Income Tax Appellate Tribunal - Ahmedabad
Monarch Foods Pvt. Ltd. vs Assistant Commissioner Of Income-Tax on 25 January, 1995
Equivalent citations: [1995]53ITD33(AHD)
ORDER
Abdul Razack, Judicial Member
1. The assessee has taken 13 effective grounds challenging the order dated November 20, 1992, of the Appellate Commissioner. The sole dispute in this appeal is regarding the benefit under Section 80HHC being denied to the assessee through the order passed under Section 154 of the Act.
2. Briefly stated, the facts are as under :
3. In this case; income was originally assessed at Rs. nil as per assessment order dated March 30, 1989. The assessee claimed a sum of Rs. 6,03,156 as allowable deduction under Section 80HHC in respect of export sales. The Assessing Officer restricted the deduction/allowance to the extent of Rs. 5,64,973 and after setting off of business losses for the assessment years 1984-85 to 1986-87 computed the income at Rs. nil. Subsequently, it was noticed by the Assessing Officer on verification of the assessment records that the assessee-company had not furnished an audit report under Section 44AB for which the relevant form was 10CCAC along with the return nor had created any reserve as required in terms of the proviso to Section 80HHC. It was also observed that the assessee was allowed felief under Section 80HHC amounting to Rs. 5,64,973 before the set off of business losses, whereas the deduction under Section 80HHC is to be allowed only after the set off of business losses of earlier years from the income determined in the year under reference. So, according to the Assessing Officer, the relief/deduction under Section 80HHC was wrongly allowed in the original assessment order made on March 30, 1989. He, therefore, resorted to the provisions of Section 154 and called for objections from the assessee in this regard, namely, to the withdrawal of allowance of Rs. 5,64,973 under Section 80HHC. The assessee resisted this proposed action of the Assessing Officer under Section 154, of the Act stating that the audit report under Section 44AB was enclosed, that since there were losses, no reserve was required to be created and the losses of earlier years have to be deducted after giving allowance under Section 80HHC. It was contended by the assessee before the Assessing Officer that all the issues were highly contentious issues and there can be two opinions in regard thereto and the matter was, therefore, outside the purview of Section 154 of the Act. The Assessing Officer did ndt concede any of the arguments and passed an order on March 30, 1992, under Section 154 of the Act withdrawing the allowance under Section 80HHC which was originally allowed in the assessment order dated March 30, 1989, and computed the taxable income in the said order of March 30, 1992, in a sum of Rs. 1,72,120. The assessee was unsuccessful before the Appellate Commissioner in the first appeal because the Appellate Commissioner did not agree with any of the contentions of the assessee. Being aggrieved, the order passed by the Appellate Commissioner on November 20, 1992, the present appeal has been filed before us.
4. The assessee's counsel, Shri J. P. Shah, has filed a paper-book containing 44 pages and has also filed subsequently written submissions inclusive of copies of certain orders of various Benches of the Tribunal in regard to the controversy involved in the appeal. The assessee's paper-book contains copies of the audit report under Section 44AB of the Act. A copy of the report of the chartered accountants under Section 80HHC(4) in Form No. 10CCAC has also been enclosed. A copy of the export profit reserve account, which is at page No. 44 of the paper-book, has also been enclosed. The assessee's counsel at the threshold submitted that the order passed by the Assessing Officer on March 30, 1992, under Section 154 was not maintainable as the issues involved therein, namely, the filing of the report under Section 80HHC(4), the creation of the export profit reserve and allowance of the claim under Section 80HHC after the set off of business losses were highly contentious, debatable and conceivably having two opinions and, therefore, the same was outside the scope of Section 154 and the Appellate Commissioner ought to have cancelled the order passed by the Assessing Officer. Making further submissions, the assessee's counsel submitted that the provisions of Section 80HHC were not mandatory but directory though the word used has been "shall". In order to support this submission, the assessee's counsel relied on the following decisions :
Sudha Sharma v. ITO [1993] 44 ITD 351 ; [19931 46 TTJ 276 (Delhi) ; Hemsons Industries v. ITO [1987] 23 ITD 364 (Hyd.) ; J.B. Industrial Corporation v. ITO; CIT v. Gujarat Oil and Allied Industries [1993] 201 ITR 325 (Guj) ; Bharat Khandasari Udyog v. Khandasari Inspector [1992] Suppl. 2 SCC 473.
