THE COMMISSIONER OF INCOME TAX, vs. DHANALAKSHMI BANK LTD., TRICHUR

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS WEDNESDAY, THE 14TH DAY OF JULY 2021 / 23RD ASHADHA, 1943 ITA NO. 485 OF 2009 AGAINST THE ORDER IN ITA 241/2004 OF I.T.A.TRIBUNAL,COCHIN BENCH, ERNAKULAM APPELLANT/S: THE COMMISSIONER OF INCOME TAX, TRICHUR. BY ADVS. SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT/S: DHANALAKSHMI BANK LTD., TRICHUR TRICHUR. BY ADVS. SRI.MOHAN PULIKKAL SRI.P.BALAKRISHNAN E SRI.NARAYANAN P POTTY THIS INCOME TAX APPEAL HAVING COME UP FOR HEARING ON 14.07.2021, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

I.T.A. No.485/2009 -2- J U D G M E N T S.V. Bhatti, J. Heard learned Standing Counsel Mr.Jose Joseph and learned Advocate Mr.Mohan Pullikkal for the parties. 2. Commissioner of Income Tax, Trichur/Revenue is the appellant. The Dhanalakshmi Bank Ltd, Thrissur/assessee is the respondent. The Revenue aggrieved by the orders of Commissioner of Income Tax (Appeals) (for short ‘CIT (Appeals)’ and the Income Tax Appellate Tribunal (for short ‘Tribunal’) has filed the instant appeal under Section 260A of the Income Tax Act, 1961 (for short ‘the Act’). 3. The circumstances relevant for considering the substantial questions of law raised by the Revenue are that the

I.T.A. No.485/2009 -3- Assessing Officer, on the tax return filed by the assessee for the Assessment Year 1995-96, made the assessment order under Section 143(3) of the Act. The subject matter of the appeal deals with an issue arising under Section 154 of the Act, incidentally by referring to the eligibility criteria under Section 36(1)(viia) of the Act. The assessee filed appeal against the order dated 22.12.1997 before the CIT (Appeals) and the learned Commissioner disposed of the appeal filed by the assessee vide order dated 07.02.2000. Thereafter, the Assistant Commissioner of Income Tax, Circle-1(1), Thrissur, issued notice under Section 154 of the Act. Through the notice issued under Section 154 of the Act, the Assistant Commissioner proposed to withdraw the excess deduction of Rs.80,85,991/- allowed in favour of the assessee under Section 36(1)(viia), by treating the inclusion of a few branches as rural branches by the Assessing Officer in the order dated 22.12.1997, as an error or mistake warranting

I.T.A. No.485/2009 -4- correction under Section 154 of the Act. The assessee filed objection including the maintainability of rectification petition for the proposed withdrawal of a few branches from the category of rural branches as not maintainable under Section 154 of the Act. The Assistant Commissioner, through order in Annexure-B dated 26.03.2002, had withdrawn the excess deduction and directed refund from the assessee. The assessee, aggrieved thereby, filed appeal before the CIT (Appeals) in I.T.A- 7/R-1/TCR/CIT-V/02-03. The assessee contended that the circumstances taken, as set out in the notice under Section 154, even on the face value thereof, do not come within the scope and ambit of Section 154 of the Act. The CIT (Appeals) accepted the case of assessee and allowed the appeal. The Revenue filed appeal before the Tribunal, and the Tribunal, through order in Annexure-D dated 19.09.2005, dismissed the appeal and confirmed the view taken by the CIT (Appeals). Hence, the

I.T.A. No.485/2009 -5- appeal at the instance of the Revenue. 4. The Revenue raises the following substantial questions of law for our consideration: “1. Whether, on the facts and in the circumstances of the case, the Tribunal is right in law and fact in confirming the order of CIT(A) and in interfering with the order of rectification by the Assessing Officer? 2. Whether, on the facts and in the circumstances of the case if the four branches enumerated in the order of the Assessing Officer (Vide paragraph 4) were excluded for being not rural as per the census of 1991 is not the inclusion of ten branches found to be nor rural in the very same census of 1991 an error apparent on the face of the record rectifiable under section 154 of the LT. Act? 3. Whether, on the facts and in the circumstances of the case, the Tribunal is right in law and fact in holding that "the mistake alleged to be rectified under section 154 is not an apparent mistake on the face of the record and it was a debatable issue and are not the finding wrong, perverse, if the issue is viewed and understood in the correct perspective? 4. Whether, on the facts and in the circumstances of the case and the four banks already excluded is correct and accepted by

