Income Tax Appellate Tribunal - Pune
U.B. Engineering Ltd. vs Jt. Commissioner Of Income Tax on 26 September, 2007
Equivalent citations: [2008]1113ITD577(PUNE), [2008]302ITR161(PUNE), (2008)115TTJ(PUNE)289
ORDER
Pramod Kumar, Accountant Member
1. When this appeal originally came up for hearing there was a difference of opinion between the Members then constituted the bench on the following question:
Whether on the facts and circumstances of the case, the AO was justified in rejecting the assessee's application under Section 154 of the Act?
2. While the Accountant Member was of the view that the appeal of the assessee is to be allowed, the Judicial Member expressed his opinion that the appeal is to be dismissed. On account of this difference of opinion, the matter was referred for the opinion of a Third Member. The Hon'ble Vice President(MZ) Shri K.P.T. Thangal was appointed Third Member in this case, and he has, vide order dated 19.09.2007 expressed his view concurring with the learned Judicial Member. In accordance with the majority view, therefore, the appeal is dismissed. It was so pronounced in the open court today.
ORDER
1. Since there was a difference of opinion between the two Members, the matter was referred to the Hon'ble President of the Income Tax Appellate Tribunal, with a request that the question may be referred to a Third Member under Section 255(4) of the Income Tax Act, 1961. The Hon'ble President has nominated me as Third Member to adjudicate on the following point of difference of opinion:
Whether on the facts and circumstances of the case, the AO was justified in rejecting the assessee's application under Section 154 of the Act?
2. The facts set out in detail by the learned Accountant Member, who proposed the first order, are recapitulated for easy understanding, briefly, as under:
Assessee is a Public Limited Company, engaged in the construction of industrial plants. Assessee filed the return on 30.11.1995 for the year under consideration, disclosing income at Rs. 5,27,63,150/-. It was processed under Section 143(1)(a) on 27.03.1996. The case was selected for scrutiny. In scrutiny assessment, assessee was called upon to establish the genuineness of its claim of purchase of gas cylinders during the relevant accounting year and thereby the claim of depreciation at the rate of 100% amounting to Rs. 3,05,05,014/-. Assessee submitted various documents as set out by the learned AM vide Para 2 of his proposed order.
3. In scrutiny assessment, AO allowed the claim of the assessee of depreciation vide his order dated 31.03.1998. The claim of depreciation was allowed by the AO more than claimed by the assessee, observing as under:
Depreciation:
In computation of income, assessee has claimed depreciation of Rs. 5,93,71,235/-. However, depreciation allowable as per WDV of I.T. records comes to Rs. 6,03,10,585/-. The same is allowed as per chart enclosed.
4. Subsequently, notice under Section 148 was issued on 17.08.1998, wherein the assessee was directed to file a return to enable the AO to reassess the income, as he formed the opinion that certain income had escaped assessment at the time of original assessment. The original assessment completed by the AO resulted in determining the income at Rs. 10,29,54,140/-. Assessee carried the matter before the CIT(A). Dissatisfied with the CIT(A)'s order, assessee carried the matter before the Tribunal.
5. On receipt of notice under Section 148, assessee filed the return along with a covering letter dated 16.09.1998. The return was filed under protest. The returned income in response to notice under Section 148 was the same as was in the original return.
