Ita/64/2015 Of The Commissioner Of Income Tax v. Sri.a.younuskunju

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE THE ACTING CHIEF JUSTICE MR.ANTONY DOMINIC & THE HONOURABLE MR. JUSTICE DAMA SESHADRI NAIDU THURSDAY, THE 11TH DAY OF JANUARY 2018 / 21 ST POUSHA, 1939 ITA.No. 64 of 2015 AGAINST THE ORDER/JUDGMENT IN ITA 215/2014 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 05-09-2014 APPELLANT/RESPONDENT: THE COMMISSIONER OF INCOME TAX, TRIVANDRUM. BY ADVS.SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT/APPELLANT/APPELLANT/ASSESSEE: YOUNUS KUNJU, YOUNUS CASHEW INDUSTRIES, VADAKKEVILA, KOLLAM. R1 BY ADV. SRI.S.ARUN RAJ R1 BY ADV. SMT.C.T.SUJA THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 11-01-2018, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: IT APPEAL NO.64 OF 2015 APPENDIX ANN.ATRUE COPY OF THE ORDER U/S 143(3) OF THE INCOME TAX ACT, 1961 OF THEASSESSING OFFICER DTD 28.3.1988. ANN.BTRUE COPY OF THE ORDER U/S 154 OF THE INCOME TAX ACT, 1961 OF THE DEPUTY COMMISSIONER OF INCOME TAX, C-1, KOLAM DTD.18.7.2006. ANN.C TRUE COPY OF THE ORDER U/S 154 OF THE INCOME TAX ACT, 1961 OF THE DEPUTY COMMISSIONER OF INCOME TAX, C-1, KOLLAM DTD.27.9.2006. ANN.D TRUE COPY OF THE ORDER CIT(A)-III, TRIVANDRUM IN ITA NO.122-Q/06-07/CIT(A)/TVM, DTD.8.12.2006. ANN.E TRUE COPY OF ORDER OF INCOME TAX APPELLATE TRIBUNAL, COCHIN IN ITA NO.215/COCH/2007 DTD.26.12.2009. ANN.F TRUE COPY OF ORDER OF THIS COURT IN ITA NO.302 OF 2010 DTD.3.12.2013. ANN.G TRUE COPY OF ORDER OF THE INCOME TAX APPELLATE TRIBUNAL, COCHIN IN ITA NO.215/COCH/2007, FOR THE AY 1985-86 DTD.5.9.2014. TRUE COPY P.S.TO JUDGE Antony Dominic & Dama Seshadri Naidu, JJ. ------------------------------------------------- I. T. Appeal No.64 of 2015 -------------------------------------------------- Dated this the 11[th] day of January 2018 JUDGMENT Dama Seshadri Naidu, J Facts: Complex and convoluted are the facts. So we will set themout a little more elaborately, as pleaded by the assessee. 2. Younskunju of Youns Cashew Industries, Kollam, is an income tax assessee. For the assessment year 1985-86, he filedthe Return of Income on 31.09.1986, declaring a total income of Rs.93,960/-. The Assessment Officer (“AO”) completed theassessment on 28.03.1988 under section 143(3) of the IncomeTax Act (“the Act”). He arrived at a total income ofRs.47,43,890/- and demanded, through Annexure A, tax ofRs.1,39,71595/-, which included interest, too. 3. On appeal, the Commissioner of Income Tax ITA No.64 of 2015 2 (“CIT(A)”), through his order dt.24.11.1988, set aside theAnnexure A order. Under section 143(3), read with sections 250& 144 A, the CIT(A) arrived at a total income of Rs.62,48,680/-.Meanwhile, on 28.08.1989, the assessee applied under section245C of the Act before the Additional Bench of the Income TaxSettlement Commission, Chennai. On 29.06.1993 the SettlementCommission passed an order under section 245D (4) of the Act;it was given effect to by the AO through his proceedings, dated23.08.1993. He redetermined the total income at Rs.15,52,220/-. 4. As the record reveals, the Settlement Commission issuedanother order under section 245D on 28.04.1994. The AO gaveeffect to this order, too. On 22.7.1994, again he revised the totalincome to be Rs.17,06,020/-. But, soon thereafter, the AOnoticed what is said to be an error and rectified it. 5. The assessee, then, requested the AO to rectify theassessment for 1985-86 by allowing him to set off and to carryforward the loss relating to the firm, M/s. Hotel Shah & Co, forthe assessment year 1983-84. Through an order, dt.23.05.1995,the AO rejected the assessee’s plea because the loss relating to ITA No.64 of 2015 3 4. As the record reveals, the Settlement Commission issuedanother order under section 245D on 28.04.1994. The AO gaveeffect to this order, too. On 22.7.1994, again he revised the totalincome to be Rs.17,06,020/-. But, soon thereafter, the AOnoticed what is said to be an error and rectified it. 5. The assessee, then, requested the AO to rectify theassessment for 1985-86 by allowing him to set off and to carryforward the loss relating to the firm, M/s. Hotel Shah & Co, forthe assessment year 1983-84. Through an order, dt.23.05.1995,the AO rejected the assessee’s plea because the loss relating to ITA No.64 of 2015 3 the assessment year 1983-84 could not be set off: The firm'sstatus was fixed as an unregistered firm (URF), and section 77(2)(a) of the Act prohibits set off and adjustment of a partner'sloss from a URF—Shah & Co. 6. Aggrieved, the assessee appealed to CIT (A)-I, Kochi.The CIT(A), through an order dated 12.11.2002 in ITA No.T003/95-96, allowed the appeal and directed