Ita/485/2009 Of The Commissioner Of Income Tax v. Dhanalakshmi Bank Ltd., Trichur

IN THE HIGH COURT OF KERALA AT ERNAKULAMPRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMASWEDNESDAY, THE 14 DAY OF JULY 2021 / 23RD ASHADHA, 1943 ITA NO. 485 OF 2009 AGAINST THE ORDER IN ITA 241/2004 OF I.T.A.TRIBUNAL,COCHIN BENCH,ERNAKULAM APPELLANT/S: THE COMMISSIONER OF INCOME TAX,TRICHUR. BY ADVS.SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES)SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT/S: DHANALAKSHMI BANK LTD., TRICHURTRICHUR.BY ADVS.SRI.MOHAN PULIKKALSRI.P.BALAKRISHNAN ESRI.NARAYANAN P POTTY THIS INCOME TAX APPEAL HAVING COME UP FOR HEARING ON 14.07.2021, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: J U D G M E N T S.V. Bhatti, J. Heard learned Standing Counsel Mr.Jose Joseph and learned Advocate Mr.Mohan Pullikkal for the parties. 2.Commissioner of Income Tax, Trichur/Revenue is theappellant. The Dhanalakshmi Bank Ltd, Thrissur/assessee is the respondent. The Revenue aggrieved by the orders ofCommissioner of Income Tax (Appeals) (for short ‘CIT (Appeals)’and the Income Tax Appellate Tribunal (for short ‘Tribunal’) hasfiled the instant appeal under Section 260A of the Income TaxAct, 1961 (for short ‘the Act’). 3.The circumstances relevant for considering thesubstantial questions of law raised by the Revenue are that the Assessing Officer, on the tax return filed by the assessee for theAssessment Year 1995-96, made the assessment order underSection 143(3) of the Act. The subject matter of the appeal dealswith an issue arising under Section 154 of the Act, incidentallyby referring to the eligibility criteria under Section 36(1)(viia)of the Act. The assessee filed appeal against the order dated22.12.1997 before the CIT (Appeals) and the learnedCommissioner disposed of the appeal filed by the assessee videorder dated 07.02.2000. Thereafter, the Assistant Commissionerof Income Tax, Circle-1(1), Thrissur, issued notice under Section154 of the Act. Through the notice issued under Section 154 ofthe Act, the Assistant Commissioner proposed to withdraw theexcess deduction of Rs.80,85,991/- allowed in favour of theassessee under Section 36(1)(viia), by treating the inclusion of afew branches as rural branches by the Assessing Officer in theorder dated 22.12.1997, as an error or mistake warranting correction under Section 154 of the Act. The assessee filedobjection including the maintainability of rectification petitionfor the proposed withdrawal of a few branches from thecategory of rural branches as not maintainable under Section154 of the Act. The Assistant Commissioner, through order inAnnexure-B dated 26.03.2002, had withdrawn the excessdeduction and directed refund from the assessee. The assessee,aggrieved thereby, filed appeal before the CIT (Appeals) in I.T.A-7/R-1/TCR/CIT-V/02-03. The assessee contended that thecircumstances taken, as set out in the notice under Section 154,even on the face value thereof, do not come within the scopeand ambit of Section 154 of the Act. The CIT (Appeals) acceptedthe case of assessee and allowed the appeal. The Revenue filedappeal before the Tribunal, and the Tribunal, through order inAnnexure-D dated 19.09.2005, dismissed the appeal andconfirmed the view taken by the CIT (Appeals). Hence, the I.T.A. No.485/2009 appeal at the instance of the Revenue. 4.The Revenue raises the following substantial questions of law for our consideration: “1. Whether, on the facts and in the circumstances of the case,the Tribunal is right in law and fact in confirming the order ofCIT(A) and in interfering with the order of rectification by theAssessing Officer? I.T.A. No.485/2009 appeal at the instance of the Revenue. 4.The Revenue raises the following substantial questions of law for our consideration: “1. Whether, on the facts and in the circumstances of the case,the Tribunal is right in law and fact in confirming the order ofCIT(A) and in interfering with the order of rectification by theAssessing Officer? 