High Court Of Punjab & Haryana
CIT vs. Roxy Industrial Corporation
Sections 80HHC, 154
Asst. Year 1995-96
Adarsh Kumar Goel & Rajesh Bindal, JJ.
IT Appeal No. 219 of 2004
15th May, 2006
Counsel Appeared
D.S. Patwalia, for the Appellant : P.C. Jain, for the Respondent
ORDER
By the court :
This appeal has been preferred by the Revenue under s. 260A of the IT Act, 1961 (for short, the Act) against the order of Tribunal, Chandigarh Bench ‘A’ against the asst. yr. 1995-96 in ITA No. 731/Chd/1999.
The substantial question of law sought to be raised is as under :
“Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the AO was not justified in exercising the power under s. 154 adjusting the loss suffered from export of trading goods against the deduction admissible under s. 80HHC being a debatable issue without appreciating the facts that the subsequent decision of the Hon’ble Bombay High Court in the case of IPCA Laboratories Ltd. vs. Dy. CIT (2001) 170 CTR (Bom) 568 : (2001) 251 ITR 401 (Bom) and its endorsement by the Hon’ble Supreme Court does not bring it within the ambit of an apparent mistake of law rectifiable under s. 154 of the IT Act?” However, after hearing counsel for the parties, we are of the view that following substantial question of law arises for determination by this Court:
“Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the AO was not justified in exercising the power under s. 154 adjusting the loss suffered from export of trading goods against the deduction admissible under s. 80HHC of the IT Act ?”
With the consent of learned counsel for the parties, we have finally heard the appeal at the stage of admission itself. Assessment for asst. yr. 1995-96 was made vide order dt. 31st March, 1998. In the said order, deduction of Rs. 68,69,374 was allowed under s. 80HHC of the Act, without adjusting loss from export of trading goods amounting to Rs. 42,91,630. The AO gave notice for rectification dt. 20th April, 1998 indicating error in calculation. Thereafter, notice dt. 30th Sept., 1998 for rectification was given indicating that deduction under s. 80HHC was wrongly calculated at Rs. 68,69,374 instead of Rs. 14,51,472 as element of loss was not taken into account. Another notice dt. 6th Feb., 1999 was also given for rectification indicating that deduction was admissible at Rs. 7,21,090 under s. 80HHC of the Act. The assessee contested the notice, inter alia, on the ground that “even scope of proceedings under ss. 154/155 is very limited to rectify only those mistakes either on law or on facts which require no discussion or argument.” The AO proceeded to rectify the mistake vide order dt. 3rd March, 1999 with the observation that vide order dt. 25th Jan., 1999, for the asst. yr. 1996-97 it was held that if there was loss from the export of trading goods, deduction for loss was not admissible.
The assessee preferred an appeal, relying upon decision of the Tribunal, Chandigarh Bench, Chandigarh in the case of M/s Avon Cycles Ltd. to the effect that loss suffered from trading is to be ignored. The appeal of the assessee was accepted. This view has been affirmed by the Tribunal on the ground that since two views were possible, the rectification was not justified, as held by the Hon’ble Supreme Court in T.S. Balaram, ITO vs. Volkart Brothers & Ors. (1971) 82 ITR 50 (SC) and CIT vs. Hero Cycles (P) Ltd. Etc. (1997) 142 CTR (SC) 122 : (1997) 228 ITR 463 (SC). Order of rectification shows that the basis for rectification was decision taken by the AO for the next year on 25th Jan., 1999. Extract from the notice dt. 3rd Feb., 1999 and relevant discussion in the order of rectification, are as under : Extract from the notice dt. 3rd Feb., 1999 “4. This is to give an other opportunity of being heard under s. 154 to justify the following claims (i) Please justify the claim for credit of Rs. 13.40 lakhs declared under VDIS. (ii) You have claimed the deduction of Rs. 42,91,630 which was the loss from export of trading goods. The deduction for this loss cannot be allowed as there is no such procedure in the proviso to s. 80HHC(1).
