Ita/242/2014 Of K.k.j.foundations v. The Assistant Director Of Income Tax (Exemption), Range 4, Kochi

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE ANTONY DOMINIC &THE HONOURABLE MR. JUSTICE SHAJI P.CHALY TUESDAY, THE 8TH DAY OF SEPTEMBER 2015/17TH BHADRA, 1937 ITA.No. 242 of 2014 () ----------------------- AGAINST THE ORDER IN ITA 756/2013 of I.T.A.TRIBUNAL,COCHIN BENCH DATED27-06-2014. APPELLANT(S)/RESPONDENT/ASSESSEE: ----------------------------------------------------------- K.K.J.FOUNDATIONS, NAYANA GARDENS, POONKUTTY, ELANJI P.O., ERNAKULAM -686 665(PAN-AAATK 6120D) BY ADVS.SRI.B.ASHOK SHENOY SMT.C.G.PREETHA SRI.K.V.GEORGE SRI.P.N.RAJAGOPALAN NAIR SRI.P.S.GIREESH RESPONDENT(S)/APPELLANT/REVENUE: --------------------------------------------------------- THE ASSISTANT DIRECTOR OF INCOME TAX (EXEMPTION), RANGE 4, KOCHI - 682 018. BY ADV. SRI.P.K.R.MENON,SR. COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH, SC, FOR INCOME TAX THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 17-08-2015, THECOURT ON 08.09.2015 DELIVERED THE FOLLOWING: P.T.O. APPENDIX APPELLANT'S ANNEXURES: RESPONDENT'S ANNEXURES: NIL //TRUE COPY// P.S. TO JUDGE St/- ANTONY DOMINIC & SHAJI P. CHALY, JJ. ----------------------------------------------- I.T.A.No.242 of 2014 ----------------------------------------------- Dated this the 8[th] day of September, 2015 JUDGMENT Shaji P. Chaly, J. This appeal is filed by the assessee against the order dated 27.06.2014 of the Income Tax Appellate Tribunal,Cochin Bench in I.T.A.No.756/Coch/2013 for the assessmentyear 2006-07. By this order, the Appellate Tribunal hasallowed the appeal filed by the Revenue and held that therewas no mistake apparent from the record in the order of theAssessing Officer so as to seek rectification under Sec.154 ofthe Income Tax Act. 2.Brief facts required for the disposal of the appealare as follows: The assessee is a Trust registered under Sec.12AA of theIncome Tax Act, 1961 (hereinafter called “the Act”). Assesseefiled its return of income for the assessment year 2006-07 on31.10.2008, declaring nil return. Notice under Sec.143(2) wasissued and since there was no response, notice under Sec.142 I.T.A.No.242 of 2014 (1) of the Act was issued. In response to the same, assesseeappeared and produced the books of accounts and otherrelevant documents called for. Even though opportunity wasprovided to produce the required documents on variousoccasions, neither the appellant nor its authorizedrepresentatives had furnished the relevant documents of thefunds being corpus, apart from a letter which merely indicatedthe transfer of the loan funds to the capital and did not specifythe actual utilization of the funds in the hands of the Trust. 3.The Assessing Authority, after taking into accountthe facts and circumstances, found that the assessee Trust hasno corroborative evidence to prove that the donation receivedby it was a capital donation and therefore the entire receipt ofthe Trust during the assessment year in question was treatedas its income and the claim of the appellant for exemptionunder Sec.11 of the Act was rejected and thereupon theassessment was completed accordingly. 4.Aggrieved by the order, appellant had chosen to file an application for rectification under Sec.154 of the Act,seeking to rectify the order of assessment, contending that outof the gross income of Rs.2,66,50,000/- an amount of I.T.A.No.242 of 2014 3.The Assessing Authority, after taking into accountthe facts and circumstances, found that the assessee Trust hasno corroborative evidence to prove that the donation receivedby it was a capital donation and therefore the entire receipt ofthe Trust during the assessment year in question was treatedas its income and the claim of the appellant for exemptionunder Sec.11 of the Act was rejected and thereupon theassessment was completed accordingly. 4.Aggrieved by the order, appellant had chosen to file an application for rectification under Sec.154 of the Act,seeking to rectify the order of assessment, contending that outof the gross income of Rs.2,66,50,000/- an amount of I.T.A.No.242 of 2014 Rs.84,00,000/- was received during the previous year ending31.03.2005 from Mr. K.K. Joseph as loan and Rs.1,62,50,000/-was also received as loan from K.K. Joseph during the currentyear. Further, it was contended that vide book entry dated31.03.2006, Rs.1,01,00,000/-was shown as corpus donation,and that the appellant vide his letter dated 07.01.2009 hadraised objection against the treatment of the same as theincome of the Trust by the Assessing Officer. 5.Aggrieved by the order passed by the AssessingOfficer, the appellant preferred appeal before theCommissioner of Income Tax (Appeals) and by Annexure-Corder, the Commissioner allowed the appeal partly and heldthat the treatment of Rs.1,00,00,000/- as corpus donation inthe hands of the assessee, since the trustee has given letter ofconsent that the amount of loan earlier given should be treatedas corpus donation, this amount that was converted from loanaccount to corpus donations even though by way of book entrywould fall in the category of voluntary contributions asenvisaged under Sec.11(1)(d) of the Income Tax Act andhence should not be included in the total income or receipts ofthe assessee. Since the source of introduction of initial loan I.T.A.No.242 of 2014 that was converted into corpus donation was also treated asexplained, the addition made by the Assessing Officer bytreating this receipt as income for the purpose of grossreceipts was held not correct and thereby the Assessing Officerwas directed to exclude the corpus donation from the totalincome. 