Madras H.C : Whether the Tribunal is correct in confirming the rectification order passed by the respondent for the above assessment year, wherein the provision for gratuity amounting to Rs. 4,03,887/- was added back and disallowed in the computation of taxable total income which according to the respondent had been omitted to be disallowed while processing the return under Section 143(1) of the Act and the consequential levy of additional tax ?

High Court Of Madras

Tamilnadu Magnesite Ltd. Vs. DCIT, Special Range

Assessment Year : 1992-93

Section : 154, 143

Mrs. R. Banumathi And K. Ravichandrabaabu, Jj.

Tax Case (Appeal) No. 906 Of 2007

February  11, 2013

JUDGMENT

K. Ravichandrabaabu, J. – The assessee is on appeal as against the order of the Income Tax Appellate Tribunal raising the following substantial questions of law relating to the assessment year 1992-1993 :-

(1) Whether the Tribunal is correct in confirming the rectification order passed by the respondent for the above assessment year, wherein the provision for gratuity amounting to Rs. 4,03,887/- was added back and disallowed in the computation of taxable total income which according to the respondent had been omitted to be disallowed while processing the return under Section 143(1) of the Act and the consequential levy of additional tax ?
(2) Whether the Tribunal is correct in concluding that rectification of the intimation would consequently result in payment of additional tax even though intimation under Section 143(1) of the Act and rectification proceedings under Section 154 of the Act are totally different and distinct procedures envisaged in the Act ?
(3) Whether the Tribunal is correct in law in affirming the rectification order passed under Section 154 of the Act to rectify the intimation issued under Section 143(1)(a) of the Act even though the said proceedings of intimation had come to an end upon issue of notice under Section 143(2)of the Act on 25.5.1993 ?

2. The assessee Tamil Nadu Magnesite Limited, Government of India undertaking has filed the return of income on 28.12.1992 for the assessment year 1992-93. In the intimation under Section 143(1)(a) dated 29.4.1993 certain adjustments were carried out by the Department and the said intimation was again revised on 30.6.1993 reducing the disallowance made originally. Notice under Section 154 of the Act was issued on 20.7.1994 and the rectification order was passed by the respondent on 30.8.1994, wherein provision for gratuity to the extent of Rs. 4,03,887/- was disallowed under Section 40A(7) of the Act. In the process of making disallowance, the respondent has imposed an additional tax in the said order of rectification. The appeal preferred by 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 has rectified the intimation and as such the assessee is exigible to the payment of additional tax and the Commissioner of Income Tax (Appeals) took the correct view.

3. The assessee is aggrieved against the levy of additional tax which came to be levied in an order passed under Section 154 of the Income Tax Act. A perusal of the said order of rectification passed by the Deputy Commissioner of Income Tax dated 30.8.1994 shows that certain adjustments were made in the intimation dated 29.4.1993 under Section 143(1)(a) of the said Act. The assessment was revised on 30.6.1993 thereby reducing the disallowance made in the intimation dated 29.4.1993. However, as provisions for Gratuity was omitted to be disallowed as no payments were made by the assessee on this account and as it was a mistake apparent from the records further revision was proposed by way of Section 154 proceedings. Before making such proposed revision, a notice under Section 154 dated 20.7.1994 was issued to the assessee calling upon its objections, if any, for the proposed revision. It is seen that the assessee did not object for the said revision 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 warranted levying of additional tax on a sum of Rs. 2,09,011/- at the rate of 20% and accordingly such levy was made in the said order itself.

4. The said order made under Section 154 was challenged by the assessee before the Commissioner of Income Tax (Appeals). The first appellate authority rejected the appeal by holding that levy of additional tax follows as a sequel to the prima facie adjustment which has been carried out in the order under Section 154. He also further observed that the Assessing Officer ought to have added back the provision 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 first appellate authority rejected the appeal.

