Sree Ayyanar Spinning & Weaving Mills Ltd. Mallanginar v. Delivered By P.d.dinakaran, J

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 11.12.2006 CORAM THE HON'BLE MR.JUSTICE P.D.DINAKARANANDTHE HON'BLE MR.JUSTICE P.P.S.JANARTHANA RAJA T.C.(A) No.2 of 2004 Commissioner of Income TaxMadurai Sree Ayyanar Spinning & Weaving Mills Ltd. Mallanginar. .. Appellant Vs. ..Respondent Appeal under Section 260A of the Income Tax Act, 1961 againstthe order of the Income Tax Appellate Tribunal, Madras 'A' Benchdated 31.1.2003 in M.P.No.4(Mds)/2000 in ITA No.719/Mds/1994, forthe assessment year 1989-90. against the order of the Commissionerof Income Tax Appeals I, Madurai in ITA NO. 579/93-94 dated 31.01.94and against the order of the Deputy Commissioner of Income-TaxSpecial Range-I, Madurai dated 30.09.1993 in PA NO. 47-016-CY-3943. For Appellant:Mrs.Pushya Sitaraman, Sr.SC for IT.For Respondent :Mr.Balachander-----J U D G M E N T (Delivered by P.D.DINAKARAN, J.) The Revenue has preferred the above tax case appeal against theorder of the Income-tax Appellate Tribunal dated 31.1.2003 inM.P.No.40(Mds)/2000 in ITA No.719/Mds/1994 for the assessment year1989-90 passed in exercise of power under section 254(2) of theIncome-tax Act, 1961 (hereinafter referred to as 'the Act'), raisingthe following substantial questions of law for consideration: 1. Whether in the facts and circumstances of the case, theTribunal was right in rectifying its order under section254 of the Income-tax Act, based on a judgment of theSupreme Court rendered six years after the date of theorder rectified? https://hcservices.ecourts.gov.in/hcservices/ 2. Whether in the facts and circumstances of the case, theTribunal has the power or jurisdiction to rectify itsorder beyond the time limit of four years specified undersection 254(2)? 2.1. The facts, in brief, are, the assessment for theassessment year 1989-90 was completed on 27.2.1992 on a total incomeof Rs.26,24,137/- based on book profit under section 115J of the Actamounting to Rs.45,92,240/- in respect of transitional previous yearof 21 months. 2.2. On the question of debiting additional depreciationrelating to earlier years which was due on account of adoptingWritten Down Value method in place of Straight-line method permittedunder the Company Law, the assessee filed an appeal before theCommissioner of Income-tax (Appeals) challenging the computation ofprofit under section 115J. The Commissioner of Income-tax (Appeals)upheld the order of assessing officer holding that the depreciationrelating to earlier assessment years should not be adjusted as itwould distort the profit of the current year. 2.3. On further appeal by the assessee, the Appellate Tribunalheld that there was no finding on the issue whether the book profitshown by the assessee is in conformity with the provisions of theCompanies Act and what is required to be taxed under section 115J ofthe Act is only the profit that can be distributed as dividend andif the distribution of profit cannot be made without adjusting theunabsorbed depreciation of the earlier years consequent upon thechange in the method, then the assessee would be entitled to makesuch an adjustment, which cannot be varied under section 115J ofthe Act. Holding so, the Appellate Tribunal remitted the matter tothe assessing officer for reconsideration, by order dated 22.3.1993. 2.4. Then, the assessing officer passed a fresh order on30.9.1993 showing the figure as same as in the original assessmentorder and the said order was confirmed by the Commissioner ofIncome-tax (Appeals) on appeal. 2.5. The Appellate Tribunal, on appeal, held that if thedepreciation relating to earlier years was considered and allowed,the profit and loss accounts of the assessee would not reflect thecorrect picture for the assessment year in question and accordingly,dismissed the appeal filed by the assessee. 2.4. Then, the assessing officer passed a fresh order on30.9.1993 showing the figure as same as in the original assessmentorder and the said order was confirmed by the Commissioner ofIncome-tax (Appeals) on appeal. 2.5. The Appellate Tribunal, on appeal, held that if thedepreciation relating to earlier years was considered and allowed,the profit and loss accounts of the assessee would not reflect thecorrect picture for the assessment year in question and accordingly,dismissed the appeal filed by the assessee. 2.6. Thereafter, on 2.8.2000 the assessee filed a miscellaneouspetition in M.P.No.40/Mds./2000 under section 254(2) of the Act forrectification of the order of Appellate Tribunal contending that inthe order sought to be rectified the Appellate Tribunal did not consider the points, (i) whether the book profit shown by thepetitioner is in conformity with the provisions of the CompaniesAct, 1956 and (ii) whether the petitioner can distribute its profitas dividend without adjusting the unabsorbed depreciation of earlieryears consequent upon the change in the method and if the answer isno, whether the petitioner is entitled to adjust the earlier yeardepreciation which cannot be varied under section 115J of the Act. 3. Of course, even though on the date when the miscellaneouspetition for rectification was taken on file, viz., 2[nd] August,2000,the decision of the Apex Court dated 