The Commissioner of Income Tax vs A.G. Granites (P) Ltd.

K. Raviraja Pandian, J.—The appeal is filed raising the following substantial questions of law:

Whether on the facts and in the circumstances of the case, the Income Tax Tribunal is right in holding that deduction u/s 10B as well as u/s

80HHC could not be rectified u/s 154 ?

Whether on the facts and in the circumstances of the case, the Income Tax Tribunal is right in holding that rectification order u/s 154 was not

proper especially when the audit had raised an objection that the interest income of Rs. 2,14,457/- was to be brought to tax under the head

income from other sources"" ?

Whether on the facts and in the circumstances of the case, the Income Tax Tribunal is right in not considering the judgment of the Supreme

Court in the case of Pandian Chemicals Ltd. Vs. Commissioner of Income Tax, , wherein it was held that the interest income has to be considered

as income from other sources and that of the Punjab and Haryana Full Bench in the case of Commissioner of Income Tax Vs. Aruna Luthra, which

had held that proceedings for rectification of an order can be initiated on the basis of an order passed by jurisdictional High Court or the Supreme

Court subsequent to the order passed by the authority under the Act ?

The necessary facts as culled out from the grounds are as follows:

The assessee, a Company exporting granite blocks to foreign countries, had filed the return of income for the assessment year 2002-03 on

31.10.2002 admitting an income of Rs. 9,68,900/- after claiming deduction u/s 10B to the extent of Rs. 1,32,389/- The said return was processed

u/s 143(1) and refund of Rs. 1,280/- was allowed. On verification of the records, it was noticed that the assessee had offered interest income of

Rs. 2,14,457/- on FD made under the head other income, but the same was required to be assessed under the head ""income from other sources"".

Hence a notice u/s 154 of the Act was issued to the assessee calling for his objection, if any for treating the said income as indicated in the notice.

The assessing officer after considering the reply has rectified the assessment order by his order dated 19.3.2004 as proposed in the notice. The

appeal filed by the assessee in I.T.A. No. 63/2004-2005 before the Commissioner of Income Tax (Appeals), questioning the correctness of

rectification of assessment u/s 154 was dismissed on 25.2.2005. The assessee filed further appeal before the Income Tax Appellate Tribunal in

I.T.A. No. 1154/2005. The Tribunal allowed the appeal by holding that the debatable issues should not be rectified u/s 154 of the Income Tax

Act. Not satisfied with the order of the Tribunal, the present appeal is filed by formulating the above said three questions of law.

Learned Standing Counsel for the Revenue argued that the language employed in Section 154 of the Income Tax Act is very wide in its

amplitude and it should be construed to encompass in it any mistake apparent from the record. In order to sustain the case of the Revenue, the

decision of the Supreme Court in Pandian Chemicals Ltd. Vs. Commissioner of Income Tax, and the decision of the Full Bench of the Punjab and

Haryana High Court in the case of Commissioner of Income Tax Vs. Aruna Luthra, have been relied upon.

We heard the arguments of the learned Counsel appearing for the Revenue and perused the materials on record.

The point in issue is, whether the ""interest income"" offered by the assessee under the head ""other income"" could be re-assessed under the head

of ""income from other sources"" by way of rectification and on the basis of the objection raised by the audit members. It is a debatable issue when

there are two opinions about the head of income under which the interest income has to be assessed one by the assessee and the other by the

revenue.

Section 154 of the Income Tax Act provides for rectification of mistakes, which are apparent from the record. The phraseology ""mistake

apparent from the record"" has been considered by several judicial opinions and all those judicial opinions uniformly held that an error, which is not

self evident, and has to be detected by a process of reasoning, can hardly be said to be an error apparent on the face of the record. There is a

clear distinction between an erroneous order and an error apparent on the face of the record, while the first could be corrected by the higher

forum, later only could be corrected by exercise of power of rectification.

The scope and amplitude of Section 154 of the Income Tax Act, 1961 has been considered by the Supreme court in the case of T.S. Balaram,

Income Tax Officer, Company Circle IV, Bombay Vs. Volkart Brothers, Bombay, wherein it was held that 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

be conceivably two opinions. A decision on a debatable point of law is not a mistake apparent from the record, which is not amenable for

rectification u/s 154 of the Income Tax Act.

A Division Bench of this Court in the case of The Commissioner of Income Tax Vs. Sharp Industries, , in which one of us (P.P.S.

Janarthanaraja, J.) was a party, while considering the question of law as to ""whether the Income Tax Appellate Tribunal was right in holding that

the assessee therein was entitled to deduction in respect of interest income under Sections 80HHC and 80-I of the Income Tax Act"", has held that

interest income is eligible for special deduction under Sections 80HHC and 80-I of the Income Tax Act, 1961, provided it is included in the

computation of profits and gains of the business. Special deduction cannot be disallowed in rectification proceedings u/s 154 of the Act, especially

when the interest income is included in the profits of the business.

In yet another Division Bench decision of this Court in the case of Commissioner of Income Tax Vs. Seshasayee Paper and Boards Ltd., , while

considering the question of law, as to ""whether the Tribunal was right in holding that the assessee should be granted the benefit of Section 80HHC

as per its claim, as the quantification could not be considered u/s 154 of the Income Tax Act"", it was held that the question of relief u/s 80HHC of

the Act was a debatable issue and would not fall within the purview of Section 154 of the Income Tax Act.

The decision of the Supreme Court relied on by the learned Counsel for the revenue in the case of Pandian Chemicals Ltd. Vs. Commissioner

of Income Tax, , we are of the view, is not helpful to the revenue on the point in issue, whether a debatable issue can be rectified by invoking

Section 154 of the Income Tax Act. That was a case in which the High Court while considering the issue, ""whether the Appellate Tribunal was

right in holding that the interest on deposits with Tamil Nadu Electricity Board should be treated as income derived by the industrial undertaking for

the purpose of Section 80HH"", answered the question in favour of the Department and against the assessee. On appeal to the Supreme Court, the

Supreme Court rendered the meaning to the phraseology ""derived from"" employed u/s 80HHC and held that the interest derived by the industrial

undertaking of the assessee thereon on the deposits made with the Electricity Board for the supply of electricity for running the industrial

undertaking could not be said to flow directly from the industrial undertaking itself and was not profits or gains derived by the undertaking for the

purpose of special deduction u/s 80HH. Hence, the decision is no way helpful to resolve the point in issue in this case.

The Full Bench decision of the Punjab and Haryana High Court in the case of Commissioner of Income Tax Vs. Aruna Luthra, relied on by the

revenue also does not advance the case of the revenue, because in that case also, uniform judicial opinion has been re-affirmed by stating as

follows:

...While an assessment u/s 143 or 144 has to be normally made within a period of one or two years, the mistake can be rectified at any time during

the period of four years. The obvious intention of the Legislature is that if the mistake has come to the notice of the authority within the prescribed

time, it should not be allowed to continue. Section 154 clearly provides for the intervention of the authority within the specified time, subject to the

condition that the mistake is apparent and the issue is not debatable.

As we have already come to the conclusion that the issue as to the head under which the ""interest income"" has to be assessed is a debatable

issue, the above said decision of the Punjab and Haryana High Court goes against the plea of the revenue.

For the fore-going reasons, we are of the view that the appellant has not made out any question of law for determination in this appeal and the

appeal fails and the same is dismissed.