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Judgment
N. Paul Vasanthakumar, J.—These appeals are filed against the common order of the Income Tax Appellate Tribunal made in I.T.A. Nos.
1515 and 1516 of 2002 dated 6.9.2005, confirming the order passed by the Commissioner of income tax (Appeals) relating to the assessment
years 1993-94 and 1994-95. These tax case appeals were admitted by this Court on 16.12.2006 on the following substantial questions of law:
whether on the facts and in the circumstances of the case the Appellate Tribunal was right in holding that the assessing officer has validly rectified
the order giving effect to the order of the Commissioner of income Tax (Appeals) without appreciating that such rectification is against the specific
directions of the Commissioner of income Tax (Appeals) ?
whether on the facts and in the circumstances of the case the Tribunal was right in upholding the order of rectification passed by the assessing
officer which in effect nullifies the order of the Commissioner of Income Tax (Appeals) which has become final ?
whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in not holding that rectification u/s 154 of the Income
Tax Act, 1956 cannot be done when there are two possible interpretations ?
The case of the Assessee was that the Assessee firm is having Manufacturing Division and Commission Agency Division. The assessee filed
assessment for the years 1993-94 and 1994-95. The said returns were processed u/s 431(1)(a) of the Income Tax Act, 1961 and the Income
declared by the assessee was accepted. Subsequent to the conclusion of the assessment, the assessee claimed commission payments in the
manufacturing division as well as in the agency division. Even in the assessment submitted, the assessee claimed set-off against the commission
receipts. The plea of the assessee was considered and the Assessing officer chose to exclude 90% of the gross commission on the opinion that the
issue is subject to interpretation. Against the said assessment order the Assessee preferred appeal in I.T.A. Nos. 716 and 717/95-96 before the
Commissioner of Income Tax (Appeals) contending that when there is both receipts and payments in the nature of commission, the net of both
alone can be included and the assessee inadvertently preferred claim u/s 80HHC without noting the items of similar nature appearing on either side
of profit and loss account. However, during the hearing, the same was pointed out and only on the ground of scope for doubt the Assessing officer
preferred to disallow the claim. According to the assessee in tax matters, in case of doubt the benefit should go to the assessee.
The appeals were disposed of holding that only 90% of the net commission has to be excluded while computing the deduction u/s 8HHC.
Against the said order in the appeal, the Revenue filed further appeal before the Tribunal in ITA Nos. 1062 and 1063 of 1998. The Tribunal
dismissed the appeals on 12.5.2004. Pursuant to the said orders the Assessing officer passed the final assessment order giving effect to the order
dated 15.6.1998 passed by the Commissioner of Income Tax and excluded 90% of the net commission receipts as claimed by the assessee.
Thereafter, the Assessing officer issued notice u/s 154 on 26.6.2000 proposing to rectify his earlier assessment order dated 15.6.1998, which
was passed in compliance of the appellate authority''s order (ita). In the rectification notice it was stated that the Commissioner of Income Tax
appeals had directed to include only net commission receipts. However, while excluding commission receipts set-off commission payment was
wrongly given. Hence there is a mistake apparent on the face of the record, which requires rectification. The said stand of the Assessing officer
was opposed by the assessee stating that while passing the order u/s 143(3), everything was considered and therefore there is no error apparent
on the face of the record and therefore the notice issued u/s 154 is not valid and the net commission receipts, which was ordered to be excluded
while computing the deduction u/s 80HHC cannot be changed by way of rectification, as the same amounts to change of opinion. However, the
Assessing officer passed orders under the guise of rectification and claimed total tax payable at Rs. 9,29,939/- for the assessment year 1993-1994
and Rs. 19,65,438/- for the assessment year 1994-1995. The assessee preferred appeals before the Commissioner of Income Tax (Appeals) in
I.T.A. Nos. 113/01-02 and 114/01-02. The said appeals were allowed by the Commissioner of Income Tax (Appeals) by order dated 9.7.2002,
against which the Revenue filed ITA Nos. 1515/2002 and 1516/2002 and the said appeals were allowed on 6.9.2005 in favour of the Revenue
and restored the orders of the Assessing officer. As against the said orders, these appeals are preferred.
The contention of the Assessee is that only the net commission be excluded and the said issue having been considered and final order having
been passed, there is no error apparent on the face of the record to initiate rectification proceedings. The course adopted by the Assessing officer
was to nullify the specific direction given by the Commissioner of Income Tax (Appeals) and the proceedings initiated u/s 154 of the income Tax
Act, 1961 on the facts and circumstances of the case is illegal.
The learned counsel appearing for the appellant/assessee cited the decisions of the Supreme Court reported in T.S. Balaram, Income Tax
Officer, Company Circle IV, Bombay Vs. Volkart Brothers, Bombay, ; Assistant Commissioner, Income Tax, Rajkot Vs. Saurashtra Kutch
Stock Exchange Ltd., and Seshasayee Paper and Boards Ltd. Vs. Inspecting Assistant Commissioner of Income Tax, in support of his contentions
and prayed for answering the questions of law raised in favour of the Assessee.
The learned counsel appearing for the Revenue on the other hand submitted that what is the net commission is to be decided by the Assessing
officer by re-computation and while re-computing, the Assessing officer committed a mistake and there is no two opinion about the said mistake.
Therefore, rectification proceedings initiated was in accordance with law i.e., u/s 154 and there is no error in the common order passed by the
Income Tax Appellate Tribunal.
