High Court Of Orissa
Utkal Galvanizers (P) Ltd. vs. Assistant Commissioner Of Income Tax & Anr.
Section 154, 154(1A), 234B
Asst. Year 1991-92
A.K. Ganguly, C.J. & I. Mahanty, J.
OJC No. 5397 of 1996
10th January, 2008
Counsel Appeared :
A.K. Ray, S. Ray, S. Dey, A. Mohanty & S.P. Das, for the Petitioner : Mohapatra, for the Respondents
JUDGMENT
I. Mahanty, J. :
The petitioner in this writ application seeks to challenge an order dt. 14th March, 1995, passed under s. 154 of the IT Act, 1961, by the Asstt. CIT, Cuttack Circle for the asst. yr. 1991-92, inter alia, exercising his power under s. 154(1A) purportedly seeking to revise the depreciation earlier allowed to the assessee and seeking to levy interest under s. 234B (allegedly on the ground of having omitted to make such levy at the time of passing the order under s. 143(3)) and therefore, seeking to rectify the aforesaid mistake by passing the impugned rectification order under s. 154 and raising an additional demand of Rs. 9,89,700. The assessee being aggrieved by such order, filed a revision under s. 264 of the Act before the CIT, Orissa, and the revision having been rejected vide order dt. 28th Feb., 1996, the present writ application has been filed challenging the said order under s. 154 as well as the revisional order.
The assessee filed its return for the year 1991-92 disclosing income of Rs. 2,76,306 on 30th Dec., 1991, whereafter it was duly assessed under s. 143(1) (a) and by order dt. 7th March, 1994, total tax and interest were assessed at Rs. 1,45,084 and it was determined that since the assessee has already deposited tax of Rs. 1,67,362, an amount of Rs. 30,358 was found to be refundable. It is further alleged that instead of effecting refund as determined in the order of assessment as indicated above, the AO instead issued a notice under s. 143(2) to the assessee and pursuant to such notice, the income of the assessee was determined at Rs. 13,59,510, essentially by making additions under two heads, namely, (1) trading account—Rs. 9,38,989, and (2) scrap sale—Rs. 1,10,487. Being aggrieved by the said order, the assessee carried an appeal to the CIT(A) and by order dt. 25th Jan., 1995, the CIT(A) was pleased to quash the enhancement/additions made by the AO both on account of trading account as well as scrap sale, but came to determine that since there was stock discrepancy of Rs. 2,52,000, the said amount should be taken into account for the purpose of levy of tax thereon. In other words, while the enhancement effected by the AO was quashed, yet an addition for discrepancy in stock of Rs. 2,52,000 was directed by the CIT(A).
Learned counsel for the petitioner, however, submitted that instead of complying with the direction of the CIT(A) and passing consequential order implementing the said directions as required in law, the AO issued a notice to the petitioner under s. 154 asking for compliance and show-cause as to why (1) non-levy of interest under s. 234B at the time of assessment under s. 143(3), and (2) excess deduction allowed on account of depreciation should not be rectified. Pursuant to the said show-cause notice, the assessee filed its objections, inter alia, on the ground that the proposed s. 154 action was no longer available since the very order which was sought to be corrected or rectified, had already merged in the appellate order passed by the CIT(A) and on the ground that the notice did not specifically point out as to where excess depreciation has been allegedly allowed.
The AO rejected the objections raised by the assessee and passed the impugned order under s. 154 dt. 14th March, 1995 (Annex. 1) and the said order was affirmed in revision by the CIT by his order dt. 28th Feb., 1996 (Annex.3).
4. Learned counsel for the petitioner in the present writ application submitted, that s. 154 proceeding was initiated seeking to rectify an alleged mistake apparent from the order under s. 143(3) for the asst. yr. 1991-92. Learned counsel submitted that by the date of the notice under s. 154, the order under s. 143(3) sought to be rectified no longer subsisted in law, inasmuch as, the said order had already been quashed/varied by the CIT(A) vide order dt. 25th Jan., 1995 (Annex. 6). Learned counsel for the petitioner, therefore, submitted that once the order under s. 143(3) no longer existed, there could be no question of effecting rectification of the said order.
On the other hand, Mr. Mohapatra, learned standing counsel for the Department strenuously urged that under s. 154(1A), provisions specifically existed for making correction in orders even though such orders have been carried by way of appeal or revision and that the AO remained competent to amend the order passed by him under s. 143(3). The only limitation to such power or authority is to the effect that such rectification would be carried out in relation “to any matter other than the matter which has been considered and decided” in appeal or revision. Shri Mohapatra, therefore, while placing reliance on the aforesaid provision of law also placed reliance upon a judgment of the Madras High Court in the case of CIT vs. Sundaram Textile Ltd. (1984) 43 CTR (Mad) 30 : (1984) 149 ITR 525 (Mad) and on a decision of the Karnataka High Court in the case of Addl. CIT vs. India Tin Industries (P) Ltd. (1986) 57 CTR (Kar) 70 : (1987) 166 ITR 454 (Kar).
In the judgment rendered by the Madras High Court in Sundaram Textile Ltd. (supra) their Lordships came to hold that it is “only in the case where a particular item is dealt with in appeal” that the ITO cannot deal with that item by invoking s. 154. In the said case, the ITO in the order giving effect to the order passed in appeal had granted “extra shift allowance” and as grant of such extra shift allowance was contrary to the provisions contained in the IT Rules, 1962, the order of the ITO granting extra shift allowance should be considered to be a mistake apparent from the record and therefore, amenable to rectification proceeding under s. 154.
