Income Tax Appellate Tribunal - Pune
Bhagwandas Associates, Trade Name ... vs Income Tax Officer on 28 September, 2007
ORDER
Mukul Shrawat, Judicial Member
1. This appeal is at the stance of the appellant assessee directed against the order of CIT(A) II, Pune dt. 21.12.2004. On perusal of the grounds raised, the issue could not be spelt-out correctly, hence the A.R. Mr. S.N. Puranik was asked to clarify the issue in plain language in the beginning itself.
2. Learned A.R. has explained that precisely the issue is that at the time of giving effect to an order of ITAT, Pune, the A.O has tried to rectify a mistake which was committed at the time of framing the original assessment. Thus the short but interesting issue raised before us is that whether a mistake which was otherwise rectifiable Under Section 154 of IT. Act can be cured or adjusted at the time of giving effect of an appellate order Under Section 250/254; admittedly when that mistake was absolutely out of the context and purview of the said appellate order rather not even remotely connected with the subject-matter of appeal?
3. For the sake of putting on record the amounts involved and also for the sake of completeness, the grounds are reproduced below verbatim:
1. Commissioner of Income Tax Appeals has erred in confirming addition of Rs. 5,19,445/-
AO and in turn CIT(A) has reduced the deduction Under Section 32AB from Rs. 7,24,430/- to Rs. 2,04,985 while giving effect to ITAT Order. Appellant prays that ITAT has only directed to reduce the addition of Rs. 25,97,224/- on account of sales tax refund and as there is no other direction in the order nor the disallowance/addition is consequential, addition of Rs. 5,19,445 may plese be cancelled.
2. CIT(A) erred in not giving the finding that order to the extent of addition of 5,19,445 is without Jurisdiction.
3. If the mistake was in allowing excess deduction Under Section 32AB in original order Under Section 143(3) dated 29/3/89, rectification of said mistake has been time barred, hence mistake sought to be rectified while passing order giving effect to ITAT order is not justified as time barred. Appellant prays for deletions of addition of Rs. 519445/-.
4. The alleged order was passed Under Section 250/254 for A.Y. 1988-89 on 9.12.2003 stated to be giving effect to an order of ITAT, Pune. Admittedly, this is a very very cryptic order made on a standard format. Nowhere in the order there was any reference of the said appellate order claimed to be giving effect to. "Under the column "As per original Assessment Order"; the income from Business was mentioned at Rs. 31,02,260/-; then in the column "Reduction allowed" Rs. 25,97,224/- and the last column is of "Revised total income"; which was reduced to Rs. 5,05,036/-. Thereafter, the A.O has added "excess deduction allowed Under Section 32AB" of Rs. 5,19,445/- with the result, the total income was assessed at Rs. 10,24,481/-. This computation was challenged.
5. Before the first appellate authority, it was submitted that there was no such directions in the order of the ITAT, hence the A.O had no jurisdiction of such an adjustment while giving effect to the said ITAT order. It was contended that there was no such provision either Under Section 32AB or Under Section 154/155 to reduce the deduction originally allowed. On hearing, the view expressed by Ld CIT(A) was as under:
2.2. The submissions have been considered. The grievance of the appellant is against reducing the deduction Under Section 32AB in view of the relief allowed by the Hon'ble ITAT. The issue under consideration is regarding the correct amount of deduction allowable under Section 32AB of the Income Tax Act, 1961. The appellant had claimed the deduction under Section 32AB of Rs. 2,04,985/- based on the audit report. However, the Assessing Officer had allowed deduction under Section 32AB of Rs. 7,24,430/-, which was higher than the claim made by the appellant as the Assessing Officer had allowed deduction under Section 32AB of Rs. 7,24,430/-, which was higher than the claim made by the appellant as the Assessing Officer had made addition on account sales refund of Rs. 25,97,224/- and had allowed deduction under Section 32AB even on this addition. The appellant accepted this point of view. The deduction was granted in respect of the higher assessed income which itself was wrong because deduction in any case was to be limited to the deduction as per the audit report, i.e. Rs. 2,04,985/-. Following the same analogy which has not been the subject matter of decision at the level of CIT(Appeals) or the Hon'ble ITAT, the Assessing Officer has rightly limited the deduction under Section 32AB to the claim made by the appellant based on the audit