I.T.A. No.485/2009 -6- the assessee, can the exclusion of ten more similarly situated banks give rise to any debate at all? 5. Whether, on the facts and in the circumstances of the case and since fourteen of the branches have been treated alike as non rural in a census of 1991, the Officer is right in treating only four of the branches as non rural and is not the rectification to treat all the fourteen branches as non rural in accordance with law?” 5. Advocate Mr.Jose Joseph contends that the definition and application of ‘rural branch’ is no more res integra in view of the decision of this Court in Commissioner of Income Tax v. Lord Krishna Bank Ltd1. The assessee had included urban branches under the category of rural branches and claimed the deduction. The Assessing Officer was right in treating the said mistake as a mistake warranting rectification under Section 154 of the Act. He argued that the orders of CIT (Appeals) and the Tribunal are vitiated by liberal construction of Section 154 of the Act and hence, warrants interference of this Court. He 1 (2011) 339 ITR 606 (Ker)

I.T.A. No.485/2009 -7- prays for allowing the appeal. 6. Learned Advocate Mr. Mohan Pulickkal objects to consideration of any of the reasons stated in the notice issued under Section 154 of the Act to appreciate whether the mistake pointed out by the Assistant Commissioner of Income Tax is a mistake, as a matter of fact or not. According to him, the jurisdiction under Section 154 ought not to be understood with the jurisdiction available to the Assessing Officer at the first instance and/or as similar to the jurisdiction conferred on the Appellate Authorities under the Act. In other words, his argument is that the mistake desired to be rectified through the proceedings under Section 154 of the Act must be patent and the mistake is concluded without deliberation by any of the Officers. Juxtaposing the circumstances of the case on hand, he argues that the Assistant Commissioner has deliberated upon the circumstances which weighed with the Assessing Officer at

I.T.A. No.485/2009 -8- the first instance and how those reasons are incorrect to record a finding that such approach by the Assessing Officer comes within the scope of ‘mistake’ under Section 154 of the Act. Furthering his submission, he argues that this aspect of the matter is thoroughly examined by the Commissioner of Income Tax. And upon appreciating the controversy between the assessee and the Department, the finding recorded by the CIT (Appeals) is relied on with considerable force by Mr.Mohan Pulikkal. To appreciate his argument, we find it contextual to reproduce the reasoning of the CIT (Appeals) in Annexure-C order: “From the facts available on record, it is not difficult to say that the assessing officer considered that there is a mistake apparent from record in applying the provision of section 36(1) (viia). Therefore, the entire rectification relates misapplication of law. Now, it is relevant to look into as to whether the assessing officer really misapplied the law or not. Here, it cannot be said with certainty that the assessing officer really

I.T.A. No.485/2009 -9- committed mistake in application of the correct law as there is no Count or Tribunal decision on this point which have been brought to his notice. It is only question of interpretation of the word "place" which is appearing in clause (a) of explanation below clause (viia) of section 36(1). Since the word "place" has not been defined anywhere in the Act, it is very difficult to say what it really means. The appellant and the assessing officer based on their own arguments have attached different meaning to the word "place". The assessing officer has given a wider meaning to the word "place" in equalising to village/panchayat, whereas, the appellant has given narrowed meaning to the word "place" restricting it only to the ward. Therefore, there is interpretation involved in this case on which the rectification order has been passed. The mistake cannot be said as self evident apparent from record. Merely because some illegality involved in the interpretation of law, the rectification order cannot be resorted. The assessing officer has definitely overstretched himself going beyond a mistake apparent from the record while passing the rectification order. It is well settled law that the interpretation of law cannot be undertaken in the garb of rectification. The Hon'ble Kerala High Court in the case of CIT Vs. Ram Bahadur Thakur Ltd. (237 ITR 217) held that having decided that only the amount Rs. 15 lakhs was allowable as payment for vacating tenancy in

I.T.A. No.485/2009 -10- computation of capital gain, the entire TAX claim of Rs.30 lakhs, cannot be allowed in an order purported to be a rectification order on the ground that it made a mistake in the earlier order assuming wrongly that it has the power to restrict the allowance to a reasonable extent. In this way I am of opinion that such debatable issue cannot be a subject matter of rectification order u/s 154. It is also well settled under law that the rectification order u/s 154 cannot be resorted to substitute the proceedings of 148 or 263. Therefore, on the considered fact, I hold that the rectification order passed by the assessing officer is bad in law. Hence the assessing officer is directed to modify the order passed u/s 154 accordingly.” 6.1 The Tribunal confirmed the said finding as follows: “4. The assessee appealed to the CIT(Appeals). The CIT(Appeals) allowed the appeal of the assessee by holding that the rectification order passed by the AO is bad in law, vide para 5 of his order, which is reproduced below: "5. From the facts available on record, it is not difficult to say that the assessing officer considered that there is a mistake apparent from record in applying the provisions of section 36(1)(vila). Therefore, the entire rectification relates misapplication of law. Now. it is relevant to look into as to whether the assessing officer really misapplied the law or not.