6. In the meantime, the Government of India announced a scheme for settlement of various disputes under the Income Tax Act, named "Kar Vivad Samadhan Scheme" (for short "KVSS"). While the Scheme was in force, the Chief Commissioner of Income Tax, Pune, addressed a letter dated nil, November 1998, to Shri Vijay Mallya, Chairman of UB Group and assessee company, pointing out the benefits and settling the tax disputes. The letter has been reproduced by the learned AM vide Para 4 of his order. On receipt of this letter on 02.12.1998, the Chairman of the assessee company instructed his Executives to hold discussion with Tax authorities, i.e. to say, Chief Commissioner of Income Tax, Commissioner of Income Tax/Designated Authorities and Joint Commissioner to explore the possibility of settling the disputes pending as on the date. In the meantime, the JCIT, pursuant to reassessment proceedings, issued summons to the Managing Director of the assessee company and other Executives to record statement on oath. The case was adjourned as the assessee desired to avail the benefit of KVSS. Assessee filed the declaration under KVSS on 31.12.1998, which covered the entire disputes pending. Thereafter, according to the assessee, the revenue authorities prevailed over the assessee company to cover the issues, which were subject matter of reopening under Section 148 as well. Consequent to various discussions between the revenue authorities and the assessee, assessee became aware that the issue for reassessment was allowance of depreciation on gas cylinders purchased by the assessee amounting to Rs. 305 lakhs. Assessee always claimed that the original claim of depreciation was genuine. Yet, the assessee claimed, AO on the basis of certain information in his possession received subsequently, formed the opinion that allowance of depreciation was incorrect as the entire transaction was suspected to be bogus. With an intention to buy peace and to settle the dispute on all the issues, assessee also agreed to include this disputed figure involved under KVSS. Assessee filed a petition for rectification on 13.01.1999 before the JCIT. Assessee's letter for rectification is placed at Page 7 and 8 of the order of the learned AM. Though the assessee filed the rectification application, it was not acted upon. Meanwhile, the learned CIT, the Designated Authority under KVSS, issued a certificate in Form No. 2A. While issuing the certificate, Designated Authority made the remark that "the declaration in second Form 1A filed on 13.01.1999 vide Receipt No.339 indicates the demands based on order under Section 154 that may be made. Such demand did not exist on 31.03.1998 as well as on the date of declaration". He further remarked "No such demand has been raised so far. Hence, the declaration dated 13.01.1999 is redundant and is therefore filed".
7. However, all the meanwhile, assessee kept reminding the AO to pass order of rectification so as to enable the assessee to avail the benefit of KVSS. As per the explanation (Q & A), the Designated Authority was empowered to pass order even under Section 154, and such order even if passed after the Scheme of KVSS ended, it will automatically revert back to the period of the period of KVSS and assessee could thus avail the benefit of KVSS according to CBDT's clarification. Since no order was passed on assessee's application under Section 154, assessee approached the Hon'ble Bombay High Court by way of Writ Petition to expedite the order under Section 154. The Hon'ble High Court directed the AO to dispose off the petition under Section 154, time bound.
8. Consequent to the direction of the Hon'ble Bombay High Court, AO issued a letter dated 14.02.2000, wherein he outlined his objections for rectification as prayed for by the assessee. AO held, firstly, that the order under Section 143(3) does not exist after notice issued under Section 148 (dated 17.08.1998). Hence, no rectification could be carried out. Secondly, having validly initiated the proceedings under Section 148, provisions of Section 154 cannot be taken recourse too. Thirdly, Section 148 and Section 154 overlaps against each other and it is the choice of the AO to proceed under whichever section he chooses and the assessee cannot compel him to take recourse to any particular section. Fourthly, there is no mistake apparent on the record based on assessment proceedings and even if the information collected to issue notice under Section 148 taken into consideration. Even then it cannot be said that there is any mistake apparent rectifiable under Section 154 in the order that was passed before collecting the subsequent materials that led to reopening. Lastly, it was stated, assessee only agreed to withdraw the depreciation claim and this agreement has no meaning. There is no proposal and there cannot be proposal from the Department to this effect. AO held, order under Section 154 cannot be passed in order to enable the assessee to avail the benefit of KVSS. Order under Section 154 could be passed only if conditions explained are satisfied. Provisions of Section 154 cannot be invoked for any other consideration including availing of benefit under KVSS. Hence, AO rejected the assessee's application. In the order AO also observed that neither the order sought to be rectified exists nor there is any mistake apparent in the order even if the order exists. He held, revenue authorities cannot pass an order only to accommodate the assessee for availing the benefit of KVSS.
9. Assessee again approached the Hon'ble Bombay High Court by way of Writ, which was disposed off by the Hon'ble High Court with certain directions giving time frame for disposal. Assessee filed an appeal before the CIT(A) pursuant to the direction of the Hon'ble High Court. The order of the AO was upheld by the CIT(A). Aggrieved by the above order, assessee approached the Tribunal.
10. It was submitted before the Tribunal that pursuant to letter of the revenue authorities addressed to the Chairman of assessee company, meetings were held with revenue authorities and after prolonged discussion, assessee filed declaration under KVSS on 31.12.1998, which covered the entire disputes. During the discussion with the revenue authorities, assessee was made aware that the reason for reopening was allowance of depreciation on gas cylinders purchased by the assessee amounting to Rs. 305 lakhs. It was submitted that the assessee, though always maintained that the original claim of depreciation was genuine, revenue authorities prevailed over the assessee to avail the KVSS benefit on this amount as well. Assessee filed rectification petition after prolonged discussion with the revenue authorities. General Manager (Finance) of the assessee company filed an affidavit, which is evidenced at Page 16 of the order of the learned AM. Assessee submitted, on the basis of clarification issued by CBDT regarding KVSS that if the assessee files a rectification petition during the period of KVSS and if it is decided in assessee's favour after the Scheme came to a close, it could relate back to the period of declaration Relying upon the decisions of the Hon'ble Supreme Court reported in 71 ITR 373 (SC) and 90 ITR 271 (SC) and the decision of the Hon'ble Allahabad High Court reported in 92 ITR 402 (All), learned Counsel submitted that the original order do exists even after reopening under Section 148. Merely because notice has been issued under Section 148, the original order does not become void ab initio or non est.