3.5.2002 in Apollo Tyres Ltd.v. C.I.T. [255 ITR 273] was not available, the AppellateTribunal, while disposing of the miscellaneous petition forrectification by order dated 31.1.2003, has chosen to follow theratio laid down in Apollo Tyres Ltd. case wherein the Apex Courtheld as follows:- "The Assessing Officer, while computing the bookprofits of a company under section 115J of the Income-taxAct, 1961, has only the power of examining whether thebooks of account are certified by the authorities underthe Companies Act as having been properly maintained inaccordance with the Companies Act. The Assessing Officer,thereafter, has the limited power of making increases andreductions as provided for in the Explanation to section115J. The Assessing Officer does not have the jurisdictionto go behind the net profits shown in the profit and lossaccount except to the extent provided in the Explanation.The use of the words “in accordance with the provisions ofParts II and III of Schedule VI to the Companies Act” insection 115J was made for the limited purpose ofempowering the Assessing Officer to rely upon theauthentic statement of accounts of the company. While solooking into the accounts of the company, the AssessingOfficer has to accept the authenticity of the accountswith reference to the provisions of the Companies Act,which obligate the company to maintain its accounts in amanner provided by that Act and the same to be scrutinisedand certified by statutory auditors and approved by thecompany in general meeting and thereafter to be filedbefore the Registrar of Companies who has a statutoryobligation also to examine and be satisfied that theaccounts of the company are maintained in accordance withthe requirements of the Companies Act. Sub-section (1A) ofsection 115J does not empower the Assessing Officer toembark upon a fresh enquiry in regard to the entries madein the books of account of the company". (Emphasis supplied) (Emphasis supplied) 4. The Appellate Tribunal also referred to the Circular No.68dated 17.11.1971 which provides that a mistake arising as a resultof subsequent interpretation of law by the Supreme Court wouldconstitute a mistake apparent from the records and ultimately heldthat in view of the subsequent decision of the Supreme Court inApollo Tyres Ltd. case, there was an apparent mistake in the orderof the Tribunal rectifiable under section 254(2) of the Act andaccordingly, allowed the rectification petition in favour of theassessee by order dated 31.1.2003. Hence, the above appeal on thesubstantial questions of law referred to above. 5. Mrs.Pushya Sitaraman, learned senior standing counsel forthe Revenue invited our attention to sections 249(2), 253(3), 260A(2) of the Act which provide for limitation for filing appeal to theCommissioner of Income-tax Appeal, Appellate Tribunal and High Courtrespectively. Our attention was also brought to section 154(2),(5),(6),(7) & (8) and 254(2) and Proviso I and II of the Act. Accordingto learned counsel, when section 254(2) specifically prescribes aperiod of four years as outer time-limit within which the AppellateTribunal should have rectified the mistake apparent in the orderpassed by it, any such order passed beyond that period would beconstrued to be barred by limitation and the order passed by theAppellate Tribunal under section 254(2) of the Act recalling theoriginal order dated 9.12.1996 is liable to be set aside and theconsequential order dated 12.6.2003 passed by the Appellate Tribunalis also nothing but nullity in the eye of law. 6. She has further contended that in the case of Income-taxauthorities, the rectification of mistake is governed by section 154of the Act and even though section 154(8) provides that the Income-tax authorities shall pass an order of rectification within sixmonths from the end of the month in which the application isreceived, the said period of six months shall be read into the totalperiod of four years from the date of original order. She hasfurther stated that when the statute prescribes outer time-limit, itmay not be proper for this Court to go beyond the same. 7. On the other hand, placing reliance on the decision ofRajasthan High Court in Harshvardhan Chemicals and Minerals v.U.O.I. [256 ITR 767], learned counsel appearing for the assesseecontended that if the application is made within the period of fouryears, the Tribunal is bound to decide the application on meritsand not on the ground of limitation. He has also contended that whenthe Circular No.68 dated 17.11.1971 provides that a mistake arisingas a result of subsequent interpretation of law by the Supreme Courtwould constitute a mistake apparent from the record, in the light ofsubsequent decision of the Supreme Court in Apollo Tyres Ltd. case,the Tribunal was correct in recalling its earlier order. 8. We have given our careful consideration to the submissionsmade on behalf of the appellant as well as the respondent/assessee. 9. The point involved in this appeal revolves on the scope andambit of section 254(2) of the Act and hence, it is profitable torefer to sections 154 and 254(2) which reads as under: 154. Rectification of mistake.