High Court Of Allahabad
Kesharwani Zarda Bhandar Vs. CIT
Assessment Year : 1979-80
Section : 154, 37(3)/(3A),
Sunil Ambwani And Aditya Nath Mittal, JJ.
IT Reference No. 113 Of 1988
August 31, 2012
JUDGMENT
1. We have heard Shri Krishna Agarwal, learned counsel appearing for the appellant-assessee. Shri Govind Krishna appears for the Revenue.
2. The Income-tax Appellate Tribunal has referred the following questions of law to be considered by the court under section 256(1) of the Income-tax Act, 1961 (“the Act”) :
(i) “Whether, on the facts and in the circumstances of the case, the Tribunal is justified in holding that in respect of the expenditure of Rs. 1,70,690 which was incurred under the scheme given to the stockists and distributors and not to the customers are also promotion and covered under the provisions of section 37(3) and such mistake can be rectified under section 154.
(ii) Whether, on the facts and in the circumstances, the Tribunal is justified in holding that with regard to the expenditure of Rs. 68,425 incurred on advertisement in newspaper, is not a debatable question and is a mistake apparent on the face of record and rectifiable under section 154.
(iii) Whether, on the facts and in the circumstances, the Tribunal is justified in holding that the expenditure incurred on advertisement is covered under section 37(3A) and the issue does not involve any debate, investigation and is a patent mistake which can be rectified under section 154.
(iv) Whether, on the facts and in the circumstances of the case, the Tribunal is justified in holding that the Inspecting Assistant Commissioner (Assessment) was justified in charging interest for five months and excluding the payment of Rs. 38,700 which was paid on October 21, 1978, for the purposes of the computation of interest under section 139(8) and such mistake is a patent mistake rectifiable under section 154.
(v) Whether ‘one month’ means calender month, of 30 days in law, and whether under the provisions of the Income-tax Act for the charge of interest under section 139(8), the amount deposited prior to March 31, 1979, as advance tax but after the due date cannot be considered for the purposes of the computation of interest.
(vi) Whether, on the facts and in the circumstances of the case, the hon’ble Tribunal was legally justified to hold that the provisions of section 154 was applicable in the case specially where the issue involved was debatable and where two opinions were possible.”
3. The Inspecting Assistant Commissioner (Assessment) completed the assessment of the assessee for the assessment year 1979-80 on April 29, 1980. On a later date he realised the mistake of disallowance of advertisement expenses, under the provisions of section 37(3A) of the Income-tax Act, 1961 (in short “the Act”). The Assessing Officer also realised that by mistake interest under section 139(8) had not been properly charged.
4. The assessee had filed return on December 31, 1979. The Assessing Officer had charged interest under section 139(8) for four months only, whereas it was required to be charged for five months. The Assessing Officer also committed a mistake in calculating the interest under section 139(8) of the Act. The interest was to be charged on the tax payable on the total income as determined in regular assessment to be reduced by the advance tax. The assessee had paid Rs. 38,700 on October 21, 1978. The advance tax was due by September 15, 1978. The Assessing Officer felt that the belated payment could not be treated as advance tax. He was of the opinion that the mistake was to be rectified under section 154 and carried out rectification after issuing notice and considering the objections filed by the assessee. The Assessing Officer disallowed a sum of Rs. 60,421 out of advertisement expenses under section 37(3A) of the Act. He modified the calculation of interest under section 139(8) of the Act and charged interest for a period of five months instead of four months and also ignored the belated payment of Rs. 38,700, which was made by the assessee on October 21, 1978.
5. It was submitted before the Commissioner of Income-tax (Appeals) in appeal that the total expenditure of Rs. 4,02,839 had included a sum of Rs.1,70,699 spent on giving presentation articles to the dealers and stockists. This expenditure could not be considered as expenditure falling within the purview of section 37(3A). The total expenditure of Rs. 4,02,839, also included Rs. 68,425, which was spent on giving advertisement in small newspapers and, hence, by virtue of section 37(3B)(i), the provisions of sub-section (3A) would not be applicable to such extent. The Commissioner of Income-tax (Appeals) came to the conclusion that since it was debatable whether the provisions of section 37(3A), were to be applied to the extent of Rs. 1,70,699 on giving presentation articles to dealers and stockists and Rs. 68,425, on advertisement in small newspapers, the mistake could not be rectified under section 154 of the Act. The Commissioner of Income-tax (Appeals) concluded that rectification could be done only in respect of the remaining expenditure of Rs. 1,63,715. The disallowance at the rate of 15 per cent. of this expenditure of Rs. 1,63,715 came to Rs. 24,557. The Commissioner of Income-tax (Appeals) sustained the order of rectification with regard to the sum of Rs. 24,557 as against disallowance of Rs. 60,421, which was made by the Assessing Officer so far as the charging of interest is concerned, the Commissioner of Income-tax (Appeals) observed that under rule 117A of the Income-tax Rules, the Assessing Officer had a discretion to reduce or waive interest and, hence, the charging of lesser interest at the time of assessment could be made on the discretion exercised by the Assessing Officer. The charging of lesser interest was thus not found to be mistake apparent from the records, which could be rectified under section 154 of the Act.