11. The Bench, while the proceedings were on before it, directed the revenue authorities to file an affidavit with regard to assessee's assertion that assessee was prevailed over to cover the issues, which were subject matter of reopening as well. Affidavit was filed by Shi Surinder Jit Singh, Joint Commissioner of Income Tax. Regarding the affidavit, one of the contentions taken by the learned Departmental Representative was that the assessee's stand is contradictory - on the one hand the assessee says that bills of purchases of cylinders existed and depreciation was correctly claimed; but on the other hand assessee says that the claim was wrongly made, hence assessee wants to avail KVSS. He further submitted that there is no evidence to show that the revenue authorities prevailed upon the assessee to avail KVSS and there was routine correspondence which was addressed to most of the assessees intimating the benefit of availing KVSS and such correspondence and subsequent discussion is not an agreement, as contended by the assessee. Assessment was completed much earlier under Section 143(3). Subsequently certain materials came to the notice of the revenue and proceedings under Section 147 were initiated on 17.08.1998. Assessee filed rectification petition under Section 154 much later, i.e. on 03.01.1999. Even according to the assessee, there was no mistake apparent from the record in the order of the AO. Assessee filed rectification application only to avail the benefit of KVSS, which was rightly 'treated as filed', submitted the learned DR.
12. In the rejoinder, assessee objected the affidavit filed by the Officer as the deponent was not privy to the discussions. He came to the picture much later. He was not aware of any discussion. Therefore, it was submitted that the affidavit has no value.
13. In the light of the above factual matrix, learned AM came to the conclusion that the word "assessment" used in the Income Tax Act is in a comprehensive sense and includes all proceedings starting with filing of the return or issue of notice and ending with determination of tax payable by the assessee. Learned AM further held that the word "mistake" in Income Tax law had a special signification. It is not an arithmetical or clerical error that comes within its purview. The word "mistake", he held, is inherently indefinite in scope, as what may be a mistake for one may not be one for another. It is something only a judiciously instructed mind could find out from the record. In support of the above, he relied upon the decision of the Hon'ble Madras High Court in the case of TS Rajan v. Controller of Estate Duty 69 ITR 342 (Mad). He further held that the word "record" contemplated under Section 154 does not mean only the order of assessment, but it comprises all the proceedings on which the assessment is based. AO is entitled, for the purpose of exercising rectification jurisdiction, to look into the whole evidence and the law applicable to ascertain whether there was an error. According to the learned AM, after going through the records, assessee came to the conclusion that there had been a mistaken claim of depreciation and accordingly the assessee filed an application under Section 154. He held, the power vested in AO is not discretionary. If the conditions for exercise were shown to exist, then the AO cannot decline to exercise it. Learned AM also relied upon the Special Bench decision of the Tribunal in the case of Rahulkumar Bajaj v. ITO reported in 69 ITD 1 (Nag)(SB), wherein the Tribunal held: "rectification of an order stems from the fundamental principle that justice is above all. It is exercised to remove error and not for disturbing finality".
14. In this background, learned AM held, the Scheme that was brought with great expectations by the Government of India in the form of KVSS and if the assessee so as to settle all the disputes files a rectification application under Section 154, including the dispute that led to reopening, though no order has been passed consequent to reopening, such an application is within the scope of Section 154. He held, in view of the clarification by Board in relation to applicability of the provisions of KVSS, assessee was entitled to file rectification, even to avail KVSS benefit. According to the learned AM, the application under Section 154 was made after due deliberations with the Departmental authorities. It was a suo motu application by the assessee. Learned AM further opined in his proposed order that by filing an application under Section 154, assessee intended to settle all its disputes in 'one go' under a package deal availing KVSS, which was announced by the Government of India. Filing of an application under Section 154 in these circumstances cannot be treated as a back door entry. Learned AM did accept the stand of the revenue that the AO is free either to act under Section 147 or to act under Section 154 when both the options are available, but he held, when two courses are open, one favourable to the assessee should be adopted. He further agreed with assessee's contention that where the assessee suo motu files an application under Section 154 to settle all its disputes under KVSS, the stream of rectification under Section 154 should have been favoured against the course of action under Section 147, especially when the assessee filed the return in response to notice under Section 148 under protest.
