Commissioner of Income Tax vs Agya Wanti and Others

B.P. Saraf, C.J.—By this reference u/s 256(1) of the Income Tax Act, 1961 (""the Act""), the Income Tax Appellate Tribunal, Amritsar

Bench, Amritsar (""the Tribunal""), has referred the following questions of law to this court for opinion at the instance of the Revenue :

Assessment year 1975-76 :

Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the order made by the Income Tax Officer

u/s 154 allowing thereunder the depreciation due in respect of the truck is not an order to rectify a mistake apparent from the records and is,

therefore, unsustainable ? Assessment year 1976-77 :

Whether, on the facts and in the circumstances of the case, the Tribunal has misdirected itself in law in holding that the assessee had not

furnished the particulars as required u/s 34 of the Income Tax Act, 1961, for the allowance of depreciation in respect of the truck ?

Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the Income Tax Officer is not justified in

allowing the depreciation in respect of the truck ?

The material facts of the case, briefly stated, are as follows. The assessee submitted the return of its income under the Income Tax Act for the

assessment year 1975-76. In the return, the assessee did not claim depreciation on the truck owned by him and used for the purpose of his

business. The Income Tax Officer assessed the income of the assessee on the basis of the return u/s 143(1) of the Act and determined the taxable

income at Rs. 19,067. Later, the Income Tax Officer rectified the order u/s 154 of the Act as he found that the depreciation had not been allowed

in the assessment on truck No. 127 even though the particulars were available on the file. The Income Tax Officer, therefore, allowed depreciation

of Rs. 16,170 on that truck and redetermined the taxable income of Ihe asses-see at Rs. 2,900. Aggrieved by the order of rectification of the

Income Tax Officer by which he allowed depreciation in respect of the truck which he did not claim in his return, the assessee appealed to the

Appellate Assistant Commissioner of Income Tax. The case of the assessee before the Appellate Assistant Commissioner was that no depreciation

having been claimed by him in his return in respect of the truck in question, the Income Tax Officer had no power to rectify the assessment order

u/s 154 of the Act and grant the same. It was also contended by the assessee that the rectification having been made without affording an

opportunity to the assessee as contemplated by Section 154 of the Act, the order of rectification was illegal. The Appellate Assistant

Commissioner accepted the latter contention of the assessee and held that the order of the Income Tax Officer was illegal because it had the effect

of increasing the liability of the assessee in the next assessment year, viz., assessment year 197G-77, and hence it could not have been passed

without issuing any notice to the assessee of his intention to do so and allowing the assessee a reasonable opportunity of being heard. The

Appellate Assistant Commissioner, therefore, set aside the order of rectification of the Income Tax Officer u/s 154 of the Act. The Revenue

appealed to the Tribunal. The Tribunal was of the view that the question of grant of depreciation in a case where the assessee does not claim the

same was a debatable point and, that being so, the power u/s 154 of the Act could not have been exercised by the Income Tax Officer. The

Tribunal, therefore, upheld the order of the Appellate Assistant Commissioner, though on a different ground. Aggrieved by the above order of the

Tribunal, the Revenue applied for reference of the question of law set out in question No. 1 above to this court for opinion. The Tribunal has,

accordingly, referred question No. 1 to this court for opinion.

Questions Nos. 2 and 3 pertain to the assessment year 1976-77. In that year, though in its return of income, the assessee did not claim any

depreciation in respect of the truck in question, in the order of assessment u/s 143(1) of the Act, the Income Tax Officer allowed depreciation on

the written down value of the truck which could have been arrived at after allowing depreciation for the earlier year. He did not accept the plea of

the assessee that depreciation cannot be allowed in the absence of a claim made by the assessee in that regard. The Income Tax Officer found that

the particulars required for allowance of depreciation having been available in the return, depreciation was allowable to the assessee. He, therefore,

suo motu allowed depreciation in respect of the truck which the assessee did not claim. This action of the Income Tax Officer was challenged by

the assessee before the Appellate Assistant Commissioner. The Appellate Assistant Commissioner accepted the contention of the assessee that no

depreciation can be allowed unless the assessee claims the same. He, therefore, cancelled the order of the Income Tax Officer in so far as the

grant of depreciation was concerned. The Revenue appealed to the Tribunal. The Tribunal was of the opinion that in view of the conflict of opinion

on this issue between different High Courts, the Income Tax Officer could not have rectified the order u/s 154 of the Act. On the merits of the

decision of the Income Tax Officer to grant depreciation suo motu the Tribunal held that the assessee having not furnished the requisite particulars

for the purpose of depreciation and having not claimed depreciation in respect of the truck, the Income Tax Officer should not have allowed

depreciation in computing his income. The Tribunal found that the written down value had been repeated mechanically from the earlier assessment

year without the requisite particulars having been furnished by the assessee in the return. The Tribunal, therefore, held that the Income Tax Officer

should not have allowed depreciation, as the assessee had not furnished particulars because his intention was not to claim depreciation. The

Tribunal relied on the circular of the Central Board of Direct Taxes and held that the Income Tax Officer was wrong in allowing depreciation of Rs.

11,320 to the assessee. The deduction allowed in the assessment on account of depreciation was, therefore, deleted by the Tribunal. The Revenue

sought for reference of questions Nos. 2 and 3 to this court for opinion u/s 256(1) of the Act. The Tribunal has referred the same to this court.

