Gujarat State Seeds Corporation Ltd. vs Income Tax Officer (OSD)

K.S. Jhaveri, J.—Being aggrieved and dissatisfied with the impugned order dated January 13, 2006, passed by the Income-tax Appellate Tribunal, Ahmedabad Bench, in I.T.A. No. 1009/Ahd/2000 for the assessment year 1983-84, the assessee has preferred the present tax appeal. This appeal was admitted by this court on July 30, 2007, for consideration of the following substantial question of law :

"Whether, in the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in holding that the Assessing Officer can pass a rectification order modifying the original assessment order carried into appeal and having already merged with the order of the Commissioner of Income-tax (Appeals) while giving effect to the order passed by the Commissioner of Income-tax (Appeals)?"

The assessee filed its return of income for the assessment year in question. The assessee claimed weighted deduction under section 35C of the Act being one-fifth of the total expenditure incurred by the assessee. The Assessing Officer took a view that 10 per cent of the total expenditure was only eligible for weighted deduction under section 35C of the Act and allowed the deduction to the assessee accordingly. Against this order, the assessee went in appeal before the Commissioner of Income-tax (Appeals). In the meantime, the Assessing Officer noted a mistake apparent in the order passed under section 143(3) of the Act and, accordingly, the Assessing Officer reduced the subsidy from the eligible expenditure.

2.1 Thereafter, vide order dated March 31, 1990, passed under section 154 of the Act, the weighted deduction was withdrawn. Subsequently, the Commissioner of Income-tax (Appeals) passed order dated March 15, 1991, in respect of appeal filed by the assessee against the order passed by the Assessing Officer under section 143(3) of the Act. In consequence of the appellate order of the Commissioner of Income-tax (Appeals) the Assessing Officer passed order dated July 10, 1991, and computed the qualifying amount for 100 per cent deduction and qualifying amount eligible for 30 per cent of the deduction.

2.2 The Assessing Officer, thereafter, considering the submission of the assessee took the view that a mistake had occurred in the order passed m consequence upon the order of the Commissioner of Income-tax (Appeals) dated July 10, 1990, as in that order the order passed under section 154 of the Act dated March 30, 1990, was not considered. The findings in the rectification order was that the amount of subsidy received by the assessee was to be deducted from the qualifying expenditure before the weighted deduction is to be computed and, accordingly, the Assessing Officer passed an order on March 29, 1996.

2.3 The assessee went in appeal before the Commissioner of Income-tax (Appeals) against the order dated March 29, 1996, but the same was dismissed. The assessee, therefore, challenged the said order by filing appeal before the Tribunal. The Tribunal, vide impugned order dismissed the same. Hence, the assessee is before this court by way of the present appeal.

Mr. S.N. Soparkar, learned senior counsel appearing with Mr. B.S. Soparkar, learned advocate for Ms. Swati Soparkar, learned advocate for the assessee, submitted that the Tribunal has gravely erred in confirming the action of Revenue by holding that if a mistake apparent on record has occurred while giving effect to the order of the Commissioner of Income-tax (Appeals) then the Assessing Officer is competent to rectify the order giving effect to the order of the Commissioner of Income-tax (Appeals). He submitted that the order passed by the Assessing Officer in consequence of the appeal effect can only be rectified by the Commissioner of Income-tax (Appeals) and in the facts and circumstances of the case rectification order passed by Assessing Officer subsequent to the order giving effect to the order of the Commissioner of Income-tax (Appeals) is void ab initio and ought to have been quashed and set aside by the Tribunal. He has relied upon a decision of the apex court in the case of T.S. Balaram, Income Tax Officer, Company Circle IV, Bombay Vs. Volkart Brothers, Bombay, .

The apex court in the case of Vokart Brothers (supra) has held as under (page 52) :

"From what has been said above, it is clear that the question whether section 17(1) of the Indian Income-tax Act, 1922, was applicable to the case of the first respondent is not free from doubt. Therefore, the Income-tax Officer was not justified in thinking that on that question there can be no two opinions. It was not open to the Income-tax Officer to go into the true scope of the relevant provisions of the Act in a proceeding under section 154 of the Income-tax Act, 1961. A mistake apparent on the record must be an obvious and patent mistake and not something which can be established by a long drawn process of reasoning on points on which there may conceivably be two opinions. As seen earlier, the High Court of Bombay opined that the original assessments were in accordance with law though, in our opinion, the High Court was not justified in going into that question. In Satyanarayan Laxminarayan Hegde and Others Vs. Millikarjun Bhavanappa Tirumale, this court, while spelling out the scope of the power of a High Court under article 226 of the Constitution, ruled that an error which has to be established by a long drawn process of reasoning on points where there may conceivably be two opinions cannot be said to be an error apparent on the face of the record. A decision on a debatable point of law is not a mistake apparent from the record (see Sidhramappa Andannappa Manvi Vs. Commissioner of Income Tax, Bombay, . The power of the officers mentioned in section 154 of the Income-tax Act, 1961, to correct ''any mistake apparent from the record'' is undoubtedly not more than that of the High Court to entertain a writ petition on the basis of an ''error apparent on the face of the record''. In this case it is not necessary for us to spell out the distinction between the expressions ''error apparent on the face of the record'' and ''mistake apparent from the record''. But suffice it to say that the Income-tax Officer was wholly wrong in holding that there was a mistake apparent from the record of the assessments of the first respondent."

Considering the above decision, we are of the opinion that the Tribunal and the Commissioner of Income-tax (Appeals) have committed an error in upholding the rectification made by the Assessing Officer. A decision on a debatable point of law is not a mistake apparent on the record. After the implementation of the order passed by the Commissioner of Income-tax (Appeals), it was not appropriate on the part of the Assessing Officer to review the earlier order under the guise of rectification and in arriving at new facts and new order could not be passed unless the order of the Commissioner of Income-tax (Appeals) was challenged or modified. The Tribunal has materially erred in upholding the erroneous finding of fact by the Commissioner of Income-tax (Appeals) and the Assessing Officer and the findings are not only perverse but also against the rules and the provisions of law and, therefore, they are required to be set aside. In the premises aforesaid, appeal is allowed. The impugned order passed by the Tribunal and the Commissioner of Income-tax (Appeals) are quashed and set aside. The rectification order passed by the Assessing Officer is also set aside. We, accordingly, answer the question raised in the present appeal in favour of assessee and against the Revenue.