High Court Of Bombay
CIT Vs. Bencomar Hotels (Goa) (P.) Ltd.
Assessment Year : 1990-91 to 1992-93
Section : 72
S.C. Dharmadhikari And R.C. Chavan, JJ.
Tax Appeal Nos. 1 To 3 Of 2004
September 19, 2008
JUDGMENT
S.C. Dharmadhikari, J. :
This is an appeal under s. 260A of the IT Act, 1961, by the CIT, Panaji, Goa. The appeal under s. 260A can be termed as second appeal as envisaged under s. 100 of the CPC, 1908. The appeal raises the following substantial questions of law :
“(A) Whether on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal (Tribunal) was justified in allowing the benefit of carry forward losses and depreciation relating to earlier years, even though the running of hotel was handed over by the Court to the Court receiver?
(B) Whether on the facts and in the circumstances of the case, the Tribunal was justified in holding that there was no mistake apparent on the record, where in fact, the AO sought to rectify the said mistake based on the order passed by Commissioner of Income-tax (Appeals) [CIT(A)], Belgaum, on 29th Oct., 1993, declining to grant benefit to the assessee for the asst. yr. 1987-88, of carry forward of depreciation, losses, etc. ?”
2. In the instant appeal, the assessment order pertains to the year 1990-91 and in connected Tax Appeal Nos. 2 and 3 of 2004, the assessment years pertain to 1991-92 and 1992-93. Since all the three appeals by the Department are in respect of the same assessee and involve identical issues, for the sake of convenience appeals are decided by this common order.
3. Factual aspects :
(i) The respondent/assessee M/s Bencomar Hotels (Goa) (P.) Ltd., Colva, Goa is a company engaged in running hotel business.
(ii) The assessee filed his return of income on 28th Dec, 1990 disclosing a profit of Rs. 12,38,710 before set off of carry forward depreciation and declared ‘nil’ income for the asst. yr. 1990-91.
(iii) Subsequently, the assessee filed revised return on 5th Feb., 1991 disclosing a gross total income on the same income, but claimed high carry forward of losses. The returns were processed under s. 143(1)(a) and was taken up for scrutiny. The AO completed the assessment under s. 143(3) on 16th Oct., 1992, allowing unabsorbed brought forward depreciation and business losses to be carried forward.
-For reference said order of the AO, Dy. CIT, Assessment, Special Range, Panaji is at Exh. A of the paper book.
(iv) At the later date, for the asst. yr. 1987-88, the assessment was reopened and completed under s. 143(3) r/w s. 148 disallowing assessee’s claim for carry forward of unabsorbed depreciation and business losses as the business was not carried by the assessee company but by the Court receiver, which was decided by CIT(A), Belgaum on 29th Oct., 1993.
(v) Based on the aforesaid order, the AO issued notices under s. 154 of the Act for the assessment year referred to above but withdrew the benefit of carry forward depreciation and business losses which, in fact, earlier allowed on the purported ground that it was a mistake apparent from the record. The said order dt. 19th Jan., 1994, passed by the Dy. CIT, Special Range, Panaji is at Exh. C of paper book.
4. The above facts are taken from one of the appeals but it is common ground that except the figures and years of assessment, all other aspects are common to other appeals. Hence, we have not referred to each of the appeals. Feeling aggrieved by the aforesaid orders of the AO under s. 154 of the Act, the respondent assessee preferred 3 appeals for the respective years before the appellate authority, CIT(A), Belgaum.
5. The CIT(A), Belgaum allowed the appeals filed by the assessee, firstly on the ground that the provisions of s. 154 regarding rectification of mistake is not at all attracted. Secondly on merits also the impugned order was uncalled for and unwarranted. The relevant portion of the order is reproduced:
“These three appeals are directed against order under s. 154 passed by the AO. It was submitted that the appellant had correctly claimed brought forward losses and depreciation in the returns of income. The appellant’s claims were rightly allowed by the AO in the orders under s. 143(1)(a) of the Act. The assessment years relate to 1991-92 and 1992-93 and under s. 143(3) for asst. yr. 1990-91. There were no mistakes apparent in the orders under s. 143(1)(a) for asst. yrs. 1991-92 and 1992-93 and in the order under s. 143(3) for asst. yr. 1990-91. Withdrawal of the appellant’s claim regarding brought forward losses and depreciation originally allowed under s. 143(1)(a)/143(3), by passing orders under s. 154 was therefore totally unwarranted and patently wrong. It was further submitted that the appellant had been running its hotel business right since its inception. There was no stoppage or cessation of the business by the appellant. In view of these facts it was submitted that the AO erred in withdrawing the appellant’s claim of depreciation and losses relating to earlier years by rectifying the orders passed under s. 143(1)(a)/143(3) of the Act.
After carefully considering the submissions of the learned counsel for the appellant I find considerable force in them. The appellant’s claim of set off of losses and depreciation pertaining to the earlier years was accepted by the AO under s. 143(1)(a) for asst. yrs. 1991-92 and 1992-93 and under s. 143(3) for asst. yr. 1990-91. There was no mistake apparent from the orders under s. 143(1)(a)/143(3) warranting rectification of these orders and withdrawal of set off of losses and depreciation pertaining to the earlier years allowed to the appellant through these orders. The power of rectification under s. 154 can be exercised only if there is a mistake apparent from the records of assessment. In order to attract the power to rectify under s. 154 it is not sufficient that there is merely a mistake in the order sought to be rectified but the mistake must be one apparent from the records. A mistake apparent from the records must be an obvious and patent mistake and not something which could be established by a long drawn process of reasoning on points on which there may be conceivably two opinions. The very fact that the presumption of the appellant’s business being closed was a debatable point, there was no mistake apparent from the records warranting rectification. It is worthwhile to mention here that the matter relating to allowance of losses and depreciation pertaining to the earlier years has been decided in favour of the appellant by the CIT(A) for the asst. yr. 1985-86 and against the appellant for asst. yr. 1987-88 by the CIT(A). In view of these facts I am of the considered opinion that there was no mistake apparent from records which warranted rectification.