6. The Tribunal held that the expenditure of Rs. 1,70,699 on the presentation articles to the stockists and dealers is clearly an expenditure on sales promotions and, hence, it would fall within the purview of section 37(3A). In M. K. Venkatachalam v. Bombay Dyeing and Manufacturing Co. Ltd. [1958] 34 ITR 143 (SC) it was held that a patent and obvious mistake could be rectified under section 154 of the Act. The Tribunal held that the Commissioner of Income-tax (Appeals) committed an error in holding that the issue was debatable and thus no rectification could be made under section 154 of the Act. The Tribunal found that the Assessing Officer having allowed a portion of the expenditure at the time of completion of assessment committed a patent and obvious mistake of law, which could be rectified under section 154, and, hence, the Commissioner of Income-tax (Appeals) was in error in saying that mistake in not disallowing a portion of this expenditure could not be rectified under section 154 of the Act.
7. The Tribunal further found that the Commissioner of Income-tax (Appeals) was in error in holding that not disallowing any portion of expenditure on advertisement in newspapers was not a mistake, which could be the subject-matter of rectification under section 154. This expenditure being expenditure on advertisement fell under the purview of section 37(3A). It was for the assessee to have established that the advertisement was given in small newspapers. This was a question of fact and was not a debatable issue. The onus to establish this expenditure under sub-section (3B) was on the assessee. The Assessing Officer committed a mistake in overlooking the provisions of sub-section (3A) at the time of assessment and, thus, this mistake could also be rectified under section 154.
8. The Tribunal, thereafter, proceeded on the question of interest under section 139(8) of the Act and found that where a mistake was made in working out the amount of interest from which the payment of Rs. 38,700 made after the date of depositing advance tax could not be reduced. This mistake also could be rectified under section 154. The Tribunal noticed that the Commissioner of Income-tax (Appeals) has cancelled the additional interest charged as a result of rectification on the ground that under rule 117A the Assessing Officer had the discretion to reduce or waive the interest. The Tribunal was of the view that the Commissioner of Income-tax (Appeals) was not justified in interfering with the order of the Assessing Officer and in reducing the amount of interest chargeable under section 139(8). There was no evidence of it on the records. The shortfall in the charging of interest was on account of the fact that the interest was charged for four months, whereas it was due to be charged for five months. Further, the credit for the belated payments of Rs. 38,700 on October 21, 1970, was given to arrive at the amount on which interest was to be charged. The interest under rule 117A could be reduced or waived on certain conditions. The interest could be reduced or waived, in a case in which the assessee produces evidence to the satisfaction of the assessing authority that he was prevented by sufficient cause from furnishing the return within time. In this case, there was no evidence to that effect and, thus, the order of the Commissioner of Income-tax (Appeals) cancelling the rectification under section 154 on this basis was found to be erroneous.
9. The Tribunal relied upon the judgment of the Allahabad High Court in CIT v. Laxmi Rattan Cotton Mills Co. Ltd. [1974] 97 ITR 285 to hold that a month under section 271(1)(a), must be taken to mean a period of 30 days and thus Assessing Officer was justified to hold that the delay was of five months, the charging of interest for four months was thus a mistake, which could be rectified under section 154 of the Act.
10. The payment at Rs. 38,700 made by the assessee on October 21, 1978, was required to be deducted from the amount of tax payable on the total income as determined in the assessment in order to arrive at the amount on which interest under section 139(8) was to be charged. This amount could not be regarded as advance tax. It is only the advance tax paid in accordance with the provisions dealing with the payment of advance tax for which a deduction is to be given to arrive at the amount on which interest is to be charged. The Commissioner of Income-tax (Appeals) erred in law in interfering with the order of the Assessing Officer in deducting the amount, which could be treated as advance tax paid in accordance with the provisions of the Act dealing with payment of advance tax for calculating the interest.