I.T.A. No.485/2009 -11- Here, it can not be said with certainty that the assessing officer really committed mistake in application of the correct law as there is no Court or Tribunal decision on this point which have been brought to his notice. It is only question of interpretation of the word "place" which is appearing in clause (a) of explanation below clause (viia) of section 36(1). Since the word "place" has not been defined anywhere in the Act, it is very difficult to say what is really mean s. The appellant and the assessing officer based on their own arguments have attached different meaning to the word "place". The assessing officer has given a wider meaning to the word "place" in equalizing to village/panchayat, whereas the appellant has given narrowed meaning to the word "place" restricting it only to the ward. Therefore, there is interpretation involved in this case on which the rectification order has been passed. The mistake cannot be said as self evident apparent from record. Merely because some illegality involved in the interpretation of law.the rectification order can not be resorted. The assessing officer has definitely overstretched himself going beyond a mistake apparent from the record while passing the rectification order. It is well settled law that the interpretation of law cannot be undertaken in the garb of rectification. The Hon'ble Kerala High Court in the case of CIT v. Ram Bahadur Thakur Ltd. (237-ITR-217) held that having decided that only the amount of Rs. 15 lakhs was allowable as payment for vacating tenancy in computation of capital gain, the entire

I.T.A. No.485/2009 -12- claim of Rs.30 lakhs cannot be allowed in an order purported to be a rectification order on the ground that it is made a mistake in the earlier order assuming wrongly that it has the power to restrict the allowance to a reasonable extent. In this way, I am of the opinion that such debatable issue cannot be a subject matter of rectification under sec. 154. It is also well settled law that the rectification order u/s 154 can not be resorted to substitute the proceedings of 148 or 263. Therefore, on the considered fact, I hold that the rectification order passed by the assessing officer is bad in law. Hence, the assessing officer is directed to modify the order passed u/s 154 accordingly." Being aggrieved by the order of the CIT(Appeals), the Revenue is in appeal before us. 5. We have heard the ld.DR for the Revenue and the ld. AR for the Assessee. We have carefully considered the facts of the present case and have also gone through the original order of the A.O. and the order under sc.154. In our considered opinion, the mistake alleged to be rectified under sec.154 is not an apparent mistake on the face of the record and it was a debatable issue. Therefore, in our considered opinion, the CIT(Appeals) has rightly held that the order passed by the AO under sec. 154 is bad in law. We do not find any reason to

I.T.A. No.485/2009 -13- interfere with the order of the CIT(Appeals) and we confirm his order.” 7. Advocate Mohan Pulikkal relies on the judgment of this Court in K K J Foundations v. Assistant Director of Income Tax (Exemption)2 in support of his argument that power/jurisdiction under Section 154 of the Act is illegal or unavailable in the admitted circumstances of the case. The operative portion reads as follows: “9. On a reading of section 154, what we could gather is that rectification is provided in the statute for the purpose of rectification of any mistake which is apparent from the record. The Income-tax authority referred to in section 116 is conferred with the power to amend any order passed by it under the provisions of the Act, etc., etc. Therefore, the question was whether there was any error apparent from the record so as to invoke the power under section 154 of the Act. It is true that the assessing authority as well as the appellate authority have considered the subject matter on the merits. According to us, in a matter like this, the course open to the 2 [2015] 378 ITR 311 (Ker)

I.T.A. No.485/2009 -14- authorities concerned were to consider first whether such an application was maintainable in law or not. That error committed by the authorities was main considered by the Tribunal and the Tribunal found that there was no mistake apparent from the record so as to invoke section 154 of the Act. 10. The learned counsel has invited our attention to the judgment in Asian Techs Ltd. v. CIT [2000] 243 ITR 262 (Ker); [2000] KHC 846 and con tended that the mistake apparent from record is not a clerical or arithmet ical error alone that comes within its purview but it also comprehends errors which, after judicious probe into the record from which it is sup posed to emanate are discerned. But, after considering the factual circumstances in the said case, this court found that the mistake to be rectified must be one apparent from the record and a decision rendered on a debat able point of law is not a mistake apparent from the record. Further, it was held that the word "apparent" must be something which appears to be so ex facie and it is incapable of argument or debate and, therefore, it follows that a decision on a debatable point of law or fact or failure to a set of facts which remains to be investigated cannot be corrected by apply the law way of rectification. Therefore, according to us, the said judgment would not render any assistance to the arguments advanced by the learned coun sel for the appellant.

