Orissa High Court
Utkal Galvanizers P. Ltd. vs Assistant Commissioner Of Income-Tax ... on 10 January, 2008
Equivalent citations: (2008)218CTR(ORI)374, [2008]298ITR53(ORISSA), 2008(I)OLR751
Author: I. Mahanty
Bench: Chief Justice, I. Mahanty
JUDGMENT I. Mahanty, J.
1. The petitioner in this writ application seeks to challenge an order dated March 14,1995, passed under Section 154 of the Income-tax Act, 1961, by the Assistant Commissioner of Income-tax, Cuttack Circle for the assessment year 1991-92, inter alia, exercising his power under Section 154(1A) purportedly seeking to revise the depreciation earlier allowed to the assessee and seeking to levy interest under Section 234B (allegedly on the ground of having omitted to make such levy at the time of passing the order under Section 143(3)) and therefore, seeking to rectify the aforesaid mistake by passing the impugned rectification order under Section 154 and raising an additional demand of Rs. 9,89,700. The assessee being aggrieved by such order, filed a revision under Section 264 of the Act before the Commissioner of Income-tax, Orissa, and the revision having been rejected vide order dated February 28, 1996, the present writ application has been filed challenging the said order under Section 154 as well as the revisional order.
2. The assessee filed its return for the year 1991-92 disclosing income of Rs. 2,76,306 on December 30, 1991, whereafter it was duly assessed under Section 143(1)(a) and by order dated March 7, 1994, total tax and interest was assessed at Rs. 1,45,084 and it was determined that since the assessee has already deposited tax of Rs. 1,67,362, an amount of Rs. 30,358 was found to be refundable. It is further alleged that instead of effecting refund as determined in the order of assessment as indicated above, the Assessing Officer instead issued a notice under Section 143(2) to the assessee and pursuant to such notice, the income of the assessee was determined at Rs. 13,59,510, essentially by making additions under two heads, namely, (1) trading accountRs. 9,38,989, and-(2) scrap saleRs. 1,10,487. Being aggrieved by the said order, the assessee carried an appeal to the Commissioner of Income-tax (Appeals) and by order dated January 25, 1995, the Commissioner of Income-tax (Appeals) was pleased to quash the enhancement/additions made by the Assessing Officer both on account of trading account as well as scrap sale, but came to determine that since there was stock discrepancy of Rs. 2,52,000, the said amount should be taken into account for the purpose of levy of tax thereon. In other words, while the enhancement effected by the Assessing Officer was quashed, yet an addition for discrepancy in stock of Rs. 2,52,000 was directed by the Commissioner of Income-tax (Appeals).
3. Learned Counsel for the petitioner, however, submitted that instead of complying with the direction of the Commissioner of Income-tax (Appeals) and passing consequential order implementing the said directions as required in law, the Assessing Officer issued a notice to the petitioner under Section 154 asking for compliance and show-cause as to why (1) non-levy of interest under Section 234B at the time of assessment under Section 143(3), and (2) excess deduction allowed on account of depreciation (should not be rectified).
4. Pursuant to the said show-cause notice, the assessee filed its objections, inter alia, on the ground that the proposed Section 154 action was no longer available since the very order which was sought to be corrected or rectified, had already merged in the appellate order passed by the Commissioner of Income-tax (Appeals) and on the ground that the notice did not specifically point out as to where excess depreciation has been allegedly allowed.
5. The Assessing Officer rejected the objections raised by the assessee and passed the impugned order under Section 154 dated March 14, 1995 (annexure 1) and the said order was affirmed in revision by the Commissioner of Income-tax by his order dated February 28, 1996 (annexure 3).
6. Learned Counsel for the petitioner in the present writ application submitted, that Section 154 proceeding was initiated seeking to rectify an alleged mistake apparent from the order under Section 143(3) for the assessment year 1991-92. Learned Counsel submitted that by the date of the notice under Section 154, the order under Section 143(3) sought to be rectified no longer subsisted in law, inasmuch as, the said order had already been quashed/varied by the Commissioner of Income-tax (Appeals) vide order dated January 25, 1995 (annexure 6). Learned Counsel for the petitioner, therefore, submitted that once the order under Section 143(3) no longer existed, there could be no question of effecting rectification of the said order.
7. On the other hand, Mr. Mohapatra, learned standing counsel for the Department strenuously urged that under Section 154(1A), provisions specifically existed for making correction in orders even though such orders have been carried by way of appeal or revision and that the Assessing Officer remained competent to amend the order passed by him under Section 143(3). The only limitation to such power or authority is to the effect that such rectification would be carried out in relation "to any matter other than the matter which has been considered and decided" in appeal or revision. Shri Mohapatra, therefore, while placing reliance on the aforesaid provision of law also placed reliance upon a judgment of the Madras High Court in the case of CIT v. Sundaram Textiles Ltd. and on a decision of the Karnataka High Court in the case of Addl. CIT v. India Tin Industries P. Ltd. .
8. In the judgment rendered by the Madras High Court in CIT v. Sundaram Textiles Ltd. their Lordships came to hold that it is "only in the case where a particular item is dealt with in appeal" that the Income-tax Officer cannot deal with that item by invoking Section 154. In the said case, the Income-tax Officer in the order giving effect to the order passed in appeal had granted "extra shift allowance" and as grant of such extra shift allowance was contrary to the provisions contained in the Income-tax Rules, 1962, the order of the Income-tax Officer granting extra shift allowance should be considered to be a mistake apparent from the record and therefore, amenable to rectification proceeding under Section 154.