11. Shri Krishna Agarwal, appearing for the appellant-assessee, submits that the decision on debatable point of law is not a mistake apparent on the record. For rectification of mistake there must exist a rectifiable mistake apparent from the record. He has relied upon the decision of the Supreme Court in Mepco Industries Ltd. v. CIT [2009] 319 ITR 208/185 Taxman 409 in which the Supreme Court has drawn the difference between change of opinion and the rectification of mistake. In this case the scope of section 154 of the Act was under consideration. The Mepco Industries Ltd. was engaged in the business of manufacture of potassium chlorates. Its factory is located in the Union Territory of Pondicherry. The appellant received subsidy for two years, which it initially offered as revenue receipt in its return of income. In the petitions filed under section 264 of the Act, in revision of the orders, the assessee pleaded that the subsidy was a capital receipt hence not liable to be taxed. The revision petitions were allowed by the Commissioner of Income-tax. In Sahney Steel and Press Works Ltd. v. CIT [1997] 228 ITR 253/94 Taxman 368 (SC) ; the Supreme Court held that the incentive subsidy was a revenue receipt and, hence, it was liable to be taxed under section 28 of the Act based on the detailed examination of the subsidy scheme by the Government of Andhra Pradesh, which provided that the incentives would not be available unless and until production has commenced. The Supreme Court found that incentives were given by refund of sales tax and by subsidy of power consumption for production. The incentives were found to be production incentive in a sense that the assessee was entitled to incentives only after getting into production. The scheme was not to make any payment directly or indirectly for setting up the industry. Following the judgment the Commissioner of Income-tax passed a rectification order on March 30, 1998, the Commissioner of Income-tax rectified his orders by invoking section 154 of the Act. The Supreme Court, after examining the matter, held as follows (page 212 of 319 ITR) :
“At the outset, we may state that, in these appeals, we are concerned with the assessment years 1993-94 and 1994-95. The short point involved in these appeals is, whether there existed a ‘rectifiable mistake’ enabling the Department to invoke section 154 of the Act ? If one examines the scheme of the Income-tax Act, as it stood at the material time, one finds a clear dichotomy between section 154 and section 147 of the Act. Section 154 deals with rectification of mistake. Section 154(1), inter alia, states that, with a view to rectify any mistake apparent from the record, an income-tax authority may amend any order passed by it under the provisions of the Act, whereas section 147, inter alia, states that if the Assessing Officer has reason to believe that any income charged to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income which has escaped assessment and which comes to the notice of the Assessing Officer subsequently in the course of proceedings under the said section.
In the present case, the Department did not invoke section 147 of the Act even when the matter was within the time limit prescribed. Be that as it may, in these appeals, we are concerned with the meaning of the words ‘rectifiable mistake’.
On the facts of the present case, we are of the view that the present case involves change of opinion. In this connection, it must be noted that the Government grants different types of subsidies to the entrepreneurs. The subsidy in Sahney Steel and Press Works Ltd. [1997] 228 ITR 253 (SC) was an incentive subsidy linked to production. In fact, in Sahney Steel and Press Works Ltd. [1997] 228 ITR 253 (SC) (at page 257), this court categorically stated that the scheme in hand was an incentive scheme and it was not a scheme for setting up the industries. In the said case, the salient features of the scheme were examined and it was noticed that the scheme formulated by the Government of Andhra Pradesh was admissible only after the commencement of production.
In income-tax matters, one has to examine the nature of the item in question, which would depend on the facts of each case. In the present case, we are concerned with power subsidy whereas in the case of CIT v. Ponni Sugars and Chemicals Ltd. reported in [2008] 306 ITR 392 (SC), the subsidy given by the Government was for re-paying loans. Therefore, in each case, one has to examine the nature of subsidy. This exercise cannot be undertaken under section 154 of the Act.
There is one more reason why section 154 in the present case was not invokable by the Department. Originally, the Commissioner of Income-tax, while passing orders under section 264 of the Act on April 30, 1997, had taken the view that the subsidy in question was a capital receipt not taxable under the Act. After the judgment of this court in Sahney Steel and Press Works Ltd. [1997] 228 ITR 253 (SC), the Commissioner of Income-tax has taken the view that the subsidy in question was a revenue receipt. Therefore, in our view, the present case is a classic illustration of change of opinion.”