5. Regarding the creation of an export profit reserve in terms of the proviso to Section 80HHC, the assessee's counsel submitted that this is not also a mandatory requirement hut only directory and non-creation of this reserve was not so fatal so as to disentitle the assessee from making its claim under Section 80HHC. In accordance with the accounting principles and commercial practices, a reserve can be created only when there are profits and not when there are losses. In the instant case, the assessee has accumulated losses in respect of past years and if they are to be taken into account, the creation of a reserve in respect of export sales was not necessary at all. To rely on the submission, the assessee's counsel has relied upon the Board's circular issued in relation to the claim for development rebate. Our attention was also drawn to the memorandum explaining the provisions in the Finance Bill, 1990, which were brought in after the landmark judgment of the Supreme Court in the case of Shri Shubhlaxmi Mills Ltd. v. Addl. CIT [1989] 177 ITR 193, making the retrospective amendment to Section 32A regarding creation of reserve. However, the assessee's counsel submitted that in order to make sufficient compliance with the proviso to Section 80HHC, the assessee created a reserve as is evident from page 44 of the assessee's paper-book.
6. Regarding allowance of the claim under Section 80HHC after the set off of accumulated carry forward losses of earlier years, the assessee's counsel submitted that this view was erroneous and the deduction available under Section 80HHC or any deduction in Chapter VI-A can be given even prior to set off of business losses. Yet, assuming for a while, submitted further the assessee's counsel, whether deductions under Chapter VI-A have to be given prior to set off of carried forward losses or after set off of carried forward accumulated losses is a highly contentious and debatable issue making the matter wholly outside the scope of Section 154 of the Act. To support this contention, the assessee's counsel has relied on the following given decisions :
(i) ITO v. Shalina Trading Co. Pvt. Ltd. [1993] BCAJ 1062 (Sh N).
(ii) Expo Machinery Ltd. v. IAC [1989] 31 ITD 41 (Delhi).
7. Making further submissions, the assessee's counsel submitted that as per the Board's Circular No. 14 (XL-35) of 1955 dated April 11, 1955, the officers have been instructed not to take advantage of ignorance of assessees regarding their rights and that it shall be one of their duties to assist a taxpayer in every reasonable way, particularly in the matter of claiming and securing reliefs under the provisions of the Income-tax Act. According to the assessee's counsel, the Board was very considerate and liberal in regard to the reliefs and deductions which are available to any taxpayer and, therefore, issued the circular as far back as in 1955. The Assessing Officer has wholly ignored the instructions contained in the said circular dated April 11, 1955. Finally, it was contended that since all these issues involved in the present appeal were highly debatable and contentious having conceivably two opinions, the matter clearly got but of the clutches of Section 154 and the Appellate Commissioner ought to have allowed the appeal of the assessee by cancelling the order passed by the Assessing Officer oh March 30, 1992. The D. R., on the other hand, relied on the orders of the lower authorities.
8. We find much force in the arguments of the assessee's counsel which were supported by necessary details and case laws which we have extracted above. Whether or not an audit report as required under Section 80HHC(4) has to be submitted along with return, whether an export profit reserve has to be created when there are no profits, either due to there being loss or due to carry forward of unabsorbed losses, are highly contentious and debatable issues and there can be conceivably two opinions in regard to them as can be seen from the various decisions of the courts as well as of the Tribunal reliance on which has been placed by the assessee's counsel. The Supreme Court in the case of T. S. Balaram, ITO v. Volkart Brothers [1971] 82 ITR 50, have held, "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." This has been elaborated by various High Courts as well as different Benches of the Tribunal in several cases. A mistake which requires to be rectified under Section 154 should be a very glaring and apparent mistake on record and not a mistake which can be found out and rectified through a long drawn process of debate and arguments which may also result in conceivably two opinions based on decisions of courts. As stated by us above, the issues involved are highly debatable and contentious and by no stretch of argument or imagination can they be called mistakes apparent on the record requiring any rectification in terms of the provisions of Section 154 of the Act. We are, therefore, of the view that the Assessing Officer has grossly erred in invoking his powers under Section, 154 of the Act withdrawing the allowance granted to the assessee under Section 80HHC of the Act. We, therefore, vacate the orders of both the lower authorities and allow the assessee's appeal.
9. R. N. SINGHAL (Accountant Member).--I have had the benefit of reading the order proposed by my learned Brother -- the Judicial Member --
and then discussing the same with him. I regret my inability to agree with his views on one of the material aspects. I, therefore, proceed to write this separate order.
10. As lucidly brought out in the learned Judicial Member's order, the Assessing Officer had allowed deduction under Section 80HHC in the original assessment order and in a subsequently passed order under Section 154, he withdrew the same. Merits apart, the main dispute was whether it was a case fit for invoking the provisions of Section 154 which are limited to the rectification of mistakes apparent from the record. I agree with my learned Brother - the Judicial Member - that the aspects of non-submission of report under Section 80HHC(4) in Form No. 10CCAC and omission to create a reserve cannot be covered by the provisions of Section 154. This, however, leaves the aspect of the sequence in which deduction under Section 80HHC should be allowed in the computation of total income. In the original assessment order under Section 143(3), dated March 30, 1989, the Assessing Officer arrived at a figure of Rs. 9,33,069 and from there onwards the computation was as follows, vide page 4 of the assessment order :--
Rs.