We have given our careful consideration to the questions referred to us. The controversy in the first question is about the power of the Income

Tax Officer to rectify the assessment u/s 154 of the Act and grant depreciation to the assessee in respect of the truck which the assessee did not

claim in its return. The rectification was challenged by the assessee on various grounds. The first ground of challenge was that the assessee having

not claimed depreciation in its return, the Income Tax Officer could not have granted it by rectifying the assessment. The second ground was that

the rectification had the effect of increasing the liability of the assessee in the next assessment year. The same could not have been done without

giving notice to the assessee of its intention to do so and allowing the assessee a reasonable opportunity of being heard. The third ground of

challenge was that there being a divergence of opinion between different High Courts on the point whether the Assessing Officer could grant

depreciation allowance when the same was not claimed by the assessee, the Income Tax Officer could not have rectified the assessment and

granted depreciation because there was no mistake apparent from the record contemplated by Section 154 of the Act. The Appellate Assistant

Commissioner set aside the order of rectification on the ground that it was passed without giving a notice to the assessee and without affording him

an opportunity of hearing. The Tribunal upheld the order of the Appellate Assistant Commissioner but on a different ground. The Tribunal held that

the question whether the Assessing Officer can grant depreciation allowance when the same is not claimed by the assessee being a debatable point,

the power of rectification u/s 154 of the Act could not have been exercised.

We have given our careful consideration to the questions referred to us. Section 154 of the Act provides for rectification of mistake apparent

from the record. The power u/s 154 of the Act, therefore, can be exercised only if there is a mistake in the order and the mistake is apparent from

the record. Law is well settled that only a glaring and obvious mistake of law can be corrected u/s 154 of the Act. A decision on a debatable point

of law cannot be corrected by way of rectification. If the rectification was made at a time when the issue was debatable, it cannot be supported by

reference to the Supreme Court's decision settling the issue which is rendered after the rectification.

In the instant case, there is no dispute about the fact that at the time when the rectification was made, there was a sharp cleavage of opinion

between different High Courts on the point. The controversy was set at rest recently by the Supreme Court by its judgment dated March 15,

2000, in Commissioner of Income Tax Vs. Mahendra Mills, . In that case, the Supreme Court held that the provision of Section 32 of the Act to

claim depreciation being for the benefit of the assessee, if the assessee does not wish to avail of that benefit for some reason, the benefit cannot be

forced upon him. In view of the above, we are of the clear opinion that on the facts and in the circumstances of the case, the Tribunal was right in

law in holding that the order of the Income Tax Officer u/s 154 of the Act is not an order to rectify a mistake apparent from the record and hence it

is not sustainable. Question No. 1 is, therefore, answered in the affirmative, i.e., in favour of the assessee and against the Revenue.

We may now turn to questions Nos. 2 and 3. The controversy in questions Nos. 2 and 3 again is regarding grant of depreciation to an assessee

who does not want to avail of the same. The Tribunal held that the assessee having not furnished the requisite particulars in respect of the truck in

question for the purpose of grant of depreciation and having not claimed depreciation in respect thereof, the Income Tax Officer should not have

allowed 'depreciation in computing his income. The Tribunal noted that the written down value of the truck had been repeated mechanically from

the earlier assessment year without the requisite particulars having been furnished by the assessee. So far as the factual controversy as to whether

the assessee had furnished the particulars as required u/s 34 of the Act for the purpose of depreciation in respect of the truck or not, we find that

there is a definite finding of fact by the Tribunal that such particulars had not been furnished. As stated earlier, the Tribunal has categorically stated

that the written down value of the truck had been repeated mechanically from the earlier assessment year without any particulars having been

furnished by the assessee in his return. That being so, the Tribunal, in our opinion, was right in holding that the assessee had not furnished the

particulars as required u/s 34 of the Act for the allowance of depreciation in respect of the truck.

So far as the third question is concerned, though at the material time there was a divergence of opinion between the High Courts whether the

Assessing Officer can grant depreciation allowance when it was not claimed by the assessee, that controversy is now settled by the decision of the

Supreme Court in Commissioner of Income Tax Vs. Mahendra Mills, The Supreme Court in that case considered the decisions of the High Courts

of Allahabad and Madras which took the view that the Income Tax Officer could grant depreciation allowance even if it was not claimed by the

assessee. The Supreme Court also considered the decisions of the Bombay, Gujarat, Punjab and Haryana, Karnataka, Andhra Pradesh, Calcutta

and Kerala High Courts wherein a contrary view had been taken. The Supreme Court repelled the argument on behalf of the Revenue that since

Section 32 provides for depreciation it has to be allowed in computing the income of the assessee. The Supreme Court held that the provision for

claim of depreciation being for the benefit of the assessee, if he does not wish to avail of that benefit for some reason, the benefit cannot be forced

upon him. It is for the assessee to claim depreciation, if it is to his advantage. The Supreme Court held (at page 80) :

Section 34 is not in the nature of merely an enabling provision. In the absence of particulars of depreciation as required by Section 34, there is no

mandate on the Income Tax Officer u/s 29 to compute the income by allowing depreciation u/s 32.

It is clear from the above decision of the Supreme Court that no depreciation can be allowed in a particular assessment year if the assessee does

not want to claim it in that year. In the instant case, the assessee did not claim any depreciation in tbe year under consideration. He did not even

furnish the particulars required for allowance of depreciation u/s 34 of the Act. In such a situation, the Income Tax Officer could not and should not

have allowed the same.

In view of the above, we are of the clear opinion that on the facts and in the circumstances of the present case, the Tribunal was right in holding

that the Income Tax Officer was not justified in allowing depreciation in respect of the truck which bad not been claimed by the assessee.

In the premises, question No. 2 is answered in the negative, i.e., in favour of the assessee and against the Revenue. Question No. 3 is

answered in the affirmative, i.e., in favour of the assessee and against the Revenue.

The reference is disposed of accordingly with no order as to costs.