The Shahbad Cooperative Sugarmills Ltd, Shahbad v. The Deputy Commissioner Of Income Tax,Karnal

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. ---- Income Tax Appeal No. 147 of 2001Date of decision: 18.11.2010 The Shahbad Cooperative SugarMills Ltd, Shahbad --- Appellant Versus The Deputy Commissioner of Income tax,Karnal --- Respondent. CORAM:HON’BLE MR. JUSTICE ADARSH KUMAR GOELHON’BLE MR. JUSTICE AJAY KUMAR MITTAL ---- PRESENT:Mr. Rajesh Garg, Advocatefor the appellant. Mr. Yogesh Putney, Central GovernmentStanding Counsel for the respondent. ---- AJAY KUMAR MITTAL, J. This appeal under Section 260A of the Income-tax Act, 1961(for short “the Act’”) has been filed by the assessee against the orderdated 7.9.2000, passed by the Income Tax Appellate Tribunal, DelhiBench (A), New Delhi (in short “the Tribunal”) in ITA No. 2211/DEL/95relating to the assessment year 1990-91. The assessee has claimed the following question fordetermination by this Court: “Whether the tribunal was right in law in holding that theAssessing Officer was justified in rectifying the Assessment Order in view of the judgment of the Hon’ble Supreme Courtin 224 ITR 604 even though the judgment of the SupremeCourt came on a date much after the rectification order waspassed?” Briefly stated the facts necessary for adjudication, asnarrated in the appeal, are that the appellant-assessee is a Co-operative Society. The assessee filed return declaring total income ofRs. 2,11,77,724/-, on 29.10.1990 and assessment was completed on8.1.1993. An order under Sections 250/150 of the Act, dated 28.5.1993was issued. The assessee filed an application under Section 154 of theAct, dated 23.6.1993 claiming that deduction under Section 80-I was tobe allowed on gross total income without reducing it by unabsorbedallowances. The assessing officer vide order dated 27.8.1993 acceptedthe said application and allowed the claim of the assessee. Thereafter,on scrutiny of record, it was noticed that the assessee had beenallowed relief under Section 80-I of the Act, on interest income of Rs.17,74,215/- but the interest earned from the bank did not qualify fordeduction under Section 80-I. It was further revealed that deductionunder Section 80-I was worked before setting off the brought-forwardlosses, investment allowances and deduction under Section 80-G of theearlier years. The said mistake resulted in grant of excess deductionunder Section 80-I and in order to rectify the said mistake, a noticeunder Section 154 of the Act was issued to the assessee in the year1994. Finding that the assessee had nothing to say in the matter, theDeputy Commissioner of Income-Tax, Karnal vide order dated29.9.1994, Annexure P-3, framed revised computation of income under Section 154 of the Act, observing that the net taxable income of theassessee is Rs. 5,50,63,636/-. The assessee preferred appeal beforethe Commissioner of Income Tax (Appeals), [for short “CIT(A)”]. TheCIT(A) quashed the order, Annexure P-3, and accepted the appeal videorder dated 31.1.1995, Annexure P-2, by holding that the issue,whether deduction under Section 80-I has to be allowed before theadjustment of brought-forward losses/allowances or after adjustment ofthe same, was highly debatable. The Revenue challenged the order of the CIT(A) by filingappeal before the Tribunal. The Tribunal vide order under appeal heldthat the rectification made vide Annexure P-3 was valid and partlyaccepted the appeal. The Tribunal held that in so far as unabsorbedlosses/allowances are concerned, the same had to be reduced fromgross total income for calculating deduction under Section 80-I of theAct. However, whether the interest income was entitled to deductionunder Section 80-I or not, could not be rectified being debatable and itupheld the order of the CIT(A) to that extent. This is how the assessee has come up in appeal to this Court. We have heard learned counsel for the parties and haveperused the record. The Revenue challenged the order of the CIT(A) by filingappeal before the Tribunal. The Tribunal vide order under appeal heldthat the rectification made vide Annexure P-3 was valid and partlyaccepted the appeal. The Tribunal held that in so far as unabsorbedlosses/allowances are concerned, the same had to be reduced fromgross total income for calculating deduction under Section 80-I of theAct. However, whether the interest income was entitled to deductionunder Section 80-I or not, could not be rectified being debatable and itupheld the order of the CIT(A) to that extent. This is how the assessee has come up in appeal to this Court. We have heard learned counsel for the parties and haveperused the record. Learned counsel for the assessee submitted that the issue,whether the unabsorbed losses/allowances of earlier years had to bededucted from gross total income of current year for calculatingdeduction under Section 80-I was highly debatable and, therefore, theassessing officer could not have resorted to Section 154 of the Act in the light of judgment of the apex Court in T.S. Balaram Income TaxOfficer Company Circle-IV, Bombay vs. Volkart Brothers and others(1971) 82 ITR 50. According to the learned counsel, the apex Courthad settled this issue in Commissioner of Income Tax v. KotagiriIndustrial Co-operative Tea Factor Ltd. (1997) 224 ITR 604 byreversing