Rs.
b/f 9,33,069 Less : 80HHC claim as per para 9 5,64,973 3,68,096 Less : Set off business loss :
1984-85 2,82,528 1985-86 67,110 1986-87 18,458 3,68,096 Total income Nil"
11. In the order under Section 154, dated March 30, 1992, the corresponding computation after the said figure of Rs. 9,33,069 was as follows :
Rs.
Rs.
"
b/f 9,33,069 Less :
Set off
1. Business loss 3,76,081
2. Unabsorbed depreciation 3,83,677
3. Investment allowance 1,187 7,60,945 Taxable income 1,72,124 i.e. 1,72,120"
12. Thus, in the original assessment deduction under Section 80HHC in a sum of Rs. 5,64,973 was allowed first and from the resultant figure brought forward deficiencies of business loss, etc., were deducted. On the other hand, in the subsequently passed order under Section 154, brought forward deficiencies were deducted and the resultant figure was arrived at Rs. 1,72,120 in that order under Section 154. Since deduction under Section 80HHC was not at all allowed, the taxable income was determined at Rs. 1,72,124. However, it is important to note that if brought forward deficiencies of business loss and unabsorbed depreciation, etc., are to be deducted first then on the basis of figures extracted above, deduction under Section 80HHC will have to be restricted to a sum of Rs. 1,72,120 which is the gross total income arrived at in order under Section 154 against the corresponding figure of Rs. 5,64,973 adopted and deducted under Section 80HHC in the original assessment order dated March 30, 1989. Thus, this aspect is quite material and involves quite a bit of tax effect. The neat question of law is whether from the income for the relevant previous year (before deduction under Section 80HHC) brought forward deficiencies of business loss and unabsorbed depreciation, etc., should be deducted first and deduction under Section 80HHC should be restricted to the resultant figure or the sequence should be the other way round, namely, the deduction under Section 80HHC should be allowed first and the set off of brought forward deficiencies of business loss and unabsorbed depreciation, etc., should be restricted to the resultant figure. It may be mentioned that in the first alternative the balance of deduction computed under Section 80HHC would lapse while in the second, the whole or part of business deficiencies left out would be carried forward to subsequent year(s).
13. For resolving this issue, let us first have a look at the statutory provisions. It may be noted that Section 80HHC comes under Chapter VI-A of the Income-tax Act which bears the following heading "Deductions to be made in computing total income". It starts with Section 80A. Sub-sections (1) and (2) of that Section are relevant and may be extracted as below :
" (1) In computing the total income of an assessee, there shall be allowed from his gross total income, in accordance with and subject to the provisions of this Chapter, the deductions specified in Sections 80C to 80U.
(2) The aggregate amount of the deductions under this Chapter shall not, in any case, exceed the gross total income of the assessee. "
14. Next section in Chapter VI-A is Section 80B which gives definitions. Sub-section (5) of that section is relevant for us. It is as follows :
"80B. (5) 'gross total income' means the total income computed in accordance with the provisions of this Act, before making any deduction under this Chapter."
15. Thus, Sub-section (1) of Section 80A says that deductions shall be allowed from the gross total income. Then Sub-section (2) of Section 80A says that the deductions of Chapter VI-A shall not exceed the gross total income of the assessee. Then Section 80B(5) defines gross total income as the total income computed in accordance with the provisions of the Income-tax Act, but before making any deduction under Chapter VI-A. A combined reading of these three specific dictates of the statute should clearly mean that gross total income is to be computed after setting off brought forward deficiencies of business loss and unabsorbed depreciation, etc. After such a set off from the income of the previous year, if there is any positive figure left, then deductions under Chapter VI-A should be allowed to that extent only even if the said deductions are otherwise computed at a higher figure. In the instant case, on the basis of figures extracted above, it is obvious that deduction under Section 80HHC which was computed at a figure of Rs. 5,64,973 has to be restricted to the resultant figure of gross total income of Rs. 1,72,120. A plain reading of the relevant statutory provi sions makes this clear. Therefore, the Assessing Officer's action of allowing (from the income of the relevant previous year) deduction under Section 80HHC first in the original assessment order was clearly a mistake apparent from record, namely, a mistake of law.
16. In spite of the clear cut statutory provisions, some authorities -- up to the Tribunal's stage had in the past held otherwise. Then came the High Court decisions. There are many of them. However, it is important to note that all of them are unanimous, i.e., upholding the proposition propounded in the immediately preceding paragraph. Suffice it to note specifically five of those decisions in chronological order (as regards reporting in the Income Tax Reports) in a tabular form as follows :
Sl. No. Name of the case Citation Date Assessment year R.A. No., etc. (1) (2) (3) (4) (5) (6)
1.
CIT v.
