Jammu & Kashmir H.C : The order made by the ITO under s. 154 allowing thereunder the depreciation due in respect of the truck, is not an order to rectify a mistake apparent from the records and, is, therefore, unsustainable

Counsel Appeared

Anil Bhan, for the Revenue : None, for the Assessee

JUDGMENT

Dr. B.P. Saraf, C.J. :

By this reference under s. 256(1) of the IT Act, 1961 (‘the Act’), the Income-tax Appellate Tribunal, Amritsar (“the Tribunal”) Bench, Amritsar, has referred the following questions of law to this Court for opinion at the instance of the Revenue : “

Asst. yr. 1975-76 :

1. Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the order made by the ITO under s. 154 allowing thereunder the depreciation due in respect of the truck, is not an order to rectify a mistake apparent from the records and, is, therefore, unsustainable ?

Asst. yr. 1976-77

2. Whether, on the facts and in the circumstances of the case, the Tribunal has misdirected itself in law in holding that the assessee had not furnished the particulars as required under s. 34 of the IT Act, 1961 for the allowance of depreciation in respect of the truck ?

3. Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the ITO is not justified in allowing the depreciation in respect of the truck ?” The material facts of the case, briefly stated, are as follows : The assessee submitted the return of his income under the IT Act for the asst. yr. 1975-76. In the return, the assessee did not claim depreciation on the truck owned by him and used for the purpose of his business. The ITO assessed the income of the assessee on the basis of the return under s. 143(1) of the Act and determined the taxable income at Rs. 19,067. Later, the ITO rectified the order under s. 154 of the Act as he found that depreciation had not been allowed in the assessment on truck No. 127 even though the particulars were available on the file. The ITO, therefore, allowed depreciation of Rs. 16,170 on that trust and re-determined the taxable income of the assessee at Rs. 2,900. Aggrieved by the order of rectification of the ITO by which he allowed depreciation in respect of the truck which he did not claim in his return, the assessee appealed to the AAC. The case of the assessee before the AAC was that no depreciation having been claimed by him in his return in respect of the truck in question, the ITO had no power to rectify the assessment order under s. 154 of the Act and grant the same. It was also contended by the assessee that the rectification having been made without affording an opportunity to the assessee of being heard as contemplated by s. 154 of the Act, the order of rectification was illegal. The AAC accepted the latter contention of the assessee and held that the order of the ITO was illegal because it had the effect of increasing the liability of the assessee in the next assessment year, viz., asst. yr. 1976-77 and, hence, it could not have been passed without issuing any notice to the assessee of his intention to do so and allowing the assessee a reasonable opportunity of being heard. The AAC, therefore, set aside the order of rectification of the ITO under s. 154 of the Act. The Revenue appealed to the Tribunal. The Tribunal was of the view that the question of grant of depreciation in a case where the assessee does not claim the same was a debatable point and that being so, power under s. 154 of the Act could not have been exercised by the ITO. The Tribunal, therefore, upheld the order of the AAC, though on a different ground. Aggrieved by the above order of the Tribunal, the Revenue applied for reference of the question of law set out in question No. 1 above to this Court for opinion. The Tribunal has, accordingly, referred question No. 1 to this Court for opinion. Question Nos. 2 and 3 pertain to the asst. yr. 1976-77. In that year, though in his return of income, the assessee did not claim any depreciation in respect of the truck in question, in the order of assessment under s. 143(1) of the Act, the ITO allowed depreciation on the written-down value of the truck which could have been arrived at after allowing depreciation for the earlier year. He did not accept the plea of the assessee that depreciation cannot be allowed in the absence of a claim made by the assessee in that regard. The ITO found that the particulars required for allowance of depreciation having been available in the return, depreciation was allowable to the assessee. He, therefore, suo motu allowed depreciation in respect of the trust which the assessee did not claim. This action of the ITO was challenged by the assessee before the AAC. The AAC accepted the contention of the assessee that no depreciation can be allowed unless the assessee claims the same. He, therefore, cancelled the order of the ITO insofar as the grant of depreciation was concerned. The Revenue appealed to the Tribunal. The Tribunal was of the opinion that in view of conflict of opinion on this issue between different High Courts, the ITO could not have rectified the order under s. 154 of the Act. On the merits of the decision of the ITO to grant depreciation suo motu, the Tribunal held that the assessee having not furnished the requisite particulars for the purposes of depreciation and having not claimed depreciation in respect of the truck, the ITO should not have allowed depreciation in computing his income. The Tribunal found that the written-down value had been repeated mechanically from the earlier assessment year without the requisite particulars having been furnished by the assessee in the return. The Tribunal, therefore, held that the ITO should not have allowed depreciation as the assessee had not furnished particulars because his intention was not to claim depreciation. The Tribunal relied on the circular of the CBDT and held that the ITO was wrong in allowing depreciation of Rs. 11,320 to the assessee. The deduction allowed in the assessment on account of depreciation was, therefore, deleted by the Tribunal. The Revenue sought for reference of question Nos. 2 and 3 to this Court for opinion under s. 256(1) of the Act. The Tribunal has referred the same to this Court. We have given our careful consideration to the questions referred to us. The controversy in the first question is about the power of the ITO to rectify the assessment under s. 154 and grant depreciation to the assessee in respect of the truck which the assessee did not claim in its return. The rectification was challenged by the assessee on various grounds. The first ground of challenge was that the assessee having not claimed depreciation in its return, the ITO could not have granted it by rectifying the assessment. The second ground was that the rectification had the effect of increasing the liability of the assessee in the next assessment year. The same could not have been done without giving notice to the assessee of its intention to do so and allowing the assessee a reasonable opportunity of being heard. The third ground of challenge was that there being a divergence of opinion between different High Courts on the point whether the AO could grant depreciation allowance when the same was not claimed by the assessee, the ITO could not have rectified the assessment and granted depreciation because there was no mistake apparent from the record contemplated by s. 154 of the Act. The AAC set aside the order of rectification on the ground that it was passed without giving a notice to the assessee and without affording him an opportunity of hearing. The Tribunal upheld the order of AAC but on a different ground. The Tribunal upheld the order of AAC but on a different ground. The Tribunal upheld the order of AAC but on a different ground. The Tribunal held that the question whether the AO can grant depreciation allowance when the same is not claimed by the assessee being a debatable point, the power of rectification under s. 154 of the Act could not have been exercised.