15. While coming to the above conclusion, the learned AM had taken note of the clarification issued by the Board, particularly Answers to Question No. 8 and Question No. 31, which read as under:
Q. 8. Where only certain items of addition are in dispute, can the assessee take advantage of the Scheme for the entire demand of the year?
Ans. Yes, the Scheme is applicable to the entire demand of an assessment year.
Q. 31. What happens to the amount of tax arrears if the same is modified by an order under Section 143 passed after 31.03.1998?
Ans. The order under Section 154 would rectify the apparent mistake in the order passed on or before 31.03.1998 and hence it would relate back to that order. The tax arrears would accordingly stand modified and in such cases the modified tax arrears will constitute the tax arrears for the purposes of declaration under the Scheme.
According to the learned AM, where only certain additions are disputed, even then the assessee could take advantage of the Scheme for the entire demand. Impliedly, if the assessee or by suo motu revenue rectifies the order under Section 154, on or before 31.03.1998, it will relate back to the period of original order even if the rectification order was passed under Section 154 much later.
16. Learned AM held that the expression "mistake apparent from the record" has a wider meaning than the expression "error apparent on the face of the record" occurring in Order 7, Rule 1 of the Civil Procedure Code.
17. On the other hand, learned Judicial Member held that a mistake can be said to have been committed by revenue authorities if either a relevant material or evidence has not been taken into consideration or some irrelevant factor has been taken into consideration or relevant provisions of the statute have not been applied or the binding decisions of the Apex Court or jurisdictional High Court have been ignored. He further held, there are two exceptions, viz. retrospective amendment by the Legislature and declaration of law by Supreme Court after passing of the order by the taxing authority. He held, the term "apparent from the record" in Section 154 is to be restricted to the material or evidence or the legal position, which was available before the authority at the point of time of passing the order. Subsequent evidence/records that came into possession of either the revenue or the assessee, cannot make an order already passed, a wrong order much less an apparent mistake to be rectifiable under Section 154. Learned JM placed reliance upon the decision of the jurisdictional High Court in the case of Gammon India Ltd. reported in 214 ITR 50 (Bom) and the decision of the Hon'ble Supreme Court in the case of Maharana Mills Pvt. Ltd. reported in 36 ITR 350 (SC) dealing with Section 35 of 1922 Act, which pari materia with the provisions of Section 154, particularly the following observation of the Hon'ble Supreme Court:
The record contemplated by Section 35 does not mean only the order of assessment but it comprises all proceedings on which the assessment order is based and the income-tax Officer is entitled for the purpose of exercising his jurisdiction under Section 35 to look into the whole evidence and the law applicable to ascertain whether there was an error.
18. Learned JM held, the material/evidence furnished by the assessee and considered by the AO regarding ownership and user of asset as enumerated in Para 2 of the learned AM's order were more than sufficient to satisfy two conditions under Section 32, to make the assessee eligible for depreciation, i.e. to say, asset was owned by the assessee and it was used by the assessee in its business.
19. Learned JM further held that the mistake apparent from the record must be an obvious and patent mistake and not some thing which could be established by long drawn process of reasoning, in view of the decision of the Hon'ble Supreme Court in the case of Volkart Brothers reported in 82 ITR 50 (SC). He held, a disputable point therefore cannot be a mistake 'apparent' and such mistakes cannot be rectified under Section 154.
20. On facts as well, learned JM held, the rectification application is beyond the scope of Section 154. He held, on the one hand assessee is taking the stand that assessee had sufficient documentary evidence to prove the purchase of assets made during the relevant year as genuine, but on the other hand to avoid possible controversy the assessee agrees for rectification order and ready to forego depreciation and thereby consenting to avail the benefit of KVSS. The stand of the assessee itself, learned JM held, makes it clear that there is no obvious or apparent mistake in the order. Learned JM held, the view taken by the learned AM that there is an apparent mistake in the order does not stand to reason for the reason that on the one hand the assessee is challenging the validity of notice issued under Section 148 on the ground that all material facts regarding the claim of depreciation were disclosed to the AO at the time of assessment and thereby defending the order of assessment granting depreciation and on the other hand assessee is seeking rectification and agrees to forego the claim of depreciation. He held, the contradictory stand goes against the assessee. Hence, he held, there is no apparent mistake to be rectified under Section 154 and consequently upheld the order of the AO.