Madras Motors (P.) Ltd, [1984] 150 ITR 150 (Mad) 19-8-8! 1970-71 39 of 1977
2. CIT v. Mercantile Bank Ltd.
[1988] 169 ITR 44 (Bom) 17-3-87 1969-70, 1970-71 399 of 1975
3. CIT v. Rambal (P.) Ltd.
[1988] 169 ITR 50 (Mad) 18-10-83 1970-71 1555 and 1556 of 1977
4. Murugappa and Sons v. CIT [1989] 178 ITR 410 (Mad) 14-2-89 1972-73 285 of 1979
5. Kesoram Industries and Cotton Mills Ltd. v. CIT [1991] 191 ITR 518 (Cal) 28-6-89 1972-73 332 of 1979
17. From a detailed analysis of the abovementioned information in respect of these five decisions, the following aspects emerge :
(1) As already mentioned there is unanimity and actually not a single decision to the contrary of any High Court has been brought to our notice by the learned advocate for the assessee, Shri J. P. Shah, and none is known to us otherwise also.
(2) The abovementioned reported decisions are of the Madras, Bombay and Calcutta High Courts in whose jurisdiction many income-tax matters arise for decision.
(3) Vide column No. 6 above, the references were made in the seventies (i.e., 1975, 1977 and 1979, etc.).
(4) Broadly speaking : Earlier in point of time references were sought.by the Department and later on assessees had to seek references.
(5) Decisions were rendered, vide column No. 4 in the eighties (i.e., 1983, 1987 and 1989).
Note : There is a recently reported decision of the Calcutta High Court decision in CIT v. Bhoruka Investments Put Ltd. [1992] 198 ITR 734 which on this point is in line with the other 4ecisions cited above, but for the analysis recorded in paragraph 8, it has been kept out. The reason is that in this decision the main point was with regard to the quantum of dividend income 60 per cent, of which should be taken for computing deduction under Section 80M rather than the point of sequence of deductions/adjustments which we are considering.
18. On the basis of the analysis noted above, it is reasonably clear that up to 1975 or 1977, the Department had to seek references because the Tribunal had taken a view against the Department. Thereafter, from 1979 onwards, the assessees had to seek references because the Tribunal took a view against the assessees. At any rate, by the late eighties (i.e., 1989) the position of law on the specific point became reasonably settled ; i.e., against the assessee. So, when the Assessing Officer in this case passed an order under Section 154, dated March 30, 1992, the position of law was settled. A view taken to the contrary in the original assessment order dated March 30, 1989, in this view of the matter, constituted a mistake of law apparent from the record.
19. I may now refer to the two decisions on this point cited by the learned advocate for the assessee. They are as follows :
(i) ITO v. Shalina Trading Co. Pvt Ltd. [1993] BCAJ 1062 (Sh. N.) ;
(ii) Expo Machinery Ltd. v. IAC [1989] 31 ITD 41 (Delhi).
20. In respect of case at (i) above, the learned advocate has furnished a typed copy of the Bombay Chartered Accountants Journal, March, 1993, page 1062-63, which gives the gist (and not the text) of the decision, i.e., the decision of the Tribunal rendered on April 11, 1991, and on this point the only thing stated therein is as follows :
" For the assessment year 1985-86, the Tribunal noted that the question was already decided by certain earlier Tribunal decisions and, accordingly, the Tribunal, following those earlier decisions and also keeping in view the Central Board of Direct Taxes circular on the point, upheld the order of the Commissioner of Income-tax (Appeals) on this point also."
21. Thus, the full reasoning of the Tribunal's decision in that case is not available and the only information available is that the Tribunal therein relied on some earlier decisions of the Tribunal. Obviously, the five unanimous decisions of three different High Courts taking a contrary view had been reported in the Income-tax Reports from 1984 to 1989, but none of them was perhaps brought to the notice of the Tribunal Bench which decided the case otherwise on April 11, 1991. The existence of that decision of the Tribunal cannot be regarded as unsettling a law point which stood settled (as inferred in paragraph 9 above) by 1989.
22. The learned advocate's reliance on the decision at Sl. No. (ii) above, reported in [1989] 31 ITD 41 (Delhi) is totally misplaced. That decision was in regard to the quantification of relief under Section 80HHC rather than the aspect of sequence of deductions/adjustments to be allowed.
23. I am, therefore, of the opinion that by the year 1989 also the law point stood settled against the assessee. Therefore, there was a mistake apparent from the record in the original assessment order of the Assessing Officer on this point of sequence for deductions/adjustments to be made and to this limited extent he had jurisdiction to rectify under Section 154, the original order dated March 30, 1989. In this view of the matter and on the basis of facts and figures extracted in paragraphs 2 and 3 of my order (at pages 8 and 9) (see pages 71 and 72) relief under Section 80HHC should be restricted to Rs. 1,72,120. However, I should hasten to add that this figure of Rs. 1,72,120 is indicated hereinabove primarily to identify the figure rather than give it as a final figure. Obviously, if there have been certain other adjustments in the meantime for some other reasons the figure would stand modified appropriately, but the principle would be the same.
