GUJARAT STATE SEEDS CORP.LTD. vs. INCOME TAX OFFICER (OSD)

Facts

The assessee, Gujarat State Seeds Corp. Ltd., is in appeal against the Income Tax Appellate Tribunal's order for assessment year 1983-84. The assessee had claimed weighted deduction under Section 35C. The Assessing Officer (AO) initially allowed a deduction of 1/5th of the expenditure. Subsequently, the AO passed a rectification order under Section 154, reducing the eligible deduction to 10% of the expenditure. The assessee appealed to the Commissioner of Income Tax (Appeals) [CIT(A)]. While the appeal was pending, the AO made another rectification, reducing the subsidy from eligible expenditure. After the CIT(A) passed an order, the AO passed an order giving effect to it. The AO then passed a further order on 29.03.1996, stating that the earlier order giving effect to the CIT(A)'s order had not considered the Section 154 order, and that subsidy should be deducted before computing weighted deduction. The assessee's appeal against this order was dismissed by CIT(A) and then by the Tribunal. The assessee is now before the High Court.

Held

The High Court held that the Tribunal and CIT(A) committed an error in upholding the rectification made by the Assessing Officer. The Court referred to the Supreme Court decision in Vokart Brothers, which stated that a decision on a debatable point of law is not a mistake apparent from the record. After the implementation of the CIT(A)'s order, it was not appropriate for the AO to review the earlier order under the guise of rectification. A new order could not be passed unless the CIT(A)'s order was challenged or modified. The Tribunal had materially erred in upholding the erroneous findings of the CIT(A) and the AO, which were considered perverse and against the rules and provisions of law. Therefore, these findings were set aside. The appeal was allowed, and the impugned orders of the Tribunal and CIT(A), as well as the rectification order of the AO, were quashed and set aside. The substantial question of law was answered in favour of the assessee and against the revenue.

Key Issues

1. Whether, in the facts and circumstances of the case, the Income Tax Appellate Tribunal was right in law in holding that the Assessing Officer can pass a rectification order modifying the original assessment order, which had merged with the order of the Commissioner of Income Tax (Appeals), while giving effect to the order passed by the Commissioner of Income Tax (Appeals)? (Question of law) Assessee's contention: The Tribunal erred in confirming the revenue's action. The assessee argued that an order passed by the AO in consequence of giving effect to a CIT(A) order can only be rectified by the CIT(A). The rectification order passed by the AO subsequent to giving effect to the CIT(A)'s order was void ab initio. The assessee relied on the Supreme Court decision in T.S. Balaram, Income Tax Officer, Circle IV, Bombay vs. Volkart Brothers and Others. Revenue's contention: Not recorded in the judgment.