M/S. Tamilnadu Magnesite Ltd v. The Deputy Commissioner Of Income Taxspecial Range, Salem

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED:11-02-2013 CORAM: THE HONOURABLE MRS.JUSTICE R.BANUMATHI AND THE HONOURABLE MR.JUSTICE K.RAVICHANDRABAABU Tax Case (Appeal) No.906 of 2007 M/s. Tamilnadu Magnesite Ltd.,5/53, Omalur Main RoadJagir Ammapalayam, Salem. ... Appellant. Versus The Deputy Commissioner of Income TaxSpecial Range, Salem. ... Respondent. Prayer: Appeal filed against the order of the Income Tax AppellateTribunal "D" Bench, dated 3.7.2006, in I.T.A No.2424/Mds/1996, underSection 260A of the Income Tax Act, 1961 for the assessment years 1992-93 against the order of the Commissioner of Income Tax (Appeals)Coimbatore, dated 14.10.1996 and made in Appeal No.624-C/94-95 againstthe order of the Deputy Commissioner of Income Tax, Special Range,Salem, dated 30.08.1994 and made in Pan:47-053-CX-0069/92-93/DC/SPL.RANGE/SLM. For Appellant:Mr.J.Balachanderfor Mr.S.SridharFor Respondent:Mr.J.NarayanasamyStanding counsel for Income Tax JUDGMENT (Judgment of the Court was made by K.RAVICHANDRABAABU J.) The assessee is on appeal as against the order of the IncomeTax Appellate Tribunal raising the following substantial questions oflaw relating to the assessment year 1992-1993 :- 1) Whether the Tribunal is correct in confirmingthe rectification order passed by the respondent forthe above assessment year, wherein the provision forgratuity amounting to Rs.4,03,887/- was added back anddisallowed in the computation of taxable total incomewhich according to the respondent had been omitted tobe disallowed while processing the return under Section143(1) of the Act and the consquential levy ofadditional tax ? (2) Whether the Tribunal is correct in concludingthat rectification of the intimation wouldconsequently result in payment of additional tax eventhough intimation under Section 143(1) of the Act andrectification proceedings under Section 154 of the Actare totally different and distinct procedures envisagedin the Act ? (3) Whether the Tribunal is correct in law inaffirming the rectification order passed under Section154 of the Act to rectify the intimation issued underSection 143(1)(a) of the Act even though the saidproceedings of intimation had come to an end uponissue of notice under Section 143(2)of the Act on25.5.1993 ? 2. The assessee – Tamil Nadu Magnesite Limited, Government ofIndia undertaking has filed the return of income on 28.12.1992 for theassessment year 1992-93. In the intimation under Section 143(1)(a)dated 29.4.1993 certain adjustments were carried out by the Departmentand the said intimation was again revised on 30.6.1993 reducing thedisallowance made originally. Notice under Section 154 of the Act wasissued on 20.7.1994 and the rectification order was passed by therespondent on 30.8.1994, wherein provision for gratuity to the extentof Rs.4,03,887/- was disallowed under Section 40A(7) of the Act. Inthe process of making disallowance, the respondent has imposed anadditional tax in the said order of rectification. The appeal preferredby the appellant was dismissed by the Commissioner of Income Tax(Appeals) holding that the levy of additional tax under Section 143(1)(a) follows as a sequel to the amendment to the intimation. The Appellate Tribunal dismissed the appeal holding that to carry out the"prima facie adjustment" in the intimation, the assessing officer hasrectified the intimation and as such the assessee is exigible to thepayment of additional tax and the Commissioner of Income Tax(Appeals) took the correct view. Appellate Tribunal dismissed the appeal holding that to carry out the"prima facie adjustment" in the intimation, the assessing officer hasrectified the intimation and as such the assessee is exigible to thepayment of additional tax and the Commissioner of Income Tax(Appeals) took the correct view. 3. The assessee is aggrieved against the levy of additional taxwhich came to be levied in an order passed under Section 154 of theIncome Tax Act. A perusal of the said order of rectification passedby the Deputy Commissioner of Income Tax dated 30.8.1994 showsthat certain adjustments were made in the intimation dated 29.4.1993under Section 143(1)(a) of the said Act. The assessment was revisedon 30.6.1993 