24. On this basis, in my opinion, the assessee's appeal should be partly allowed.
ORDER OF REFERENCE TO THIRD MEMBER
25. A difference of opinion having emerged between the Accountant Member and the Judicial Member who originally heard the appeal ; we hereby state the points on which we differ and refer the matter to the President of the Income-tax Appellate Tribunal for further appropriate action at his end. The points involved are as follows :
"1. Whether there existed a mistake apparent from record in terms of Section 154 of the Income-tax Act in the original assessment order dated March 30, 1989, wherein the Assessing Officer deducted from the current year's income relief under Section 80HHC first and then against the balance adjusted the brought forward business loss ?
2. Whether, on the facts and in the circumstances of the case, the order passed under Section 154 of the Income-tax Act can be partially upheld, if there is a debate on two out of three counts on a single issue ; namely, the assessee's claim under Section 80HHC which is the subject-matter of proceedings under Section 154 of the Act ?"
ORDER OF THIRD MEMBER M.A.A. Khan, Judicial Member
26. Consequent upon the difference in opinion between the learned Members of the Bench on certain points in this appeal, the following questions have been referred under Section 255(4) of the Income-tax Act, 1961 ("the Act"), by the President of the Tribunal to me for my opinion as the Third Member in the case :
"1. Whether, there existed a mistake apparent from record in terms of Section 154 of the Income-tax Act in the original assessment order dated March 30, 1989, wherein the Assessing Officer deducted from the current year's income relief under Section 80HHC first and then against the balance adjusted the brought forward business loss ?
2. Whether, on the facts and in the circumstances of the case, the order passed under Section 154 of the Income-tax Act can be partially upheld, if there is a debate on two out of three counts on a single issue, namely, the assessee's claim under Section 80HHC which is the subject-matter of proceedings under Section 154 of the Act ?"
27. The facts leading to the reference may be briefly stated as under :
28. The assessee is a closely held Indian company engaged in the business of export out of India of processed fish and other fish products. It returned its income at nil for the year under consideration. While computing its total income at nil figure by his order under Section 143(3) of the Act dated March 30, 1989, the Assessing Officer allowed deduction under Section 80HHC of the whole of the assessee's income at Rs. 5,64,973 derived by it from the export of its goods at Rs. 1,39,04,190 in the following manner :
Rs.
Net profit as per profit and loss account (+) 5,97,676 Add : Disallowables as per statement 3,95,159 9,92,835 Add : Further disallowables (+) 3,12,545 13,05,380 Less : Depreciation (-) 3,72,311 9,33,069 Less : 80HHC claim (-) 5,64,973 3,68,096 Less : Set off of business losses of assessment years 1984-85 to 1986-87 (-) 3,68,096 Total income Nil
29. Subsequently, the Assessing Officer, on verification of the facts, noticed certain mistakes in his order necessitating rectification under Section 154 of the Act. He was of the view that deduction under Section 80HHC had wrongly been allowed to the assessee-company for the following reasons :
(i) Non-furnishing of audit report in Form No. 10CCAC,
(ii) Non-creation of export reserve, and
(iii) Allowance of deduction under Section 80HHC before making set off of losses of earlier years.
30. The Assessing Officer accordingly issued a notice under Section 154(3) to the assessee-company requiring it to show-cause against the proposed action. The assessee-company appears to have opposed the proposed action of the Assessing Officer on the grounds; (i) that the audit report was filed in Form No. 3CD, which was applicable to the assessee, (ii) that non-creation of the export reserve in the year of loss would not disentitle it to deduction under Section 80HHC, and (iii) that deduction under Section 80HHC was rightly allowed before setting off the losses of earlier years. The Assessing Officer did not accept the explanation offered by the assessee-company and held that there existed a mistake apparent from record in his order dated March 30, 1989, and such mistake was rectifiable under Section 154 of the Act. Therefore, with a view to rectify such mistake, he modified his order dated March 30, 1989, in the following manner, vide his subsequent order dated March 30, 1992 :
Rs.
Rs.
Total income as per assessment order dated March 30, 1989, after all disallowances 13,05,380 Less : Depreciation 3,72,311 9,33,069 Less : Set off
1. Business loss 3,76,081
2. Unabsorbed depreciation 3,83,677
3. Investment allowance 1,187 7,60,945 Taxable income 1,72,124 i.e. 1,72,120
31. In appeal, the learned Commissioner of Income-tax (Appeals), Rajkot, upheld the order of the Assessing Officer on all the three points.
32. In second appeal, the assessee-company filed before the Tribunal a paper book containing 44 pages which included, inter alia, the audit report under Section 44AB, the chartered accountant's report under Section 80HHC(4) in Form No. 10CCAC and a copy of the export profits reserve account at page 44. Placing reliance on certain decisions, it was urged on behalf of the assessee-company that the provisions of Section 80HHC were not mandatory but directory in so far as the non-furnishing of the audit report along with the return and omission to create the export profits reserve account were concerned. Regarding the sequence of deductions/ adjustments to be made in the computation of the total income with reference to Section 80HHC, it was submitted that the said matter was highly contentious and debatable and going outside the scope of Section 154 of the Act. In this behalf, reliance was placed on the following decisions, viz :
(i) ITO v. Shalina Trading Co. Pvt. Ltd. [1993] BCAJ 1062 (Sh. N.) ;
(ii) Expo Machinery v. IAC [1989] 31 ITD 41 (Delhi).