report. This action of the Assessing Officer is fully justified because on the same basis higher deduction was allowed in the order under Section 143(3) and that addition which had been the basis for granting higher deduction under Section 32AB by the Assessing Officer has been wiped off because of the relief allowed by the Hon'ble ITAT. If the Assessing Officer had not added any amount in the assessment order, whether rightly or wrongly, he would not have allowed any further deduction under Section 32AB than what was claimed by the appellant. As the very basis of granting higher deduction under Section 32AB no more exists because of the order of Hon'ble ITAT, the Assessing Officer was justified in bringing the deduction under Section 32AB to the correct figure which was claimed by the appellant as per the audit report. Giving of the appeal effect is linked up with the assessment order passed by the Assessing officer under Section 143(3) which was the subject matter of appeal before the Hon'ble ITAT. The Assessing Officer had given enhanced deduction under Section 32AB based on the additions made in the assessment order and when that order was challenged before the Hon'ble ITAT and those additions were deleted. The Assessing Officer has therefore inconsequence and on the same analogy reduced the deduction under Section 32AB which was linked up with the additions made by the Assessing Officer in the said order. Even otherwise the claim of the appellant is mala fide and wants to take higher deduction under Section 32AB than what was entitled to and that he was entitled to deduction under Section 32AB only of Rs. 2,04,985/-. In fact the appellant should not have any grievance. Moreover the order passed by the Assessing Officer giving effect to the decision of the appellate authority is as much an assessment order as one passed by him by way of regular assessment. Considering all the aspects, there is no infirmity in the order of the Assessing Officer and therefore the grounds of appeal is rejected.
This view is now further challenged.
6. The admitted factual position is that an assessment Under Section 143(3) was originally passed on 29.3.1989 (Page 95 to 121 of paper book) wherein the deduction Under Section 32AB was granted by the A.O. of Rs. 7,24,430/- for A.Y. 1988-89, i.e. the assessment year under appeal. Further, it is also not in dispute that the claim of the assessee as per income tax return for A.Y. 1988-89 was not the said amount as allowed by the A.O but the claim of deduction Under Section 32AB was only to the tune of Rs. 2,04,985/- (Page 175 of the paper book). Learned A.R. Mr. Puranik has also mentioned requisite Form No. 3AA i.e. audit report, prescribed Under Section 32AB(5) of IT. Act, according to which, the amount withdrawn for reserve or provision were at Rs. 10,24,928/-, therefore, the permissible deduction at the rate of 20% as provided Under Section 32AB was computed by the auditor at Rs. 2,04,985/-. So, appellant has not disputed that the deduction Under Section 32AB was excessively allowed by the A.O while passing the assessment order Under Section 143(3).
6.1. In the said assessment order, there was an addition in respect of remission of trading liability. The A.O. has taxed the same in the hands of the assessee which was challenged. The issue reached up-to ITAT, Pune Bench and in ITA No. 989/PN/92 for A.Y. 1988-89 vide order dt. 29.4.2003, the issue was discussed at length and it was held that in the light of the un-amended provision of Section 41(1) the amount in question could not be considered as a revenue receipt and partake the character of capital receipt in the hands of the successor assessee. In clear terms, it was directed the A.O to delete the said addition. Accordingly, the compliance was made by passing the impugned order, now challenged before us Under Section 250/254 dt. 9.12.03 wherein the originally assessed income at Rs. 31,02,260/- was reduced by the relief granted by the Tribunal of Rs. 25,95,224/- and the revised total income was computed at Rs. 5,05,036/-. However, the A.O has made an addition of Rs. 5,19,445/- in the revised assessed income in brackets mentioned by us at this juncture for the sake of clarity with the caption "Add: Excess deduction allowed Under Section 32AB" (Originally allowed in the assessment order at Rs. 7,24,430/- (-) Rs. 2,04,985 claim of the assessee). The assessee has not disputed before us the mistake committed by the A.O. Ld A.R. has in all fairness informed us that genuinely there was a mistake in granting excessive deduction Under Section 32AB. But, the grievance was that the manner in which the mistake was rectified while giving effect of an appellate order was wrong ab-initio.