After considering the relief in appeal, the deduction admissible under s. 80HHC could be Rs. 7,21,090 as per chart enclosed. You are given an opportunity of being heard before the order under s. 154 is made to rectify the deduction under s. 80HHC. You are requested to offer written comments so as to reach this office on or before 26th Feb., 1998. Formal notice under s. 154 is enclosed.” Even in reply dt. 25th Feb., 1999 to above notice, the stand of the assessee was “……Even the scope of proceedings under ss. 154/155 is very limited to rectify only those mistakes either on law or on facts, which required no discussions or arguments.” Relevant discussion in the order of rectification : “5……. The argument made by the assessee for claiming this deduction is that the loss arising from export of trading goods is to be considered for determining the deduction under s. 80HHC as per proviso to s. 80HHC(1). Similar argument was made by the assessee for subsequent year i.e. asst. yr. 1996-97 for which the assessment was completed vide order dt. 25th Jan., 1999 where it was held that no further deduction is to be allowed under the proviso to s. 80HHC(1) if there is loss from the export of trading goods. In view of this fact, the deduction for loss from export of trading goods is not allowed.”
5. Learned counsel for the assessee submits that the issue whether loss was to be adjusted while calculating benefit under s. 80HHC of the Act, has been subject-matter of debate and different High Courts had taken different views on the issue, which has now been settled by decision of Hon’ble the Supreme Court in IPCA Laboratory Ltd. vs. Dy. CIT (2004) 187 CTR (SC) 513 : (2004) 266 ITR 521 (SC) in favour of the Revenue. Learned counsel has fairly given list of other decisions of different High Courts and Tribunals taking this view i.e. CIT vs. A.V. Thomas & Co. Ltd. (1997) 142 CTR (Ker) 364 : (1997) 225 ITR 29 (Ker), CIT vs. Harisons Malayalam Ltd. (2004) 188 CTR (Ker) 469 : (2004) 266 ITR 516 (Ker), CIT vs. Forbes, Evart & Figgies (P) Ltd. (2004) 190 CTR (Ker) 163 : (2004) 269 ITR 94 (Ker), Rohan Dyes & Intermediates Ltd. vs. CIT (2004) 192 CTR (Bom) 45 : (2004) 270 ITR 350 (Bom), Yarn Syndicate Ltd. vs. Dy. CIT (2002) 74 TTJ (Cal) 543 : (2001) 79 ITD 189 (Cal), Lalsons Enterprises vs. Dy. CIT (2004) 82 TTJ (Del)(SB) 1048 : (2004) 89 ITD 25 (Del)(SB), Hero Cycles Ltd. vs. Asstt. CIT (2004) 84 TTJ (Chd) 485, Mangalya Trading & Investments Ltd. vs. Dy. CIT (2005) 94 TTJ (Mumbai) 526, ITO vs. Chromatic Dyestuff Ltd. (2005) 94 TTJ (Mumbai) 550 and ITC Ltd. vs. Jt. CIT (2005) 95 TTJ (Cal) 1017. Other judgments, taking a view in favour of the assessees, as cited by the counsel are CIT vs. Shirke Construction Equipments Ltd. (2000) 163 CTR (Bom) 580 : (2000) 246 ITR 429 (Bom), CIT vs. Smt. T.C. Usha (2003) 185 CTR (Ker) 256 : (2004) 266 ITR 497 (Ker). Incidentally these two judgments were overruled by Hon’ble the Supreme Court in IPCA Lab. case (supra). A bare perusal of the citation shows that the judgments/orders taking different views on the issue were delivered after the order under s. 154 of the Act had been passed in the case of the assessee.
6. Sec. 154 of the Act provides for rectification of any mistake apparent from the record. Expression “mistake apparent from the record” has been interpreted in several decisions. In Satyanarayan Laxminarayan Hedge & Ors. vs. Mallikarjulu Bhavanappa Tirumale AIR 1960 SC 137 at p. 141, it was observed: “An error which has to be established by a long drawn process of reasoning on points where there may conceivably be two opinions can hardly be said to be an error apparent on the face of the record. As the above discussion in the present case is far from self-evident and if it can be established, it has to be established by lengthy and complicated arguments.”
7. In a later decision in K.M. Shanmugam vs. SRVS (P) Ltd. & Ors. AIR 1963 SC 1626, para 7, it was observed that the test of “complex nature of argument” may not be helpful in every case and the expression “error of law apparent on the face of the record” may not be capable of precise definition to be applied. It was observed :
“7…….. The question whether the said errors are errors of law or fact cannot be posited on a priori reasoning, but falls to be decided in each case. We do not, therefore, propose to define with any precision the concept of ‘error of law apparent on the face of the record’, but it should be left, as it has always been done, to be decided in each case.”