21. I heard the rival submissions, gone through the records and the decisions cited. From the above it is clear that the difference of opinion between the two Members is confined briefly to three points - (a) is there any rectifiable mistake apparent from the record? whether record means the records used and available at the time of passing the impugned order or even the documents that came into the possession of either of the parties subsequently?; (b) since Sections 148 and 154 are overlapping, could either of the parties choose section favourable to them?; and (c) even in the absence of any mistake apparent from the face of the record, can there be rectification under Section 154 for the reason that the Department has agreed or the assessee has conceded?
22. As rightly noted by the learned AM, mere issuance of notice does not efface the entire original assessment and this view is supported by the decisions reported in 198 ITR 297 (SC) : 172 ITR 13 (AP) and 149 ITR 19 (Del). Learned JM is not disputing this finding. Hence, on this point there is no difference of opinion.
23. According to the assessee (as recorded by learned AM vide Para 19 of his proposed order), after discussions with the revenue authorities, assessee decided to avail the benefit of KVSS and assessee also came to the conclusion that the depreciation claimed by it was not proper. Assessee made an application under Section 154. According to the learned AM, assessee had a right to file an application under Section 154 taking into consideration assessee's own perception and if the statute invests in a Public Authority to act in a particular way, it is imperative upon him to exercise his authority in that particular way. The Officer cannot act on his own independent way. According to the learned AM, if the assessee moves application under Section 154 and also there is proceeding under Section 148 pending, then the assessee is within his right to insist that the one which is favourable to the assessee could be adopted. I am afraid; this view of the learned AM is not in consonance with or supported by any decisions and therefore cannot be accepted. It is true, if two ways are possible while substantially deciding the point, one favourable to the assessee is to be accepted. But if two recourses are available to the revenue, the assessee cannot insist that one method that is favourable to the assessee should be adopted. This negates the jurisdictional power of the authority and the jurisdictional power passes on the assessee. Assessee cannot insist one course favourable to him - if at all - could not be chosen. AO is empowered to adopt either of the two methods. The discretion is of the AO. After resorting to one recourse, if on a specific point of dispute two legal views are possible, as held hereinabove, the one favourable should be adopted.
24. From the records it is clear that the assessee was informed through letters, like any other assessees, advantages of going for KVSS, which was an ambitious Scheme of the Government. Subsequently there were discussions between assessee and the revenue authorities. I am unable to agree with the view expressed by the learned AM that by filing an application under Section 154 what the assessee intended was to settle all its disputes in one go' under a package deal under KVSS, with great expectations and it cannot be said to be a back door entry. By filing the rectification application, in fact, assessee was trying to preempt the revenue, proceeding any further under Sections 147/148. This does not tantamount to settling the disputes in 'one go'.
25. The Hon'ble Calcutta High Court, in the case of CIT v. Kanubhai Engineers (P) Ltd. reported in 241 ITR 665 (Cal), after considering the decision of the Hon'ble Supreme Court in the case of CIT v. Sun Engineering Works P. Ltd. reported in 198 ITR 297 (SC), held as under:
In proceedings under Section 147 of the Income-tax Act, 1961, the Income-tax Officer may bring to charge items of income which had escaped assessment other than or in addition to that item or items which have led to the issuance of the notice under Section 148. Where assessment is made under Section 147 in respect of income which has escaped assessment, the Income-tax Officer's jurisdiction is confined to only such income which has escaped assessment or has been underassessed and does not extend to revising, reopening or reconsidering the whole assessment or permitting the assessee to reagitate questions which had been decided in the original assessment proceedings. It is only the underassessment which is set aside and not the entire assessment when reassessment proceedings are initiated. When the assessment is reopened the original assessment under Section 143(3) remains and it could not be said that the original assessment is non-est on account of the reopening of the assessment.
26. The Hon'ble Kerala High Court in the case of CIT v. Masoneilan (India) Ltd. reported in 242 ITR 569 (Ker), after considering various decisions including the decision of the Hon'ble Supreme Court in the case of ITO v. Volkart Bros. reported in 82 ITR 50 (SC) cited supra, came to the conclusion that "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".