Even on merits the appellant was entitled to carry forward and set off of losses and depreciation relating to the earlier years. The hotel business was started by the appellant w.e.f. 6th May, 1981. After running the hotel for some time, the appellant entered into an agreement on 22nd June, 1983, with UTC Tourist (P) Ltd. for the purpose of running of the hotel. During the period from 1st July, 1984, to 24th Aug., 1984 the hotel was run under the agreement with UTC Tourist (P) Ltd. As UTC Tourist (P) Ltd. was not fulfilling the terms of the agreement, a suit was filed by the appellant in the Court on 2nd July, 1984. The running of hotel was handed over by the Court to the Court receiver who was none but one of the directors of the company. One of the directors of the company accordingly ran the hotel business as a Court receiver from 24th Aug., 1984 to 4th Feb., 1988, on which date the Court decided the matter and handed over the possession of the hotel to the appellant. Thereafter, the appellant ran hotel business on its own. From these facts it is apparent that there was no stoppage or cessation of the business of the hotel at any point of time. The appellant therefore, could not be denied the benefit of carry forward and set off of losses and depreciation relating to earlier years. Thus even on merits the appellant was entitled to the carry forward and set off of losses and depreciation relating to earlier years.
In view of the foregoing discussion the AO was not justified in withdrawing the appellant’s claim of set off of losses and depreciation relating to the earlier years through order under s. 154 passed by him. Consequently all the three orders under s. 154 passed by the AO are cancelled.
In the result all the three appeals are allowed.”
6. Being aggrieved by the order of the CIT(A) Exh. D, the Revenue filed appeals before the Tribunal, Panaji bearing IT Appeal Nos. 422, 423 and 424/Pan/1995 (asst. yrs. 1990-91, 1991-92, 1992-93). Needless to say that the Tribunal confirmed the order passed by the CIT(A) and dismissed the Revenue’s appeals. Order passed by Tribunal is at Exh. E of the paper book which is reproduced below:
“We have considered the totality of the facts and circumstances of the case as well as the provisions of law relating to allowance of benefits of brought forward unabsorbed business losses and unabsorbed depreciation as well as the scope of provisions of s. 154 of the Act and after careful consideration are of the opinion that the observations of the AO in assessment order for asst. yr. 1987-88 relating to carry forward of business losses and unabsorbed depreciation were of no consequence because, as held by the Hon’ble Supreme Court in case of CIT v . Manmohan Das [1966] 59 ITR 699 (SC) ‘a decision recorded by the ITO who computes loss in the previous year…….. that the loss cannot be set off against the income of the subsequent year is not binding on the assessee.’ Therefore, that observation cannot be taken so as to make the allowance of benefits of brought forward losses/depreciation as a mistake apparent from the record so as to bring the Revenue’s case within the ambit of provisions of section 154 of the Act. The provisions of section 154 can be invoked only if there is a mistake either of a fact or law from the records. It is not sufficient that there is merely a mistake. A mistake must be apparent from the records and must be an obvious and patent mistake and not something which could be established by a long drawn process of reasoning on the point of which there may be conceivable two opinions.
So far as the question of granting benefits of the set off brought forward unabsorbed business losses and depreciation is concerned, we are of the opinion that the issue was a debatable one not only in law but on facts also, and therefore, CIT(A) was quite justified in cancelling the orders passed under s. 154 for withdrawing the benefits already allowed.
So far as the order of the CIT(A) on merits is concerned, the learned Departmental Representative having not refuted the observations and findings, which are based on fact, we uphold the order of the CIT(A) on merits also.”
7. In the backdrop of these facts, the present appeals are filed before this Court.
8. Heard learned counsel Shri S. R. Rivonkar for the appellants and Shri R. G. Ramani for the respondents.
9. For the reasons set out in the orders passed by the CIT(A) as well as Tribunal as reproduced in the aforesaid paras, we are of the considered view that no substantial question of law much less, the question of law is involved in these appeals. As far as the questions raised as (A), (B) and (C) we are of the view that in the facts noted above, there was no cessation of business by the assessee. The business was of the assessee and remained with it. It was managed by a receiver, who was none other than its own director. The business and assets never vest with the receiver but remained that of the assessee, is the conclusion on these facts. On merits, apart from there being no case to invoke s. 154 of the IT Act, it is held that the assessee was entitled to carry forward and set off of losses and depreciation relating to earlier years is the conclusion.
10. In this case, the first appellate authority/CIT(A) and the Tribunal have recorded concurrent findings of fact in respect of the issue as to whether the AO was justified in invoking s. 154 of the Act regarding rectification. Sec. 154 of the IT Act deals with rectification of mistakes. Sec. 154 can only be invoked for the limited purpose. If any authority is required for this proposition, one may refer to the decisions of the Supreme Court in State of Punjab v. Darshan Singh [2004] 1 SCC 328and Bijay Kumar Saraogi v. State of Jharkhand [2005] 7 SCC 748.
11. Having considered the arguments of the learned counsel of the respective parties and gone through the records, we are of the considered view that the two questions set out in para 1 cannot be termed to be the substantial questions of law. We affirm the concurrent finding of fact arrived at by the CIT(A) as well as Tribunal that, in the instant case, the AO (Dy. CIT), Panaji had clearly erred in invoking the provisions of s. 154 of the IT Act. Even on merits the findings arrived at by both the authorities cannot be termed to be perverse. Hence the appeals are dismissed. No order as to costs.
[Citation : 332 ITR 441]