--(1) With a view torectifying any mistake apparent from the record, anincome-tax authority referred to in section 116 may amendany order passed by it under the provisions of this Act. (1A) xxx (2) Subject to the other provisions of this section, theauthority concerned-- (a) may make an amendment under sub-section (1) ofits own motion, and (b) shall make such amendment for rectifying any suchmistake which has been brought to its notice by theassessee, and where the authority concerned is the DeputyCommissioner (Appeals) or the Commissioner (Appeals), bythe Assessing Officer also. (3) xxx (4) xxx 154. Rectification of mistake.--(1) With a view torectifying any mistake apparent from the record, anincome-tax authority referred to in section 116 may amendany order passed by it under the provisions of this Act. (1A) xxx (2) Subject to the other provisions of this section, theauthority concerned-- (a) may make an amendment under sub-section (1) ofits own motion, and (b) shall make such amendment for rectifying any suchmistake which has been brought to its notice by theassessee, and where the authority concerned is the DeputyCommissioner (Appeals) or the Commissioner (Appeals), bythe Assessing Officer also. (3) xxx (4) xxx (5) Subject to the provisions of section 241, where anysuch amendment has the effect of reducing the assessment,the Assessing Officer shall make any refund which may bedue to such assessee. (6) Where any such amendment has the effect of enhancingthe assessment or reducing a refund already made, theAssessing Officer shall serve on the assessee a notice ofdemand in the prescribed form specifying the sum payable,and such notice of demand shall be deemed to be issuedunder section 156 and the provisions of this Act shallapply accordingly. (7) Save as otherwise provided in section 155 or sub-section (4) of section 186 no amendment under this sectionshall be made after the expiry of four years from the endof the financial year in which the order sought to beamended was passed. (8) Without prejudice to the provisions of sub-section(7), where an application for amendment under this sectionis made by the assessee or or after the 1[st] day of June,2001 to an income-tax authority referred to in sub-section(1), the authority shall pass an order, within a period ofsix months from the end of the month in which theapplication is received by it, -- (a) making the amendment; or (b) refusing to allow the claim." 254. Orders of Appellate Tribunal.--(1) The AppellateTribunal may, after giving both the parties to the appealan opportunity of being heard, pass such orders thereon asit thinks fit. (2) The Appellate Tribunal may, at any time withinfour years from the date of the order, with a view torectifying any mistake apparent from the record, amend anyorder passed by it under sub-section (1), and shall makesuch amendment if the mistake is brought to its notice bythe assessee or the Assessing Officer:Provided that an amendment which has the effect ofenhancing an assessment or reducing a refund or otherwiseincreasing the liability of the assessee, shall not bemade under this sub-section unless the Appellate Tribunalhas given notice to the assessee of its intention to do soand has allowed the assessee a reasonable opportunity ofbeing heard. Provided further that any application filed by theassessee in this sub-section on or after the 1[st] day ofOctober, 1998, shall be accompanied by a fee of fiftyrupees." 10. Section 254(2) has got two limbs; (i) the Appellate Tribunal may, at any time, within fouryears from the date of the order, with a view torectifying any mistake apparent from the record, amendany order passed by it under sub-section (1), and; (ii) shall make such amendment if the mistake is broughtto its notice by the assessee or the Assessing Officer. 11. The first limb of section 254(2) enables the Tribunal to rectifyits own order suo motu as provided in section 154(2)(a), eventhough the words, "of its own motion" as found in section 154(2)are not found in first limb of section 254(2). The second limb ofsection 254(2) is in pari materia to section 154(2)(b), that is https://hcservices.ecourts.gov.in/hcservices/ 10. Section 254(2) has got two limbs; (i) the Appellate Tribunal may, at any time, within fouryears from the date of the order, with a view torectifying any mistake apparent from the record, amendany order passed by it under sub-section (1), and; (ii) shall make such amendment if the mistake is broughtto its notice by the assessee or the Assessing Officer. 11. The first limb of section 254(2) enables the Tribunal to rectifyits own order suo motu as provided in section 154(2)(a), eventhough the words, "of its own motion" as found in section 154(2)are not found in first limb of section 254(2). The second limb ofsection 254(2) is in pari materia to section 154(2)(b), that is https://hcservices.ecourts.gov.in/hcservices/ to say, the Tribunal under second limb of section 254(2) andincome-tax authorities under section 154(2)(b), can rectify themistake apparent from the record either on the application made bythe assessee or at the instance of the assessing officer because thepower conferred under Section 154(8) shall be exercised by theTribunal without prejudice to Section 154(7) of the Act, whichprescribes the outer limit for passing an amendment, in view of thewords used in Section 154(7) "no amendment under this Section shallbe made after the expiry of four years from the end of the financialyear in which the order sought to be amended was passed". However,an opportunity is required to be given to the parties concerned ineither case of rectification, as found in Section 154(6) and thefirst proviso to section 254(2). 