6.Aggrieved by the said order, Revenue preferredappeal before the Appellate Tribunal. The Tribunal, withoutgoing into the merits of the case, entered into a finding that incase the assessee was aggrieved against the decision of theAssessing Officer, the remedy de facto did not lie before theAssessing Officer. Holding so, it was found that there was nomistake apparent from record in the order of the AssessingOfficer so as to seek the rectification under Sec.154 of the Actand therefore the appeal filed by the Revenue was allowed. Itis thus aggrieved by the said order, this appeal was preferredby the assessee. Aggrieved by the said order, Revenue preferred 7.Heard the learned counsel for the appellant and thelearned Standing Counsel for the Revenue. 8.According to us, the whole issue revolves roundSec.154 of the Income Tax Act whereby a remedy by way of I.T.A.No.242 of 2014 rectification of an order is provided. In order to appreciate thelaw involved in the case, it is only proper that Sec.154 of theAct is extracted hereunder: “154. Rectification of mistake (1) With a view to rectifying any mistakeapparent from the record an income-tax authorityreferred to in section 116 may,-- (a) amend any order passed by it under theprovisions of this Act; (b) amend any intimation or deemed intimationunder sub-section (1) of section 143; (c) amend any intimation under sub-section (1) of section 200A. 7.Heard the learned counsel for the appellant and thelearned Standing Counsel for the Revenue. 8.According to us, the whole issue revolves roundSec.154 of the Income Tax Act whereby a remedy by way of I.T.A.No.242 of 2014 rectification of an order is provided. In order to appreciate thelaw involved in the case, it is only proper that Sec.154 of theAct is extracted hereunder: “154. Rectification of mistake (1) With a view to rectifying any mistakeapparent from the record an income-tax authorityreferred to in section 116 may,-- (a) amend any order passed by it under theprovisions of this Act; (b) amend any intimation or deemed intimationunder sub-section (1) of section 143; (c) amend any intimation under sub-section (1) of section 200A. (1A) Where any matter has been considered anddecided in any proceeding by way of appeal or revisionrelating to an order referred to in sub-section (1), theauthority passing such order may, notwithstandinganything contained in any law for the time being inforce, amend the order under that sub-section inrelation to any matter other than the matter which hasbeen so considered and decided. (2) Subject to the other provisions of thissection, the authority concerned-- (a) may make an amendment under sub-section(1) of its own motion, and (b) shall make such amendment for rectifyingany such mistake which has been brought to its noticeby the assessee (or by the deductor), and where theauthority concerned is the Commissioner (Appeals), by the (Assessing) Officer also. (3) An amendment, which has the effect ofenhancing an assessment or reducing a refund orotherwise increasing the liability of the assessee (orthe deductor), shall not be made under this sectionunless the authority concerned has given notice to theassessee (or the deductor) of its intention so to do andhas allowed the assessee (or the deductor) areasonable opportunity of being heard. (4) Where an amendment is made under thissection, an order shall be passed in writing by theincome-tax authority concerned. (5) Where any such amendment has the effectof reducing the assessment or otherwise reducing theliability of the assessee or the deductor, the AssessingOfficer shall make any refund which may be due tosuch assessee or the deductor. (6) Where any such amendment has the effectof enhancing the assessment or reducing a refund(already made or otherwise increasing the liability ofthe assessee or the deductor, the Assessing Officershall serve on the assessee or the deductor, as thecase may be) a notice of demand in the prescribedform specifying the sum payable, and such notice ofdemand shall be deemed to be issued under section156 and the provisions of this Act shall applyaccordingly. (7) Save as otherwise provided in section 155 orsub-section (4) of section 186, no amendment underthis section shall be made after the expiry of four years(from the end of the financial year in which the order sought to be amended was passed). (8) Without prejudice to the provisions of sub-section (7), where an application for amendment underthis section is made by the assessee (or by thedeductor) on or after the 1[st] day of June, 2001 to anincome tax authority referred to in sub-section (1), theauthority shall pass an order, within a period of sixmonths from the end of the month in which theapplication is received by it,-- (a) making the amendment; or (b) refusing to allow the claim.” (7) Save as otherwise provided in section 155 orsub-section (4) of section 186, no amendment underthis section shall be made after the expiry of four years(from the end of the financial year in which the order sought to be amended was passed). (8) Without prejudice to the provisions of sub-section (7), where an application for amendment underthis section is made by the assessee (or by thedeductor) on or after the 1[st] day of June, 2001 to anincome tax authority referred to in sub-section (1), theauthority shall pass an order, within a period of sixmonths from the end of the month in which theapplication is received by it,-- (a) making the amendment; or (b) refusing to allow the claim.” 