Commissioner of Income Tax vs K. Venkateswerarao

Y.V. Anjaneyulu, J.—This reference arises u/s 256(1) of the income tax Act, 1961 (''the Act'') It relates to the assessment year 1973-74. At the instance of the Commissioner the Tribunal referred the following two questions of law for consideration of this Court:

"1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is correct in law in holding that the excess interest allowed u/s 214 of the income tax Act, 1961, cannot be withdrawn by invoking the provisions of section 154?

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is correct in law in holding that the latter binding decision of the Andhra Pradesh High Court does not give rise to a mistake apparent from the records in the order already passed?"

For the assessment year 1973-74 the assessee paid advance tax of Rs. 11,380 which included a sum of Rs. 3.794 paid on 27-3-1973. While completing the original assessment the ITO treated the payment of Rs. 3,794 as advance tax payment and allowed interest u/s 214 of the Act. Subsequently the ITO held the view that the sum of Rs. 3,794 paid on 27-3-1973 cannot be considered to be advance tax payment inasmuch as it was paid after the due date prescribed, namely, 15-3-1973. The ITO, therefore, issued notice u/s 154 of the Act requiring the assessee to show cause why interest allowed u/s 214 in respect of the payment of Rs. 3.794 should not be withdrawn by rectifying the assessment. The assessee objected to the jurisdiction of the ITO to make any such rectification. Rejecting the assessee''s objection the officer passed an order u/s 154 on 30-8-1977 withdrawing the interest allowed u/s 214 in the original assessment.

The assessee filed an appeal before the AAC against the aforesaid order. The AAC allowed the appeal holding that interest was properly allowed. Promptly the ITO filed an appeal before the Tribunal questioning the correctness of the AAC''s view. The Tribunal held that the ITO cannot, in the facts and circumstances, exercise jurisdiction u/s 154. In that view the appeal filed by the ITO was dismissed. Aggrieved by the order of the Tribunal the assessee applied for and obtained the present reference u/s 256(1).

We are inclined to uphold the order of the Tribunal. The main argument of the learned standing counsel for the income tax Department is that this Court in Kangundi Industrial Works (P.) Ltd. Vs. Income Tax Officer, A-Ward, held that any payment made by an assessee subsequent to the due date of instalment cannot be held to be an advance tax payment and, consequently, the assessee would not be entitled to claim interest u/s 214. The learned standing counsel points out that the aforesaid decision constitutes binding authority so far as the State of Andhra Pradesh is concerned and, consequently, the ITO would be justified in rectifying the assessment u/s 154. According to the learned standing counsel it is immaterial that other High Courts held a different view in the matter. We have to point out that the decision of this Court in Kangundi Industrial Works (P.) Ltd.''s case (supra) was rendered on 6-3-1979 whereas the jurisdiction to rectify the alleged mistake u/s 154 was invoked in the present case on 30-8-1977. It must, therefore, be said that the proceedings initiated by the ITO for rectification of an alleged mistake are not with reference to the judgment of this Court which came much later. Indeed a perusal of the order passed by the ITO on 30-8-1977 does not even indicate any reason why the ITO thought that interest should be withdrawn. All that the order says is that:

"Interest u/s 214 was excess allowed."

It is brought to our notice that at the relevant time there is a judgment of the Gujarat High Court in Bharat Textile Works v. ITO [1978] Tax 51(3)-67 taking- a contrary view from the one taken by the Court in March 1979.

It would, therefore, appear that on the date when the ITO exercised the jurisdiction u/s 154 the matter was not free from argument or debate. It cannot be said that a patent and self-evident mistake occurred when the ITO completed the assessment treating the payment as an advance tax payment and granting interest u/s 214. It is settled law that the ITO cannot exercise jurisdiction u/s 154 to rectify matters which are capable of debate and argument. In the circumstances the power was erroneously exercised by the ITO u/s 154. The learned counsel for the respondent, Shri M.J. Swamy, mentioned that while the decision of this Court in Kangundi Industrial Works (P.) Ltd.''s case (supra) supported the view that interest cannot be allowed there are two decisions of the Madhya Pradesh High Court in Commissioner of Income Tax Vs. Jagannath Narayan Kutumbik Trust, and Commissioner of Income Tax Vs. Parmanand Bhai Patel and Smt. Jyotsnadevi Patel (Legal heirs and Executors of the estate of late Smt. Ujjam Bai Patel), taking a contrary view. It is not necessary for us to examine the impact of the judgments of the Madhya Pradesh High Court as in our opinion the proceedings initiated on 30-8-1977 were not based on any judgment of this Court which was binding in the State of Andhra Pradesh. We accordingly answer the two questions referred in the affirmative, that is to say, in favour of the assessee and against the revenue.

No costs.