12. Placing reliance on the decision of Rajasthan High Court inHarshvardhan Chemicals and Minerls Ltd. case, cited supra, thelearned counsel for the assessee submitted that if the assesseemakes an application for rectification within the time prescribed,the application should be disposed of by the Tribunal or the income-tax authority on merits even it exceeds the maximum period of fouryears, which, in our view, is not acceptable as section 254(2)specifically provides for the outer time-limit of four years forpassing an order of rectification, which, as already observed by us,cannot be extended when the language of the section is plain andunambiguous. 13. The Rajasthan High Court in Harshvardhan Chemicals andMinerals Ltd. case, cited supra, while construing section 254(2) ofthe Act, held that if the assessee has moved the application withinfour years from the date of the order, the Tribunal is bound todecide the application on the merits and not on the ground oflimitation. 14. It is true that the Supreme Court in Apollo Tyres Ltd.case, cited supra, has held that the assessing officer has to acceptthe authenticity of the accounts with reference to the provisions ofthe Companies Act and section 115J(1A) does not empower theassessing officer to embark upon fresh enquiry with regard to theentries made in the books of account of the company. It is equallytrue that the Circular No.68, dated 17.11.1971 provides that amistake arising as a result of subsequent interpretation of law bythe Supreme Court would constitute a mistake apparent from therecords, and probably, on the basis of which the assesseeapproached the Appellate Tribunal for rectification in the light ofdecision of the Apex Court in Apollo Tyres Ltd. case. It is not indispute that as per Circular No.68, dated 17.11.1971, the assesseeis entitled to approach the Appellate Tribunal for rectification of mistake apparent from the record, in view of interpretation of lawby the Supreme Court in Apollo Tyres Ltd. case, but when section 254(2) provides an outer time-limit of four years, it is not open tothe Appellate Tribunal to rectify such a mistake beyond the periodof four years and the Appellate Tribunal should have passed theorder of rectification within the outer time-limit of four years.Because, section 154(8), which was inserted with effect from1.6.2001, contemplates that the authority shall pass an order ofrectification of mistake within a period of six months from the endof the month in which the application is received. The said periodof six weeks, as rightly contended by the learned senior standingcounsel for the Revenue, should be computed within the maximumperiod of four years from the date of original order sought to berectified. For instance, even though the assessee or the Revenueis entitled to file an application for rectification at any timewithin four years, to say, after three years and eight months, theauthority is barred from passing order of rectification beyond theperiod of four years from the date of original order as prescribedin Section 154(7) of the Act. 15. We are, therefore, with great respect, not accepting theview taken by the Rajasthan High Court in Harshvardhan Chemicalsand Minerals Ltd. case, cited supra, as section 254(2) prescribesthe outer limit for passing an order of rectification as below, "the Appellate Tribunal may, at any time within four yearsfrom the date of the order, with a view to rectifying anymistake apparent from the record",which means that the Appellate Tribunal should pass the order ofrectification within the period of four years. 16. In our view, the power and jurisdiction provided underSection 254 should be construed, as far as language permits, so asto give effect to the scope and object of the statute and theintention of the legislature. The elementary principle ofinterpreting or construing a statute is to gather the mens orsententia legis of the legislature. It is well-settled principle inlaw that the court cannot read anything into a statutory provisionwhich is plain and unambiguous. [vide: Vemareddy Kumaraswamy Reddyv. State of A.P.,(2006) 2 SCC 670]. A construction which reducesthe statute to a futility has to be avoided. A statute is designedto be workable and the interpretation thereof by a court should beto secure that object unless crucial omission or clear directionmakes that end unattainable [vide: CIT v. Hindustan Bulk Carriers,(2003) 3 SCC 57]. Applying the above principle, when section 254(2)is clear in its terms, viz., 'the Appellate Tribunal may, at any time, within fouryears from the date of the order, with a view torectifying any mistake apparent from the record, amendany order passed by it' meaning thereby that the order of rectification should be passedwithin the outer time limit of four years, and it is not possiblefor the Court to read anythingelse into the said provision, viz.,254(2) of the Act, which is plain and unambiguous, which wouldotherwise extend the outer-limit prescribed therein. In this view ofthe matter, we are of the considered opinion that the order passedby the Appellate Tribunal beyond the period of four years is nothingbut a nullity. 