Income Tax Appellate Tribunal - Delhi
Munjal Showa Ltd. vs Deputy Commissioner Of Income Tax on 7 September, 2000
ORDER
R. Swarup, Vice President
1. The appeal has been directed by the assessee against the order of the CIT(A) under s. 154 of the IT Act, dt. 3rd March, 1997, pertaining to the asst. yr. 1989-90. By various grounds raised the assessee has challenged the very validity of the order under s. 154 of the Act and the disallowance of Rs. 2,27,73,422 confirmed by the CIT(A).
2. The assessee is a public limited company engaged in manufacture of automobile shock absorbers. It maintains its books of accounts on regular basis. Its accounting year was ending on 31st July of each year. Consequent upon the amendment to s. 3 of the IT Act, the assessee adopted its accounting year on the basis of financial year. However, for the purposes of Companies Act, the assessee continued to adopt its account as on 31st July, of each year.
3. For the current year the assessee's accounting year is of 20 months i.e., 1st August, 1987, to 31st March, 1989. The return of income declaring a loss of Rs. 5,71,78,485 including the current year's loss of Rs. 67,07,530 was filed. The assessment under s. 143(3) of the Act was completed determining the loss at Rs. 60,98,706. Subsequently during audit conducted by DC (Audit) certain discrepancies were pointed out. Accordingly a notice under s. 154/155 of the Act was issued by the AO on 11th January, 1993, pointing out the following mistakes apparent from record :
"(1.) Depreciation has been wrongly allowed in excess of Rs. 5,59,44,983 as the assessee claimed depreciation for the period 1st August, 1987, to 31st March, 1989 (20 months).
(2.) The company has debited prior period expenses of Rs. 2,27,73,422 in order to compute the profit under s. 115-J. (3.) The company has debited on account of Rs. 40,18,166 as amount of provision of royalty. In terms of s. 40A(a)(i) royalty can be allowed in the year when tax has been actually paid.
(4) The additional rupees liability on foreign exchange loan is to be treated as part of the cost of plant and machinery only in the year when such liability is incurred and not during any other year on notional basis."
4. The assessee vide letter, dt. 22nd February, 1993, submitted its reply. The AO considered this reply. However, he held that there was a mistake of law apparent from record in allowing depreciation at a higher figure. He held that for working out the book profits under s. 115J the P&L a/c is to be prepared in accordance with the provisions of Parts II and III of Sch. VI of the Companies Act. He further held that the depreciation claimed on straight line method only should have been considered. He, therefore, rectified the original assessment order passed by the AO and worked out the book profits under s. 115J of the Act accordingly.
5. On appeal, the CIT(A) held that the assessee has changed its method of accounting for depreciation only to reduce profits and increase of losses. She held that the point was squarely covered under s. 154 of the Act and the AO has correctly rectified the same. Aggrieved by the order of the CIT(A) the assessee is in appeal before us.
6. It is argued by the learned counsel that the AO has wrongly assumed jurisdiction under s. 154 of the Act. Under this section only those mistakes could be rectified which were apparent from record. Hon'ble Supreme Court in the case of T. S. Balram, ITO vs. Volkart Bros. & Ors. (1971) 82 ITR 50 (SC), has held that the error must be on the face of the record. In the instant case it was not a mistake apparent from record. It was argued that in case there were two opinions on the issue, it cannot be treated a mistake apparent from record. It was also argued that on merits this issue was considered by Calcutta Bench of the Tribunal in the case of Nippon Denro Ispat Ltd. vs. Dy. CIT (1998) 62 TTJ (Cal) 544 : (1988) 67 ITD 205 (Cal). The Hon'ble Bench held that where the assessee followed straight line method for providing depreciation in the books of accounts, for computing profits under s. 115J, the enhanced depreciation has to be considered. Further reliance was placed on the decisions in Modern Woollens Ltd. vs. Dy. CIT (1993) 47 ITD 154 (Bom), Bombay Tyres International Ltd. vs. Dy. CIT (1994) 51 ITD 339 (Bom), and Dy. CIT vs. M.P. Laghu Udhyog Ltd. (1994) 50 TTJ (Ind) 357. On the other hand, the learned Departmental Representative supported the order of the CIT(A).
7. We have considered the rival submissions. In the instant case the AO has assumed jurisdiction under s. 154 of the Act. Provisions of s. 154 of the Act read as under :
"(1) With a view to rectifying any mistake apparent from the record an IT authority referred to in s. 116 may -
(a) amend any order passed by it under the provisions of this Act."
