M/S. M FAR HOTELS LTD., NH-47, BYE PASS vs. THE COMMISSIONER OF INCOME TAX, KOCHI

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HON'BLE THE CHIEF JUSTICE DR. MANJULA CHELLUR & THE HONOURABLE MR.JUSTICE A.M.SHAFFIQUE FRIDAY, THE 24TH DAY OF JANUARY 2014/4TH MAGHA, 1935 ITA.No. 191 of 2011 ( ) ------------------------ AGAINST THE ORDER/JUDGMENT IN ITA 75/COCH/2010 of I.T.A.TRIBUNAL,COCHIN BENCH APPELLANT(S)/RESPONDENT.: ------------------------- M/SM FAR HOTELS LTD. N.H. 47, BYE PASS, KUNDANNUR JN. MARADU KOCHI- 682 304. BY ADV. SRI.P.BALAKRISHNAN (E) RESPONDENT(S)/APPELLANT.: ------------------------- THE COMMISSIONER OF INCOME TAX, KOCHI. R1 BY ADV. SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) R1 BY ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 24-01-2014, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

MANJULA CHELLUR, C.J & ALEXANDER THOMAS, J. ---------------------------------------------- I.T.A.No. 191 of 2011 ---------------------------------------------- Dated this the 24th January, 2014 JUDGMENT Manjula Chellur, C.J. The substantial questions of law that arise for consideration in the appeal are as under: “A. Whether on the facts and in the circumstances of the case the Tribunal is correct in law and fact in reversing the Annexure E order dated 30.11.2009 of the Commissioner of Incometax (Appeals)? B. Whether on the facts and in the circumstances of the case the Tribunal is correct in law and fact in not granting the deduction of 54,40,440/- being ₹ interest waived written back for the AY 2005-06 as the same was claimed as a deduction by the appellant for the AY 2004-05, but the assessing officer failed to allow it?” 2. Admitted facts that led to filing of the present appeal are as under: When appellant had to file returns pertaining to assessment year 2005-2006 on 27.10.2005, completion of assessment

ITA.191/11 2 proceedings for earlier assessment year 2004-2005 was pending. He declared 54,40,440/- as income while filing return of income ₹ because of waiver of interest by the creditor who lent money to the appellant assessee. He was also under the impression that interest expenditure of 54,40,440/- claimed for the assessment ₹ year 2004-2005 would be allowed. Unfortunately, interest expenditure for the assessment year 2004-2005 was disallowed by the department and the appellant assessee did not raise any agitation by filing appeal etc. Therefore, the assessment proceedings so far as 2004-2005 reached finality. 3. Coming to the assessment year 2005-2006, no revised return came to be filed declaring income under different heads, which could have been done by the appellant assessee on or before 31.3.2007, in spite of knowledge of disallowance of interest expenditure of 54,40,440/- for the previous year 2004- ₹ 2005. The department computed tax payable based on the return of income filed by the appellant assessee on 27.10.2005 and issued demand notice indicating Rs.93,016/- as short fall tax to be paid. 4. Subsequently, an application under Section 154(1)(b) of the Income Tax Act came to be filed seeking rectification of

ITA.191/11 3 mistake alleged to have crept in in the intimation sent by the department demanding short fall tax. The entire problem faced by the appellant assessee seems to be his own creation. He has not acted properly in time in respect of both the assessment years. Apparently, as on 27.10.2005, when the return of income for assessment year 2005-2006 came to be filed, computation of tax for the earlier year was not yet processed. The belief or impression of the assessee that interest expenditure would be allowed for the year 2004-2005 proved to be wrong. He ought to have challenged said disallowance. This was the first wrong step of the appellant. Later, though he had opportunity to file revised return so far as income for the assessment year 2005-2006 till 31.3.2007, he did not choose to file revised return in spite of intimation of disallowance of interest expenditure for the previous assessment year. This is the second wrong step taken by the appellant assessee. 5. The appellant assessee kept quiet till intimation was sent under Section 143(1) of the Act demanding deficit tax. Assessment by the department would be based on the material or information indicated in the return of income filed by the assessee. Demand of deficit tax is also based on details found in

ITA.191/11 4 return of income submitted by the assessee on 27.10.2005. So far as the calculation or method of computation and the deficit of tax with reference to the details, appellant assessee has no quarrel. 6. The case of the assessee is, they have wrongly shown 54,40,440/- as income, in spite of having the benefit of waiver of ₹ interest for the assessment year 2005-2006 on account of their impression that for earlier year 2004-2005 they would get benefit of interest expenditure. Atleast when disallowance of interest expenditure came to their knowledge, they could have revised their returns which apparently they did not do so. By this process, the appellant assessee though did not get the benefit of interest expenditure for assessment year 2004-2005, he had to pay again tax of 54,40,440/- though they had benefit of waiver of interest. ₹ Instead, the appellant assessee sought rectification of mistake by filing application under Section 154(1)(b) of the Income Tax Act, which reads as under: “154.Rectification of mistake.- (1) With a view to rectifying any mistake apparent from the record an income-tax authority referred to in Section 116 may,- xx xx xx

ITA.191/11 5 (b) amend any intimation or deemed intimation under sub-section (1) of Section 143.” 7. Reading of above direction clearly indicates that rectification of mistake apparent on the record can be allowed by the department which includes amendment of any intimation or deemed intimation under sub-section (1) of Section 143 of the Act. Intimation under Section 143 of the Act relates to excess payment of tax or short fall of tax. This intimation would be sent at the relevant point of time only in case there is refund of excess tax paid or short fall tax. Apparently, it was a case of short fall in payment of tax. This short fall was calculated properly and correctly based on the return of income declared by the assessee. Therefore, there was no mistake or error apparent on the face of record in the intimation sent by the department indicating the exact short fall of tax to be paid. This cannot be treated as a mistake apparent on the face of record to compel the department to amend the intimation. The mistake on the part of the appellant assessee in not challenging the assessment order for 2004-2005 and not filing revised return for 2005-2006 has led the assessee to this situation. The entire difficulty in which the appellant is put in is on account of his mistake which cannot be treated as a

ITA.191/11 6 mistake apparent on the face of record so far as the intimation sent by the department and the same cannot be allowed to be rectified treating it as a mistake in the intimation of the department. Therefore, the Tribunal was justified in rejecting the claim of the appellant assessee though Commissioner of Income Tax (Appeals) allowed the same. In that view of the matter, we are of the opinion, the appeal deserves to be dismissed. Accordingly, the appeal is dismissed. MANJULA CHELLUR, CHIEF JUSTICE ALEXANDER THOMAS, JUDGE vgs28.1.14