Punjab-Haryana High Court
Commissioner Of Income Tax vs Ram Lal Babu Lal on 6 February, 1998
Equivalent citations: [1998]234ITR776(P&H)
Author: N.K. Agarwal
Bench: N.K. Agarwal
JUDGMENT G.C. Garg, J.
1. The Tribunal, Amritsar has referred for the opinion of this Court the following question of law :
"Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the allowance of the deduction in respect of rasoi expenses which are not admissible for deduction in view of the decision of the Hon'ble Punjab & Haryana High Court in the case of CIT vs. Gheru Lal Bal Chand (1978) 111 ITR 134 (P&H) : TC 17R.1313, was not a mistake apparent from record within the Act and that the ITO is not justified in proceedings under s. 154 to disallow the deduction made in respect of these expenses ?"
2. The assessee is a registered firm. The dispute relates to the asst. yr. 1975-76. During the relevant year the assessee claimed a deduction of Rs. 12,692 on the ground that it had incurred rasoi expenses during the accounting year. The ITO disallowed a sum of Rs. 1,000 from the same while making an assessment under s. 143(3) of the IT Act. However, subsequently, the ITO realised that an error had occurred in allowing the assessee rasoi expenses amounting to Rs. 11,692. The ITO came to this conclusion in view of the decision of this Court in the case of CIT vs. Gheru Lal Bal Chand (1978) 111 ITR 134 (P&H) : TC 17R.1313. According to the decision in Gheru Lal Bal Chand's case the amount incurred on rasoi expenses, being entertainment expenses, is not saved on the ground that the expenditure was undertaken to extend customary hospitality. The ITO consequently issued a notice under s. 154 of the Act calling upon the assessee to show cause as to why the error apparent on the fact of the record in the assessment order be not corrected in respect of the rasoi expenses. The assessee filed reply objecting to the rectification in respect of the rasoi expenses. It was submitted that the expenses incurred on supplying food and refreshment by businessmen to the constituents had been the subject-matter of decision by various High Courts. The decision of the Bombay High Court and Gujarat High Court, reported as CIT vs. Shah Nanji Nagsi (1979) 116 ITR 292 (Bom) : TC 17R.1313 and CIT vs. Patel Bros. & Co. Ltd. (1977) 106 ITR 424 (Guj) : TC 17R.1308, respectively were referred to. According to the assessee different High Courts had taken different views and the rasoi expenses did not represent entertainment expenses. The ITO rectified the order of assessment by disallowing a sum of Rs. 11,692 representing the expenditure on rasoi expenses after adjusting the expenditure earlier disallowed.
3. The assessee filed an appeal before the CIT(A). The appeal was dismissed. The assessee filed a further appeal before the Tribunal. It came to the conclusion that the issue regarding allowability or otherwise of expenditure incurred over the supply of food and refreshment by a businessman to his constituents is no longer an open issue as far as the State of Punjab is concerned and all authorities subject to the jurisdiction of the Punjab & Haryana High Court are bound by the rule of law enunciated in Gheru Lal Bal Chand's case (supra). The Tribunal, however, went on to state that there is a controversy about the issue and it cannot shut the eyes to the decisions of the other High Courts for the matter of deciding whether a rectification within the purview of s. 154 of the IT Act is permissible or not. The matter would have been entirely different about the allowability or otherwise of such an expenditure, if it was in an appeal filed against the assessment order, but in the matter of rectification the matter is otherwise. The matter was not free from controversy in view of the judgments of the Bombay High Court and the Gujarat High Court. It thus ultimately came to the conclusion that the provisions of s. 154 were not applicable for the purposes of causing rectification when there were different views available on the subject. The Tribunal, therefore, agreed with the submission of the assessee that when there were different views on the issue, the ITO was not right in proceedings under s. 154 to rectify the assessment by withdrawing the allowance previously allowed by him. The findings recorded by the CIT(A), were set aside and the order of rectification were cancelled by allowing the appeal.
4. On the application under s. 256(1) of the CIT, the question as reproduced above has been referred to this Court for opinion.
5. In the case of CIT vs. Gheru Lal Bal Chand (supra) the assessee was commission agent dealing in foodgrain and other commodities. The assessee claimed allowance on account of expenditure incurred for maintaining a kitchen at his place of business for serving meals to its constituents. This claim was allowed by the Tribunal. On a reference at the instance of the Revenue, this Court came to the conclusion that according to strict dictionary meaning the kitchen expenses incurred by the assessee do not fall within the meaning of the words "entertainment expenditure" but the expenses incurred are certainly "in the nature of entertainment expenditure". The view of this Court is thus clear that rasoi expenses are not admissible for claiming deduction. The opinion of this Court, as also noticed by the Tribunal, is binding on the authorities under the IT Act functioning within the jurisdiction of the High Court. True that the Bombay High Court and the Gujarat High Court had taken a different view, but that will not make any difference so far as the authorities functioning within the territorial jurisdiction of the Punjab & Haryana High Court are concerned. In the event of an opinion of this Court on a point being not available, it is open to the authorities to take support from or place reliance on the decisions of other High Courts, but in the presence of a decision of the Supreme Court or of the reference Court, the authorities are bound by that opinion.
