COMMISSIONER OF INCOME TAX vs. O.L. OF SAURASHTRA IRON FOUNDARY & STEEL WORKS (P) LTD

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ITR/198/1989HC GujaratGJHC24012978198909 April 2003Author: HONOURABLE MR. JUSTICE R.K.ABICHANDANI,HONOURABLE MR. JUSTICE K.M.MEHTA4 pages
AI SummaryAllowed

What did the High Court hold?

The High Court held that the Tribunal was right in holding that the issue regarding the computation of relief under Section 80J of the Income Tax Act, 1961, read with Rule 19A of the Income Tax Rules, 1962, was debatable. The Court reasoned that the assumption that the figures of Rs. 20,885 and Rs. 76,815 represented borrowed moneys required detailed discussion of the records, which had not been demonstrated before the authorities below to be an error apparent on the face of the record. Since the matter was debatable on facts and it was not demonstrated from the record that any borrowed moneys were not deducted as required by sub-rule (3) of Rule 19A when the assessment was made, the Tribunal was correct in concluding that no rectification was called for under Section 154. The question referred to the Court was answered in the affirmative, in favour of the Revenue. The Reference was disposed of accordingly, with no order as to costs.

What were the facts?

The Income Tax Appellate Tribunal (ITAT) referred a question to the High Court concerning assessment years 1972-73 and 1973-74. The assessee, O.L. of Saurashtra Iron Foundry & Steel Works (P) Ltd, claimed deductions under Section 80J of the Income Tax Act, 1961, amounting to Rs. 20,885 for AY 1972-73 and Rs. 76,815 for AY 1973-74, which were initially accepted. Subsequently, the Income Tax Officer (ITO) initiated rectification proceedings under Section 154. For AY 1972-73, the ITO held that head office funds were borrowed capital to be deducted from assets, leading to excess computation of capital employed and improper deduction. For AY 1973-74, the ITO, while noting that head office funds are not third-party borrowed capital, still revised the total income by disallowing the Section 80J deduction. The Commissioner of Income Tax (Appeals) found no apparent mistake of fact or law regarding the Section 80J allowance. The ITAT upheld this, deeming the issue debatable and thus not rectifiable under Section 154.

What were the issues?

1. Whether the Tribunal was right in law in holding that the issue regarding the computation of relief under Section 80J of the Income Tax Act, 1961, read with Rule 19A of the Income Tax Rules, 1962, is debatable even after the retrospective amendment of the law, and therefore, the action under Section 154 of the Income Tax Act, 1961, is not justified? Assessee's Contention: The assessee contended that the ITO had allowed the relief under Section 80J after due deliberation, following the decision in Century Enk Ltd. v. I.T.O. (107 ITR 123). The Commissioner (Appeals) noted that if a mistake of fact is based on debatable facts requiring detailed arguments and possibility of two opinions, rectification under Section 154 is not warranted. The Tribunal also observed that the question was debatable and no rectification was called for under Section 154. Revenue's Contention: The Revenue argued that under Rule 19A(3), borrowed moneys and debts owed by the assessee were required to be deducted from the aggregate of amounts. It was submitted that the ITO committed an error by not deducting borrowed moneys of Rs. 20,885 for AY 1972-73 and Rs. 76,815 for AY 1973-74. The Revenue contended that since the computation of deduction under Section 80J was to be done as prescribed by the Rules, and borrowed moneys were not deducted as required by Rule 19A(3), an excess deduction was allowed, which was rectifiable, justifying the ITO's orders.

Which sections of the Income-tax Act were involved?

Section 80J,Section 154

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

INCOME TAX REFERENCE No 198 of 1989

For Approval and Signature:

Hon'ble MR.JUSTICE R.K.ABICHANDANI and Hon'ble MR.JUSTICE K.M.MEHTA

============================================================ 1. Whether Reporters of Local Papers may be allowed : YES to see the judgements?

2.

To be referred to the Reporter or not? : NO 3. Whether Their Lordships wish to see the fair copy : NO of the judgement?

4.

Whether this case involves a substantial question : NO of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder?

5.

Whether it is to be circulated to the concerned : NO Magistrate/Magistrates,Judge/Judges,Tribunal/Tribunals?

-------------------------------------------------------------- COMMISSIONER OF INCOME TAX Versus O.L. OF SAURASHTRA IRON FOUNDARY & STEEL WORKS (P) LTD -------------------------------------------------------------- Appearance: 1. INCOME TAX REFERENCE No. 198 of 1989 MRS.MONA BHATT, Advocate for MR MANISH R BHATT, Advocate for the Revenue OFFICIAL LIQUIDATOR for the Respondent - Absent

--------------------------------------------------------------

CORAM : MR.JUSTICE R.K.ABICHANDANI and MR.JUSTICE K.M.MEHTA

Date of decision: 09/04/2003

ORAL JUDGEMENT (Per : MR.JUSTICE R.K.ABICHANDANI)

1.