the AO to modifythe assessment for the AY 85-86: to set off the enhanced shareof loss. 7. The AO, through his proceedings dated 27.02.2003, in turn, modified his order dated 21.06.1994. He allowed anamount of Rs.2,54,698/- as loss carried forward form M/s. HotelShah & Co for the AY 1983-84. The AO revised it on14.08.2003, based on the assessee’s request to include his wife’sshare of loss. 8. In the proceedings dated 14.08.2003, the AO omitted tocharge interest under sections 220(2) and 245D (6A). To rectify that supposed mistake, the AO revised the order throughproceedings in No.46-007-PZ-3152/Cir.1/KLM, dated ITA No.64 of 2015 4 18.07.2006. He charged Rs.8,57,347/- and Rs.79,355/- asinterest under sections 220 (2) and 245D (6A) of the Actrespectively. 9. Once again, the AO, in his proceedings dated18.07.2006, erroneously calculated interest from April 1988 toApril 1991. Two months later, through Annexure C, he rectifiedthe mistake and charged interest under section 220 (2) fromApril 1991 to June 1993: the interest was quantified atRs.3,49,935/-. 10. Again aggrieved, the assessee appealed to the CIT(A),Trivandrum, against the AO’s order, dated 18.07.2006. But theappeal yielded nothing, as it was dismissed through Annexure Dorder, dt.08.12.2006. 11. On the issues of charging interest under section 220 (2)and disallowing interest under section 244 (1A) of the Act, theassessee appealed before the Income Tax Appellate Tribunal(“Tribunal’). The Tribunal, through Annexure E order,dismissed the appeal as not maintainable. When Tribunal’s orderwas challenged, this Court, through Annexure F judgment, set ITA No.64 of 2015 5 aside the order and remanded the matter to the Tribunal, to bedisposed of on merits. 12. On remand, through Annexure G order, the Tribunal allowed the assessee’s appeal and cancelled the AO’srectification order under section 154 of the Act. This time, theDepartment came before us assailing the Tribunal’s Annexure Gorder. Submissions: The Department’s: 13. Sri P. K. Ravindranatha Menon, the learned SeniorCounsel for the Revenue, has submitted that the Tribunal haserred in setting aside the AO’s order as incorrect. According tohim, the Tribunal misdirected itself by observing that 'themistake apparent from record must be an obvious and patentmistake but not something which can be established by a longdrawn process of reasoning. It negates section 154 of the Act.He has also contended that the Tribunal ought to have examinedthe issue in the light of Calcutta High Court’s decision in ITA No.64 of 2015 6 Hindustan Lever Ltd v. CIT.[1] 14. Sri Menon has also submitted that the rectification Submissions: The Department’s: 13. Sri P. K. Ravindranatha Menon, the learned SeniorCounsel for the Revenue, has submitted that the Tribunal haserred in setting aside the AO’s order as incorrect. According tohim, the Tribunal misdirected itself by observing that 'themistake apparent from record must be an obvious and patentmistake but not something which can be established by a longdrawn process of reasoning. It negates section 154 of the Act.He has also contended that the Tribunal ought to have examinedthe issue in the light of Calcutta High Court’s decision in ITA No.64 of 2015 6 Hindustan Lever Ltd v. CIT.[1] 14. Sri Menon has also submitted that the rectification order has not involved a long-drawn process of reasoning on apoint on which there may conceivably be two opinions. On thecontrary, the rectification, he contended, resulted from the AO’scorrecting an arithmetical mistake in charging interest. In otherwords, Sri Menon asserted that the mistakes noticed by the AOwere patent, and they relate to levy of interest under sections220 (2) and 245D (6A), and also withdrawal of interest undersection 244 (1A) of the Act. The Assessee’s: 15. Sri Arun Raj, the learned counsel for the assesse, hascontended that once the Settlement Commission passes an orderunder section 245D (1) of the Act, the regular assessment undersection 143(3) or 144 of the Act ceases to exist. He hascontended that the very Department has admitted that thedemand earlier raised by it was not valid. 16. According to Sri Arun Raj, any further levy of interest1 (2006) 3 CAL L T 466 (HC) ITA No.64 of 2015 7 under section 220(2) of the Act amounts to a double levy ofinterest because the Department has already levied interest undersections 245D (2C) and 245D (6A) of the Act. The learnedcounsel has also contended that the Settlement Commissionalready considered the assessee’s incomes returned anddisclosed. So, there is no room for any further assessment undersection 143(3) of the Act. In other words, section 245D(4) of theAct is comprehensive, and there is no question of the assessmentunder section 245D (4) relating back to the date of regularassessment under section 143(3), 144, or 147 of the Act. 17. In the alternative, Sri Arun Raj has submitted that if atall interest under section 220 (2) has to be levied, it must bedone only by the Settlement Commission, for it exercisesexclusive jurisdiction once it admits a case under section 245-Iof the Act. In other words, the AO is not empowered to levyinterest u/s. 220(2) regarding a matter decided by the SettlementCommission. 