D.b.income Tax Appeal v. M/S Historic Resort Hotels

1 D.B.INCOME TAX APPEAL NO.17/2012Commissioner of Income Tax, Udaipurv.M/s Historic Resort Hotels .. Date of Order ::9[th] May 2012. HON’BLE MR. JUSTICE DINESH MAHESHWARIHON’BLE MR. JUSTICE KAILASH CHANDRA JOSHI Mr.K.K.Bissa, for the appellant <<>> BY THE COURT: This income-tax appeal by the revenue under Section 260-A ofthe Income Tax Act, 1961 (‘the Act’) is directed against the judgmentand order dated 09.12.2011 as passed by the Income Tax AppellateTribunal, Jodhpur Bench, Jodhpur (‘the ITAT’) in AppealNo.210/JU/2010 relating to the assessment year 2000-01. The revenue seeks to maintain this appeal on the question asto whether the ITAT has rightly affirmed the order dated 11.01.2010whereby the Commissioner of Income Tax (Appeals), Udaipur ['theCIT(A)'] set aside the rectification order as passed by the AssessingOfficer ('the AO') on 30.03.2007 under Section 154 of the Act. The relevant facts and background aspects could be noticed inbrief in the following: The income tax return as filed by the assessee, engaged in hotel business, for the assessment year 2000-01 was processed by the AO and the assessment was completedwhile taking the income at Rs.1,00,32,848/- which was reduced to'Nil' after setting off the unabsorbed business losses anddepreciation pertaining to the earlier assessment years 1993-94 and1994-95. The revenue, however, asserted that upon scrutiny of thereturn, the assessee was found to have filed every detail for theclaim of depreciation for the current assessment year i.e., 2000-01and quantified it for Rs.2,37,04,835/- but the same was not claimedin the computation against the total income; and instead, a set offwas claimed towards unabsorbed business losses and depreciationof the earlier assessment years. The AO observed that as per theprovisions of Section 32 (2) of the Act, the current year'sdepreciation was required to be set off first from the total incomebefore setting off the unabsorbed losses or unabsorbed depreciationof the earlier years; and the same having not been done in theassessee's case for the assessment year 2000-01, the same was amistake apparent from the record. The assessee filed a reply to thenotice so served contending against the stand of the Departmentwith reference to Sections 32 and 34 of the Act and with referenceto the decision of the Hon'ble Supreme Court in the case of CIT Vs.Mahendra Mills Ltd.: 243 ITR 56. It was also asserted that amendment to Section 32 ibid. wherein the effect of the judgment inMahendra Mills (supra) was sought to be nullified and it was mademandatory that depreciation must be allowed in the current yeareven if not claimed, was not applicable to the present case as it wasapplicable from the assessment year 2002-03. The learned AO in his order dated 30.03.2007 noticed thebackground aspects about the assessment earlier having beencompleted and the opinion of the Department and then, reproducedthe submissions as made by the assessee in response to the noticeunder Section 154 of the Act and, thereafter, without any discussion,simply stated that the contentions of the assessee were not tenableand hence were rejected. The AO, thereafter, proceeded to re-compute the income in the manner that the total income of theassessee was taken at Rs.1,00,32,848/- wherefrom the currentyear's depreciation to the extent of profit was deducted leading tothe 'Nil' income; and the assessee was allowed to carry forward theunabsorbed depreciation to the extent of Rs.1,36,71,987/-(Rs.2,37,04,835 – Rs.1,00,32,848). It is noticed that earlier theassessee had claimed setting off for unabsorbed business lossesand depreciation of the earlier assessment years 1993-94 and 1994-95 mainly for the reason that such unabsorbed components wouldhave otherwise lapsed in the subsequent assessment years 2001-02 and 2002-03 because the unabsorbed losses could be carriedforward upto 8 assessment years and then, for the nextassessment year's records being not available. Aggrieved of the aforesaid order dated 30.03.2007 as passedby the AO under Section 154 of the Act, the assessee preferred anappeal that was allowed by the CIT(A) in the order dated11.01.2010 with the observations, inter alia, that the AO had notgiven any finding as to why the submissions of the assessee werenot acceptable; and that the assessee having not