C.I.T.UDAIPUR vs. M/S HISTORIC RESORTS P LTD.

Commissioner of Income Tax, Udaipur v. M/s Historic Resort Hotels .. Date of Order :: 9th May 2012. HON’BLE MR. JUSTICE DINESH MAHESHWARI HON’BLE MR. JUSTICE KAILASH CHANDRA JOSHI Mr.K.K.Bissa, for the appellant <<>> BY THE COURT: This income-tax appeal by the revenue under Section 260-A of the Income Tax Act, 1961 (‘the Act’) is directed against the judgment and order dated 09.12.2011 as passed by the Income Tax Appellate Tribunal, Jodhpur Bench, Jodhpur (‘the ITAT’) in Appeal No.210/JU/2010 relating to the assessment year 2000-01. The revenue seeks to maintain this appeal on the question as to whether the ITAT has rightly affirmed the order dated 11.01.2010 whereby the Commissioner of Income Tax (Appeals), Udaipur ['the CIT(A)'] set aside the rectification order as passed by the Assessing Officer ('the AO') on 30.03.2007 under Section 154 of the Act. The relevant facts and background aspects could be noticed in brief in the following: The income tax return as filed by the assessee, engaged in hotel business, for the assessment year 2000- 01 was processed by the AO and the assessment was completed while taking the income at Rs.1,00,32,848/- which was reduced to 'Nil' after setting off the unabsorbed business losses and depreciation pertaining to the earlier assessment years 1993-94 and 1994-95. The revenue, however, asserted that upon scrutiny of the return, the assessee was found to have filed every detail for the claim of depreciation for the current assessment year i.e., 2000-01 and quantified it for Rs.2,37,04,835/- but the same was not claimed in the computation against the total income; and instead, a set off was claimed towards unabsorbed business losses and depreciation of the earlier assessment years. The AO observed that as per the provisions of Section 32 (2) of the Act, the current year's depreciation was required to be set off first from the total income before setting off the unabsorbed losses or unabsorbed depreciation of the earlier years; and the same having not been done in the assessee's case for the assessment year 2000-01, the same was a mistake apparent from the record. The assessee filed a reply to the notice so served contending against the stand of the Department with reference to Sections 32 and 34 of the Act and with reference to the decision of the Hon'ble Supreme Court in the case of CIT Vs. Mahendra Mills Ltd.: 243 ITR 56. It was also asserted that amendment to Section 32 ibid. wherein the effect of the judgment in Mahendra Mills (supra) was sought to be nullified and it was made mandatory that depreciation must be allowed in the current year even if not claimed, was not applicable to the present case as it was applicable from the assessment year 2002-03. The learned AO in his order dated 30.03.2007 noticed the background aspects about the assessment earlier having been completed and the opinion of the Department and then, reproduced the submissions as made by the assessee in response to the notice under Section 154 of the Act and, thereafter, without any discussion, simply stated that the contentions of the assessee were not tenable and hence were rejected. The AO, thereafter, proceeded to re- compute the income in the manner that the total income of the assessee was taken at Rs.1,00,32,848/- wherefrom the current year's depreciation to the extent of profit was deducted leading to the 'Nil' income; and the assessee was allowed to carry forward the unabsorbed depreciation to the extent of Rs.1,36,71,987/- (Rs.2,37,04,835 – Rs.1,00,32,848). It is noticed that earlier the assessee had claimed setting off for unabsorbed business losses and depreciation of the earlier assessment years 1993-94 and 1994- 95 mainly for the reason that such unabsorbed components would have otherwise lapsed in the subsequent assessment years 2001-02 and 2002-03 because the unabsorbed losses could be carried forward upto 8 assessment years and then, for the next assessment year's records being not available. Aggrieved of the aforesaid order dated 30.03.2007 as passed by the AO under Section 154 of the Act, the assessee preferred an appeal that was allowed by the CIT(A) in the order dated 11.01.2010 with the observations, inter alia, that the AO had not given any finding as to why the submissions of the assessee were not acceptable; and that the assessee having not claimed depreciation for the current year, it was not known as to how the earlier assessment could be said to be suffering from a mistake apparent from the record rectifiable under Section 154 of the Act. The learned CIT(A) also relied upon the decision in Mahendra Mills case (supra) and found that amendment to Section 34 of the Act could not be applied to the assessment in question for the year 2000-01. The CIT(A) observed and held as under:- “2.3 Decision. I have considered the submissions of the learned A/R. vis- avis the findings of the A.O. given the order under appeal. On going through the order, it is seen that except the findings that the contention of the assessee is not tenable, the A.O. has not given any finding as to why the submissions of the appellant were not acceptable. It is a fact admitted by the A.O. in the order that the appellant has not claimed any depreciation in the computation of total income. Since the appellant has not claimed any depreciation, it is not known how it can be said that it is a mistake apparent from the record and is rectifiable under section 154 of the Act. Further, on going through the decision of the Hon'ble Supreme Court relied upon by the learned A/R., it is seen that the said decision is squarely applicable in the case of the appellant. Further, the amendment in section 32 of the Act to the effect that it was mandatory from the Asstt.year 2002-03 that depreciation must be allowed even though not claimed, cannot be made applicable in the case of the appellant as the assessment under consideration is 2000-01. After having considered all the facts and circumstances of the case of the appellant as discussed above, the order passed by the A.O. under section 154 allowing the current year's depreciation deserves to be cancelled and I order accordingly.” The above-referred order dated 11.01.2010 as passed by the CIT(A) was challenged by the revenue in appeal before the ITAT that has been decided by the impugned order dated 09.12.2011. The revenue asserted before that ITAT that Section 32 ibid. had a retrospective effect and, therefore, the current year's depreciation was mandatorily required to be taken into account whether the assessee had claimed the same or not. The ITAT, however, found the matter not covered under Section 154 of the Act as being not of any mistake apparent from the record so as to be rectified thereunder. The ITAT also endorsed the observations of the CIT(A) that amendment to Section 32 ibid. was applicable from 01.04.2002 and the decision of the Hon'ble Apex Court in Mahendra Mills (supra) applied to the case at hands for the assessment year 2000-01. The ITAT proceeded to dismiss the appeal in the following:- “2.5 We have heard both the parties. It is a settled law that disputable question of facts and law are not covered under the provisions of Section 154 of the Act. The mistake apparent from record cannot be rectified u/s. 154 of the Act. The Hon'ble the Act by the Hon'ble Supreme Court settles the law and unless the subsequent amendment is expressly given retrospective effect the law laid down by the Hon'ble Supreme Court will remain binding for the period prior to the amendment. The Hon'ble the Hon'ble Apex Court rendered in the Mahendra Mill decision, the Explanation added could have been given retrospective effect in express terms. On the other hand, the legislature itself thought that the Explanation should work only prospectively and did not intend to render the decision, rendered prior to the amendment relating to assessment year in question, nullified. In the instant case, the assessment year involved is 2000-01 and therefore, the decision of Hon'ble Apex Court in the case of CIT vs Mahendra Mills, 243 ITR 56 will be squarely applicable. Moreover, the issue is debatable and we therefore, hold that the ld. CIT(A) was justified in canceling the order u/s.154 of the Act.” Being aggrieved of the order so passed by the ITAT, the revenue has preferred this appeal. It is submitted that the ITAT has not examined the matter objectively and in correct perspective. It is further submitted that the mistake in the earlier assessment being apparent on the face of record and running contrary to the requirements of Section 32 (2) of the Act, the AO had rightly passed the order under Section 154 of the Act that called for no interference. It is further submitted that the decision in Mahendra Mills (supra) is not applicable to the facts of the present case and the ITAT has been in error in relying on the same.