2. Whether, on the facts and in the circumstances of the case ifthe four branches enumerated in the order of the AssessingOfficer (Vide paragraph 4) were excluded for being not rural asper the census of 1991 is not the inclusion of ten branchesfound to be nor rural in the very same census of 1991 an errorapparent on the face of the record rectifiable under section 154of the LT. Act? 3. Whether, on the facts and in the circumstances of the case,the Tribunal is right in law and fact in holding that "themistake alleged to be rectified under section 154 is not anapparent mistake on the face of the record and it was adebatable issue and are not the finding wrong, perverse, if theissue is viewed and understood in the correct perspective? 4. Whether, on the facts and in the circumstances of the caseand the four banks already excluded is correct and accepted by I.T.A. No.485/2009 the assessee, can the exclusion of ten more similarly situatedbanks give rise to any debate at all? 5. Whether, on the facts and in the circumstances of the caseand since fourteen of the branches have been treated alike asnon rural in a census of 1991, the Officer is right in treatingonly four of the branches as non rural and is not therectification to treat all the fourteen branches as non rural inaccordance with law?” 5.Advocate Mr.Jose Joseph contends that the definition and application of ‘rural branch’ is no more res integra in view ofthe decision of this Court in Commissioner of Income Tax v. LordKrishna Bank Ltd[1]. The assessee had included urban branchesunder the category of rural branches and claimed thededuction. The Assessing Officer was right in treating the saidmistake as a mistake warranting rectification under Section 154 of the Act. He argued that the orders of CIT (Appeals) and theTribunal are vitiated by liberal construction of Section 154 of the Act and hence, warrants interference of this Court. He1(2011) 339 ITR 606 (Ker) I.T.A. No.485/2009 prays for allowing the appeal. 6.Learned Advocate Mr. Mohan Pulickkal objects toconsideration of any of the reasons stated in the notice issuedunder Section 154 of the Act to appreciate whether the mistakepointed out by the Assistant Commissioner of Income Tax is amistake, as a matter of fact or not. According to him, thejurisdiction under Section 154 ought not to be understood withthe jurisdiction available to the Assessing Officer at the firstinstance and/or as similar to the jurisdiction conferred on theAppellate Authorities under the Act. In other words, hisargument is that the mistake desired to be rectified through theproceedings under Section 154 of the Act must be patent andthe mistake is concluded without deliberation by any of theOfficers. Juxtaposing the circumstances of the case on hand, heargues that the Assistant Commissioner has deliberated uponthe circumstances which weighed with the Assessing Officer at the first instance and how those reasons are incorrect to record a finding that such approach by the Assessing Officer comeswithin the scope of ‘mistake’ under Section 154 of the Act.Furthering his submission, he argues that this aspect of thematter is thoroughly examined by the Commissioner of IncomeTax. And upon appreciating the controversy between theassessee and the Department, the finding recorded by the CIT(Appeals) is relied on with considerable force by Mr.MohanPulikkal. To appreciate his argument, we find it contextual toreproduce the reasoning of the CIT (Appeals) in Annexure-Corder: the first instance and how those reasons are incorrect to record a finding that such approach by the Assessing Officer comeswithin the scope of ‘mistake’ under Section 154 of the Act.Furthering his submission, he argues that this aspect of thematter is thoroughly examined by the Commissioner of IncomeTax. And upon appreciating the controversy between theassessee and the Department, the finding recorded by the CIT(Appeals) is relied on with considerable force by Mr.MohanPulikkal. To appreciate his argument, we find it contextual toreproduce the reasoning of the CIT (Appeals) in Annexure-Corder: “From the facts available on record, it is not difficult to say thatthe assessing officer considered that there is a mistakeapparent from record in applying the provision of section 36(1)(viia). Therefore, the entire rectification relates misapplicationof law. Now, it is relevant to look into as to whether theassessing officer really misapplied the law or not. Here, itcannot be said with certainty that the assessing officer really committed mistake in application of the correct law as there isno Count or Tribunal decision on this point which have beenbrought