33. Reference to the Central Board of Direct Taxes Circular No. 14 (XL-35) of 1955, dated April 11, 1955, instructing the officers of the Department not to take advantage of ignorance of the assessees regarding their rights to reliefs under the Act was also made.
34. On the facts placed and arguments advanced before the Tribunal, the learned Judicial Member took the view that the issues involved in the case are highly debatable and contentious and by no stretch of argument or imagination can they be called mistakes apparent from record requiring any rectification in terms of the provisions of Section 154 of the Act and that the Assessing Officer has grossly erred in invoking his powers under Section 154 and withdrawing the allowance granted to the assessee under Section 80HHC of the Act. In this behalf, the learned Judicial Member relied upon the Supreme Court decision in the case of T, S. Balaram, ITO v. Volkart Brothers [1971] 82 ITR 50. He, therefore, proposed to vacate the orders of the lower authorities and allow the assessee's appeal.
35. The learned Accountant Member agreed with the learned Judicial Member that the aspects of non-submission of the report under Section 80HHC(4) in Form No. 10CCAC and omission to create the export profits reserve account cannot be covered by the provisions of Section 154. But in so, far as the aspect of the sequence in which deduction under Section 80HHC should be allowed in the computation of the total income, was concerned the learned Accountant Member did not agree with the learned Judicial Member that the point involved therein was highly contentious or debatable. He examined the relevant provisions of Sections 80A, 80B(5) and 80HHC as also certain cases of the Bombay, Calcutta and Madras High Courts and came to the conclusion that by the time the original assessment was made in this case, the position was well-settled that the gross total income is to be computed after setting off the brought forward deficiencies of business loss and unabsorbed depreciation, etc., and after such set off from the income of the previous year if there is any positive figure left then deduction under Chapter VI-A should be allowed to that extent only even if the said deductions are otherwise computed at a higher figure. He, therefore, held that in the instant case, deduction under Section 80HHC was wrongly granted at Rs. 5,64,973 in the original assessment order and the same was required to be restricted to Rs. 1,72,120 or any other final figure, if there had been certain other adjustments in the meantime for some other reasons. In arriving at his conclusion, the learned Accountant Member critically examined the two cases, referred to by the learned Judicial Member in his proposed order, and held that not only did one of them not furnish the required information regarding the reasoning adopted but also the other was not at all on the issue involved in the present appeal. The learned Accountant Member thus proposed that the appeal of the assessee should be partly allowed.
36. I heard learned counsel for the parties at sufficient length and perused the material on record and the law applicable thereto.
37. Mr. J. P. Shah, the learned counsel for the assessee-company vehemently urged that the question as to whether from the income for the relevant previous year (before deduction under Section 80HHC) brought forward deficiencies of business loss and unabsorbed depreciation, etc., should be restricted to the resultant figure or the sequence should be other way round, namely, the deduction under Section 80HHC, should be allowed first and the set off of brought forward deficiencies of business loss and unabsorbed depreciation, etc., should be restricted to the resultant figure, has all along been a highly debatable question and as such goes beyond the scope of Section 154 of the Act. Learned counsel further submitted that the cases referred to by the learned Accountant Member in his proposed order were not directly on the issue of deduction under Section 80HHC and, therefore, not much helpful in deciding the issue involved in this appeal. That apart special leave petitions, urged learned counsel, stand granted against a majority of them. Learned counsel referred to the following decisions of the Tribunal to stress that at times the Tribunal had taken views favouring the assessee and the debate on the point is still going on :
(i) Chettinad Agencies (P.) Ltd. v. ITO [1993] 44 ITD 243 (Mad) ;
(ii) Prashant Khosla Pneumatics Ltd. v. ITO [1992] 44 TTJ 162 ;
(iii) Beta Naphthol P. Ltd. v. Dy. CIT [1994] 50 TTJ 375 (Indore) ;
(iv) CIT v. Sea Hawk (I.) (P.) Ltd. [1994] 75 Taxman 381 (Cal).
38. Learned counsel further submitted that the learned Accountant Member dealt with a point which was not involved in the appeal and while doing so the learned Member simply held that by the late eighties (i.e., 1989), the position of law in the specific point became "reasonably" ' settled against the assessee. It was submitted that in view of the fact that the learned Accountant Member had agreed with the learned Judicial Member on the character of the two aspects of the point relating to non-furnishing of auditor's report and omission to create export profits reserve as being quite debatable, the learned Accountant Member should have also held that the third aspect of the point relating to the sequence in which deduction under Section 80HHC should be allowed in the computation of total income was also highly contentious and debatable as was held by the learned Judicial Member.
