COMMISSIONER OF INCOME TAX, LDH. vs. STEEL STRIPS LTD. CHANDIGARH

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ITR/5/2005HC Punjab & HaryanaPHHC01076589200507 January 2011Author: MR. JUSTICE ADARSH KUMAR GOEL,MR. JUSTICE ALOK SINGH6 pages
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What did the High Court hold?

The High Court held that overlooking a statutory provision is a mistake apparent on record, and therefore, rectification under Section 154 of the Act was clearly admissible. The Court found that the impermissibility of deduction is not debatable if Section 80VVA is applied. Consequently, the CIT(A) and the Tribunal erred in law by holding that the rectification was beyond the scope of Section 154. The Court noted that Section 80VVA came into force w.e.f. 1.4.1984 and could be applied for assessment year 1984-85 and thereafter. While applying the provision for assessment year 1984-85, claims for carry forward or set-off had to be considered in accordance with the law in force during that assessment year, even if they related back to an earlier year. The question was answered in favour of the revenue and against the assessee. The reference was disposed of.

What were the facts?

The assessee, M/s Steel Strips Ltd., was assessed for assessment year 1985-86. Initially, depreciation was allowed. Subsequently, the Assessing Officer (AO) sought to rectify the order under Section 154 to disallow excess deduction, citing the oversight of Section 80VVA. The assessee argued that Section 80VVA was omitted from April 1, 1988, and the issue was debatable. The CIT(A) set aside the AO's rectification order, holding that a debatable issue is not a 'mistake apparent on record' under Section 154, referencing T.S. Balaram, I.T.O. v. Volkart Bros. The Tribunal also found that the initial allowance of benefit was after due consideration and the subsequent application of Section 80VVA by another AO was an attempt to review the order, which is impermissible. The revenue made a reference to the High Court.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in holding that provisions of section 154 are not applicable to rectify the mistake of law? 2. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in holding that provisions of section 80VVA are not applicable? Assessee's contentions (as understood from the judgment): The assessee contended that Section 80VVA stood omitted w.e.f. 1.4.1988, and the issue of its applicability was debatable, thus falling outside the scope of Section 154 rectification. The assessee also argued that deductions brought forward from earlier years were admissible without limit up to assessment year 1987-88, notwithstanding the introduction of Section 80VVA. The assessee relied on T.S. Balaram, I.T.O. v. Volkart Bros. for the proposition that debatable issues are not rectifiable under Section 154. Revenue's contentions (as understood from the judgment): The revenue contended that overlooking a statutory provision like Section 80VVA constitutes a mistake apparent on record, making rectification under Section 154 permissible. The revenue argued that the existence of Section 80VVA would be negated if the assessee's interpretation of carry-forward provisions were accepted. The revenue maintained that the restriction imposed by Section 80VVA was applicable.

Which sections of the Income-tax Act were involved?

Section 154,Section 80VVA

AI-generated summary — verify with the full judgment below

Heard together (2 matters)

T.C. No.9 of 1998
I.T.A. No.314/Chandi/1991

Read from the judgment's own cause title. This page is filed under one of them.

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. ITR No.5 of 2005(O&M) Date of decision: 7.1.2011 Commissioner of Income Tax. -----Applicant. Vs. M/s Steel Strips Ltd. -----Respondent. CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOEL HON'BLE MR. JUSTICE ALOK SINGH Present:- Ms. Urvashi Dhugga, Standing Counsel for the applicant. Mr. Akshay Bhan, Advocate for the respondent. --- ADARSH KUMAR GOEL, J.

1.

This reference has been made at the instance of revenue by the Income Tax Appellate Tribunal, Chandigarh in pursuance of order of this Court dated 16.9.2003 in I.T.C. No.9 of 1998. The referred question has arisen from the order of the Tribunal dated 13.12.1996 in I.T.A. No.314/Chandi/1991 for the assessment year 1985-86 and is as under:- “Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in holding that provisions of section 154 are not applicable to rectify the mistake of law and that provisions of section 80VVA are not applicable?”

2.