'the Appellate Tribunal may, at any time, within fouryears from the date of the order, with a view torectifying any mistake apparent from the record, amendany order passed by it' meaning thereby that the order of rectification should be passedwithin the outer time limit of four years, and it is not possiblefor the Court to read anythingelse into the said provision, viz.,254(2) of the Act, which is plain and unambiguous, which wouldotherwise extend the outer-limit prescribed therein. In this view ofthe matter, we are of the considered opinion that the order passedby the Appellate Tribunal beyond the period of four years is nothingbut a nullity. 17. Furthermore, the power under section 254(2) of the Act,intended to rectify an error apparent from the record, is notremedial in nature, but it is rectifiable in nature in the sensethat it is to rectify a mistake committed in an order which isapparent and not to provide a remedy to the aggrieved partywhether it is assessee or the Revenue. The power in respect ofremedial action has to be exercised within the time limit prescribedand such period cannot be elastically extended by the Court.Similarly, the power to rectify an mistake apparent from the recordshould also be exercised by the income-tax authorities in the samemanner. Otherwise, it would amount to conferring enormous power onthe income-tax authority or the Tribunal under one pretext or theother. 18. It is true that there is no provision in Section 254,similar to Section 154(8), which contemplates the income taxauthorities to pass an order of rectification of mistakes within aperiod of six months from the end of the month in which theapplication is received. But, in our considered opinion, merelybecause there is no provision in Section 254 as similar to that ofSection 154(8), which prescribes the period of limitation for theincome tax authorities to pass an order of rectification rectifyingthe mistakes in their order, it cannot be construed that the powerof the appellate Tribunal to rectify the mistake could be extendedindefinitely beyond four years, which time is specifically spelledout by the legislature in Section 254(2) itself for passing anorder of rectification, either suo-motu by the Tribunal or onapplication either by the assessee or by the assessing officer. Themere usage of "and" between two limbs of Section 254(2) will not, inany way, enlarge the limitation prescribed for passing the order ofamendment under Section 254(2) of the Act. Consequently, any orderof amendment that would be passed by the Appellate Tribunal beyondthe period of four years would lack jurisdiction, assuming theAppellate Tribunal has got a right to pass an order of rectificationto rectify the mistake in the light of the subsequent interpretationof law by any Court, as per the Circular No.68 dated 17.11.1971.Therefore, it follows that in any case of rectification, the incometax authorities and the Appellate Tribunal are within their powerand jurisdiction to amend their respective orders, under Sections 154 and 254 respectively, in the light of subsequent interpretationof law by the Courts, but such power and jurisdiction could beexercised statutorily only within the time of four years, not beyondthe period of four years. 19. For all these reasons, when the section is plain andunambiguous, any other interpretation, if made, would lead to asituation where the authority would exceed its jurisdiction. Weare therefore of the view that the Appellate Tribunal should havepassed the order of rectification within four years from the date oforder sought to be rectified. 154 and 254 respectively, in the light of subsequent interpretationof law by the Courts, but such power and jurisdiction could beexercised statutorily only within the time of four years, not beyondthe period of four years. 19. For all these reasons, when the section is plain andunambiguous, any other interpretation, if made, would lead to asituation where the authority would exceed its jurisdiction. Weare therefore of the view that the Appellate Tribunal should havepassed the order of rectification within four years from the date oforder sought to be rectified. 20. In fine, without going into the merits of the case, we holdthat the order passed by the Appellate Tribunal is barred bylimitation. Accordingly, the order impugned and the consequentialorder dated 12.6.2003 are set aside as it is settled that wheninitiation of proceedings under a statute lacks jurisdiction, thefinal or consequential order is also liable to be struck down. Thequestions are answered in favour of the Revenue and against theassessee. The appeal stands allowed. No costs.na/kpl Sd/Asst.Registrar /true copy/Sub Asst.Registrar To 1.The Assistant Registrar, Income Tax Appellate Tribunal, Rajaji Bhavan, Besant Nagar,Madras. 2. The Commissioner of Income Tax, Madurai 3. The Commissioner of Income-Tax (Appeals-I), Madurai. 4. The Deputy Commissioner of Income-tax, Spl. Range I,Madurai. + one cc to Mr. J. Balachandran, Advocate sr no. 61715+ one cc to M/s. Pushya Sitaraman, Advocate sr no. 61604SSV(CO)NM(25.01.07) TC (A) No.2 of 2004