6.2. The first plank of the argument of Ld. A.R. Mr. Puranik was that the right re-course left to the A.O for rectification of a patent mistake was to invoke provisions of Section 154 of IT. Act or alternatively the administrative Commissioner has powers prescribed Under Section 263 of IT. Act to rectify the mistake within the time prescribed under the statute. He has mentioned that for rectification of mistake Under Section 154, the limitation prescribed is four years from the end of the Financial Year in which the order sought to be amended was passed. Since the assessment order was passed on 29.3.1989, hence four years have expired in March 1993. As against that, the A.O is trying to rectify the said mistake in the year 2003, thus very much beyond the prescribed limitation. It has also been explained that the powers of revision of an order Under Section 263 which lies with the Commissioner of Income Tax within 2 years from the end of the Financial Year in which the order sought to be revised was passed, hence for invoking this Section the prescribed time limit has expired for such revision as well. Admittedly, the revenue Department has not taken any such action either for rectification of mistake or revision of order within the prescribed time.
7. Coming to the main question, which is addressed to us is whether the A.O is empowered to rectify his mistake at the time of giving effect of an appellate order. It was contested that the A.O has exceeded jurisdiction by rectifying a mistake while giving effect of an appellate order because the impugned mistake was not the subject matter of the appeal. The admitted position is that the Tribunal has directed to give a relief pertaining to remission of a Trading Liability and it was held that the provisions of Section 41(1) would not be attracted. In an unambiguous terms, the respected Tribunal has directed to delete the addition of Rs. 25,97,224/-. There is not an iota of doubt that the issue was confined to the said remission of trading liability and even remotely nowhere, the question of the said mistake was ever raised or discussed. From this discussion, we have posed a question to ourselves that under such a situation, whether the A.O has jurisdiction to re-assess the income afresh or whether he has jurisdiction to cure the defect occurred in an assessment order.
7.1. We have carefully as well as consciously examined this question having far reaching effect and at the outset, we may like to place in plain words that the A.O do not have that vast jurisdiction. Rather, the A.O has a very limited jurisdiction while giving effect of an appellate order. At this juncture, we may also like to clarify ourselves that there are generally two types of directions of the appellate authority; first, specific relief pertaining to a specific addition, and, second; direction of denovo assessment afresh by setting aside an assessment order in its entirety. In a situation, falling under second category, since the direction is denovo assessment, on account of set aside of an order in totality, the A.O has to complete the assessment afresh as prescribed under law. Naturally, consequence is that the A.O has got jurisdiction of fresh assessment as if framing it a-knew, hence the jurisdiction lies with the A.O. at par with the fresh assessment. Again, we want to make ourselves clear that if a rider is provided by the appellate authority, then the A.O is judicially duty bound to refrain himself not to exceed his jurisdiction and to re-frame the assessment within the prescribed limits following the rider.
7.2. We are expressing our view in the line of the settled principle that the A.O cannot assume jurisdiction to tax a new source of income while making an assessment in pursuance of an order of remand applies where there is a specific direction given in the order of remand. Where, however, the remand is an open one, the A.O shall not be restricted to any particular source and all the relevant aspects can be taken into consideration by him including any new source of income which was not the subject matter of assessment earlier CIT v. S.V. Divakar 201 ITR 914. Similar view 1was expressed by Hon'ble Madhya Pradesh High Court that in the fresh assessment proceedings after the original assessment had been set aside, the ITO had no jurisdiction to tax new source of income CIT v. Late Jawaharlal Nagpal 171 ITR 136. The A.O. is duty bound to confine himself to follow the directions of the appellate authority which were the subject matter of appeal Kartar Singh v. CIT 111 ITR 184 (Punjab & Haryana). The Hon'ble Allahabad High Court has opined that when the Tribunal sets aside the assessment and remands the case for making a fresh assessment, the power of the ITO is confined to the subject matter of appeal before the Tribunal. He cannot take up the questions which were not the subject matter of appeal before the Tribunal, even though no specific direction has been given by the Tribunal S.P. Kochhar 145 ITR 255 (All.).
