COMMISSIONER OF INCOME TAX vs. M/S ATLAS CYCLE INDUSTRIES LTD

This appeal has been preferred by the revenue under Section 260A of the Income Tax Act, 1961 (for short, ‘the Act’) against order dated 17.12.2003 passed by the Income Tax Appellate Tribunal, Delhi Bench ‘A’, New Delhi in ITA No.2836/Del/99 for the assessment year 1994-95, proposing to raise following substantial question of law:- “Whether on the facts and in the circumstances of the case, the Hon’ble ITAT has erred in law in holding that there was no mistake apparent from record in the given case which could be rectified under section 154 of the Income Tax Act even when it is a settled law that loss on export of trading goods and self manufactured goods has to be set off against profit on export of self manufactured goods and trading goods for the purpose of quantifying deduction under section 80HHC of the Act?”

The assessee is deriving income from manufacture and sale of cycles including export. The Assessing Officer allowed deduction in respect of business expenses for calculating benefit of section 80HHC of the Act. Subsequently, the Assessing Officer made rectification under section 154 of the Act on the ground that the loss on account of trading goods was liable to be set off against profit on account of export of manufactured goods. On appeal, the CIT(A) deleted the addition and, inter-alia, held that there was no justification to invoke power of rectification as the error in question could not be held to be mistake apparent from the record as required, in view of judgment of the Hon’ble Supreme Court in T.S.Balram ITO v. Volkarat Brothers, (1971) 82 ITR 50. The Tribunal upheld the said view. In appeal filed by the revenue, reliance has been placed on judgment of the Hon’ble Supreme Court in M/s IPCA Laboratory Limited v. DCIT, (2004) 266 ITR 521 holding that the assessee was not entitled to deduction under section 80HHC unless after adjusting loss, there was a positive profit.

We have heard learned counsel for the parties and perused the record.

It is now well settled that where order of an authority if patently against judgment of the Hon’ble Supreme Court, it can be held that such order suffers from error on the face of record which could be rectified by the Court. Reference may be made to Full Bench judgment of this Court in CIT v. Aruna Luthra, (2001) 252 ITR 76. This being the position, in view of judgment of the Hon’ble Supreme Court in M/s IPCA, no fault could be found with the order of rectification passed by the Assessing Officer. The Tribunal erred in holding that such a mistake was not a mistake apparent from the record.

Accordingly, we answer the question in favour of the revenue and allow the appeal. (Adarsh Kumar Goel) Judge July 20, 2010 (Ajay Kumar Mittal) ‘gs’ Judge 3