39. The learned Departmental Representative, on the other hand, fully supported the proposed order of the learned Accountant Member and further submitted that the Assessing Officer, while making the assessment order on March 30, 1989, had totally misread the provisions contained in Chapter VI-A and his such misreading of the relevant provisions of law had left in his order mistakes apparent from record rectifiable under Section 154. He further submitted that as per the scheme of Chapter VI-A, deduction under Section 80HHC is required to be allowed after setting off of the brought forward deficiencies of business loss and unabsorbed depreciation, etc., as has rightly been done by the Assessing Officer in his order under Section 154 and his action was rightly approved by the learned Accountant Member. The learned Departmental Representative, in support of his contentions, relied upon the following cases :
(i) M. K. Venkatachalam, ITO v. Bombay Dyeing and Mfg. Co. Ltd. [1958] 34 ITR 143 (SC) ;
(ii) Surat Textile Mills Ltd. v. CIT [1971] 80 ITR 1 (Guj) ;
(iii) CIT v. Sundaram Textiles Ltd. [1984] 149 ITR 525 (Mad) ;
(iv) CIT v. Bengal Assam Steamship Co. Ltd. [1985] 155 ITR 26 (Cal);
(v) CIT v. Quilon Marine Produce Co. [1986] 157 ITR 448 (Ker) ;
(vi) Warner Lambert Co. v. CIT [1994] 205 ITR 395 (Bom).
40. After having given thoughtful consideration to the issue before me, I entertain no doubt that the order of the Assessing Officer, as passed on March 30, 1989, did suffer from such mistake, which was apparent from record and, hence, was rectifiable under Section 154 of the Act.
41. It needs no stress that Section 154 of the Act empowers an income-tax authority, referred to in Section 116, to modify any order passed by such authority under the Act. But such modification is to be made with a view to rectifying any mistake which is apparent from record. As held by the apex court in the case of T. S. Balaram, ITO v. Volhart Brothers [1971] 82 ITR 50, it is not each and every mistake which may fall for rectification by recourse to action under Section 154. The mistake whether it be of law or of fact must be apparent from record. As observed by their Lordships "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. A decision on a debatable point of law is not a mistake apparent from the record". A mistake which, in order to be established, requires a debate' and such debate may lead to two possibly reasonable views, would not be rectifiable within the limited scope of Section 154. If such mistake has resulted in underassessment of the income of the assessee or is otherwise erroneous and prejudicial to the interests of the Revenue, it may form the subject-matter of reassessment under Section 147/148 or revision under Section 263, as the case may be, but would not be rectifiable under Section 154 of the Act.
42. In the instant case, the Assessing Officer noticed the mistake of wrongful allowance of deduction under Section 80HHC. He viewed that mistake from three different aspects, namely, that : (i) the audit report in Form No. 10CCAC was not furnished along with the return, (ii) export profit reserve was not created, and (iii) wrong sequence for grant of deduction under Section 80HHC had been employed in computation of the total income. In so far as the first two aspects of the said mistake were concerned, they were in fact of the nature of procedural defects removable by the assessee on opportunity being given to it and thus to be cured or to be ignored by the Assessing Officer or the defect to be condoned by him. On those two aspects, there could have been the possibility of two different opinions and, therefore, not rectifiable or to say more correctly, not necessitating rectification at a later stage by recourse to action under Section 154. On that nature of the two aspects of the said mistake, both the learned Members of the Bench have agreed and that point does not remain for any consideration by me.
43. In so far as the third, and in fact the main, aspect of the mistake is concerned, the position of law on that was, in my opinion, well-settled in favour of the Department, as has been opined by the learned Accountant Member. A study of the provisions of Sections 80A, 8QB(5) and 80HHC, the relevant parts of which have been reproduced by the learned Accountant Member in his order and the cases referred to by him and I see no necessity to reproduce them once again, makes it quite clear that in computing the total income of an assessee deductions specified in Sections 80C to SOU shall be allowed from the "gross total income" and such deduction shall not exceed the gross total income. Gross total income, as defined in Section 80B(5) would be as computed in accordance with the provisions of the Act before making any deduction under Chapter VI-A of the Act. The mandate contained in Sections 80A and 80B(5) clearly requires that the gross total income is to be computed after setting off the brought forward deficiencies of business loss and unabsorbed depreciation, etc. This is the first step to be taken in order to compute the "total income" for the purpose of allowing deductions specified in Sections 80C to 80U of Chapter VI-A, The second step would then be to allow deduction under Chapter VI-A from the resultant positive income of the previous year, if any, which is left after set off of the aforesaid deficiencies of business loss and unabsorbed depreciation, etc.