claimeddepreciation for the current year, it was not known as to how theearlier assessment could be said to be suffering from a mistakeapparent from the record rectifiable under Section 154 of the Act.The learned CIT(A) also relied upon the decision in Mahendra Millscase (supra) and found that amendment to Section 34 of the Actcould not be applied to the assessment in question for the year2000-01. The CIT(A) observed and held as under:- “2.3 Decision. I have considered the submissions of the learned A/R. vis-avis the findings of the A.O. given the order under appeal. Ongoing through the order, it is seen that except the findings thatthe contention of the assessee is not tenable, the A.O. has notgiven any finding as to why the submissions of the appellant werenot acceptable. It is a fact admitted by the A.O. in the order thatthe appellant has not claimed any depreciation in the computationof total income. Since the appellant has not claimed anydepreciation, it is not known how it can be said that it is a mistakeapparent from the record and is rectifiable under section 154 of the Act. Further, on going through the decision of the Hon'bleSupreme Court relied upon by the learned A/R., it is seen thatthe said decision is squarely applicable in the case of theappellant. Further, the amendment in section 32 of the Act to theeffect that it was mandatory from the Asstt.year 2002-03 thatdepreciation must be allowed even though not claimed, cannotbe made applicable in the case of the appellant as theassessment under consideration is 2000-01. After having considered all the facts and circumstances ofthe case of the appellant as discussed above, the order passedby the A.O. under section 154 allowing the current year'sdepreciation deserves to be cancelled and I order accordingly.” The above-referred order dated 11.01.2010 as passed by theCIT(A) was challenged by the revenue in appeal before the ITATthat has been decided by the impugned order dated 09.12.2011.The revenue asserted before that ITAT that Section 32 ibid. had aretrospective effect and, therefore, the current year's depreciationwas mandatorily required to be taken into account whether theassessee had claimed the same or not. The ITAT, however, foundthe matter not covered under Section 154 of the Act as being not ofany mistake apparent from the record so as to be rectifiedthereunder. The ITAT also endorsed the observations of the CIT(A)that amendment to Section 32 ibid. was applicable from 01.04.2002and the decision of the Hon'ble Apex Court in Mahendra Mills (supra)applied to the case at hands for the assessment year 2000-01. TheITAT proceeded to dismiss the appeal in the following:- “2.5 We have heard both the parties. It is a settled lawthat disputable question of facts and law are not covered underthe provisions of Section 154 of the Act. The mistake apparentfrom record cannot be rectified u/s. 154 of the Act. The Hon'bleMadras High Court in CIT vs Sree Senhavalli Textile Mills (P) Ltd.,259 ITR 77 held that the interpretation of relevant provisions ofthe Act by the Hon'ble Supreme Court settles the law and unlessthe subsequent amendment is expressly given retrospective effectthe law laid down by the Hon'ble Supreme Court will remainbinding for the period prior to the amendment. The Hon'bleKerala High Court in the case of CIT vs Kerala Electric LampWorks Ltd., 261 ITR 721 held that explanation 5 of Section 32 (1)is applicable only from 01.04.2002. It was observed that if thelegislature actually intended to nullify the effect of the decision ofthe Hon'ble Apex Court rendered in the Mahendra Mill decision,the Explanation added could have been given retrospectiveeffect in express terms. On the other hand, the legislature itselfthought that the Explanation should work only prospectively anddid not intend to render the decision, rendered prior to theamendment relating to assessment year in question, nullified. Inthe instant case, the assessment year involved is 2000-01 andtherefore, the decision of Hon'ble Apex Court in the case of CITvs Mahendra Mills, 243 ITR 56 will be squarely applicable.Moreover, the issue is debatable and we therefore, hold that theld. CIT(A) was justified in canceling the order u/s.154 of the Act.” Being aggrieved of the order so passed by the ITAT, therevenue has preferred this appeal. It is submitted that the ITAT has not