Income Tax Appellate Tribunal - Chennai
Subuthi Finance Ltd. vs Assistant Commissioner Of Income Tax on 15 September, 2004
Equivalent citations: (2005)96TTJ(CHENNAI)473
ORDER
Mahavir Singh, J.M.
1. The present appeal has emanated out of order of the CIT(A)-V, Chennai, and this appeal pertains to block assessment framed by the AO for the block period 1st April, 1992 to 17th Oct., 1996. The said impugned order is arising out of the rectification proceedings moved by the assessee.
2. The briefly stated facts and relevant for deciding the issue involved are that a search was conducted by the Investigation Wing of IT Department on 7th Aug., 1996, at Mumbai and which was concluded on 17th Oct., 1996. In view of the search, under Section 132 of the IT Act, 1961 (hereinafter called as, the Act), notice under Section 158BC of the Act was issued and proceedings for framing block assessment initiated. The assessee filed return for the block period in response to the notice issued. During the assessment proceedings, the AO noticed from the search material that the assessee has entered into bogus transaction of sale and lease back with M/s Duckfin International Ltd. and M/s Paras Industries. The AO after giving detailed reasoning and on the basis of admission by the managing director, Shri K.V. Balakrishnan, under Section 132(4) of the Act during search, disallowed the claim of depreciation amounting to Rs. 1.31 crores. The AO also made addition on account of disallowance of 5 per cent of the lease expenses at Rs. 3,61,64,802 by giving the reasoning that all the payments of sub-lease are explained but there are no details available for expenses made out by the assessee on its lease income on any other lease transactions. On this account, he made addition to the extent of Rs. 18,08,240. Aggrieved, the assessee preferred first appeal before the Tribunal.
3. The assessee's appeal was dismissed by the Tribunal vide its order in Appeal No. IT(SS)A No. 369/Mds/1997, 'A' Bench, dt. 12th April, 2000 on merits, after considering all the arguments of the assessee. Subsequently, the assessee moved miscellaneous petition on 17th May, 2001, which was also dismissed by the Tribunal. Further, the assessee moved to the Hon'ble Madras High Court under Section 260 of the Act. The Hon'ble High Court in TC(A) No. 238 of 2001 vide order dt. 19th April, 2004, dismissed the appeal of the assessee, on merits. The assessee has further moved to the Hon'ble apex Court and this matter is pending. Side by side the assessee moved an application under Section 154 of the Act before the AO and the same was rejected by the Asstt. CIT, Company Circle, Chennai, by giving the reasons that there is no mistake apparent from record, which is obvious and patent, and he further reasoned that, "Suffice it to say that this is not one which can be termed as a mistake apparent from records". Aggrieved, the assessee preferred the appeal before the CIT(A) and the CIT(A) dismissed the appeal by stating that the issues are debatable. Aggrieved, the assessee is in second appeal before the Tribunal.
4. Before us, the assessee raised various grounds from A to F. The effective grounds are being reproduced as under :
"(B) The first appellate authority erred in finding that the appellant's arguments were based on the merits of the issue, rather than on the scope of Section 154. Elaborate arguments had been advanced on how the impugned order dealt with issues which were mistakes apparent from the record and which ought to have been corrected by the AC) exercising his jurisdiction under Section 154. The GIT(A), however, has not considered the same and has merely concluded without any reasoning whatsoever that the issues were debatable.
(C) The CIT(A) ought to have seen that the rectification application filed by the petitioner and dismissed by the AO contained the following issues which were clearly patent errors which ought to have been corrected under Section 154 :
(i) Depreciation had been claimed by the assessee. While disallowing the same, however, the lease rentals which have been turned by the assessee had been included which is an error apparent on the face of the record. Having disallowed depreciation, it follows that the lease rentals returned ought to have been excluded.
(ii) An estimate of 5 per cent of lease expenses has been disallowed. Various High Courts and Tribunals as well as the statute bear the petitioner out on the fact that no estimate can be made in a block assessment. The estimate disallowed is, therefore, a patent error which ought to have been corrected under Section 154.
(iii) The levy of surcharge in the block assessment order has been sustained even though the Tribunal, Bangalore Bench, and various other Benches have held that surcharge would not be leviable in a block assessment order. This is a patent error which ought to have been addressed under Section 154 by the assessing authority.