Assessment of the assessee for the assessment year 1985-86 was completed on 29.3.1988. Thereafter, the assessee sought rectification under Section 154 of the Act to claim depreciation. The application was allowed vide order dated 30.6.1988 and income was recomputed on that basis. Thereafter, the Assessing Officer noticed that while recomputing the income, provision of Section 88VVA was overlooked and deduction allowed was in excess of limit stipulated in the said provision. Accordingly, notice dated 28.8.1989 was issued. The objection of the assessee was that the said provision stood omitted w.e.f. 1.4.1988 and the issue being debatable, was outside the scope of Section 154 of the Act. On merits, it could not be disputed that deductions allowed were beyond the specified limit. The Assessing Officer rejected the objection and allowed the rectification as per the statutory limit. On appeal, the CIT(A) set aside the order of the Assessing Officer on the ground that the rectification did not relate to a ‘mistake apparent on record’, as is required for invoking Section 154 of the Act and was on a debatable issue and was thus, not permissible in view of law laid down by the Hon’ble Supreme Court in T.S. Balaram, I.T.O. v. Volkart Bros. 82 ITR 50. 3. The findings recorded by the Assessing Officer, CIT (A) and the Tribunal on the issue are as under:- Finding of the Assessing Officer:

“2. The second objection by the assessee is that the provisions of section 80-VVA were brought on the statute book by the Finance Act, 1983 w.e.f. 01.04.1984 therefore, all deductions admissible under the Act which were brought forward in a particular case on 01.04.1984 for setting off and which deduction pertained to any year upto assessment 1983-84, are admissible without any limit thereon, to determine the total income in respect of assessment year 1984-85 to 87-88, notwithstanding the fact that the provisions of section 80-VVA had been introduced w.e.f. 01.04.1984. The contention of the assessee is clearly ill- conceived since if that were the interpretation and scope of section 80-VVA, the very existence of section 80-VVA is negated. In fact, the provisions of section 80-VVA were introduced only with a view to bring those companies within the tax brackets which were thenceforth avoiding the payment of taxes by reasons of claims under chapter VI-A. Therefore, restriction imposed by section 80-VVA were applicable even in respect of the deductions brought forward from earlier assessment years.” Finding of the CIT(A):- “The succeeding Assessing Officer passed this order u/s 154 withdrawing the claim previously allowed, thereby entertaining another interpretation of the provisions of Section 80-VVA. The mistake apparent on record which could be rectified by invoking provision of Section 154, must be an obvious and patent mistake and not something which can be established by along- drawn process of reasoning on points on which there may be conceivably two opinions. Thus a decision on a debatable point of law is not a mistake apparent on record which has been clearly laid down by the Hon’ble Supreme Court in the case of T.S. Balaram, ITO Vs. Volkart Brothers cited supra” Finding of the Tribunal:-

7.

We have considered the rival submissions. Section 154 of the Income Tax Act, 1961 empowers the ITO to amend any order passed by him under the provisions of the Act to rectify any mistake apparent from the record either suo motu or on an application. The juri iction of the AO to amend his order thus depends on whether or not there is a mistake apparent from the record. If, in his order, there is no mistake which is patent and obvious on the face of the record, the exercise of the juri iction by the AO u/s 154 will be illegal and improper. Section 154 does not empower an AO to review the order passed by the predecessor AO because the normal rule is the remedy by way of review is a creature of the statute and unless clothed with such power by the statute, no authority can exercise the power. From the order passed by the AO as well as the first appellate authority, it is clear that the DCIT, Spl. Range, Chandigarh had passed an order u/s 154 on 30.6.1988 in which the assessee company was given benefit of brought forward of investment allowance, depreciation etc. for earlier years. This benefit was allowed after due consideration by the Ld. DCIT, Spl. Range, Chandigarh and thereafter the case was transferred to the Asstt. Commissioner, Central Circle, Chandigarh, who passed an order u/s 154 on 21.3.1990 and applied the provisions of section 80VVA in respect of the brought forward investment allowance etc. by observing that “the provisions of section 80VVA were not applied at the time of giving benefit of brought forward investment allowance for 1981-82.”

3.

We have heard learned counsel for the parties.

4.

It is clear from the order of the Assessing Officer that depreciation was allowed overlooking Section 80VVA of the Act. Overlooking of a statutory provision is clearly a mistake apparent on record and on that basis, rectification under Section 154 of the Act was clearly admissible. Impermissibility of deduction is not debatable if Section 80VVA is applied. This being so, the CIT(A) as well as the Tribunal erred in law in holding that rectification was beyond the scope of Section 154 of the Act. It is clear that the statutory provision having come into force w.e.f. 1.4.1984, the same could have been applied for the assessment year 1984-85 and thereafter. However, while applying the said provision for the assessment year 1984-85, claim or carry forward or set off, had to be considered in accordance with law as in force during the said assessment year even if it relates back to an earlier year. The question is accordingly answered in favour of the revenue and against the assessee.

The reference is disposed of.

(ADARSH KUMAR GOEL) JUDGE January 07, 2011

(ALOK SINGH) ashwani JUDGE 6

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