thereby reducing the disallowance made in the intimationdated 29.4.1993. However, as provisions for Gratuity was omitted to bedisallowed as no payments were made by the assessee on this account andas it was a mistake apparent from the records further revision wasproposed by way of Section 154 proceedings. Before making such proposedrevision, a notice under Section 154 dated 20.7.1994 was issued tothe assessee calling upon its objections, if any, for the proposedrevision. It is seen that the assessee did not object for the saidrevision and consequently, the intimation made under Section 143(1)(a)was revised thereby the gratuity provision of a sum of Rs. 4,03,887/-was disallowed. Such revised adjustments, consequently warrantedlevying of additional tax on a sum of Rs. 2,09,011/- at the rate of20% and accordingly such levy was made in the said order itself. 4. The said order made under Section 154 was challenged by theassessee before the Commissioner of Income Tax (Appeals). The firstappellate authority rejected the appeal by holding that levy ofadditional tax follows as a sequel to the prima facie adjustment whichhas been carried out in the order under Section 154. He also furtherobserved that the Assessing Officer ought to have added back theprovision for gratuity while processing the return under Section 143(1) itself as it was clearly an inadmissible item as per Section 40A(7). Thus, by holding that levy of additional tax under Section 143(1A) is a sequel to the amendment of the intimation, the firstappellate authority rejected the appeal. 5. Aggrieved against the same, the assessee filed further appealbefore the Tribunal. The Tribunal pointed out that the assessee didnot raise objection against the disallowance and it is aggrievedonly against the levy of additional tax. The Tribunal further pointedout that the provision for gratuity was inadmissible item as perSection 40A(7) and as such for having failed to carry out the primafacie adjustment in the intimation, the Assessing Officer had rectifiedthe intimation with the consent of the assessee and as such theassessee is exigible to the payment of the additional tax.Consequently, the Tribunal agreeing with the first appellate authority,rejected the appeal filed by the assessee. 6. Learned counsel appearing for the appellant would contend thatthough the assessee did not object for making additions by way ofrectification that itself would not entitle the Assessing Authorityto levy additional tax automatically and therefore when such non-levyof additional tax is not an error apparent , the same cannot be leviedby way of rectification by passing an order under Section 154. Insupport of his contention, the learned counsel appearing for theassessee relied on the decision in reported in (2006) 285 ITR 282(Bom) ( LML Ltd. and Another Vs. M.K.Venkataraman, AssistantCommissioner of Income Tax and Another). 7. Per contra, the learned counsel appearing for the Revenuesubmitted that when the assessee had accepted the disallowance ofgratuity provision having been made under Section 154, cannot bepermitted to contest against the levy of additional tax, which isonly consequential to the said disallowance of gratuity provision. 7. Per contra, the learned counsel appearing for the Revenuesubmitted that when the assessee had accepted the disallowance ofgratuity provision having been made under Section 154, cannot bepermitted to contest against the levy of additional tax, which isonly consequential to the said disallowance of gratuity provision. 8. Heard the learned counsel on either side and perused the materials available on record. 9. The admitted case is that the assessee filed return of incomeon 28.12.1992 for the assessment year 1992-93. It is seen that certainadjustments were made in the intimation under Section 143(1)(a)dated 29.4.1993. The same was revised on 30.6.1993 thereby reducingthe disallowance made earlier. However, when the provision forgratuity was omitted to be disallowed in view of the fact that nopayments were made by the assessee under that head, the said mistakewas sought to be rectified under Section 154 proceedings. Consequently,a notice dated 20.7.1994 was issued to the assessee under Section 154calling upon the assessee to file their objections for the proposedrevision. 