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Income Tax Appellate Tribunal, “C” BENCH, KOLKATA
Before: Shri M. Balaganesh
SHRI M.BALAGANESH, AM
This appeal of the revenue arises out of the order of the Learned CIT(A) in Appeal No. 242/XXXII/08-09/Cir-10/R&T/Kol dated 18.2.2011 against the order passed by the Learned AO u/s 154/143(3) of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’) for the Asst Year 1997-98.
This appeal was first listed for hearing and assessee chose not to appear either in person or through its authorized representative from 28.12.2011 and on subsequent occasions on 27.9.2012 , 21.3.2013, 29.9.2014, 9.1.2015, 16.6.2015 and 17.9.2015. On 17.9.2015, the bench directed the registry to serve the notice through Learned DR and case was adjourned to 17.11.2015. On 17.11.2015, the case was adjourned to 18.11.2015. We find from the files that the Inspector of Income Tax had given his report that the addressee is not to be found in the address given in the order and hence could not be served. We find that the
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assessee has been given sufficient opportunities for prosecuting its appeal. In these circumstances, we proceed to hear the Learned DR and dispose off the appeal accordingly.
The first issue to be adjudicated herein is as to whether the order passed u/s 154 of the Act by the Learned AO in respect of rectifying the mistakes in respect of disallowance of interest u/s 36(1)(iii) of the Act amounting to Rs. 2,62,50,000/- and chargeability of accrued interest in the sum of Rs. 38,43,000/- in the facts and circumstances of the case.
The brief facts of this case is that the assessee is a public limited company engaged in the business of manufacturing and sale of Acrylic Fibre. The original assessment for the Asst Year 1997-98 was completed u/s 143(3) of the Act on 16.11.1999 determining net loss of Rs. 4,56,41,219/-. The assessment was subsequently reopened and the reassessment was completed u/s 143(3) / 147 of the Act on 18.2.2003 determining net loss at Rs. 4,25,14,480/-. Before the reassessment proceedings, the Learned AO issued notice u/s 154 of the Act dated 20.12.2001 proposing to rectify the non-inclusion of interest income of Rs. 38,43,000/-. The assessee duly responded to the said proceeding by giving a reply on 31.12.2001 and objecting to the rectification proceedings stating that the interest income in the sum of Rs. 38,42,938/- has been already offered to tax by the assessee in respect of advance made to Larsen & Toubro Ltd over the years and also stated that this figure admittedly includes interest income offered in Asst Year 1997-98 to the tune of Rs. 11,59,283/-. Hence the assessee pleaded that there is no mistake apparent from record in this regard. Later the Learned AO passed an order u/s 154/143(3)/147 of the Act on 23.3.2004 which is after the order passed in the reassessment proceedings on 18.2.2003, wherein an addition of Rs. 38,43,000/- was made towards notional interest income and Rs. 2,62,50,000/- was disallowed towards interest expenditure u/s 36(1)(iii) of the Act.
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4.1. The brief facts in respect of disallowance of interest u/s 36(1)(iii) are that the assessee borrowed a sum of Rs. 15 crores from Star Paper Mills Ltd and NRC Limited for the purpose of its business and liable to incur interest expenditure in the sum of Rs. 2,62,50,000/- during the Asst Year 1997-98. This interest expenditure was not provided for in the books of accounts of the assessee for the financial year ended 31.3.1997. A note to this effect has been given in Schedule 17 forming part of the audited annual accounts as Note No. 17(B)(v)(b). Based on the said note, the assessee however sought to claim the same as an allowable deduction u/s 36(1)(iii) of the Act in line with the mercantile system of accounting followed consistently over the years and in view of the fact that the borrowings were made for business purposes only . This fact was also mentioned in the computation filed along with the return of income. During the course of Assessment proceedings u/s 143(3), the Learned AO had enquired about this matter and assessee had duly furnished its reply vide letter dated 5.11.1999. After due verification of the same, the said claim of interest expenditure was allowed as deduction u/s 36(1)(iii) of the Act to the tune of Rs. 2,62,50,000/- in the order passed u/s 143(3) of the Act on 16.11.1999. The Learned AO while passing the order u/s 154 of the Act totally ignored this fact and has withdrawn the claim for interest amounting to Rs. 2,62,50,000/- allowed in the original assessment u/s 143(3) on the premise that the liability on account of interest claimed by the assessee is contingent in nature. 5. The assessee challenged this order before the Learned CITA who allowed the appeal by stating that there was no mistake apparent from record in the earlier assessment and reassessment orders warranting the rectification proceedings u/s 154 of the Act. He further stated that the Learned AO sought to review his own order which is not permissible u/s 154 of the Act. Aggrieved, the revenue is in appeal before us on the following grounds :-
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1) On the facts & in the circumstances of the case ld.CIT(A) has erred in holding that the order u/s. 154 to be bad in law though the mistakes are apparent from the records. II) On the facts & in the circumstances of the case ld.CIT(A) has failed to appreciate the claim of deduction of Rs.2,62,50,000/- u/s. 36(1)(iii) without making provision in accounts was not permissible. III) On the facts & in the circumstances of the case ld.CIT(A) has also failed to appreciate that accrued interest of rs.38,43,000/- was taxable as it was following mercantile system of accounting.”
We have heard the Learned DR. We find from the facts stated hereinabove that there are no mistakes apparent from record within the meaning of section 154 of the Act and moreover, the issues involved therein are highly debatable and hence cannot be the subject matter of section 154 proceedings. In our opinion, what could be rectified u/s 154 of the Act is a mistake which must be obvious and patent and not something which can be established by a long drawn process of reasoning as has been held by the Hon’ble Supreme Court in the case of T.S.Balaram, ITO vs Volkart Bros reported in 82 ITR 50 (SC). Hence we find that the Learned CITA had rightly allowed the appeal of the assessee by stating that the Learned AO was only trying to review his own order which is not permissible u/s 154 of the Act and also stating that there are no mistakes apparent from record within the meaning of section 154. Hence we find no infirmity in the order of the Learned CITA. Accordingly, the grounds raised by the revenue are dismissed.
In the result, the appeal of the revenue is dismissed. THIS ORDER IS PRONOUNCED IN OPEN COURT ON 27 / 11/2015
Sd/- Sd/- ( Mahavir Singh, Judicial Member ) (M. Balaganesh, Accountant Member) Date 27/ 11/2015
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Copy of the order forwarded to: The Appellant:DCIT,Cir-10 P-7 Chowringhee Sq, 3rd fl, Kol-69. . 1.. 2 The Respondent-M/s Consolidated Fibres & Chemicals Ltd 222 AJC Bose Rd, Circular Mansion Bldg.5th Fl., Kol-17. .
3 /The CIT, / The CIT(A) 4.. 5. DR, Kolkata Bench 6. Guard file. True Copy, By order, Asstt Registrar
** PRADIP SPS
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