection 116 may- (a) amend any order passed by it under the provisions of this Act; (b) amend any intimation or deemed intimation under sub-section (1) of section 143.” 10. A Full Bench of this Court in Commissioner of Income-Tax v. Smt. Aruna Luthra, (2001) 252 ITR 76, while discussing thescope of Section 154 of the Act had held as under: “The power given to the authority is wide. It can correct“any mistake” provided it is “apparent from the record”.The first question that arises for consideration is-when amistake can be said to be apparent from the record? The plain language of the provision suggests that themistake should be apparent. It must be patent. It mustappear ex facie from the record. It must not be a merepossible view. The issue should not be debatable. (a) amend any order passed by it under the provisions of this Act; (b) amend any intimation or deemed intimation under sub-section (1) of section 143.” 10. A Full Bench of this Court in Commissioner of Income-Tax v. Smt. Aruna Luthra, (2001) 252 ITR 76, while discussing thescope of Section 154 of the Act had held as under: “The power given to the authority is wide. It can correct“any mistake” provided it is “apparent from the record”.The first question that arises for consideration is-when amistake can be said to be apparent from the record? The plain language of the provision suggests that themistake should be apparent. It must be patent. It mustappear ex facie from the record. It must not be a merepossible view. The issue should not be debatable. Mr. Sawhney contended that when the view taken byan authority is ex facie contrary to the decision of thejurisdictional High Court of a superior court, the casewould fall within the mischief of section 154. However,Mr. Bansal submitted that while deciding a matter, anauthority cannot anticipate the view that might be takenby the High Court or the Supreme Court on a subsequentdate. If at the time of the passing of the order, theauthority takes a particular view, which is not contrary tothe existing interpretation of law, the provision of section154 cannot be invoked. Apparently, the argument of Mr. Bansal appears to beattractive. If the issue of error in the order is to beexamined only with reference to the date on which it waspassed, it may be possible to legitimately contend that itwas legal on the date of its passing. Thus, the provision of section 154 is not applicable. However, such a viewshall be possible only if the provisions were to providethat the error has to be seen in the order with referenceto the date on which it was passed. Such words are notthere in the statute. Resultantly, such a restriction cannotbe introduced by the court. Thus, the contention raisedcounsel for the assessee cannot be accepted.” 11.Adverting to the factual matrix in the present case, theinterest received by the assessee on the enhanced amount ofcompensation was taxable in the year of receipt unless the assesseejustified and showed that the method of accountancy followed wasmercantile system and that he was declaring the interest on accrualbasis in the returns filed for the assessment years from 1989-90 to1999-2000. 12. Accordingly, we are of the view that the CIT was right ininvoking the provisions of Section 154 of the Act and rectifying itsearlier order passed under Section 263 of the Act. The decision tothe contrary taken by the Tribunal is not sustainable in law.Consequently, the appeal is allowed and the substantial question oflaw is answered in favour of the Revenue. The matter is remandedto the Tribunal for decision afresh on merit in accordance with law. (AJAY KUMAR MITTAL) JUDGE (ADARSH KUMAR GOEL) ACTING CHIEF JUSTICE