to his notice. It is only question of interpretation of theword "place" which is appearing in clause (a) of explanationbelow clause (viia) of section 36(1). Since the word "place" hasnot been defined anywhere in the Act, it is very difficult to saywhat it really means. The appellant and the assessing officerbased on their own arguments have attached different meaningto the word "place". The assessing officer has given a widermeaning to the word "place" in equalising tovillage/panchayat, whereas, the appellant has given narrowedmeaning to the word "place" restricting it only to the ward.Therefore, there is interpretation involved in this case onwhich the rectification order has been passed. The mistakecannot be said as self evident apparent from record. Merelybecause some illegality involved in the interpretation of law,the rectification order cannot be resorted. The assessing officerhas definitely overstretched himself going beyond a mistakeapparent from the record while passing the rectification order.It is well settled law that the interpretation of law cannot beundertaken in the garb of rectification. The Hon'ble KeralaHigh Court in the case of CIT Vs. Ram Bahadur Thakur Ltd. (237ITR 217) held that having decided that only the amount Rs. 15lakhs was allowable as payment for vacating tenancy in I.T.A. No.485/2009 computation of capital gain, the entire TAX claim of Rs.30lakhs, cannot be allowed in an order purported to be arectification order on the ground that it made a mistake in theearlier order assuming wrongly that it has the power to restrictthe allowance to a reasonable extent. In this way I am ofopinion that such debatable issue cannot be a subject matter ofrectification order u/s 154. It is also well settled under law thatthe rectification order u/s 154 cannot be resorted to substitutethe proceedings of 148 or 263. Therefore, on the consideredfact, I hold that the rectification order passed by the assessingofficer is bad in law. Hence the assessing officer is directed tomodify the order passed u/s 154 accordingly.” 6.1The Tribunal confirmed the said finding as follows: “4. The assessee appealed to the CIT(Appeals). The CIT(Appeals)allowed the appeal of the assessee by holding that therectification order passed by the AO is bad in law, vide para 5 ofhis order, which is reproduced below: "5. From the facts available on record, it is not difficult to saythat the assessing officer considered that there is a mistakeapparent from record in applying the provisions of section36(1)(vila). Therefore, the entire rectification relatesmisapplication of law. Now. it is relevant to look into as towhether the assessing officer really misapplied the law or not. I.T.A. No.485/2009 6.1The Tribunal confirmed the said finding as follows: “4. The assessee appealed to the CIT(Appeals). The CIT(Appeals)allowed the appeal of the assessee by holding that therectification order passed by the AO is bad in law, vide para 5 ofhis order, which is reproduced below: "5. From the facts available on record, it is not difficult to saythat the assessing officer considered that there is a mistakeapparent from record in applying the provisions of section36(1)(vila). Therefore, the entire rectification relatesmisapplication of law. Now. it is relevant to look into as towhether the assessing officer really misapplied the law or not. I.T.A. No.485/2009 Here, it can not be said with certainty that the assessing officerreally committed mistake in application of the correct law asthere is no Court or Tribunal decision on this point which havebeen brought to his notice. It is only question of interpretationof the word "place" which is appearing in clause (a) ofexplanation below clause (viia) of section 36(1). Since the word"place" has not been defined anywhere in the Act, it is verydifficult to say what is really mean s. The appellant and theassessing officer based on their own arguments have attacheddifferent meaning to the word "place". The assessing officerhas given a wider meaning to the word "place" in equalizing tovillage/panchayat, whereas the appellant has given narrowedmeaning to the word "place" restricting it only to the ward.Therefore, there is interpretation involved in this case onwhich the rectification order has been passed. The mistakecannot be said as self evident apparent from