We have given our careful consideration to the questions referred to us. Sec. 154 of the Act provides for rectification of mistake apparent from the record. The power under s. 154 of the Act, therefore, can be exercised only if there is a mistake in the order and the mistake is apparent from the record. Law is well-settled that only a glaring and obvious mistake of law can be corrected under s. 154 of the Act. A decision on a debatable point of law cannot be corrected by way of rectification. If the rectification was made at a time when the issue was debatable, it cannot be supported by reference to the Supreme Court’s decision settling the issue which is rendered after the rectification. In the instant case, there is no dispute about the fact that at the time when the rectification was made, there was a sharp cleavage of opening between different High Courts on the point. The controversy was set at rest recently by the Supreme Court by its judgment dt. 15th March, 2000, in CIT vs. Mahindra Mills (2000) 159 CTR (SC) 381 : (2000) 243 ITR 56 (SC). In that case, the Supreme Court held that the provision of s. 32 of the Act to claim depreciation being for the benefit of the assessee, if the assessee does not wish to avail of that benefit for some reason, the benefit cannot be forced upon him. In view of the above, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the order of the ITO under s. 154 of the Act is not an order to rectify a mistake apparent from the record and, hence, it is not sustainable. Question No. 1 is, therefore, answered in the affirmative, i.e., in favour of the assessee and against the Revenue.

7. We may now turn to question Nos. 2 and 3. The controversy in question Nos. 2 and 3 again in regarding grant of depreciation to an assessee who does not want to avail of the same. The Tribunal held that the assessee having not furnished the requisite particulars in respect of the truck in question for the purpose of grant of depreciation and having not claimed depreciation in respect thereof, the ITO should not have allowed depreciation incomputing his income. The Tribunal noted that the written-down value of the truck had been repeated mechanically from the earlier assessment year without the requisite particulars having been furnished by the assessee. So far as thefactual controversy as to whether the assessee had furnished the particulars as required under s. 34 of the Act for the purpose of depreciation in respect of the truck or not is concerned, we find that there is a definite finding of fact by the Tribunal that such particulars had not been furnished. As stated earlier, the Tribunal has categorically stated that the written-down value of the truck had been repeated mechanically from the earlier assessment year without any particulars having been furnished by the assessee in his return. That being so, the Tribunal, in our opinion, was right in holding that the assessee had not furnished the particulars as required under s. 34 of the Act for the allowance of depreciation in respect of the truck.

8. So far as the third question is concerned, though at the material time there was a divergence of opinion between the High Courts whether the AO can grant depreciation allowance when it was not claimed by the assessee, that controversy is now settled by the decision of the Supreme Court in Mahindra Mills’ case (supra). The Supreme Court in that case considered the decisions of the High Courts of Allahabad and Madras which took the view that the ITO could grant depreciation allowance even if it was not claimed by the assessee. The Supreme Court also considered the decisions of the Bombay, Gujarat, Punjab & Haryana, Karnataka, Andhra Pradesh, Calcutta and Kerala High Courts wherein a contrary view had been taken. The Supreme Court repelled the argument on behalf of the Revenue that since s. 32 provides for depreciation, it has to be allowed in computing the income of the assessee. The Supreme Court held that the provision for claim of depreciation being for the benefit of the assessee, if he does not wish to avail of that benefit for some reason, the benefit cannot be forced upon him. It is for the assessee to claim depreciation , if it is to his advantage. The Supreme Court held : “……Sec. 34 is not in the nature of merely an enabling provision. In the absence of particulars of depreciation as required by s. 34, there is no mandate on the ITO under s. 29 to compute the income by allowing depreciation under s. 32…….”

9. It is clear from the above decision of the Supreme Court that no depreciation can be allowed in a particular assessment year if the assessee does not want to claim it in that year. In the instant case, the assessee did not claim any depreciation in the year under consideration. He did not even furnish the particulars required for allowance of depreciation under s. 34. In such a situation, the ITO could not and should not have allowed the same.

10. In view of the above, we are of the clear opinion that on the facts and in the circumstances of the present case, the Tribunal was right in holding that the ITO was not justified in allowing depreciation in respect of the truck which had not been claimed by the assessee.

11. In the premises, question No. 2 is answered in the negative, i.e., in favour of the assessee and against the Revenue. Question No. 3 is answered in the affirmative, i.e., in favour of the assessee and against the Revenue. The reference is disposed of, accordingly, with no order as to costs.

[Citation : 248 ITR 641]