The Income Tax Appellate Tribunal, Ahmedabad Bench "A" has referred the following question for the opinion of this Court under Section 256(2) of the Income Tax Act, 1961 :

"Whether the Tribunal has been right in law in holding that the issue regarding computation of relief u/s 80J of the I.T.Act, 1961 read with Rule 19A of the I.T.Rules, 1962 is debatable even after the retrospective amendment of the law and hence, the action u/s 154 of the I.T. Act, 1961 is not justified?"

2.

The reference relates to the Assessment Years 1972-73 and 1973-74. The assessee had, in the relevant previous year to the A.Y. 1972-73, claimed deduction under Section 80J of the Act to the tune of Rs.20,885=00. For the A.Y. 1973-74, similar deduction under Section 80J was claimed by the assessee of Rs.76,815=00. Both these deductions were accepted by the Income Tax Officer as per the orders dated 27-2-1976. 3. In the rectification order dated 15-2-1979 for the A.Y. 1972-73, the I.T.O. observed that, on verification of the records, it was seen that the head office funds were borrowed capital and hence, were to be deducted alongwith the other liabilities from value of assets, and that, this had resulted into excess computation of capital employed . It was, therefore, held that the deduction of Rs.20,885=00 granted under Section 80J was improper and the amount was ordered to be added in the assessee's income. For the A.Y. 1973-74, the Income Tax Officer in his rectification order under Section 154, while observing that, "Head office is not a third party and credit balance in the name cannot be called borrowed capital", has held that the objection of the assessee was not acceptable and revised the total income by deducting the amount of Rs.76,815=00 which was earlier allowed by way of relief under Section 80J of the Act.

4.

The Commissioner of Income Tax, dealing with a cluster of appeals including those relating to the above two Assessment Years, observed that the I.T.O. had allowed relief under Section 80J after deducting the value of the liabilities from the total assets. It was contended before the C.I.T. (Appeals) that the I.T.O. had allowed the relief under Section 80J after due

deliberation, following the decision in case of Century Enk Ltd. v. I.T.O. reported in 107 ITR 123. The Commissioner observed that, it was settled law that any mistake of law or facts can be rectified under Section 154 if it was apparent from the record, and that, in a case where the ground of mistake of fact was based on debatable facts and entailed detailed arguments with possibility of two opinions, no rectification would be warranted. As regards the aforesaid A.Ys. 1972-73 and 1973-74, the Commissioner noted that there was no mistake apparent from the record regarding allowance under Section 80J and development rebate.

4.

1 The Tribunal, in the appeal preferred against the said order of the C.I.T. (Appeals), observed that the question was debatable and therefore, there was no rectification called for under Section 154. In other words, according to the Tribunal also, there was no mistake apparent from the record as regards the allowance under Section 80J of the Act.

5.

It was contended on behalf of the Revenue that, under Rule 19A(3), from the aggregate of the amounts as ascertained under sub-rule (2), the aggregate of the amounts, as on the first day of the computation period, of borrowed moneys and debts owed by the assessee (including amounts due towards any liability in respect of tax) were required to be deducted. It was submitted that the I.T.O. had committed an error in not deducting the borrowed moneys of Rs.20,885=00 for the A.Y. 1972-73 and Rs.76,815=00 for the A.Y. 1973-74. It was submitted that, under section 80J of the Act, computation of deduction was required to be done in the manner prescribed by the Rules and therefore, since the borrowed moneys were not deducted as required by sub-rule (3) of Rule 19A, excess deduction came to be allowed under Section 80J to the assessee, which was required to be rectified and therefore, the I.T.O. was justified in passing the two rectification orders.

6.

The assumption that the figures of Rs.20,885=00 in respect of the A.Y. 1972-73 and Rs.76,815=00 in respect of the A.Y. 1973-74, were the amounts of borrowed moneys entailed a detailed discussion on the basis of the records which were produced before the concerned authority and it has not been demonstrated before the C.I.T. (Appeals) or the Tribunal that there was any error apparent on the face of the record in the I.T.O. allowing these deductions on the ground that borrowed moneys were not deducted as required by sub-rule (3) of Rule 19A. Since the matter was debatable on facts

and it was not demonstrated from the record that any borrowed moneys were not deducted as required by sub-rule (3) of Rule 19A when the assessment was made, in our opinion, the Tribunal was right in holding that no rectification was called for under Section 154 of the Act. We therefore hold that the tribunal was right in holding that the issue regarding computation of relief under Section 80J of the Income Tax Act, 1961 read with Rule 19A of the Income Tax Rules, 1962 was debatable, and therefore, no action was called for under Section 154 of the Income Tax Act, 1961. The question referred to us is, accordingly, answered in the affirmative against the Revenue and in favour of the assessee. The Reference stands disposed of accordingly, with no order as to costs.

[R.K.ABICHANDANI, J.]

[K.M.MEHTA, J.]

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