DY. COMMISSIONER OF INCOME TAX , CIRCLE-16(1), HYDERABAD vs. SRINIVASA CHAKRAVARTHI RAJU GOKARAJU, HYDERABAD

The present appeal is filed by the Revenue against the order dated 01/08/2018 passed by the learned Commissioner of Income Tax (Appeals)-4, Hyderabad (“Ld. CIT(A)”) for the assessment year 2010-11.

At the outset, learned DR had drawn our attention to the order of the Tribunal passed in the case of assessee for the assessment year 2010-11, dt. 19/07/2021 in and others. It was submitted by the learned DR that the assessee in the said appeal sought relief against the order passed by the AO/Ld. CIT(A) before the Tribunal, however, for the reasons best known to the assessee, assessee had withdrawn the appeal stating that the assessee is not pressing the same. He drew our attention to paragraph No. 2 of the decision of the Tribunal, to the following effect: “2. Coming to the assessee’s first and foremost appeal ITA No.816/Hyd/2015, learned counsel stated at the outset that he no more wishes to press for the same keep in mind the fact that necessary relief already stands granted to him in Section 154 rectification proceedings. Ordered accordingly. This first and foremost appeal ITA No.816/Hyd/2015 is dismissed as not pressed therefore in foregoing terms.” 3. Thereafter, the learned DR submitted that once the order of the AO had attained finality as the assessee has not pressed the appeal for the assessment year 2010-11, then there was no reason for the Ld. CIT(A) to grant relief to the assessee through the colourable means door by granting relief under section 154 of the Income Tax Act, 1961 (for short “the Act”). He relied upon the decision of the Tribunal in the case of Shri Krishna Kumar D. Shah in ITA No. 1605 to 1608/Hyd/2014. 4. Per contra, learned AR submitted that the Tribunal in the case of DCIT vs. M/s. Leo Meridian Infrastructure Projects & Hotels Ltd., in ITA No. 1243/Hyd/2014, dt. 16/01/2023 had dismissed the appeal of Revenue on the ground that the company has gone into liquidation and the resolution professional had been appointed by the National Company Law Tribunal (NCLT). It was submitted that the present appeal may be kept in abeyance, being filed by the Director of the company. Further, it was submitted that the quantum appeal filed by the assessee before the Ld. CIT(A) was dismissed on the ground that of non-payment of admitted taxes by the assessee, relief was granted under section 154 proceedings. Further findings of the Ld. CIT(A) in quantum appeal was not a finding on merits and accordingly the assessee was within its right to move application u/s. 154 of the Act for rectification.

In rebuttal, learned DR has submitted that the assessee has concealed material particulars and also the order passed by the Tribunal in the case of assessee on 19/07/2021 in and others (supra). It was submitted that assessee had brought to the notice of Tribunal that the appeal filed by the Revenue against 154 order of Ld.CIT(A) is pending adjudication (present appeal).

We have heard the rival contentions of the parties and perused the material available on record. Admittedly, the assessee during the course of search proceedings, had declared additional income of Rs. 27 crores towards share application money in Leo Meridian Infrastructure Projects & Hotels Ltd., as ‘un-explained income’. The assessee had also filed the return of income declaring Rs. 27 crores as his income. On the basis of return filed by the assessee, AO had passed the assessment order admitting the revised return of income. Against that assessment order, the assessee had CIT(A) and the Ld.CIT(A), however, had dismissed the appeal of assessee on the ground that the assessee has not paid the admitted tax liability as required u/s.249(4) of the Act vide order dt. 13/03/2015. The assessee after receiving the rejection order from the Ld.CIT(A), had filed 154 application before the AO and the AO has dismissed the 154 application of the assessee. Feeling aggrieved by the order of the AO, assessee had preferred the appeal u/s. 154 before the CIT(A). Ld.CIT(A) vide impugned order allowed the appeal of the assessee and the relevant findings of the Ld.CIT(A) are mentioned in para 8.1 to 8.3 as under:

Similarly, in the case of PCIT Vs. Engineer Works reported in (2021) 132 taxmann.com 172, the Hon’ble Andhra Pradesh High Court vide paras 5 to 9 of its order, held as under : “5. Section 154 of the Act empowers an Assessing Officer to rectify a mistake which is apparent from the record. A mistake can be said to be apparent on the record when it is a palpable and glaring one and not something which can be established by a long drawn process of reasoning on which may conceivably yield two opinions. A debatable point of law is not a mistake apparent on the face of the record. Only when such patent and obvious mistake is apparent from the record, the Assessing Officer is permitted to rectify or amend the Assessment Order, vide T.S. Balaram Income Tax Officer v. Volkart Brothers [1971] 82 ITR 50 (SC) 6. Mrs. M. Kiranmayee, learned standing counsel contends that the Assessing Officer in palpable contradiction to the ratio in KNR Constructions (supra), allowed deduction on the ground of depreciation after gross income was estimated at 12.5% on the main contractual receipts upon rejection of the books of accounts. Reliance is also placed on Indwell Constructions (supra) and it is argued in the event books of accounts are rejected, the same cannot be used to allow deduction on gross income. On the other hand, on behalf of the assessee, referring to the decision in Y. Ramachandra Reddy (supra) it is contended that depreciation is permissible even if the income is based on the estimation. Relevant portion of the said report reads as follows: "If an assessee is entitled to claim deduction of interest, be it under section 36(1)(iii) of the Act or any other relevant provision and of depreciation under section 37 of the Act, in the ordinary course of assessment, there is no reason why the same facilities be not extended to him, merely because of the profit is determined on the basis of estimation as was done in the instant case. We are of the view that depreciation and interest, which are otherwise deductible in the ordinary course of assessment, remain the same legal character, even where the profit of assessee is determined on percentage basis."