18. Heard Sri P. K. Ravindranatha Menon, the learnedSenior Counsel for the Revenue, and Sri Arun Raj, the learned ITA No.64 of 2015 8 counsel for the respondent-assessee, besides perusing the record. The Substantial Questions of Law: 1. Is the supposed mistake in calculating the interest apparentfrom the record, and can it be corrected under section 154 of theIncome Tax Act? 2. Are the findings of the Tribunal, in the facts andcircumstances, perverse, illogical, and beyond section 154 of IT Act,1961? 3. Has the Tribunal justified itself in interfering with what issaid to be an order of rectification? Discussion: 19. The original assessment for the AY 1985-86 wascompleted in March 1988. On appeal, the CIT(A) set it aside inNovember 1988. The reassessment was completed in March1991. But in the meanwhile, in August 1989, the assesseapproached the Additional Bench of the Income Tax SettlementCommission, Chennai, invoking section 245C of the Act. 20. In June 1993, the Settlement Commission passed an order under section 245(4) of the Act; the AO gave effect to itthrough his proceedings on 26.06.1994. But he revised those ITA No.64 of 2015 9 3. Has the Tribunal justified itself in interfering with what issaid to be an order of rectification? Discussion: 19. The original assessment for the AY 1985-86 wascompleted in March 1988. On appeal, the CIT(A) set it aside inNovember 1988. The reassessment was completed in March1991. But in the meanwhile, in August 1989, the assesseapproached the Additional Bench of the Income Tax SettlementCommission, Chennai, invoking section 245C of the Act. 20. In June 1993, the Settlement Commission passed an order under section 245(4) of the Act; the AO gave effect to itthrough his proceedings on 26.06.1994. But he revised those ITA No.64 of 2015 9 proceedings on 14-08-2003. It was to adopt the assessee’scorrect share of income from a partnership firm; it resulted in arefund of Rs.8,90,706/-. 21. But once again the AO found certain mistakes in therevised proceedings. So, on 09.06.2005, he issued notice undersection 154 of the Act, to rectify those mistakes: (a) to chargeinterest under section 220 (2); to levy interest under section245D (6A); (c) to withdraw interest earlier charged undersection 244(1A) of the Act. Later, he did pass an order revisingthe tax. 22. On appeal, the CIT(A) justified the AO’s action.Skipping the later incidental developments, we may straightcome to the proceedings before the Income Tax AppellateTribunal (“Tribunal”). First, the Tribunal dismissed the appealas not maintainable; later, on remand from this Court, it decidedon merits: it allowed the assessee’s appeal. Statutory Scheme: 23. The pivotal point that urges our attention andresolution is this: Has the AO been justified in invoking section ITA No.64 of 2015 10 154 of the Act? 24. Before amendment by Act 23 of 2012, section 154empowered an income tax authority “to rectifying any mistakeapparent from the record.” The authority can correct the mistakeeither on his own or on being pointed out by the assessee. If theintended correction is to result in increasing the assessee’sliability, he should be put on notice and heard. If the correctionreduces the assessee’s burden, the authority should refund thereduced amount to the assessee. Subject to section 155 or sub-section (4) of section 186, the correction must be effected infour years from the financial year in which the original orderwas passed. 25. Analogous to section 154 of the Act is the terse section37 of the Rajasthan Sales Tax Act: “With a view to rectifyingany mistake apparent from the record, any officer appointed orsuo motu orany authority constituted under the Act may rectify otherwise any order passed by him.” Interpreting this provision,the Supreme Court in CTO v. Makkad Plastic Agencies[2]has held 2 (2011) 4 SCC 750 at page 754 ITA No.64 of 2015 11 that this power of correction is neither a power of review nor is apower of revision, but is only a power to rectify a mistakeapparent on the face of the record. Rectification implies thecorrection of an error or a removal of defects or imperfections. Itimplies an error, mistake, or defect which after rectification ismade right. 