10. It is an admitted case that the assessee did not file anyobjection to the said revision and on the other hand, the disallownaceof the gratuity provision was accepted by the assessee. Therefore,the levy of additional tax is only a consequential event to the primafacie adjustment, which was carried out through the order passedunder Section 154. The Assessing Authority had rightly levied theadditional tax by his order under Section 154. When the rectificationof mistake was carried out by making disallowance of gratuityprovision and the same has not been objected by the appellant, theconsequential levy of additional tax, which is only a sequence tothe prima facie adjustment also cannot be objected by them. It is notthe case of the appellant that the rectification of the mistake was carried out solely for the purpose of levying additional tax. On theother hand, admittedly, the prima facie adjustment was carried out bythe Assessing Authority under such rectification thereby disallowingthe gratuity provision. When the same was not objected to by theassesee and on the other hand accepted by them, the consequential levyof additional tax cannot be challenged by the appellant. Both thefirst appellate authority as well as the Tribunal had gone into thisaspect and rejected the case of the appellant/ assessee. 11. Learned counsel for the appellant relied on the decisionreported in (2006) 285 ITR 282 (Bom) ( LML Ltd. and Another Vs.M.K.Venkataraman, Assistant Commissioner of Income Tax and Another).In the said decision of the Bombay High Court, it was observed thatthe amount sought to be disallowed itself was not taken into accountwhile computing the total income and therefore, the question oflevying additional tax on the amount of disallowance did not arise atall. But a perusal of the order of the Assessing Authority made underSection 154 in this case shows that the said disallowance of gratuityprovision was taken into account to arrive at the revised adjustedtotal loss and consequently the additional tax on such addition waslevied. Therefore, the facts of the present case are totally differentand distinguishable from the facts of the case of the Bombay HighCourt, relied on by the learned counsel for the assessee. Consequentlythe said decision of the Bombay High Court is not helpful to theassessee. 12. The Hon'ble Supreme Court in the decision reported in(2008) 305 ITR 227 (SC) (Assistant Commissioner of Income Tax Vs.Saurashtra Kutch Stock Exchange Ltd.,) considered the scope and meaningof the words "mistake apparent on the face of the record". Afterelaborate discussion and by considering various decisions on thissubject, the Hon'ble Supreme Court has observed that a patent,manifest and self-evident error which does not require elaboratediscussion of evidence or argument to establish it, can be said to bean error apparent on the face of the record. The Hon'ble SupremeCourt further observed that an error apparent on the face of therecord means an error which strikes on mere looking and does not needa long drawn out process of reasoning on points where there mayconceivably be two opinions. After observing so, the Hon'ble SupremeCourt has further declared that rectification of an order stems fromthe fundamental principle that justice is above all and that it isexercised to remove the error and to disturb the finality. Applyingthe said principle of law laid down by the Hon'ble Supreme Court tothe case on hand, we find no merits in the appeal filed by the assesseechallenging the order imposing additional tax liability which came tobe levied only as a consequential event of the disallowance of theprovision for gratuity which admittedly was accepted by the assesseeand not challenged by it when the same was also made by the order of rectification. Accordingly, we find no merits in this appeal and thesame is dismissed thereby answering all the questions of lawagainst the assessee. No costs. Sd/ Asst. Registrar /True Copy/ Sub Asst.Registrar krr/To1. The Income Tax Appellate Tribunal 'D' Bench, Madras 2. The Commissioner of Income -Tax (Appeals, Coimbatore3. The Deputy Commissioner of Income Tax, Special Range, Salem.+1 CC to Mr.J.Balachander, SR.No.7937.+1 CC to Mr.J.Narayanasamy, SR.No.7821. Tax Case (Appeal)No.906 of 2007 SP(CO)KP(26.02.2013)