After having heard the learned counsel for the appellant and having perused the material placed on record, we are not persuaded to consider interference in the order as passed by the ITAT affirming the order of the CIT(A) setting aside the order passed by the AO in the purported exercise of powers under Section 154 of the Act. The scope and applicability of Section 154 of the Act has been delineated by the Hon’ble Supreme Court in the case of T.S Balaram, Income-Tax Officer, Company Circle IV, Bombay vs. Volkart Brothers and others: [1971] 82 ITR 50 as under:- “...It was not open to the Income-tax Officer to go into the true scope of the relevant provisions of the Act in a proceeding under section 154 of the Income-tax Act, 1961. A mistake apparent on the record must be an obvious and patent mistake and not something which can be established by a long drawn process of reasoning on points on which there may conceivably be two opinions....” Similarly, in the case of Mepco Industries Ltd. vs. Commissioner of Income-Tax and Anr.: [2009] 319 ITR 208 (SC), the Hon’ble Supreme Court has observed that,-

“Before concluding, we may state that in Deva Metal Powders (P.) Ltd. v. Commissioner, Trade Tax, Uttar Pradesh, reported in [2008] (2) SCC 439, a Division Bench of this court held that a “rectifiable mistake” must exist and the same must be apparent from the record. It must be a patent mistake, which is obvious and whose discovery is not defendant on elaborate arguments.

To the same effect is the judgment of this court in the case of Commissioner of Central Excise, Calcutta v. A.S.C.U. Ltd. [2003] 151 ELT 481, wherein it has been held that a “rectifiable mistake” is a mistake which is obvious and not something which has to be established by a long drawn process of reasoning or where two opinions are possible. Decision on debatable point of law cannot be treated as “mistake apparent from the record”. In the present case, the questions as to whether the assessee is entitled to get the current year depreciation for assessment year 2000-01 even if it has not been claimed; or as to whether amendment to Section 32 of the Act in 2002-03 has a prospective effect or a retrospective effect on the application of current year’s depreciation and unabsorbed business losses and depreciation for the purpose of computation of Income tax, had been the disputable issues and had been of such questions of law which required further deliberation and discussion. Clearly, in view of the principles expounded and explained in T.S Balaram and Mepco Industries (supra), such aspects did not fall in the category of mistake apparent from the record and, therefore, could not have been dealt with under Section 154 of the Act. In the aforesaid view of the matter, we find the ITAT fully justified in affirming the order as passed by the CIT(A) and in holding that the assessment order could not have been taken up for modification in the name of rectification under Section 154 of the Act. There was no occasion for applying Section 154 of the Act in the present case as allowing of set off in the original assessment could not have been considered to be that of any mistake apparent from the record. In the result, we find no substantial question of law being involved in this appeal.

The appeal fails and is, accordingly, dismissed. (KAILASH CHANDRA JOSHI), J. (DINESH MAHESHWARI), J. /Mohan/