(D) The GIT(A), therefore, erred in confirming that the abovecited mistakes apparent from record would not come under the scope of the AO's jurisdiction under Section 154.
(E) The C1T(A) erred in deciding the matter without reference to the various submissions made by the petitioner to substantiate its case.
(F) The CIT(A) erred in dismissing the appeal on the ground that the substantive appeal had been dismissed by the Tribunal and that a miscellaneous application had been filed thereon. These are matters which are totally extraneous to the case in issue and ought not to have influenced the appellate authority in his decision."
5. Before us, the learned senior counsel, Shri V. Ramachandran and Mrs. Anitha Sumanth, argued for the assessee. On the other hand, the learned Departmental Representative, Shri C.R. Janardhan, appeared for the Department.
6. The learned counsel for the assessee argued that when a decision has been taken in assessment and the same assessment subsequently upheld by the first and second appellate authority and finally it is established that the assets as claimed by the assessee leased out did not exist then there cannot be any lease transaction and keeping in view of the lease transaction, the depreciation claimed on the non-existence assets was disallowed. He further argued that when there is no lease transaction, the lease rental income included in the return of income can be considered as a mistake apparent from the record and the same can be excluded from the assessee's total income. He further argued that since the transaction was treated as a finance transaction and depreciation on non-existing assets was disallowed hence, the assessee's claim that the lease rentals should not be included in the total income can be accepted by way of rectification under Section 154 of the Act. This can be taken as a mistake apparent from the record as per the learned counsel. He further argued that even though the matter has reached to the Hon'ble apex Court, the AO still can rectify the mistake as regards to exclusion of lease rental income from the assessee's total income. To substantiate his claim, the learned counsel further relied on various case law and also filed a paper book consisting of 87 pages.
7. The learned Departmental Representative argued that in the present case the Section 154 of the Act does not apply as the issue has already been dealt with first by the CIT(A), then the Hon'ble Tribunal and the Hon'ble High Court. Even now, the matter is pending before the Hon'ble apex Court. The Hon'ble High Court has already dealt with the merits of the case and finally decided the issue that the assessee is entering into lease agreement with M/s Duckfin International Ltd. for leasing continuous push type furnaces on sale and lease back was no transaction as such and there was no asset into existence and the so-called lease was mere paper transaction and the assets mentioned in these leases did not exist. Since the Hon'ble High Court has clearly decided the issue on merits, there is no question of going back to make alive the issue through Section 154 of the Act.
8. We have heard the rival submissions and gone through the case records. We have also considered the various case law cited by both the sides. We have seen from the assessment order that the AO after considering all the facts as regards to the existence of two furnaces in M/s Duckfin International Ltd., like insurance certificate, inspection report by the Bank of Madura authority reached to the following conclusions which is being reproduced from the order of the AO as it is :
"(i) M/s Paras Industries Ltd. has sold two continuous push type furnaces to M/s Duckfin International Ltd. prior to the asst. yr. 1994-95. It has been erected in the premises of M/s Duckfin International Ltd. and it has suffered 100 per cent depreciation already in the hands of M/s Duckfin International Ltd.
(ii) Though the insurance certificate and supervision report given by the Manager, Bank of Madura, dt. 26th Sept., 1996, is available, but at the time of survey made by the authorities (Investigation Unit), Bhopal, these two furnaces did not exist in the premises of M/s Duckfin International Ltd.
(iii) The furnaces have been hypothecated for a loan transaction. These shares of M/s Duckfin International Ltd. were also furnished as a collateral security. If the furnaces really existed, there was no necessity for getting further collateral security from M/s Duckfin International Ltd."
(iv) What the assessee had availed of was a facility for borrowing funds from the Bank of Madura and making such funds available to M/s Duckfin International Ltd., through an arrangement of sale and lease back of non-existing furnaces. Further, the assessee claimed 100 per cent depreciation on those furnaces."