12. The Supreme Court in Mepco Industries Ltd. (supra) distinguished the judgments of the Calcutta High Court in Jiyajeerao Cotton Mills Ltd. v. ITO [1981] 130 ITR 710 (Cal) and Kil Kotagiri Tea and Coffee Estates Co. Ltd. v. ITAT [1988] 174 ITR 579/[1989] 42 Taxman 33 (Ker). In Jiyajeerao Cotton Mills Ltd. (supra) the Calcutta High Court held that the subsequent decision of the Supreme Court did not obliterate the conflict of opinion prior to it. The rectification under section 154 was not permissible on a debatable issue. In Kil Kotagiri Tea and Coffee Estates Co. Ltd. (supra) the Kerala High Court had held that rectification contemplated under section 154 must be a rectifiable mistake, which is a mistake in the light of the law in force at the time, when the order sought to be rectified was passed. The Supreme Court held that there is no strait jacket principle of distinguishing a capital receipt from a revenue receipt. It depends upon the circumstances of each case. The production incentive scheme in Sahney Steel and Press Works Ltd. v. CIT [1997] 228 ITR 253/94 Taxman 368 (SC) was different from the scheme giving subsidy for setting up industries in the backward areas. In the circumstances, the case was an example of change of opinion and, therefore, the Department had erred in invoking section 154 of the Act.
13. The Supreme Court approved the judgment in CCE v. A.S.C.U. Ltd. [2003] 9 SCC 230 and Deva Metal Powders P. Ltd. v. Commissioner, Trade Tax [2008] 2 SCC 439 in which it was held that a rectifiable mistake is mistake, which is obvious and not something, which needs to be established by a long drawn process of reasoning, or where two opinions are possible. It must be a patent mistake, which is obvious. Its discovery should not depend on elaborate arguments.
14. Coming to the present case we find that during the course of assessment the claims were duly scrutinized, considered and allowed in respect of expenses claimed both under the head of advertisement in newspapers and the scheme in which the presentation articles were given to the stockists and dealers claiming the expenditure as business expenditure. For both these expenses the Assessing Officer was aware of the provisions of section 37(3A), which existed in the statutory book at that time. There was no concealment, which came to the notice of the Assessing Officer after the assessment was complete. The expenditure of Rs. 68,425 on the advertisement in newspapers and the expenditure of Rs. 1,70,699 for presentation articles was business expenditure or sales promotions, was very much within the knowledge of the Assessing Officer. In the order under section 154 of the Income-tax Act, 1961, the reasons given for disallowing the expenses of Rs.68,425 on the ground that advertisement was not made in small newspapers and further disallowing Rs. 1,70,699 for the purposes of section 37(3A) on the ground that the presentation articles were given under the scheme to the stockists and not to the consumers, was a debatable issue. The Assessing Officer had to go through the circulation of newspapers, to arrive at a finding whether these were small newspapers and further whether the presentation articles in the scheme were given to the stockists and dealers as business promotion, and not to the consumers as sales promotion was arrived at after a discussion, which was further elaborated by the Tribunal. We, therefore, find that on the ratio of the principles laid down in Mepco Industries Ltd. (supra), on both the counts the order under section 154 of the Act was not made on any mistake apparent from the record, which was a rectifiable mistake, but was change of opinion by which the Department had to adopt the reasoning on which two opinions should be possible.
15. Questions Nos. (i), (ii) and (iii) in the reference are thus decided in favour of the assessee and against the Revenue.
16. On question No. (iv) we find that the charging interest for four months was a clear error of law on the facts of the case in which the Assessing Officer had failed to take into account that the return was due to be filed by July 31, 1979. Whereas it was filed on December 31, 1979, by taking the month to mean a period of 30 days, interest was to be required to be charged for five months and not for four months. The jurisdictional High Court in Laxmi Rattan Cotton Mills Co. Ltd. (supra) had clearly held that the word “month” is to be taken to mean a period of 30 days and thus the delay for charging interest was of five months and not of four months. The mistake, therefore, was obvious and apparent to on the record and was rectifiable mistake for which proceedings under section 154 could be taken.
17. On question No. (v) we find that the amount deposited prior to March 31, 1979, could be treated as advance tax. After the due date it could not be treated as advance tax for the purposes of computation of interest. It was admitted that the amount was deposited after the due date and thus the Assessing Officer could not have deducted it to arrive on an amount on which interest is to be charged. This again was a mistake apparent from the record and which was rectifiable and which could be corrected under section 154 of the Act.
18. On the aforesaid discussion, we decide question Nos. (i), (ii) and (iii) framed by the Tribunal, in favour of the assessee and against the Department. Questions Nos. (iv) and (v) are decided against the assessee and in favour of the Department. Question No. (vi) is decided, accordingly.
19. The Department will proceed accordingly.
[Citation : 349 ITR 519]