The opinion of this Court having come to the notice of the ITO, he issued a notice under s. 154 of the IT Act for rectification of the order of assessment originally passed and relying on the decision of this Court in Gheru Lal Bal Chand's case passed an order of rectification.
6. The question thus arises whether, in the facts of this case, there was a mistake apparent from the record or not.
7. In CIT vs. East India Cold Storage (P) Ltd. (1996) 218 ITR 668 (Cal), a question arose whether the Tribunal was right in law in setting aside the ITO's order under s. 154 of the IT Act, 1961 for the asst. yr. 1979-80. In that case the ITO completed the original assessment and while doing so he allowed investment allowance under s. 32A of the Act on the machinery and plant of cold storage and also allowed deduction in respect of profits and gains from the cold storage under s. 80HH. A little later the ITO was of the opinion that such allowance and deduction were wrongly allowed to the assessee and it was a mistake apparent from the record. He thus after issuing notice under s. 154 withdrew the allowance and the deduction. The Tribunal in second appeal held that the mistake was not apparent from the record as the dispute involved was debatable. It was in this context held that in view of the decision of the Supreme Court, a cold storage cannot come within the meaning of "industrial undertaking".
The High Court, thus, came to the conclusion that the opinion of the ITO was right in rectifying the assessment and holding that the cold storage is not an industrial undertaking and as such, is not entitled to the benefit of either s. 32A or s. 80HH. The question was answered in the negative and in favour of the Revenue.
8. In CIT vs. Vardhman Spinning (1996) 226 ITR 296 (P&H), a question arose whether the Tribunal was right in law in holding that there was no mistake apparent from the record, which could be rectified by the ITO under s. 154 of the IT Act, 1961. It was held that power has been conferred under s. 154 of the Act on every IT authority to rectify its mistakes which are apparent from the record. The mistake has to be such for which no elaborate reasons or inquiry is necessary and where two opinions are possible, then, it cannot be said to be an error apparent on the face of the record. In that case the assessee claimed deduction under s. 84, now s. 80J, for the asst. yr. 1965-66. The deduction was not allowed. The assessee moved an application under s. 154 by giving details. The ITO passed an order under s. 154, whereby he deducted the average of the secured loans. The assessee filed an appeal, which was partly allowed. The Revenue accepted the order passed by the AAC, but the assessee preferred appeal before the Tribunal, which was dismissed. It was thereafter that assessee moved an application under s. 254(2) of the IT Act for rectification of the order of the Tribunal. The Tribunal accepted the miscellaneous application of the assessee, relying upon a decision of the Calcutta High Court and held that the question whether the amount of secured loans obtained by the assessee from the Punjab Financial Corporation was deductible or not while computing the capital employed as per the provisions of r. 19 of the IT Rules, was a debatable issue and, therefore, the provisions of s. 154 of the Act were not applicable to the facts of the case. The ITO thus had no jurisdiction to act under s. 154 of the Act, there being no mistake apparent from the record. A reading of the above judgment clearly gives an indication that if there is a settled view of the Court on a point and which view had not been taken note of by the ITO while framing the original assessment, it is open to the ITO to pass rectification order under s. 154 of the Act, there being a mistake apparent on the face of the record.
9. In the present case, this Court in the case of Gheru Lal Bal Chand (supra), recorded a definite opinion that rasoi expenses are not admissible for deduction. The ITO relying on this decision issued a notice to the assessee under s. 154 of the Act for rectification. The Tribunal took a contrary view after observing that the opinion expressed by the Punjab & Haryana High Court is binding on the authorities functioning under the jurisdiction of this Court, but in this case there being divergent opinion of different Courts, two views were possible and thus it cannot be said that there was a mistake apparent on the face of the record. The Tribunal, in other words, was of the opinion that in view of the decisions of the Bombay High Court and the Gujarat High Court on the point, taking a view contrary to the one taken by this High Court on the point and thus there being a conflict of opinion amongst the High Courts, it was not a fit case for issuing a notice under s. 154 as it was not a case of mistake apparent on the face of the record.
10. On a consideration of the matter, we are of the opinion that the Tribunal was not right in law in coming to the above conclusion. It is true that the Bombay High Court and the Gujarat High Court have taken a view contrary to the one taken by the Punjab & Haryana High Court, but in the presence of a definite opinion of this Court, the same shall prevail and is binding on the functionaries working within the territorial jurisdiction of this Court. The authorities by reference to the opinion of another High Court cannot say that the point is debatable and thus is not a mistake apparent on the face of the record. The view of this Court, as already noticed by the Tribunal, was definite and the question of a doubt being there did not arise if the assessment order had been passed in the first instance. The assessing authority could not have taken a view contrary to the one taken in the case of Gheru Lal Bal Chand, by reference to the decisions of the other High Courts. In view of the fact that the opinion rendered by this Court in binding on the functionaries working within the territorial jurisdiction of this Court, and once that is so the order passed by the assessing authority by ignoring the opinion of this Court is a mistake apparent on the face of the record and thus the ITO in our opinion was right in issuing a notice and passing an order of rectification. The Tribunal was not right in coming to the conclusion that the mistake in this case was not apparent on the face of the record in views of the conflicting view of the other High Courts.
In view of the above, the question referred for the opinion of this Court is answered in the negative, i.e., in favour of the Revenue and against the assessee. No costs.