record. Merelybecause some illegality involved in the interpretation oflaw.the rectification order can not be resorted. The assessingofficer has definitely overstretched himself going beyond amistake apparent from the record while passing therectification order. It is well settled law that the interpretationof law cannot be undertaken in the garb of rectification. TheHon'ble Kerala High Court in the case of CIT v. Ram BahadurThakur Ltd. (237-ITR-217) held that having decided that onlythe amount of Rs. 15 lakhs was allowable as payment forvacating tenancy in computation of capital gain, the entire claim of Rs.30 lakhs cannot be allowed in an order purportedto be a rectification order on the ground that it is made amistake in the earlier order assuming wrongly that it has thepower to restrict the allowance to a reasonable extent. In thisway, I am of the opinion that such debatable issue cannot be asubject matter of rectification under sec. 154. It is also wellsettled law that the rectification order u/s 154 can not beresorted to substitute the proceedings of 148 or 263. Therefore,on the considered fact, I hold that the rectification orderpassed by the assessing officer is bad in law. Hence, theassessing officer is directed to modify the order passed u/s 154accordingly." Being aggrieved by the order of the CIT(Appeals), the Revenueis in appeal before us. 5. We have heard the ld.DR for the Revenue and the ld. AR forthe Assessee. We have carefully considered the facts of thepresent case and have also gone through the original order ofthe A.O. and the order under sc.154. In our considered opinion,the mistake alleged to be rectified under sec.154 is not anapparent mistake on the face of the record and it was adebatable issue. Therefore, in our considered opinion, theCIT(Appeals) has rightly held that the order passed by the AOunder sec. 154 is bad in law. We do not find any reason to interfere with the order of the CIT(Appeals) and we confirm hisorder.” 7.Advocate Mohan Pulikkal relies on the judgment of this Court in K K J Foundations v. Assistant Director of Income Tax(Exemption)[2]in support of his argument that power/jurisdictionunder Section 154 of the Act is illegal or unavailable in theadmitted circumstances of the case. The operative portionreads as follows: interfere with the order of the CIT(Appeals) and we confirm hisorder.” 7.Advocate Mohan Pulikkal relies on the judgment of this Court in K K J Foundations v. Assistant Director of Income Tax(Exemption)[2]in support of his argument that power/jurisdictionunder Section 154 of the Act is illegal or unavailable in theadmitted circumstances of the case. The operative portionreads as follows: “9. On a reading of section 154, what we could gather is thatrectification 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 section 116 isconferred with the power to amend any order passed by itunder the provisions of the Act, etc., etc. Therefore, thequestion was whether there was any error apparent from therecord so as to invoke the power under section 154 of the Act. Itis true that the assessing authority as well as the appellateauthority have considered the subject matter on the merits.According to us, in a matter like this, the course open to the authorities concerned were to consider first whether such anapplication was maintainable in law or not. That errorcommitted by the authorities was main considered by theTribunal and the Tribunal found that there was no mistakeapparent from the record so as to invoke section 154 of the Act.10. The learned counsel has invited our attention to thejudgment in Asian Techs Ltd. v. CIT [2000] 243 ITR 262 (Ker);[2000] KHC 846 and con tended that the mistake apparent fromrecord is not a clerical or arithmet ical error alone that comeswithin its purview but it also comprehends errors which, afterjudicious probe into the record from which it is sup posed toemanate are discerned. But, after considering the factualcircumstances in the said case, this court found that themistake to be rectified must be one apparent from the recordand a decision rendered on a debat able point of law is not amistake apparent from the record. Further, it was held that theword "apparent" must be something which appears to be so exfacie and it is incapable of argument or debate and, therefore, itfollows that a decision on a debatable point of law or fact orfailure to a set of facts which remains to be investigated cannotbe corrected by apply the law way of rectification. Therefore,according to us, the said judgment would not render anyassistance to the arguments advanced by the learned coun selfor the appellant. 