8. The scope of s. 154 of the Act is very limited. Such scope under s. 154 has been the subject-matter of adjudication by various Courts. Hon'ble Madras High Court in the case of Subbaraja Mudaliar vs. CIT & Anr. (1958) 33 ITR 228 (Mad) has held that it is no doubt that a mistake capable of being rectified under s. 35 (corresponding to s. 154 of IT Act, 1961) is not confined to clerical or arithmetical mistakes. On the other hand, it does not cover any mistake which may be discovered by a complicated process of investigation, argument or proof. A mistake which can be rectified must be a mistake from record. It may be a mistake either or law or of fact. This view is supported by various decisions in Nand Lal Manga Ram Pamnani & Ors. vs. G. Lakshminarasimhan & Ors. (1971) 82 ITR 1 (Bom), T. S. Balram, ITO & Ors. vs. Volkart Bros. & Ors. (supra), CIT vs. Calcutta Steel Co. Ltd. (1985) 153 ITR 488 (Cal), and Sirsa Industries vs. CIT (1984) 147 ITR 238 (P&H).
9. The power of rectification under s. 154 could be exercised only if there is a mistake apparent from the record of the assessment of the assessee. In other words, in order to attract the power to rectify under s. 154, it is not sufficient if there is merely a mistake in the order sought to be rectified. The mistake to be rectified must be one apparent from the record. This view was expressed by Hon'ble Punjab High Court in the case of Ved Parkash Madan Lal vs. CIT (1976) 102 ITR 213 (P&H).
10. 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 record. This view finds support from various decisions including the decisions in (1971) 82 ITR 50 (SC) (supra), CIT vs. Calcutta Steel Co. Ltd. (1988) 174 ITR 521 (Cal), CIT vs. K. Subnani Construction Co. Ltd. (1989) 177 ITR 219 (Bom), Sagar Co-op, Central Bank Ltd. vs. CIT (1985) 186 ITR 292 (MP) and CED vs. Hari Bux Poddar (Decd.) (1990) 182 ITR 423 (Pat).
11. Thus, if a statutory provision is capable of two interpretations taking one such interpretation cannot give rise to an error apparent from the record even if one is of the view that the other interpretation was more correct in this context. This view was expressed by various Courts in the cases in Travancore Rayons Ltd. vs. ITO & Anr. (1977) 109 ITR 43 (Ker), ITO vs. Travancore Rayons Ltd. (1980) 122 ITR 425 (Ker), Nilgiris Potato Growers Co-operative Mktg. Society Ltd. vs. CIT (1978) 111 ITR 375 (Mad).
12. The plain meaning of the word 'apparent' is that it must be something which appears to be so ex facie and is incapable of argument or debate. It, therefore, follows that decision on debatable point of law or fact or failure to apply the law to a set of facts which remained to be investigated cannot be corrected by way of rectification. A mistake apparent from the record is one to point out which no elaborate argument is required. It must be a glaring, obvious or self-evident mistake. A mistake which is not gatherable from the record as it stands and requires for being shown to be a mistake. Matter or evidence extraneous to record is not a mistake apparent from the record. In a nutshell it can be taken to be well settled that the provisions of s. 154 cannot be resorted to in order to make a revision in a matter on which there could be two plausible interpretations.
13. Keeping in view the ratio laid down by various Courts mentioned above we have to consider whether there was a patent or apparent mistake in the original order passed by the AO. The assessee was adopting its accounting year from 1st August to 31st July next year. It was calculating its depreciation on straight line method. With effect from 1st April, 1989, there was amendment in s. 3 of the IT Act according to which one uniform accounting year ending on 31st March of each year was provided. As this was the first year when the amendment became applicable the assessee's accounting year consisted of 20 months. The assessee, therefore, prepared two P&L a/cs in accordance with Parts-II and III of the Companies Act. One P&L a/c was prepared for the period 1st August, 1986, to 31st July, 1987, and the other one for 1st August, 1987, to 31st March, 1989. Both the P&L a/cs were prepared under Parts-II and III of Sche. VI of the Companies Act. In the accounts for the period 1st Aug, 1987, to 31st March, 1989, the following Notes to accounts was also attached :
"5. These accounts have been prepared for IT purpose and are in accordance with Sch. VI of the Companies Act, 1956, and the basis of accounting followed is the same as followed in the accounts maintained for statutory purchase under the Companies Act, except in the case of depreciation where different basis has been followed.
Depreciation in these accounts has been provided for on the basis and at rates as prescribed in IT Rules whereas the statutory accounts, depreciation is provided on straight line basis at the rates as prescribed in Sch. XIV of the Companies Act, had the depreciation been provided on the same basis as followed in the accounts for statutory purpose, the amount of depreciation would have been lower by Rs. 5,58,44,983 and there would have been profit of Rs. 2,27,73,422.