In the case of India Tin Industries (P) Ltd. (supra) their Lordships of the Karnataka High Court came to hold that sub-s. (1A) of s. 154 specifically provides that any matter which has not been considered and decided in any proceeding by way of appeal or revision, may be amended by the authority passing such an order in exercise of its power under s. 154(1). Their Lordships further came to hold that the doctrine of merger is not a doctrine of rigid and universal application and it cannot be said that wherever there are two orders, one by an inferior Tribunal and the other by a superior Tribunal passed in an appeal or revision, there is a fusion or merger of the two orders irrespective of the subject-matter of the appeal. The order of assessment made by the ITO merges in the order of the CIT insofar as it relates to items considered and decided by the CIT(A). That part of the order of assessment, which relates to items not forming the subject-matter of the appellate order and left untouched does not merge in the order of the CIT. Even after an appeal from an order of assessment is decided by the CIT(A), a mistake in that part of the order of assessment which was not the subject-matter of the appeal and was thereafter left untouched by the CIT(A), can be rectified by the ITO.
On consideration of the aforesaid judgments relied upon by learned standing counsel for the Revenue, it is clear that the aforesaid judicial pronouncements laid down the principle that the doctrine of merger does come to play insofar as items considered and decided by the CIT(A) or in a case where a particular item is dealt with by the appellate/revisional authority. Therefore, in order to adjudicate the present lis, it is incumbent upon us to first determine as to whether the issues/items sought to be rectified under s. 154 are matters which were dealt with or considered and decided by the appellate authority or not, since the answer to the said question would be determinative as to whether the ITO possessed necessary authority under s. 154 to initiate such a proceeding or not ?
On a perusal of the impugned order under s. 154 (Annex. 1), it would be apparent that the rectification was made of two aspects, i.e., non-levy of interest under s. 234B and the alleged excess deduction allowed on account of depreciation.
Insofar as the first aspect, i.e., non-levy of interest under s. 234B is concerned, on a perusal of the said provision, it appears that an assessee who fails to pay advance tax, less than 90 per cent of the assessed tax shall be liable to pay simple interest @ 1 per cent per month for the shortfall. The said provision provides various Explanations. In Expln. 1, it is stipulated that the term “assessed tax” means the tax on the total income determined under sub-s. (1) of s. 143 on regular assessment. In the present case, originally, an order under s. 143(1) was passed against the assessee in which the assessee’s return was accepted and certain amount was found to be refundable. Thereafter, exercising power under s. 143(3), a regular assessment took place enhancing the assessed tax determined to be payable by the assessee. Expln. 3 provides that in Expln. 1 and in sub-s. (3), “tax on the total income determined under sub-s. (1) of s. 143” shall not include the additional income-tax, if any, payable under s. 143. Therefore, in view of the aforesaid Explanation, it is clear that the present petitioner assessee was not originally liable for any interest under s. 234B under the orders passed against it under s. 143(1). Thereafter, when the regular assessment under s. 143(3) was initiated and the income of the assessee was enhanced and “additional income-tax” became payable, no question of levy of interest for “nonpayment of advance tax” could arise. This is obviously so since such determination of additional income-tax was the consequence of regular assessment and determination of additional Income-tax payable. This aspect is also purely academic since the additions effected by the ITO were ultimately deleted by the CIT(A) in appeal. Therefore, in our view no question of payment of interest under s. 234B arises in the present case and non-charging of the same in the present case cannot be accepted as a “mistake capable of rectification” by initiating a proceeding under s. 154 of the IT Act.
Insofar as the second issue is concerned, i.e., excess deduction allowed on account of depreciation, on a perusal of the original order of assessment under s. 143(3) (Annex. 5) clearly indicates that the AO at that stage had, in fact, applied his judicial mind and “disallowed depreciation”. Against the said order, the assessee carried an appeal in which an issue was raised regarding disallowance of depreciation. That issue was dealt with by the CIT(A) in the appellate order by rejecting the same. Therefore, insofar as depreciation is concerned, it is clear that the appellate order merged with the original order under s. 143(3) and since the issue regarding depreciation formed a part of the subject-matter of the appellate order and therefore, the doctrine of merger would apply insofar as depreciation is concerned. Placing reliance on the two judgments referred to above, it would be clear that permitting the AO to exercise power under s. 154 in the matters which have already been carried in appeal, would lead to judicial anarchy. If the Revenue in any manner was dissatisfied, it was open to it to challenge the same in the second appeal before the Tribunal. In the absence of any challenge permitting the AO to vary or review or revise his own order under a plea of correcting the mistake as contemplated under s. 154 is to in effect allow him to override or overreach the order passed by the higher authorities in appeal or revision. This is clearly not the intention of legislation of s. 154 (1A) of the IT Act. We are of the view that the scope of s. 154(1A) remains limited to the “mistakes apparent from records”. Such mistakes cannot and do not include powers to revise or review/reappraise one’s earlier order. We are of the view that in the present case, exercise of power under s. 154 insofar as “depreciation” is concerned, is also without jurisdiction.
With the aforesaid directions, the writ application is allowed, but in the circumstances, without costs.
A.K. GANGULY, C.J. :
I agree
[Citation : 298 ITR 53]