11. In our view, the power conferred under section 154 issomething akin to the power of review conferred on a civilcourt under section 114 of the Code of Civil Procedure. Byinvoking the power of rectification, theultimate conclusion of adecision cannot be changed. So also, the employ ment of thewords phraseologies in section 154 shows that by rectificationit intended only to correct any mistake and amend the sameaccordingly. It is a settled proposition of law that rectificationis a process by which a mis take is set at right. It thus meanscorrecting an error which was apparent from record and notdeciding the matter over and again on the merits and that therectified order does not supersede the original order butcontinues with the incorporated changes.12. Moreover, wehave come across the two judgments of the hon'ble apex courtin S. Nagaraj v. State of Karnataka [1993] (Suppl.) 4 SCC 595 andAmmonia Supplies Corporation Pvt. Ltd. v. Modern PlasticContainers Pvt. Ltd. [1998] 94 Comp Cas 310 (SC); AIR 1998 SC3153, by which it was held in the former judgment thatrectification of an order stems from the fundamental principlethat justice is above all. It is exercised to remove the error andnot for disturbing finality. In the latter judgment, it was heldthat rectification connotes something what ought to have beendone but by error is not done and what ought not to have beendone was done requiring rectification. Rectification, in other words, is the failure to comply with the directions under theAct. Therefore, it is apposite and clear that the power undersection 154 can be invoked only to correct an error and not todisturb a concluded finding.” 8.We have noted the submission of the learned counsel appearing for the parties, perused the record and the judgmentrelied on by the assessee. The Assistant Commissioner IncomeTax initiated proceedings under Section 154 of the Act to rectifyan alleged mistake in categorization of branches by the assesseefor the purpose of bad debts under Section 36(1)(viia) of the Act.It is contextual to note that the assessment order wasquestioned by the assessee before CIT (Appeals) and, as notedsupra, the appeal was disposed of in favour of the assessee. TheRevenue admittedly did not have objection on details of ruralbranches categorised by the assessee. Now, the procedureunder Section 154 is resorted to for rectifying the error. Now,the question for deliberation of this Court is whether, from the I.T.A. No.485/2009 circumstances stated by the Assistant Commissioner, thejurisdiction under Section 154 of the Act could be availed or not.The process of deliberation for appreciating the mistake andrecording a finding against the assessee has been examined indetail both by the Commissioner of Income Tax and theTribunal. The Revenue, in the instant appeal, could notconvince this Court that the mistake proposed to be rectified byissuing show-cause notice dated 23.02.2000 comes within thescope of Section 154. In our considered view, the mistake mustbe apparent on the face of the record and a mistake which isappreciated upon due deliberation and consideration of verysame circumstances for recording a change in opinion/conclusion does not come within the ambit of Section 154 of theAct. We are in complete agreement with the findings recordedby CIT(Appeals) and the Tribunal. I.T.A. No.485/2009 The questions are answered against Revenue and in favourof the assessee. Appeal fails, dismissed accordingly. Sd/- S.V.BHATTIJUDGESd/- BECHU KURIAN THOMASJUDGE I.T.A. No.485/2009 PETITIONER ANNEXURE ANNEXURE A ANNEXURE B ANNEXURE C ANNEXURE D APPENDIX OF ITA 485/2009 TRUE COPY OF THE ORDER OF THE ASSESSING OFFICER U/S.143(3) OF THE I.T.ACT, DATED 22.12.1997. TRUE COPY OF THE ORDER OF THE ASSESSING OFFICER U/S.154 OF THE I.T.ACT DATED 26.03.2002. TRUE COPY OF THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) IN ITA NO.7/RI/TCR/CIT-V/02-03 DATED 01.12.2003. TRUE COPY OF THE ORDER OF THE INCOME TAX APPELLATE TRIBUNAL IN I.T.A.NO.241/COCH/2004 DATED 19.09.2005.