The legal position enunciated in Y. Ramachandra Reddy (supra) is that an assessee is not automatically disentitled to depreciation where the profit is determined on percentage basis. Hence, the issue of deduction on the score of depreciation from gross income which is computed on the basis of estimation is a debatable one and cannot be a palpable error on the face of the record.

We also find much substance in the argument on behalf of the assessee that in Indwell Constructions (supra), the Bench was not dealing with the issue of depreciation. In this regard it may be profitable to refer to the observations of this Court in Y. Ramachandra Reddy (supra) where the Bench distinguished Indwell Constructions (supra) in the following manner:- "The learned counsel for the appellant relied on a judgment of this Court in Indwell Constructions v Commissioner of Income Tax. That was a case in which this Court took the view that once the books of account are disbelieved for a particular purpose, they cannot be relied upon in the context of interest. In the instant case, we are concerned with the depreciation. The occasion to deny the deduction of depreciation or interest would arise if only the material placed before the Assessing Authority in proof of purchase of machinery and other items and payment of interest is disbelieved. No finding of that nature was recorded by the Assessing Officer."

In view of the ratio laid down in Y. Ramachandra Reddy (supra), we are of the opinion deduction of depreciation from gross receipts of income estimated at the rate of 12.5% on main contractual receipts is a debatable question of law and fact. Since the issue is not a palpable mistake on record but involves interpretation of the ratio laid down in KNR Constructions in the light of the law declared in Y. Ramachandra Reddy (supra), we are of the opinion that the invocation of jurisdiction under section 154 of the Act was not justified. Hence, no case to admit the appeal on the proposed questions of law or otherwise is made out.

The appeal is, accordingly, dismissed. No order as to costs.

Miscellaneous petitions, if any pending in this appeal, shall stand closed.”

The word “any” under the income tax authority is defined u/s 116 of the Act which includes the Assessing Officer and ld.CIT(A) and etc. However, the question which is required to be examined is whether the income tax authorities mentioned under section 116 of the Act can rectify any mistake in its order which is though not apparent but will have any effect of setting aside the order passed by the superior authorities. There cannot be any doubt that the income tax authority can rectify any apparent mistake in its order however, when the order of the Assessing Officer, has been upheld by the ld.CIT(A) and thereafter by the Tribunal, in that eventuality, Assessing Officer is denuded from rectifying any such mistake, as it would lead to giving unbridled power to Assessing Officer/ ld.CIT(A) to unsettled the settled position of fact and law and will lead to chaos and anarchy.

In the present case, after the Tribunal had dismissed the appeal of the assessee on merit, the Assessing Officer has rightly dismissed the rectification application filed by the assessee as the Assessing Officer was duty bound to implement the order passed by the Tribunal. The Hon’ble Supreme Court and High Courts had time and again reiterated the concept of merger of order of lower authority with the order of superior authority i.e., when the order of lower authority is approved by the superior authority/Tribunal then the order of the lower authority merged with the order of the superior authority. In other words after approval of the order without modification by the superior authority, the order of the lower authority ceases to exist. 22. The order of the Tribunal/superior authority passed by it can only be modified, set aside and annulled by process known to law. Admittedly, the Tribunal has neither recalled its order nor an appeal has been preferred against the order passed by the Tribunal before the hon’ble High Court. Therefore, the order passed by the Tribunal has attained finality and is required to be executed / enforced by the Assessing Officer. We cannot subscribe the view of the ld. AR that by rectification, the alleged jurisdictional issue can be looked into by the Assessing Officer or ld.CIT(A) thereby annulling the entire assessment proceedings, more particularly, when the assessment proceedings have already attained finality by virtue of the order of the Tribunal. There cannot be two contradictory orders of the Tribunal one by upholding the assessment and other quashing the assessment based on the jurisdictional error.

Further, we may point out that the decisions relied upon by the assessee are not applicable to the facts of the case as there was no pending assessment proceedings before the Assessing Officer. For the purpose of applying the ratio of all the judgments relied upon by the assessee, it is necessary that there should be live proceedings or collateral proceedings pending before the Assessing Officer / ld.CIT(A). In the present case, neither the substantial proceedings nor the collateral proceedings were pending before the Assessing Officer and therefore, the Assessing Officer was right in not entertaining the application for rectification filed by the assessee and had rightly dismiss the same. Further, a mistake which can be rectified is required to be apparent and should be known to the Assessing Officer without any in-depth analysis. The Hon'ble Supreme Court in the case of Volkart Brothers (supra) had elaborately discussed the scope of section 154 , hence the mistake pointed by the assessee can not be said to be apparent in nature . Examining the issue either from the prospective of finality of the first order or from the scope of section 154, we allow the appeal of Revenue and accordingly, the appeal of the Revenue is allowed.”