We have considered the rival submissions. The Assessing officer while passing the original assessment order, considered the gross commission
receipts for reduction from the profits on the ground that there is an element of doubt. The said order was challenged by the assessee before the
Commissioner of Income Tax (Appeals), who allowed the appeals and the said order has become final as appeals preferred before the Income
Tax Appellate Tribunal was also dismissed and the said order of the Commissioner of income tax (Appeals) was also implemented. There is no
dispute regarding the said aspect.
The issue having been agitated and final decision having been implemented, the action of the Assessing officer to re-open the issue on the ground
of rectification, is not coming within the purview of Section 154 of the Income Tax Act, 1961, which clearly states that rectification power is
available only if there is a mistake apparent from the record and the said power cannot be invoked either to nullify the earlier order, which became
final or on the basis of change of opinion. The Assessing Officer having challenged the order of the Commissioner of Income Tax (Appeals) before
the Income Tax Appellate Tribunal and the same having been dismissed and having allowed the said order to become final, he is also bound by the
said order passed.
The issue as to ''when the power of rectification can be exercised'' was already considered by the Hon''ble Supreme Court as well as by this
Court in the following decisions.
(a) In the decision reported in T.S. Balaram, Income Tax Officer, Company Circle IV, Bombay Vs. Volkart Brothers, Bombay, wherein in
paragraphs 5 (in SCC) it is held thus,
5........... 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.
(b) The said issue was again considered by this Court in the decision reported in Seshasayee Paper and Boards Ltd. Vs. Inspecting Assistant
Commissioner of Income Tax, wherein this Court held thus,
when the income tax officer gave effect to the direction of the Tribunal by making the computation by order dated December 7, 1977, undoubtedly
he had correctly interpreted the order that, according to the Tribunal, the assessee was entitled to the benefit of section 80J. The attempt on the
part of the Inspecting Assistant Commissioner now to take away the relief u/s 80J virtually has the effect of amending the order of the Tribunal by
reversing the view which is taken by the Tribunal, viz., the assessee is entitled to relief u/s 80J of the Act. it was vehemently argued before us that
section 80J(1a) of the Act has now been held to be valid by the Supreme Court, while this fact cannot be disputed, it is equally true that the
decision of the Supreme Court does not automatically have the effect of vacating the order of the Tribunal which has been statutorily made final u/s
254(4) of the Act and which has already been given effect to. Assuming for a moment as contended by the learned counsel for the Revenue that an
infirmity is now created in the order by virtue of the decision of the Supreme Court, that order cannot be read as automatically been corrected nor
is the effect given to that order automatically undone, Its legal validity is not in any way affected by the decision of the Supreme Court. Even a
wrong order has a finality and unless that finality is disturbed by a process known to law or by a process authorised by law, the rights of the
assessee and the Revenue will continue to be governed by the order of the Tribunal. There is no justification for the action of the Inspecting
Assistant Commissioner in interfering with the order of the income tax officer giving effect to the order of the Tribunal in his order u/s 154. The
proposition that the order of the income tax officer merely gives effect to the relief as directed by the income tax Tribunal cannot be doubted. But
even then, what is important is that the source of that order is the order of the Tribunal which still remains final between the Revenue and the
assessee. So far as the order of the Appellate Assistant Commissioner is concerned, even there, by parity of reasoning, the only authority which
will be entitled to interfere with the order of the Appellate Assistant Commissioner by way of rectification is the Appellate Assistant Commissioner
himself. The order of the income tax Officer granting relief u/s 80J for the assessment year 1974-75 is only an order which is consequential on
giving effect to the order of the Appellate Assistant Commissioner, Under the guise of exercise of power u/s 154 of the Act, the directions given by
the Appellate Assistant Commissioner cannot be rendered ineffective. The Revenue had a right to agitate the correctness of the order of the
Appellate Assistant Commissioner by taking the matter to the Tribunal, If the Revenue has not chosen to do that and allowed the directions of the
Appellate Assistant Commissioner to stand, that order cannot now be undone by adopting the circuitous procedure of purporting to exercise the
powers u/s 154 of the Act. In our view, both these petitions must, therefore be allowed. The notices issued u/s 154 of the Act are quashed.
(Emphasis Supplied)
Special Leave petition filed before the Hon''ble Supreme Court in SLP (C) No. 8578 and 8579 of 1991 was dismissed by order dated
20.11.1991.
(c) Again the Supreme Court considered the said issue in Assistant Commissioner, Income Tax, Rajkot Vs. Saurashtra Kutch Stock Exchange
Ltd., it is held as follows:
30.......... An error apparent on the face of the record means an error which strikes on mere looking and does not need long-drawn-out process of
reasoning on points where there may conceivably be two opinions. Such error should not require any extraneous matter to show its incorrectness.
To put it differently, it should be so manifest and clear that no court would permit it to remain on record, If the view accepted by the court in the
original judgment is one of the possible views, the case cannot be said to be covered by an error apparent on the face of the record.
In the light of the above decisions of the Supreme Court and this Court, and having regard to the fact that the Assessing officer has already passed
re-assessment order as per the directions of the Commissioner of Income Tax (Appeals), he was not justified in initiating further proceedings for
rectification to impose his own view under the guise of rectification u/s 154 of the Income Tax Act, 1961 and as such the questions of law raised
are answered in favour of the Assessee and against the Revenue.
Both the Tax appeals are allowed. No costs.