I.T.A. No.485/2009 -15- 11. In our view, the power conferred under section 154 is something akin to the power of review conferred on a civil court under section 114 of the Code of Civil Procedure. By invoking the power of rectification, theultimate conclusion of a decision cannot be changed. So also, the employ ment of the words phraseologies in section 154 shows that by rectification it intended only to correct any mistake and amend the same accordingly. It is a settled proposition of law that rectification is a process by which a mis take is set at right. It thus means correcting an error which was apparent from record and not deciding the matter over and again on the merits and that the rectified order does not supersede the original order but continues with the incorporated changes.12. Moreover, we have come across the two judgments of the hon'ble apex court in S. Nagaraj v. State of Karnataka [1993] (Suppl.) 4 SCC 595 and Ammonia Supplies Corporation Pvt. Ltd. v. Modern Plastic Containers Pvt. Ltd. [1998] 94 Comp Cas 310 (SC); AIR 1998 SC 3153, by which it was held in the former judgment that rectification of an order stems from the fundamental principle that justice is above all. It is exercised to remove the error and not for disturbing finality. In the latter judgment, it was held that rectification connotes something what ought to have been done but by error is not done and what ought not to have been done was done requiring rectification. Rectification, in other

I.T.A. No.485/2009 -16- words, is the failure to comply with the directions under the Act. Therefore, it is apposite and clear that the power under section 154 can be invoked only to correct an error and not to disturb a concluded finding.” 8. We have noted the submission of the learned counsel appearing for the parties, perused the record and the judgment relied on by the assessee. The Assistant Commissioner Income Tax initiated proceedings under Section 154 of the Act to rectify an alleged mistake in categorization of branches by the assessee for the purpose of bad debts under Section 36(1)(viia) of the Act. It is contextual to note that the assessment order was questioned by the assessee before CIT (Appeals) and, as noted supra, the appeal was disposed of in favour of the assessee. The Revenue admittedly did not have objection on details of rural branches categorised by the assessee. Now, the procedure under Section 154 is resorted to for rectifying the error. Now, the question for deliberation of this Court is whether, from the

I.T.A. No.485/2009 -17- circumstances stated by the Assistant Commissioner, the jurisdiction under Section 154 of the Act could be availed or not. The process of deliberation for appreciating the mistake and recording a finding against the assessee has been examined in detail both by the Commissioner of Income Tax and the Tribunal. The Revenue, in the instant appeal, could not convince this Court that the mistake proposed to be rectified by issuing show-cause notice dated 23.02.2000 comes within the scope of Section 154. In our considered view, the mistake must be apparent on the face of the record and a mistake which is appreciated upon due deliberation and consideration of very same circumstances for recording a change in opinion/ conclusion does not come within the ambit of Section 154 of the Act. We are in complete agreement with the findings recorded by CIT(Appeals) and the Tribunal.

I.T.A. No.485/2009 -18- The questions are answered against Revenue and in favour of the assessee. Appeal fails, dismissed accordingly. Sd/- S.V.BHATTI JUDGE Sd/- BECHU KURIAN THOMAS JUDGE jjj

I.T.A. No.485/2009 -19- APPENDIX OF ITA 485/2009 PETITIONER ANNEXURE ANNEXURE A TRUE COPY OF THE ORDER OF THE ASSESSING OFFICER U/S.143(3) OF THE I.T.ACT, DATED 22.12.1997. ANNEXURE B TRUE COPY OF THE ORDER OF THE ASSESSING OFFICER U/S.154 OF THE I.T.ACT DATED 26.03.2002. ANNEXURE C TRUE COPY OF THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) IN ITA NO.7/RI/TCR/CIT-V/02- 03 DATED 01.12.2003. ANNEXURE D TRUE COPY OF THE ORDER OF THE INCOME TAX APPELLATE TRIBUNAL IN I.T.A.NO.241/COCH/2004 DATED 19.09.2005.