8. Following the above view, the Madras High Court in T.S. Rajam vs. CED (1968) 69 ITR 342 (Mad) at p. 351, observed : “On a fair conspectus of the ratio of the various decisions of this Court and the Supreme Court, it is now clear that for a rectification of an error which is said to be apparent from the face of the record, the mere complexity of the problem or that genuine argument is necessary to discover the same may not by themselves be sufficient to oust the jurisdiction of a Tribunal to rectify such a mistake. If, however, it could be discerned with some precision after a fair probe into the assessment records and a reasonable and probable conclusion can be arrived at, that the Court’s conscience has been shaken, in that there appears an error on record which has to be certainly corrected, then it would appear that the jurisdiction of the Tribunal vesting with power to rectify such mistakes arises. As has been repeatedly pointed out, it is very difficult to state where the jurisdiction begins and where it ends. One thing, however, emerges from the discussion above. The essence of rectification is to bring the order which was expressed and intended to be in pursuance of the existing law, into harmony with such law. It presupposes a particular state of affairs and it requires proof that by such a mistake the final order fails to give proper effect of the law and its functions. Once the Tribunal or authority is able to predicate with certainty as to in what manner and how the order suffers by a mistake apparent on its record supported by irrefragable evidence, then it would indeed enable them to bring the order complained against or impugned against in conformity with law and the facts in the record.”
We are, therefore, of the view that if mistake is apparent from the record, the same can be corrected subject to other requirements such as limitation, etc. In ITO vs. S.K. Habibullah (1962) 44 ITR 809 (SC), at p. 811, it was observed : “The power of rectification may be exercised subject to two conditions: (1) that there is a mistake apparent from the record of the assessment, and (2) that the order of rectification is made within four years from the date of the assessment sought to be rectified. The mistake which may be rectified need not be in the order itself; it may be in any part of the record or proceeding of assessment of the assessee”.
9. Judgments relied upon on behalf of the assessee in Volkart Brothers & Hero Cycles (supra) are distinguishable. In Volkart Brothers, the original assessment order was held to be in accordance with law and it was also held that there was no obvious or patent mistake in the order of assessment. In that context, it was observed:
“8….. A mistake apparent on the record must be an obvious and patent mistake and not something which can be established by a long drawn process of reasoning on points on which there may conceivably be two opinions. As seen earlier, the High Court of Bombay opined that the original assessments were in accordance with law though in our opinion the High Court was not justified in going into that question.”
In Hero Cycles (supra), claim for weighted deduction in respect of export sales commission etc. was disallowed. On appeal, the said claim was partly allowed. Thereafter, the AO allowed the claim by way of rectification. It was held that the “rectification is not possible if question is debatable.” Both the cases are distinguishable. The question whether case for rectification was made out, has to be decided from case to case. If it can be held that there was “mistake apparent from the record”, rectification is permissible. When an issue is debatable, it cannot be held that the mistake was apparent from the record. The issue can be held to be debatable if in the opinion on the AO, there are two opinions on the question. If the AO is of the opinion that there was a clear mistake on which there was no serious dispute, jurisdiction to make rectification is not excluded.
In the present case, as is evident from the record, the AO noticed the mistake apparent from the record on the basis of assessment order for the next year. Even the case of the assessee in the reply to notice under s. 154 of the Act was not that the issue sought to be raised is debatable and there is divergence of judicial opinion on the same expressed by different High Courts. We are unable to hold that there is any error in jurisdiction exercised by the authority under s. 154 of the Act, in the facts and circumstances of this case.
We may notice the contention raised on behalf of the assessee that if the order of AO is without any legal basis, merely because same view was later taken by a higher Court or statutory amendment was made, could not justify such an order. In the present case, we are not sustaining the order of AO on this ground. We are of the view that the AO has jurisdiction to correct the error, which could well be termed as “mistake apparent from the record.”
We, accordingly, answer the question in favour of the Revenue and against the assessee, allow the appeal and restore the order of the AO passed under s. 154 of the Act.
[Citation : 298 ITR 318]