26. Quoting with approval its earlier decision inKalabharati Advertising v. Hemant Vimalnath Narichania[3], theSupreme Court has further observed that review is a creature ofthe statute, and an order of review could be passed only when anexpress power of review is provided in the statute. In theabsence of any statutory provision for review, “exercise ofpower of review under the garb of clarification/ modification/correction is not permissible.” 27. In fact, the very section 154 of the Act came to beinterpreted by the Supreme Court in CIT v. Ralson IndustriesLtd.[4] The Court observed that the powers of rectification undersection 154 and section 263 of the Act are different. Section 154 3 (2010) 9 SCC 437 4 (2007) 2 SCC 326 at p. 330 ITA No.64 of 2015 12 27. In fact, the very section 154 of the Act came to beinterpreted by the Supreme Court in CIT v. Ralson IndustriesLtd.[4] The Court observed that the powers of rectification undersection 154 and section 263 of the Act are different. Section 154 3 (2010) 9 SCC 437 4 (2007) 2 SCC 326 at p. 330 ITA No.64 of 2015 12 is not a power of review. An error being apparent on the face of . record, according to the Supreme Court, is sine qua non What is an error apparent on the face of record? 28. It needs no repetition that a judgmental error is not areviewable error, nor can it be termed an error on the face ofrecord. Error in reasoning or, for that matter, in applying law tofacts is an appealable error. And that power of appeal is thecreation of a statute. An error apparent on the face of record, onthe other hand, an error that strikes one “on mere looking at therecord and would not require any long-drawn process ofreasoning on points where there may conceivably be twoopinions.” 29. The Courts have considered on numerous occasionswhat an error apparent on the face of record is. In Satyanarayan Laxminarayan Hegde v. Malikarjun Bhavanappa Tirumule[5] theSupreme Court has held thus: "An error which has to be established by a long-drawn process ofreasoning on points where there may conceivably be two opinionscan hardly be said to be an error apparent on the face of the record.Where an alleged error is far from self-evident and if it can beestablished, it has to be established, by lengthy and complicated ITA No.64 of 2015 13 arguments, such an error cannot be cured by a writ of certiorariaccording to the rule governing the powers of the superior Court toissue such a writ." 30. No error can be said to be apparent on the face of the record if it is not manifest or self-evident and requires anexamination or argument to establish it. But there might be casesin which it may not work because an error of law might beconsidered by one Judge as apparent, patent, and self- evident;but might not be so considered by another Judge. Therefore, weought to conclude that the legal contours of an error apparent onthe face of the record cannot be exactly identified. In otherwords, an element of indefiniteness is inherent in its very natureand must be left to be determined judicially on the facts of eachcase.[6] Addition and Deletion of Interest 31. Section 220 of the Act concerns the situations whentax is payable and when the assessee is deemed to be in default. Sub Section (1) mandates that “any amount, otherwise than byway of advance tax, specified as payable in a notice of demand 6 Hari Vishnu Kamath v. Syed Ahmad Ishaque, (1955) 1 SCR 1104 ITA No.64 of 2015 14 under Section 156 shall be paid within thirty days of the service of the notice at the place and to the person mentioned in the notice.” Sub-Section (2), which matters now, reads thus: Section 220 (2). If the amount specified in any notice of demandunder section 156 is not paid within the period limited under sub-section (1), the assessee shall be liable to pay simple interest at oneand one- half per cent for every month or part of a monthcomprised in the period commencing from the day immediatelyfollowing the end of the period mentioned in sub- section (1) andending with the day on which the amount is paid: Provided that, where as a result of an order under section154, or section 155, or section 250, or section 254, or section 260,or section 262, or section 264 or an order of the SettlementCommission under sub- section (4) of section 245D], the amount onwhich interest was payable under this section had been reduced, theinterest shall be reduced accordingly and the excess interest paid, ifany, shall be refunded:. . . 