The Commissioner of Income Tax-X

Whether Reporters of local papers may be allowed to see the judgment?

To be referred to the Reporter or not ?

Whether the judgment should be reported in the Digest?

The respondent/assessee is an individual. He is engaged in the business of export and was accordingly entitled to the deduction under Section 80HHC of the Act. We are concerned with the assessment year 2002-2003. The assessee filed a return of income on 31st October, 2002 claiming deduction under the aforesaid section. An assessment was framed by the Assessing Officer by order dated 31st March, 2004 passed under Section 143(3) of the Act. In this order the Assessing Officer computed and allowed Rs.2,24,38,491/- as deduction under Section 80HHC.

After the completion of the assessment, a notice under Section 154 of the Act was issued by the Assessing Officer proposing to rectify the assessment order on the ground that the deduction allowed in the assessment order was incorrect to the extent of Rs.1,36,92,769/-. One of the grounds on which the Assessing Officer issued the notice under Section 154 of the Act was that the loss suffered by the assessee from the export of trading goods, amounting to Rs.68,37,193/- ought to have been adjusted against 90% of the export incentives under the proviso to Section 80HHC(3) and the omission to do so in the assessment order 2011:DHC:5636-DB

The assessee objected to the notice under Section 154 of the Act on the ground that the issue proposed to be rectified was debatable and was not amenable to the juri iction conferred under Section 154 of the Act. The assessee also drew the attention of the Assessing Officer to several authorities on the point, which were in his favour. These contentions were however rejected by the Assessing Officer who passed the order under Section 154 of the Act on 1st July, 2005 reducing the deduction under Section 80HHC as per the working given in the said order. In short, the loss suffered in the export of trading goods was adjusted against the export incentives and deduction under Section 80HHC was reduced accordingly.

The assessee preferred an appeal before the CIT(Appeals) against the order passed by the Assessing Officer under Section 154 of the Act. The CIT(Appeals) agreed with the Assessing Officer and held that the provisions of Section 80HHC authorized the adjustment made 2011:DHC:5636-DB

The assessee filed an appeal before the Tribunal against the order of the CIT(Appeals) and contended that the issue sought to be rectified by the Assessing Officer in the order passed under Section 154 of the Act was a debatable issue and hence cannot be rectified as a mistake apparent from the record. It was also submitted that the Assessing Officer had framed the assessment after due consideration of all the relevant aspects of Section 80HHC and, therefore, cannot resort to rectification proceedings under Section 154 of the Act. These contentions were accepted by the Tribunal which held by order dated 28th May, 2010 that the rectification order passed by the Assessing 2011:DHC:5636-DB

The Revenue has filed the appeal against the aforesaid order passed by the Tribunal. The following substantial question of law is framed after hearing counsel for both the sides:- “Whether on the facts and in the circumstances of the case, and having regard to the nature of the issue sought to be rectified, the Tribunal was right in law in quashing the order passed by the Assessing Officer under Section 154 of the Income Tax Act, 1961?

The matter poses little difficulty. In this case the assessee claimed deduction under Section 80HHC, inter alia, on the footing that 2011:DHC:5636-DB

On appeal by the Revenue, the judgment of the Gujarat High Court (supra) was upheld by the Supreme Court holding that no error was committed by the Tribunal in rectifying the mistake. Though the facts of the case before the Supreme Court (supra) show that the rectification was made by the Tribunal on the basis of the judgment of the juri ictional High Court, the ratio would apply to the present case with stronger force because in the present case the rectification has been done on the basis of a judgment of the Supreme Court which is binding under Article 141 of the Constitution of India. In our considered view, the judgment of the Supreme Court in Saurashtra Kutch Stock Exchange Ltd. (supra) applies a fortiori to the present case. 2011:DHC:5636-DB

The learned standing counsel for the Income Tax Department cited the judgment of the Allahabad High Court in Commissioner of Income-Tax and Another v. Bindal Industries Ltd., (2010) 328 ITR 160 (All) and the judgment of the Punjab and Haryana High Court in Shahbad Co-operative Sugar Mills Ltd. v. Deputy Commissioner of Income-Tax, (2011) 336 ITR 222 (P&H). The Allahabad High Court (supra) held that the law declared by the Supreme Court is binding on every court and authority and any decision taken earlier which is contrary to the law declared by the Supreme Court can be rectified under Section 154 of the Act. The Punjab and Haryana High Court (supra) also took the same view. These two judgments support the rectification order passed in the present case by the Assessing Officer.

We are, accordingly, unable to agree with the view taken by the Tribunal that there was no mistake apparent from the record requiring rectification. We, therefore, reverse the decision of the Tribunal and answer the substantial question of law in the negative and in favour of the Revenue and against the assessee. 2011:DHC:5636-DB

The appeal of the revenue is allowed with no order as to costs.