In view of the above reasons, the managing director, Sri K.V. Balakrishnan, offered the depreciation claim at Rs. 1.31 crores as income at the time of search giving statement under Section 132(4) of the Act, as the assessee himself agreed for surrender and it is established that the entire transaction is routed as money transaction for non-existing assets and accordingly, the claim of depreciation was disallowed. We have also gone through the order of the CIT(A) as well as the order of the Tribunal Bench 'A' in IT(SS)A No. 369/Mds/1997 for the block period 1993-94 to 1996-97 and it is seen that both the appeals were dismissed and accordingly, the action of the AO was confirmed. The Hon'ble High Court has also confirmed the order of the Hon'ble Tribunal cited supra and the Hon'ble High Court has given the finding in TC(A) No. 238 of 2001 in paras 5 and 6 which are being reproduced as it is :
"5. As far as the second submission is concerned, we find that in para 5 of the assessment order, it has been clearly stated that Mr. K.V. Balakrishnan, managing director of the company, furnished insurance certificate dt. 27th April, 1995, and, the order further reads that after furnishing all the details, representative also argued the matter. Further down in the same paragraph, it is mentioned that the representative pleaded that the transaction is real one and no bogus transaction is involved. From this, it is abundantly clear that the assessee was heard before the assessment order came to be passed. The further complaint that the assessee was not given copies of the documents appears to be incorrect, since such a point was not raised before the Tribunal.
6. As far as the third submission is concerned, it appears that the assessee had entered into a lease agreement with M/s Duckfin International Ltd. For leasing continuous push type furnace on sale and lease back transaction. M/s Paras Industries manufactured the furnaces and delivered to M/s Duckfin International Ltd. which were installed at the cost of Rs. 66 lakhs each. The same is stated to have been entered into by the assessee with M/s Duckfin International Ltd. on sale and lease back transaction at Rs. 1,30,38,000. When the search was conducted at the business premises of the assessee at Mumbai, no lease agreement was found and only a copy of invoice was located. Mr. Balakrishnan stated that the transaction was supposed to be in the nature of sale and lease back and at the request of lessee the name of M/s Paras Industries was introduced for routing the transaction. Statements from Mr. Deepak Bhargava, director of M/s Duckfin International Ltd., were recorded at Bhopal on 1st Aug., 1996, and 2nd Aug., 1996, who had stated that no asset had been brought into existence and no assets were supplied and installed by virtue of this lease deed. He also stated that M/s Paras Industries does not exist and the so-called lease was mere paper transaction and the assets mentioned in these leases did not exist. When Mr. Balakrishnan, managing director, was confronted, he surrendered on behalf of the company the depreciation claimed to the tune of Rs. 1.30 crores on the assets leased to M/s Duckfin International Ltd. That being so, the depreciation on two continuous push type furnaces that were leased to M/s Duckfin International Ltd. was rightly disallowed."
9. Subsequently, the assessee moved application under Section 154 of the Act which is dt. 1st March, 2002, and by way of this application, the assessee-company, sought the following reliefs :
(I) Exclusion of lease rentals of Rs. 86.94 lakhs from the undisclosed income computed in the block assessment order dt. 29th Oct., 1997.
(II) Deletion of surcharge.
The AO while passing the order under Section 154 of the Act, stated that no doubt, the assets did not exist and the transaction was treated as finance transaction and the claim of depreciation was disallowed. He further stated in the rectification order that it is the case of the assessee that it did not receive the lease rentals and further the question, as to whether the money is received by way of lease rentals is the assessee's income or not, is not a matter to be decided under Section 154 of the Act. In view of this, he gave the finding that he does not want to decide the issue on merits and there is no mistake apparent from the record which is an obvious and patent mistake, which can be decided in the rectification proceedings under Section 154 of the Act. Aggrieved, the assessee preferred an appeal before the CIT(A). The CIT(A), further gave the finding that the assessee is arguing this case on merits, rather than on rectification under Section 154 of the Act. He also held that the issues raised relate to nature of lease rental income, nature of deduction to be allowed and charging of surcharge in block assessment which itself are debatable issues. Hence, he dismissed the appeal and accordingly, the AO's action was confirmed. Aggrieved, the assessee is in appeal before us.
10. The learned counsel while arguing the case relied on the case law which are discussed as under :
10.1 First of all, he cited the Hon'ble Calcutta High Court's case law in the case of Asit Kumar Ghosh v. CIT (1953) 24 ITR 576 (Cal) and we find in this case that the Hon'ble High Court has dealt with the issue of assessment proceedings started against executors in respect of income received by them. The Hon'ble High Court has stated in this case that there is no provision in the Indian IT Act, 1922, which provides for substitution of a subsequently appointed receiver in the place and instead of executors, who had previously been in possession of the state of the testator in an assessment proceedings commenced against the executors in respect of income received by them during their administration.