5. Aggrieved against the same, the assessee filed further appeal before the Tribunal. The Tribunal pointed out that the assessee did not raise objection against the disallowance and it is aggrieved only against the levy of additional tax. The Tribunal further pointed out that the provision for gratuity was inadmissible item as per Section 40A(7) and as such for having failed to carry out the prima facie adjustment in the intimation, the Assessing Officer had rectified the intimation with the consent of the assessee and as such the assessee 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 that though the assessee did not object for making additions by way of rectification that itself would not entitle the Assessing Authority to levy additional tax automatically and therefore when such non-levy of additional tax is not an error apparent, the same cannot be levied by way of rectification by passing an order under Section 154. In support of his contention, the learned counsel appearing for the assessee relied on the decision in LML Ltd. v. M.K. Venkataraman, Asstt. CIT [2006] 285 ITR 282/151 Taxman 11 (Bom).

7. Per contra, the learned counsel appearing for the Revenue submitted that when the assessee had accepted the disallowance of gratuity provision having been made under Section 154, cannot be permitted to contest against the levy of additional tax, which is only 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 income on 28.12.1992 for the assessment year 1992-93. It is seen that certain adjustments were made in the intimation under Section 143(1)(a) dated 29.4.1993. The same was revised on 30.6.1993 thereby reducing the disallowance made earlier. However, when the provision for gratuity was omitted to be disallowed in view of the fact that no payments were made by the assessee under that head, the said mistake was sought to be rectified under Section 154 proceedings. Consequently, a notice dated 20.7.1994 was issued to the assessee under Section 154 calling upon the assessee to file their objections for the proposed revision.

10. It is an admitted case that the assessee did not file any objection to the said revision and on the other hand, the disallowance of the gratuity provision was accepted by the assessee. Therefore, the levy of additional tax is only a consequential event to the prima facie adjustment, which was carried out through the order passed under Section 154. The Assessing Authority had rightly levied the additional tax by his order under Section 154. When the rectification of mistake was carried out by making disallowance of gratuity provision and the same has not been objected by the appellant, the consequential levy of additional tax, which is only a sequence to the prima facie adjustment also cannot be objected by them. It is not the case of the appellant that the rectification of the mistake was carried out solely for the purpose of levying additional tax. On the other hand, admittedly, the prima facie adjustment was carried out by the Assessing Authority under such rectification thereby disallowing the gratuity provision. When the same was not objected to by the assessee and on the other hand accepted by them, the consequential levy of additional tax cannot be challenged by the appellant. Both the first appellate authority as well as the Tribunal had gone into this aspect and rejected the case of the appellant/ assessee.

11. Learned counsel for the appellant relied on the decision in LML Ltd. (supra). In the said decision of the Bombay High Court, it was observed that the amount sought to be disallowed itself was not taken into account while computing the total income and therefore, the question of levying additional tax on the amount of disallowance did not arise at all. But a perusal of the order of the Assessing Authority made under Section 154 in this case shows that the said disallowance of gratuity provision was taken into account to arrive at the revised adjusted total loss and consequently the additional tax on such addition was levied. Therefore, the facts of the present case are totally different and distinguishable from the facts of the case of the Bombay High Court, relied on by the learned counsel for the assessee. Consequently the said decision of the Bombay High Court is not helpful to the assessee.

12. The Hon’ble Supreme Court in the decision in Asstt. CIT v. Saurashtra Kutch Stock Exchange Ltd. [2008] 305 ITR 227/173 Taxman 322 (SC) considered the scope and meaning of the words “mistake apparent on the face of the record”. After elaborate discussion and by considering various decisions on this subject, the Hon’ble Supreme Court has observed that a patent, manifest and self-evident error which does not require elaborate discussion of evidence or argument to establish it, can be said to be an error apparent on the face of the record. The Hon’ble Supreme Court further observed that an error apparent on the face of the record means an error which strikes on mere looking and does not need a long drawn out process of reasoning on points where there may conceivably be two opinions. After observing so, the Hon’ble Supreme Court has further declared that rectification of an order stems from the fundamental principle that justice is above all and that it is exercised to remove the error and to disturb the finality. Applying the said principle of law laid down by the Hon’ble Supreme Court to the case on hand, we find no merits in the appeal filed by the assessee challenging the order imposing additional tax liability which came to be levied only as a consequential event of the disallowance of the provision for gratuity which admittedly was accepted by the assessee and not challenged by it when the same was also made by the order of rectification. Accordingly, we find no merits in this appeal and the same is dismissed thereby answering all the questions of law against the assessee. No costs.

[Citation : 357 ITR 687]