the decision of the Madras High Court and the said decisionwas rendered on 5.3.1997 whereas resort to Section 154 was made in1994 which could not be legally done. Controverting the aforesaid submissions, learned counselfor the Revenue argued that the apex Court in Kotagiri Industrial Co-operative Tea Factor Ltd.’s case (supra) had held that unabsorbedlosses of earlier years had to be reduced from the gross total incomebefore calculating deduction under Section 80-P of the Act and, for this,reliance had been placed on its earlier judgment in Distributors(Baroda) P. Ltd. vs. Union of India and others, (1985) 155 ITR 120wherein similar proposition of law was laid down in respect of inter-corporate dividend under Section 80-M to be the net amount and notthe actual amount received. He submitted that in such a situation, theissue was not debatable when proceedings under Section 154 of theAct were initiated by the assessing officer for disallowance ofunabsorbed lossess/allowances of earlier years. According to him,rather the order dated 23.6.1993 could not be passed by the thenassessing officer under Section 154 of the Act being contrary to theapex Court judgment in Distributors (Baroda) P. Ltd.’s case (supra)and the settled legal position. He further urged that on merits as well,the assessee was not entitled to the claim made by it as learned counsel for the assessee had not been able to deny that on merits theassessee is not entitled to have full deduction from gross total incomeunder Section 80-I without reducing unabsorbed losses/allowances ofearlier years. The solitary point for consideration in this appeal is,whether in the facts and circumstances of the case, the assessingofficer was justified in taking recourse to rectification under Section 154of the Act whereby he had calculated deductions under Section 80-Iafter reducing the gross total income by unabsorbed losses/allowancesof earlier years. counsel for the assessee had not been able to deny that on merits theassessee is not entitled to have full deduction from gross total incomeunder Section 80-I without reducing unabsorbed losses/allowances ofearlier years. The solitary point for consideration in this appeal is,whether in the facts and circumstances of the case, the assessingofficer was justified in taking recourse to rectification under Section 154of the Act whereby he had calculated deductions under Section 80-Iafter reducing the gross total income by unabsorbed losses/allowancesof earlier years. In order to adjudicate the controversy raised herein, it willhave to discern, whether the matter stood settled by the apex Courtdecision in Distributors (Baroda) P. Ltd.‘s case (supra) orin KotagiriIndustrial Co-operative Tea Factor Ltd.’s case (supra) as the formerdecision was rendered on July 1, 1985 whereas the latterpronouncement was on March 5, 1997. The issue before theConstitution Bench of the apex Court in Distributors (Baroda) P. Ltd.’s(supra) was relating to deduction under Section 80-M of the Act. Thequestion was, whether the assessee was entitled to claim deductionunder Section 80-M on the amount of dividend computed in accordancewith the provisions of the Act and forming part of gross total income orwith reference to the full amount of dividend received by the assessee.The Supreme Court held that it is the net amount of dividend which willbe deducted under Section 80-M of the Act. The relevant observationsread thus: “But the amount by way of dividend which would otherwisesuffer tax in the hands of the assessee would be the amountcomputed in accordance with the provisions of the Act andnot the full amount received from the paying company.Therefore, it is reasonable to assume that in enacting s.80M, the Legislature intended to grant relief with referenceto the amount of dividend computed in accordance with theprovisions of the Act and not with reference to the fullamount of dividend received from the paying company. It isdifficult to imagine any reason why the Legislature shouldhave intended to give relief with reference to the full amountof dividend received from the paying company when that isnot the amount which is liable to suffer tax once again in thehands of the assessee. The Legislature could certainly beattributed with the intention to prevent double taxation, butnot to provide an additional benefit which would go beyondwhat is required for saving the amount of dividend fromtaxation once again in the hands of the assessee.” Relying upon this decision, the apex Court in Kotagiri Industrial Co-operative Tea Factor Ltd.’s case (supra) had held thatdeduction under Section 80P is from gross total income determined inaccordance with the provisions of the Act and unabsorbed losses ofearlier years are to be set off before allowing deduction under Section80-P of the Act. Accordingly, the legal position on the basis of whichrectification under Section 154 of the Act had been initiated stoodcrystallized in 1985. In view of the above, it cannot be said that the issue wasdebatable when assessing officer assumed jurisdiction to rectify orderand rectification done was in order. Accordingly, no illegality is noticedin the order of the Tribunal and finding no merit in the appeal, the sameis dismissed. (AJAY KUMAR MITTAL) JUDGE (ADARSH KUMAR GOEL) November 8, 2010 JUDGE *rkmalik*