The company has been advised that under the provision of IT Act it is permissible to the company to consider depreciation in the accounts prepared for IT purpose on the basis different from that considered in the accounts prepared for statutory purpose for the member of the company."
14. The assessee worked out its book profits under s. 115J of the Act accordingly. As both the P&L a/cs were prepared in accordance with Parts II and III of the Companies Act, it was in consonance with the provisions of s. 115J(1A) of the Act.
15. We also find that Institute of Chartered Accountants of India in the Guidance Note on "Accounting for Depreciation by Companies" has issued certain guidelines to its constituents in this regard. The relevant portion of para 6 of the Guidance Note reads as under :
"....... When a change in the method of depreciation is made, depreciation should be recalculated in accordance with the new method from the date of the asset coming into use. The deficiency or surplus arising from retrospective recomputation of depreciation in accordance with the new method would be adjusted in the accounts in the year in which the method of depreciation is changed. In case the change in the method results in deficiency in depreciation in respect of past years, the deficiency should be charged to the P&L a/c."
16. In the 'Statement of changes in the mode of charging depreciation in the accounts' appended to "A guide to Company Audit" it is stated as under :
"2.3 As a change in the method of providing depreciation is a change in the method of accounting, disclosure is mandatory in the accounts of the year in which the change takes place. No disclosure is necessary in subsequent years. The type of disclosing required is stated in paragraph 11.7 of the Statement on Auditing Practices.
2.4 On changing the method, depreciation should be recalculated from the date of the asset coming into use.
2.6 When the change in method results in a surplus in the provision for depreciation, it is recommended that the surplus be initially transferred to the Appropriations part of the P&L a/c and hence to General Reserve through the same part of the P&L a/c. Conversely any deficiency so arising must be made up.
2.7 In the year in which the method of depreciation is changed, full depreciation for that year, calculated in accordance with the new method, must be debited in the P&L a/c of the year."
17. The rates of depreciation in Sch. XIV to the Companies Act are the minimum rates of depreciation as clarified by the Department of Company Affairs vide Circular, dt. 7th March, 1989."
18. We also find that where the assessee was claiming its depreciation on straight line method and subsequently when the method was changed to written down value whether the enhanced depreciation has to be considered for the purposes of working out book profits under s. 115J of the Act was considered by various Benches of the Tribunal. In the case of Nippon Denro Ispat Ltd. (supra), the Tribunal had held that for working out book profits under s. 115J of the Act, the enhanced depreciation has to be considered. The same view was taken by Chandigarh Bench of the Tribunal in the cases CIT vs. Paul Woollens Mills (P) Ltd. (1998) 96 Taxman 197 (Chd) and Asstt. CIT vs. Juicy Beverages (P) Ltd. (1998) 97 Taxman 192 (Chd).
19. Looking to these facts one thing is clear that the assessee has acted on the basis of guidelines issued by the Institute of Chartered Accountants. Such action is also supported by the decision of Calcutta Bench of the Tribunal in the case of Nippon Denro Ispat Ltd. (supra). We, therefore, hold that even if there was any mistake of law or evidence such mistake was not apparent from record. Centainly in the instant case there are two opinions on the issue and as has been held in various cases mentioned earlier such issue cannot be considered under s. 154 of the Act. The issue before the AO was such which requires long drawn reasoning and arguments. Thus it could not be said that there was a mistake apparent from record in the original assessment order passed by the AO. We therefore, hold that the AO has wrongly assumed jurisdiction under s. 154 of the Act. Accordingly the order passed by the CIT(A) confirming the AO's order under s. 154 of the Act is reversed. This ground of appeal is accordingly allowed.
20. During the course of hearing before us the learned counsel has requested for the admission of the following additional grounds :
(1.) "That, on the facts and circumstances of the case, no interest under s. 234B should have been levied by adopting 30 per cent of book profits computed under s. 115J of the Act as taxable income.
(2.) That on the facts and circumstances of the case, interest under s. 234B levied an order under s. 154 of the Act, could not, in any case be sustained in such circumstances."
21. The learned counsel argued that as the additional grounds raised involved the interpretation of the provisions of the law it could be raised at any stage. After hearing the rival submissions we feel that the additional grounds raised by the learned counsel involved interpretation of the provisions of law and accordingly we admit the same.
22. However, on merits we find that we have vacated the order under s. 154 of the Act passed by the AO/CIT(A). In view of the our finding the additional grounds raised by the learned counsel are only academic and do not require any adjudication.
23. In the result, the appeal filed by the assessee is allowed.