M. Far Hotels Ltd. vs Commissioner of Income Tax

Dr. Manjula Chellur, C.J.—The substantial questions of law that arise for consideration in the appeal are as under:

A. Whether, on the facts and in the circumstances of the case, the Tribunal is correct in law and fact in reversing annexure E order dated November 30, 2009, of the Commissioner of income tax (Appeals)?

B. Whether, on the facts and in the circumstances of the case, the Tribunal is correct in law and fact in nut granting the deduction of Rs. 54,40,440 being interest waived written back for the assessment year 2005-06 as the same was/claimed as a deduction by the appellant for the assessment year 2004-05 but the Assessing Officer failed to allow it?

The admitted facts that led to filing of the present appeal are as under:

When the appellant had to file the return pertaining to the assessment year 2005-06 on October 27,2005, completion of the assessment proceedings for the earlier assessment year 2004-05 was pending. He declared Rs. 54,40,440 as income while filing the return of income because of waiver of interest by the creditor who lent money to the appellant-assessee. He was also under the impression that the interest expenditure of Rs. 54,40,440 claimed for the assessment year 2004-05 would be allowed. Unfortunately the interest expenditure for the assessment year 2004-05 was disallowed by the Department and the appellant-assessee did not raise any agitation by filing an appeal, etc. Therefore, the assessment proceedings so far as 2004-05 is concerned reached finality.

Coming to the assessment year 2005-06, no revised return came to be filed declaring income under different heads, which could have been done by the appellant-assessee on or before March 31, 2007, in spite of the knowledge of disallowance of the interest expenditure of Rs. 54,40,440 for the previous year 2004-05. The Department computed the tax payable based on the return of income filed by the appellant-assessee on October 27, 2005, and issued a demand notice indicating Rs. 93,016 as short fall tax to be paid.

Subsequently, an application u/s 154(1)(b) of the income tax Act came to be filed seeking rectification of mistake alleged to have crept in the intimation sent by the Department demanding short fall tax. The entire problem faced by the appellant-assessee seems to be his own creation. He has not acted properly in time in respect of both the assessment years. Apparently, as on October 27, 2005, when the return of income for the assessment year 2005-06 came to be filed, computation of tax for the earlier year was not yet processed. The belief or impression of the assessee that interest expenditure would be allowed for the year 2004-05 proved to be wrong. He ought to have challenged the said disallowance. This was the first wrong step of the appellant. Later, though he had an opportunity to file revised return so far as the income for the assessment year 2005-06 till March 31, 2007, he did not choose to file the revised return in spite of intimation of disallowance of interest expenditure for the previous assessment year. This is the second wrong step taken by the appellant-assessee.

The appellant-assessee kept quiet till the intimation was sent u/s 143(1) of the Act demanding deficit tax. Assessment by the Department would be based on the material or information indicated in the return of income filed by the assessee. Demand of deficit tax is also based on the details found in the return of income submitted by the assessee on October 27, 2005. So far as the calculation or method of computation and the deficit of tax with reference to the details, the appellant-assessee has no quarrel.

The case of the assessee is, they have wrongly shown Rs. 54,40,440 as income, in spite of having the benefit of waiver of interest for the assessment year 2005-06 on account of their impression that for the earlier year 2004-05 they would get the benefit of interest expenditure. At least when the disallowance of interest expenditure came to their knowledge, they could have revised their returns which apparently they did not do so. By this process, the appellant-assessee though did not get the benefit of the interest expenditure for the assessment year 2004-05, he had to pay again a tax of Rs. 54,40,440 though they had the benefit of waiver of interest. Instead, the appellant-assessee sought rectification of mistake by filing an application u/s 154(1)(b) of the income tax Act, which reads as under:

Rectification of mistakes.--(1) With a view to rectifying any mistake apparent from the record an income tax authority referred to in section 116 may,--. . .

(b) amend any intimation or deemed intimation under sub-section (1) of section 143.

Reading of the above direction clearly indicates that rectification of mistake apparent on the record can be allowed by the Department which includes amendment of any intimation or deemed intimation under sub-section (1) of section 143 of the Act. Intimation u/s 143 of the Act relates to excess payment of tax or short fall of tax. This intimation would be sent at the relevant point of time only in case there is refund of excess tax paid or short fall of tax. Apparently, it was a case of short fall in payment of tax. This short fall was calculated properly and correctly based on the return of income declared by the assessee. Therefore, there was no mistake or error apparent on the face of record in the intimation sent by the Department indicating the exact short fail of tax to be paid. This cannot be treated as a mistake apparent on the face of record to compel the Department to amend the intimation. The mistake on the part of the appellant-assessee in not challenging the assessment order for 2004-05 and not filing revised return for 2005-06 has led the assessee to this situation. The entire difficulty in which the appellant is put in is on account of his mistake which cannot be treated as a mistake apparent on the face of record so far as the intimation sent by the Department and the same cannot be allowed to be rectified treating it as a mistake in the intimation of the Department. Therefore, the Tribunal was justified in rejecting the claim of the appellant-assessee though the Commissioner of income tax (Appeals) allowed the same. In that view of the matter, we are of the opinion, the appeal deserves to be dismissed. Accordingly, the appeal is dismissed.