10.2 The Hon'ble Delhi High Court in the case of CIT v. Bhaiat General Reinsurance Co. Ltd. has held that the fact that the assessee had itself included the income in the return for the asst. yr. 1958-59 was no effect; there was no estoppel and the assessee having itself challenged the validity of taxing the dividend for that assessment year, it must be taken that it had resiled from the position which it had wrongly taken while filing the return. It is incumbent on the IT Department to find out whether the particular income was assessable in the particular year or not. Merely because the assessee wrongly included the income in its return for the particular year, it cannot confer the jurisdiction on the Department to tax that income in that year even though legally speaking such income did not pertain to that year.
10.3 In the case of Pt. Sheo Nath Prasad Sharma v. CIT (1967) 66 ITR 647 (All), the Hon'ble Allahabad High Court has dealt with the revisional power of the CIT and the Hon'ble High Court has held that the CIT has no power to decide the same matter over again upon a fresh revision application and any observation made in the earlier order cannot confer jurisdiction on the CIT to consider the matter once again.
10.4 The Hon'ble Madras High Court in the case of T.S. Rajam v. CED (1968) 69 ITR 342 (Mad) has held as under :
"'Mistake' is an ordinary word but in taxation law it has a special signification. It is not an arithmetical or clerical error that comes within its purview. It comprehends errors which are discerned after a judicious probe into the record from which it is supposed to emanate. It is difficult to axiomatise and lay down dictas for the discovery of a mistake from official records. It is inherently indefinite in scope and mostly subjective, the dividing line being thin and undiscernible. In the ultimate analysis, the conclusion a well equipped and trained judicial mind will reach after scrutinising the record will govern and his finding whether it is a mistake or not has to be accepted.
For a rectification of an error which is said to be apparent from the record, the mere complexity of the problem or that genuine argument is necessary to discover the same, may by themselves be sufficient to oust the jurisdiction of the Tribunal to rectify such a mistake. If it could be discerned with some precision after a fair probe into the assessment records and a reasonable and in that there appears an error on the face of the record which has to be certainly corrected, then the jurisdiction of the Tribunal vesting it with power to rectify such mistake arises. The essence of rectification is to bring the order which was expressed and intended to be in pursuance of the existing law into harmony with such law. Once the Tribunal or authority is able to predicate with certainty as to in what manner and how the order suffers by a mistake apparent from the record supported by irrefragable evidence, then it would enable them to bring the order complained against or impugned against in conformity with the law and the facts in the record."
10.5 In the case of Addl. CIT v. P.V.S.K. Palaniappa Nadar & Sons (1980) 125 ITR 357 (Mad), the Hon'ble Madras High Court has held that :
"What was necessary to be examined was whether the assessee would be entitled to depreciation at 7 per cent under the general rate or at 9 per cent as relating to the aerating gas factories or at 10 per cent relating to electrical machinery. For determining the rate of depreciation, the nature of the machinery would have to be examined to determine the category in which the machinery fell and there was no debatable issue in a case like this. The assessee produced aerated water and not aerated gas and hence 9 per cent was not applicable on the assessee's own showing and hence the grant of 9 per cent by the officer was clearly a mistake apparent from the record justifying action under Section 154. The matter was not one which was likely to involve any debate at all as the relevant details of the machinery would be on record."
10.6 In the case of CIT v. K.C. Nirmal Kumar Khushlal Chand , the Hon'ble Madhya Pradesh High Court has held that :
"A perusal of the unamended and amended provisions and the circular of the CBDT would make it clear that there had been no specific effect that the amendment effected to Section 158BB in the Finance Act, 2002, w.e.f. 1st July, 1995, would be applicable to the instant case as the block period covered ten years commencing 1986 to 1996. Emphasis had been given to the fact that the evidence must have been found during search and only thereafter, the question of gathering any material information would arise based on the search inquiry. Admittedly, during the search in the premises of the assessee nothing was found with regard to the investment in the house. The contention that the valuation report of the Departmental Valuation Officer was obtained and was confronted to the assessee but he was not able to give any explanation and, therefore, it should be accepted as evidence could not be accepted in view of the provisions of Section 158BB and the law laid down by the Bombay High Court in the case of CIT v. Vinod Danchand Ghodawat ."