examined the matterobjectively and in correct perspective. It is further submitted that themistake in the earlier assessment being apparent on the face ofrecord and running contrary to the requirements of Section 32 (2) ofthe Act, the AO had rightly passed the order under Section 154 ofthe Act that called for no interference. It is further submitted thatthe decision in Mahendra Mills (supra) is not applicable to the factsof the present case and the ITAT has been in error in relying on thesame. After having heard the learned counsel for the appellant andhaving perused the material placed on record, we are not persuaded to consider interference in the order as passed by the ITATaffirming the order of the CIT(A) setting aside the order passed bythe AO in the purported exercise of powers under Section 154 of theAct. The scope and applicability of Section 154 of the Act has beendelineated by the Hon’ble Supreme Court in the case of T.SBalaram, Income-Tax Officer, Company Circle IV, Bombay vs.Volkart Brothers and others: [1971] 82 ITR 50 as under:- “...It was not open to the Income-tax Officer to go intothe true scope of the relevant provisions of the Act ina proceeding under section 154 of the Income-taxAct, 1961. A mistake apparent on the record must bean obvious and patent mistake and not somethingwhich can be established by a long drawn process ofreasoning on points on which there may conceivablybe two opinions....” Similarly, in the case ofMepco Industries Ltd. vs.Commissioner of Income-Tax and Anr.: [2009] 319 ITR 208 (SC), the Hon’ble Supreme Court has observed that,- “Before concluding, we may state that in DevaMetal Powders (P.) Ltd. v. Commissioner, Trade Tax,Uttar Pradesh, reported in [2008] (2) SCC 439, aDivision Bench of this court held that a “rectifiablemistake” must exist and the same must be apparentfrom the record. It must be a patent mistake, which isobvious and whose discovery is not defendant onelaborate arguments. Similarly, in the case ofMepco Industries Ltd. vs.Commissioner of Income-Tax and Anr.: [2009] 319 ITR 208 (SC), the Hon’ble Supreme Court has observed that,- “Before concluding, we may state that in DevaMetal Powders (P.) Ltd. v. Commissioner, Trade Tax,Uttar Pradesh, reported in [2008] (2) SCC 439, aDivision Bench of this court held that a “rectifiablemistake” must exist and the same must be apparentfrom the record. It must be a patent mistake, which isobvious and whose discovery is not defendant onelaborate arguments. To the same effect is the judgment of thiscourt in the case of Commissioner of Central Excise,Calcutta v. A.S.C.U. Ltd. [2003] 151 ELT 481, whereinit has been held that a “rectifiable mistake” is amistake which is obvious and not something whichhas to be established by a long drawn process ofreasoning or where two opinions are possible.Decision on debatable point of law cannot be treatedas “mistake apparent from the record”. In the present case, the questions as to whether theassessee is entitled to get the current year depreciation forassessment year 2000-01 even if it has not been claimed; or as towhether amendment to Section 32 of the Act in 2002-03 has aprospective effect or a retrospective effect on the application ofcurrent year’s depreciation and unabsorbed business losses anddepreciation for the purpose of computation of Income tax, hadbeen the disputable issues and had been of such questions of lawwhich required further deliberation and discussion. Clearly, in viewof the principles expounded and explained in T.S Balaram andMepco Industries (supra), such aspects did not fall in the category ofmistake apparent from the record and, therefore, could not havebeen dealt with under Section 154 of the Act. In the aforesaid view of the matter, we find the ITAT fullyjustified in affirming the order as passed by the CIT(A) and inholding that the assessment order could not have been taken up formodification in the name of rectification under Section 154 of theAct. There was no occasion for applying Section 154 of the Act in /Mohan/ the present case as allowing of set off in the original assessment could not have been considered to be that of any mistake apparent from the record. In the result, we find no substantial question of law being involved in this appeal. The appeal fails and is, accordingly, dismissed. (KAILASH CHANDRA JOSHI), J. (DINESH MAHESHWARI), J.