44. In the instant case, the Assessing Officer had not adopted the sequence for allowing the deduction under Section 80HHC to the assessee-company. He had allowed deduction under Section 80HHC before deducting the brought forward losses of earlier years in the computation of the gross total income of the assessee-company for the previous year. Such working of the deduction, allowable under Section 80HHC, adopted by him in his order dated March 30, 1989, was clearly contrary to the express provisions of law and constituted an obvious mistake, apparent from record, in his order. Such mistake was certainly rectifiable under Section 154 of the Act.
45. Now, so far as the assessee's argument that the mistake in question was quite debatable and hence beyond rectification under Section 154 is concerned, I find no substance in it. It is true that the Tribunal appears to have taken a view, different from that expressed above, in a number of its decisions. But as observed by the learned Accountant Member, the various High Courts had unanimously held the view as expressed by me in the preceding paragraph. In the cases cited by the learned Accountant Member the unanimous view taken was that in arriving at the total income of the assessee for granting deductions under Chapter VI-A of the Act, the computation of gross total income was required to be made after making set off of the losses of earlier years. It is of no significance that such cases did not involve the provisions of Section 80HHC directly. What was material for the application of the ratio of such decisions was that they laid down the sequence for the working and allowability of the deductions contemplated by Chapter VI-A of the Act. And Section 80HHC fell within the scope of the ratio decidendi of such decisions. It is noteworthy that no decision of any High Court wherein a view, contrary to that taken in the cases cited by the learned Accountant Member, was brought to the notice of either the learned Members or of me. In that view of the matter, the opinion held by various Benches of the Tribunal contrary to that of the unanimous view of several High Courts on that point cannot be claimed to be making a debatable issue.
46. In the case of CIT v. Smt. Godavaridevi Saraf [1978] 113 ITR 589, the Bombay High Court observed that.an authority like the Tribunal, acting anywhere in the country, has to respect the law laid down by the High Court in the country, though of a different State, so long as there is no contrary decision of any other High Court on that question. On the same analogy, the Gujarat High Court held in the case of CIT v. Sarabhai Sons Ltd. [1983] 143 ITR 473 that view held by other High Courts are required to be given due respect and followed in order to maintain a uniform policy in income-tax matters. The same High Court reiterated the same principle in a subsequent decision in the case of CIT v. Sarabhai Sons Pvt. Ltd. [1993] 204 ITR 728, wherein it was observed that the Income-tax Act is an all-India statute and it is desirable in the interest of uniformity that one High Court should follow the decision of another High Court. In fact in the administration of tax justice the institution of the Tribunal is subordinate to that of a High Court in the hierarchical set up of judicial institutions and, therefore, it is all the more necessary that the Tribunal should follow the decisions of any High Court on a particular point, more so when there is no decision contrary to that required to be followed.
47. The above discussion leaves me in no doubt that since there was no view contrary to that of the three High Courts on the point, as pointed out by the learned Accountant Member, it was not open to the learned Judicial Member to hold that the issue involved in the rectification proceedings before the Assessing Officer was highly contentious and debatable. The view, being the sole view on the point, was quite settled and a decision taken by the Assessing Officer in his original assessment order was contrary to such view. There was thus an obvious mistake apparent from record in his said order and was required to be rectified by action under Section 154 which the Assessing Officer rightly did. The only fact that the special leave petitions against the relevant orders of the High Courts had been admitted far hearing in the Supreme Court does not militate against the settled position of law at the relevant time, The admission of the special leave petition itself does not justify the argument that another view of the matter was possible at that point of time and, therefore, the issue was debatable.
48. I am also not impressed with the argument that the issue regarding the sequence for allowability of deduction under Section 80HH was not there before the learned Judicial Member and, therefore, the order of the learned Accountant Member was in respect of a non-issue. The issue was in fact the only issue before the two learned Members of the Bench and they decided the same in their own ways.
49. To sum up the discussion, I hold that there existed a mistake apparent from the record in the assessment order dated March 30, 1989, and the same was rectifiable under Section 154 of the Act and was rightly rectified by the Assessing Officer by modifying his earlier order. This answers question No. 1 as referred to me.
50. On the second question, I am of the opinion that the two aspects of the mistake, as pointed out above, were quite independent of and separate from the third one. They differed from each other in their nature and results. The first two were in fact of the character of curable defects likely to be ignored or condoned by the Assessing Officer without affecting the nature and effect of the third aspect. Even after holding that the two aspects relating to the non-furnishing of the audit report along with the return and omission to create the export profit reserve did not make the subject of action under Section 154, it was open to the learned Accountant Member to hold that the third aspect regarding the sequence for computing the total income for the purpose of grant of deduction under Section 80HHC was a mistake apparent from the record and, hence, rectifiable under Section 154 of the Act. This answers the second question.
51. Let the record of the case be put before the Bench, deciding the appeal, for further orders according to law.
ORDER Jordan Kachchap, Judicial Member
52. In conformity with the opinion of the Third Member dated January 25, 1995, and in accordance with the majority view, the assessee's appeal is partly allowed.