10.7 In the case of Absalom v. Talbot (H.M. Inspector of Taxes) 26 Tax Cases 188, relied on by the assessee's counsel, it was held at p. 192 as under :
"But the practice of the taxpayer, acquiescing in the claim of the Inland Revenue, is of little value, when the practice is sought to be put upon a legal footing. As long as a business is continued and income-tax rates are fairly constant, it matters little to the taxpayer how his profit is computed; the allowances in future years will remedy the excessive assessment in the first year. But, when rats begin to rise, or particularly, as in the present case, where the taxpayer is retiring from business, the position becomes at once satisfactory.
It appears to be conceded that once the creditor has gone out of business, no further allowance can be made and thus the excessive assessment of the first year can no longer be compensated. I can see no reason why such an arbitrary method of computing profit, leading to real hardship, should be adopted, when there is no statutory enactment prescribing it. I am satisfied, therefore, that the assessment which has been confirmed by the Courts cannot stand."
10.8 He also relied on the decision of the Hon'ble Patna High Court in the case of CIT v. Jyothi Tube-well Co. and the Hon'ble Madhya Pradesh High Court in the case of CIT v. Gom Industries Ltd . It is seen after going through these case law that these are not relevant for the present case as the case law of the Hon'ble MP High Court is purely on merits of the case and the assessee's case is on rectification under Section 154 of the Act.
11. It is seen from the abovementioned case law cited by the assessee that they are all either on merits of the case or the facts are not relevant to the present case. In the present case, the issue of depreciation has already been settled upto the Hon'ble High Court and the matter is pending before the Hon'ble apex Court. The assessee by way of rectification application under Section 154 of the Act on 1st March, 2002, came before the AO as regards to the exclusion of lease rentals from the undisclosed income computed in the block assessment order dt. 29th Oct., 1997, which has already been finalised as well as the issue of deletion of surcharge.
12. From the above facts and case law discussed now, we have to conclude as to whether rectification is possible in respect of this matter which has already been considered and decided in appeals upto the Hon'ble High Court. Now, we will go through the newly inserted Section 154(1A) of the Act by the Direct Taxes Amendment Act, 1964, w.e.f. 6th Oct., 1964, which takes care of the situation where any matter has been considered and decided in any proceedings by way of appeal or revision relating to an order referred to in Section 154(1) of the Act. In such a situation, the authority passing such order may, notwithstanding anything contained in any law for the time being in force, can amend the order under Section 154(1) of the Act in relation to any other matter, other than the matter which has been so considered and decided. Section 154(1A) enacts provisions of overriding nature and is a complete bar to resort for rectification proceedings in relation to a matter which has been considered and decided by the appellate authority. Such bar can also operate in respect of matters which have been so considered and decided by such authorities either in favour of the assessee or against the assessee. However, it cannot be disputed that the appellate powers under various provisions and rectification power under Section 154 of the Act are two different categories and the AO cannot get any sustenance from the other. The powers of the AO under Section 154 of the Act flow from the provisions of that section only. The language of Section 154(1A) of the Act makes it abundantly clear that the matter which is considered and decided by the appellate authority cannot be rectified. The matter means all facts of the matter which come within the scope of the appeal. If the appeal is filed relating to the matter and the same was considered and decided or be treated to have been considered or decided by the appellate authority, it is no longer open for the assessing authority to reopen or reagitate or rectify the said issue or matter. The appellate authority is obliged to dispose of all aspects of the matter and to act in accordance with the law even though a particular point has not been raised. Even if not raised, the same is taken to have been considered and decided by the appellate authority. In the present case, the assessee on lease transaction claimed depreciation, which ultimately proved to be bogus and (when) the assessee itself offered the income during search, then it is not open for it to reagitate through rectification under Section 154 of the Act for exclusion lease rentals which have been declared by itself in the block return.
13. In view of the above, we are of the considered opinion that the issues taken up by the assessee are debatable and these cannot be taken up by way of rectification under Section 154 of the Act. Even otherwise, when the matter is considered by the appellate authorities and the Hon'ble High Court and this issue was not raised through all these proceedings, then the same is taken to have been considered and decided by the appellate authorities. In view of this, we do not agree with the assessee on rectification under Section 154 of the Act on these issues and accordingly, the orders of the authorities below are confirmed.
14. In the result, the appeal of the assessee is dismissed.