32. As seen from the proviso to sub-section (2) of Section 220, evidently, there can be variation in charging interest, andsuch variation can be effected through correction under Section Provided that, where as a result of an order under section154, or section 155, or section 250, or section 254, or section 260,or section 262, or section 264 or an order of the SettlementCommission under sub- section (4) of section 245D], the amount onwhich interest was payable under this section had been reduced, theinterest shall be reduced accordingly and the excess interest paid, ifany, shall be refunded:. . . 32. As seen from the proviso to sub-section (2) of Section 220, evidently, there can be variation in charging interest, andsuch variation can be effected through correction under Section 154 of the Act. Therefore, we fail to countenance the assessee's contention that Section 154 of the Act is unavailable forrectifying the mistakes committed under Section 220 of the Act. 33. Even otherwise, miscalculation of interest is, at best, anarithmetical error and it needs no elaborate cogitation or ITA No.64 of 2015 15 adjudication, long drawn or otherwise, to hold that there was anerror committed. 34. Section 244 deals with interest on refund where no claim is needed. The provision to the extent necessary readsthus: (1) Where a refund is due to the assessee in pursuance of an orderreferred to in section 240 and the Assessing Officer does not grantthe refund within a period of three months from the end of themonth in which such order is passed, the Central Government shallpay to the assessee simple interest at fifteen per cent per annum onthe amount of refund due from the date immediately following theexpiry of the period of three months aforesaid to the date on whichthe refund is granted. (1A) Where the whole or any part of the refund referred to in sub-section (1) is due to the assessee, as a result of any amount havingbeen paid by him after the 31st day of March, 1975, in pursuanceof any order of assessment or penalty and such amount or any partthereof having been found in appeal or other proceeding under thisAct to be in excess of the amount which such assessee is liable topay as tax or penalty, as the case may be, under this Act, theCentral Government shall pay to such assessee simple interest atthe rate specified in sub-section (1) on the amount so found to bein excess from the date on which such amount was paid to the dateon which the refund is granted : Provided that where the amount so found to be in excesswas paid in instalments, such interest shall be payable on theamount of each such instalment or any part of such instalment,which was in excess, from the date on which such instalment waspaid to the date on which the refund is granted: Provided further that no interest under this sub-section shallbe payable for a period of one month from the date of the passingof the order in appeal or other proceeding: Provided also that where any interest is payable to an assesseeunder this sub-section, no interest under sub-section (1) shall be ITA No.64 of 2015 16 payable to him in respect of the amount so found to be in excess. 35. As to correcting a mistake committed by an authority in calculating interest on refund, it is always open for theauthorities to rectify that mistake. Again, in our reckoning, thereasons assigned to our interpretation of Section 220 apply here,too. 36. Under these circumstances, the order impugned cannot be sustained. We, therefore, answer the substantial questions of law in revenue's favour, set aside the impugned order dated 8.12.2006,and restore the CIT (A)’s order, dated 5.9.2014. SD/- ANTONY DOMINIC ACTING CHIEF JUSTICE SD/- DAMA SESHADRI NAIDU JUDGE The last paragraph of the judgment dated 11.1.2018 in ITANo.64/2015 is corrected and substituted as “We, therefore,answer the substantial questions of law in revenue's favour,set aside the impugned order dated 5.9.2014 and restore the ITA No.64 of 2015 17 CIT(A)'S order dated 8.12.2016. Vide order dated 5.4.2018 in I.A.No.781/2018 in ITA No.64/2015. Sd/- Registrar Judicial 36. Under these circumstances, the order impugned cannot be sustained. We, therefore, answer the substantial questions of law in revenue's favour, set aside the impugned order dated 8.12.2006,and restore the CIT (A)’s order, dated 5.9.2014. SD/- ANTONY DOMINIC ACTING CHIEF JUSTICE SD/- DAMA SESHADRI NAIDU JUDGE The last paragraph of the judgment dated 11.1.2018 in ITANo.64/2015 is corrected and substituted as “We, therefore,answer the substantial questions of law in revenue's favour,set aside the impugned order dated 5.9.2014 and restore the ITA No.64 of 2015 17 CIT(A)'S order dated 8.12.2016. Vide order dated 5.4.2018 in I.A.No.781/2018 in ITA No.64/2015. Sd/- Registrar Judicial css/ TRUE COPY P.S.TO JUDGE