8. In the light of the above discussion, we hereby hold that the A.O has acted beyond his jurisdiction by rectifying a mistake, though would be a mistake apparent on the face of records could be rectified by the A.O Under Section 154 of IT. Act or by invoking any other provisions of IT. Act. The A.O has exceeded his jurisdiction by taking into account an amount which was not the subject matter of appeal before the Tribunal. The A.O has exceeded his jurisdiction by altering the deduction originally allowed Under Section 32AB while giving effect to the directions of the Tribunal which was not the subject matter of the appeal, inter alia, we hereby conclude that while giving effect of an appellate order, the A.O has to strictly follow the directions of an appellate order and give effect only to that extent thus having no jurisdiction to travel beyond the limits of the directions of the appellate authority.
9. The question whether the A.O has to compute the income as per the directions within the parameters of the subject matter of appeal, has been answered in affirmative by Hon'ble Calcutta High Court in the case of ITO v. R. Ryam Sugar Vo. 105 ITR 819, and held that if it is a question of application of a particular provision and that matter not having been the subject matter of the appeal; cannot be the matter of rectification during giving effect to an appellate order since the impugned assessment order had already merged in the appellate order. Also in the case of setting aside of an assessment order in its entirety, the fresh assessment is nothing but a second assessment in substitution of the one so set aside.
10. Before we part with; it is also worth to examine the reasons assigned by Ld CIT(A) for rejecting this legal claim. According to him, the rectification was consequential of giving effect of the Tribunal order. It is not true because the determination of deduction Under Section 32 AB is not dependent upon the final income assessed but based upon the investment prescribed Under Section 32AB. This deduction is not on proportionate basis of the assessed income or having any nexus with the finality of the assessed income. Rather this deduction is an independent deduction the quantum of which depends upon the deposits in the scheme prescribed or investment towards purchase of new plant or machinery etc. Next; Ld CIT(A) has observed that giving effect of an appellate order is linked up with the assessment order passed by the A.O. Under Section 143(3) which was the subject matter of appeal. This is not a correct proposition because the subject matter of an appeal is not the entire assessment order but the subject matter of any appeal under IT. Act are the specific additions/disallowances made by the A.O giving rise to the legal issues involved. This is also incorrect on the part of the Ld. CIT(A) to observe that the A.O had given enhanced deduction Under Section 32AB based on the additions made in the impugned assessment order. As already observed above in this para, the quantum of deduction Under Section 32AB is not either based upon the addition made or the final income determined but based upon the amount of investment made/reserve created under the prescribed scheme as per law. Ld CIT(A) has also went wrong to state that the claim of the appellant was malafide. Admittedly it was not the claim of assessee as is evident from the Auditor's report and the return filed. Rather, it is not clear from the records available that how the A.O has arrived at that figure of deduction. Apparently, no malafide is visible on the part of the assessee from the records perused by us. We also overrule these statement of Ld CIT(A) that the order passed by the AO giving effect to the decision of the appellate authority is as much an assessment order as are passed by him by way of regular assessment. This is an incorrect interpretation by Ld CIT(A) because the giving effect of an appellate decision cannot be; rather should not be, at par with the regular assessment order. Law laid down in this regard by the Hon'ble Courts have already been discussed ante. If we will approve this approach of the Revenue Department, then the consequences are far reaching, so that opening a new gate through which the Revenue Department got the scope of improving an already assessed income either by way of enhancement or in the pretext of rectification while giving effect of an appellate order. The statute do not provide such a wide unlimited and unending power to the A.O. His powers are defined and limits are prescribed. We cannot add into the statute since we are not the maker of the Law but only interpreter of the Law.
11. Grounds raised by the assessee are allowed.
12. Rest of the grounds pertain to interest Under Section 244(1A) which are consequential in nature, therefore, not argued separately.
13. In the result, appeal is allowed.