9. In the case of India Tin Industries P. Ltd. their Lordships of the Karnataka High Court came to hold that Sub-section (1A) of Section 154 specifically provides that any matter which has not been considered and decided in any proceeding by way of appeal or revision, may be amended by the authority passing such an order in exercise of its power under Section 154(1). Their Lordships further came to hold that the doctrine of merger is not a doctrine of rigid and universal application and it cannot be said that wherever there are two orders, one by an inferior Tribunal and the other by a superior Tribunal passed in an appeal or revision, there is a fusion or merger of the two orders irrespective of the subject-matter of the appeal. The order of assessment made by the Income-tax Officer merges in the order of the Commissioner in so far as it relates to items considered and decided by the Commissioner. That part of the order of assessment, which relates to items not forming the subject-matter of the appellate order and left untouched does not merge in the order of the Commissioner. Even after an appeal from an order of assessment is decided by the Commissioner, a mistake in that part of the order of assessment which was not the subject-matter of the appeal and was thereafter left untouched by the Commissioner, can be rectified by the Income-tax Officer.
10. On consideration of the aforesaid judgments relied upon by learned standing counsel for the Revenue, it is clear that the aforesaid judicial pronouncements laid down the principle that the doctrine of merger does come to play in so far as items considered and decided by the Commissioner or in a case where a particular item is dealt with by the appellate/revisional authority. Therefore, in order to adjudicate the present lis, it is incumbent upon us to first determine as to whether the issues/items sought to be rectified under Section 154 are matters which were dealt with or considered and decided by the appellate authority or not, since the answer to the said question would be determinative as to whether the Income-tax Officer possessed necessary authority under Section 154 to initiate such a proceeding or not?
11. On a perusal of the impugned order under Section 154 (annexure 1), it would be apparent that the rectification was made of two aspects, i.e., non-levy of interest under Section 234B and the alleged excess deduction allowed on account of depreciation.
12. In so far as the first aspect, i.e., non-levy of interest under Section 234B is concerned, on a perusal of the said provision, it appears that an assessee who fails to pay advance tax, less than 90 per cent, of the assessed tax shall be liable to pay simple interest at the rate of one per cent, per month for the shortfall. The said provision provides various Explanations. In Explanation 1, it is stipulated that the term "assessed tax" means the tax on the total income determined under Sub-section (1) of Section 143 on regular assessment. In the present case, originally, an order under Section 143(1) was passed against the assessee in which the assessee's return was accepted and certain amount was found to be refundable. Thereafter, exercising power under Section 143(3), a regular assessment took place enhancing the assessed tax determined to be payable by the assessee. Explanation 3 provides that in Explanation 1 and in Sub-section (3) "tax on the total income determined under Sub-section (1) of Section 143" shall not include the additional income-tax, if any, payable under Section 143. Therefore, in view of the aforesaid Explanation, it is clear that the present petitioner-assessee was not originally liable for any interest under Section 234B under the orders passed against it under Section 143(1). Thereafter, when the regular assessment under Section 143(3) was initiated and the income of the assessee was enhanced and "additional income-tax" became payable, no question of levy of interest for "non-payment of advanced tax" could arise. This is obviously so since such determination of additional income-tax was the consequence of regular assessment and determination of additional income-tax payable. This aspect is also purely academic since the additions effected by the Income-tax Officer were ultimately deleted by the Commissioner of Income-tax (Appeals) in appeal. Therefore, in our view no question of payment of interest under Section 234B arises in the present case and non-charging of the same in the present case cannot be accepted as a "mistake capable of rectification" by initiating a proceeding under Section 154 of the Income-tax Act.
13. In so far as the second issue is concerned, i.e., excess deduction allowed on account of depreciation, on a perusal of the original order of assessment under Section 143(3)(annexure 5) clearly indicates that the Assessing Officer at that stage had, in fact, applied his judicial mind and "disallowed depreciation". Against the said order, the assessee carried an appeal in which an issue was raised regarding disallowance of depreciation. That issue was dealt with by the Commissioner in the appellate order by rejecting the same. Therefore, in so far as depreciation is concerned, it is clear that the appellate order merged with the original order under Section 143(3) and since the issue regarding depreciation formed a part of the subject-matter of the appellate order and therefore, the doctrine of merger would apply in so far as depreciation is concerned.
14. Placing reliance on the two judgments referred to above, it would be clear that permitting the Assessing Officer to exercise power under Section 154 in the matters which have already been carried in appeal, would lead to judicial anarchy. If the Revenue in any manner was dissatisfied, it was open to it to challenge the same in the second appeal before the Tribunal. In the absence of any challenge permitting the Assessing Officer to vary or review or revise his own order under a plea of correcting the mistake as contemplated under Section 154 is to in effect allow him to override or overreach the order passed by the higher authorities in appeal or revision. This is clearly not the intention of legislation of Section 154(1A) of the Income-tax Act. We are of the view that the scope of Section 154(1A) remains limited to the "mistakes apparent from records". Such mistakes cannot and do not include powers to revise or review/reappraise one's earlier order. We are of the view that in the present case, exercise of power under Section 154 in so far as "depreciation" is concerned, is also without jurisdiction.
15. With the aforesaid directions, the writ application is allowed, but in the circumstances, without costs.
A.K. Ganguly, C.J.
16. I agree.