9.On a reading of Sec.154, what we could gather isthat rectification is provided in the Statute for the purpose ofrectification of any mistake which is apparent from the record.The Income Tax Authority referred to in Sec.116 is conferredwith the power to amend any order passed by it under theprovisions of the Act etc. etc. Therefore, the question waswhether there was any error apparent from the record so as toinvoke the power under Sec.154 of the Act. It is true that theAssessing Authority as well as the Appellate Authority haveconsidered the subject matter on merits. According to us, in amatter like this, the course open to the authorities concernedwere to consider first whether such an application wasmaintainable in law or not. That error committed by the I.T.A.No.242 of 2014 authorities was considered by the Tribunal and the Tribunalfound that there was no mistake apparent from the record soas to invoke Sec.154 of the Act. 10.The learned counsel has invited our attention to thejudgment in 'Asian Techs Ltd. v. C.I.T., Cochin' [2000 KHC846] and contended that the mistake apparent from record isnot a clerical or arithmetical error alone that comes within itspurview but it also comprehends errors which, after judiciousprobe into the record from which it is supposed to emanate arediscerned. But, after considering the factual circumstances inthe said case, this Court found that the mistake to be rectifiedmust be one apparent from the record and a decision renderedon a debatable point of law is not a mistake apparent from therecord. Further, it was held that the word “apparent” must besomething which appears to be so ex facie and it is incapableof argument or debate and therefore it follows that a decisionon a debatable point of law or fact or failure to apply the law toa set of facts which remains to be investigated cannot becorrected by way of rectification. Therefore, according to us,the said judgment would not render any assistance to thearguments advanced by the learned counsel for the appellant. I.T.A.No.242 of 2014 11.In our view, the power conferred under Sec.154 issomething akin to the power of review conferred on a CivilCourt under Sec.114 of the Code of Civil Procedure. Byinvoking the power of rectification, the ultimate conclusion of adecision cannot be changed. So also, the employment of thewords phraseologies in Sec.154 shows that by rectification itintended only to correct any mistake and amend the sameaccordingly. It is a settled proposition of law that rectificationis a process by which a mistake is set at right. It thus meanscorrecting an error which was apparent from record and notdeciding the matter over and again on merits and that therectified order does not supersede the original order butcontinues with the incorporated changes. 12.Moreover, we have come across two judgments ofthe Hon'ble Apex Court in 'S. Nagaraj v. State of Karnataka'[(1993) Supp. 4 SCC 595] and 'Ammonia SuppliesCorporation Pvt. Ltd. v. Modern Plastic Containers Pvt.Ltd.' , by which it was held in the formerjudgment that rectification of an order stems fromfundamental principle that justice is above all. It is exercisedto remove the error and not for disturbing finality. In the I.T.A.No.242 of 2014 12.Moreover, we have come across two judgments ofthe Hon'ble Apex Court in 'S. Nagaraj v. State of Karnataka'[(1993) Supp. 4 SCC 595] and 'Ammonia SuppliesCorporation Pvt. Ltd. v. Modern Plastic Containers Pvt.Ltd.' , by which it was held in the formerjudgment that rectification of an order stems fromfundamental principle that justice is above all. It is exercisedto remove the error and not for disturbing finality. In the I.T.A.No.242 of 2014 latter judgment, it was held that rectification connotessomething what ought to have been done but by error is notdone and what ought not to have been done was donerequiring rectification. Rectification, in other words, is thefailure to comply with the directions under the Act. Therefore,it is apposite and clear that the power under Sec.154 can beinvoked only to correct an error and not to disturb a concludedfinding. 13.Therefore, on a perusal of the facts, the ordersrendered by the statutory authorities and the Tribunal andappreciating the pleadings put forth, we are of the consideredopinion that the question raised for invoking Sec.154 of the Actwas a question ought to have been raised in a regular appealand the same has nothing to do with rectification of anymistake apparent from the record. The findings entered by theAssessing Authority was based clearly on facts which wassusceptible to an appeal. We also did not find any errorapparent from the record which enabled the assessee to invokethe said provision. I.T.A.No.242 of 2014 13.In the said circumstances, we do not find anyillegality or other legal infirmities in the finding entered by theAppellate Tribunal so as to invoke our jurisdiction conferredunder Sec.260A of the Income Tax Act, 1961. Appeal fails and accordingly same is dismissed. Sd/-ANTONY DOMINIC JUDGE Sd/- SHAJI P. CHALY JUDGE //true copy// P.S. to Judge St/-