27. In the case of Nasiruddin v. CIT reported in 176 ITR 111 (MP), the Hon'ble Madhya Pradesh High Court held that a mistake which cannot be gathered from the record as it stands and requires, for being shown to be a mistake, matter or evidence extraneous to the record, is not a mistake "apparent from the record" which can be corrected under this section. In other words, strictly, except papers/documents/evidences used for passing the impugned order, no extraneous papers could be taken into consideration to come to the conclusion that the order of the AO is rectifiable under Section 154.
28. In the case of Gammon India Ltd. reported in 214 ITR 50 (Bom), the jurisdictional High Court held that the "record" referred to in Section 154 means record of the case comprising the entire proceedings including documents and materials produced by the parties and taken on record by the authorities which were available at the time of passing of the order which is the subject matter of proceedings for rectification. They cannot go beyond the records and look into fresh evidence or materials, which were not on "record" at the time of passing the order that sought to be rectified.
29. In the instant case of the assessee, notice under Section 148 was issued much later and assessee's rectification petition was even later. Even while filing the return in response to notice issued under Section 148 for reopening, assessee contended that the assessee had all evidences in its record to prove that the assessee claimed the depreciation rightly. This amounts to an admission that the first order in which depreciation allowed was correctly allowed and there is no apparent mistake. However, assessee's reason for resorting to Section 154 is that the assessee intends to avail KVSS in respect of all items connected with the assessment. In other words, assessee is trying to rely upon the documents/records which came into revenue's possession subsequent to passing of the order. As far as order that sought to be rectified concerned this is an extraneous material.
30. The Hon'ble Supreme Court in the case of Maharana Mills Pvt. Ltd. reported in 36 ITR 350 (SC) held, while dealing with Indian Income Tax Act (XI of 1922), as rightly noted by the learned JM, "the power under Section 35 of the Income Tax Act is limited to the rectification of mistakes which are apparent from the record. Mistake contemplated by the section is not one which is to be discovered as a result of an argument but it is open to the Income-tax Officer to examine the record including the evidence and if he discovers any mistake he is entitled to rectify the error provided that if the result is enhancement of assessment or reducing the refund then notice has to be given to the assessee and he should be allowed a reasonable opportunity of being heard'. Their Lordships further held: "'the record' contemplated by Section 35 does not mean only the order of assessment but it comprises all proceedings on which the assessment order is based and the Income-tax Officer is entitled for the purpose of exercising his jurisdiction under Section 35 to look into the whole evidence and the law applicable to ascertain whether there was an error". In other words, as rightly held by learned JM, any evidence that came into the possession either of the revenue or of the assessee cannot be used for rectifying an order, because it falls beyond the scope of apparent mistake contemplated under Section 154.
31. Coming to the argument of the assessee that the assessee was induced to avail the benefit of KVSS and to settle all the disputes in one go assessee moved application under Section 154 on the basis of the assurance given by the revenue authorities cannot be accepted. Revenue cannot give an assurance against the statute and even if there was temptation to end the dispute by settlement, that does not lead to a conclusion that there was an apparent mistake in the order. Even if the revenue had given an assurance, the order passed by the AO, as I have noted above, cannot be held, on the basis of this assurance, a mistaken order. I agree with the finding of the learned JM on the point.
32. The matter will now go before the regular Bench for deciding the appeal in accordance with the opinion of the majority.
Pronounced in the Open Court on 19th September 2007 ORDER
1. As there is a difference of opinion between the Accountant Number and the Judicial Number, the matter is being referred to the President of the Income-tax Appellate Tribunal with a request that the following question may be referred to a Third number or to pass such orders as the President may desire:
Whether on the facts and circumstances of the case, the A.C. was justified in rejecting the assessee's application under Section 154 of the Act.
B.L. Chhibber, Accountant Member
1. This appeal by the assessee is directed against the order of the C.I.T(A)-I, Pune. As many as 25 grounds have been raised; but in fact, the assessee has following two grievances:
i) The CIT(A) is not justified in dismissing the appeal filed against the communication of the A.C. dt. 22.2.2000 filing the assessee's rectification application, wherein the assessee had claimed before the A.C that the allowance of depreciation on Gas Cylinders of Rs. 3,05,05,014/- for the assessment year 1995-96 was a mistake apparent from the record which had to be rectified under Section 154 of the Income-tax Act, 1961.
2) The CIT(A) is not justified in holding that the proceedings initiated by the A.C. under Section 147 are valid proceedings.
2. The assessee is a Public Limited Company and is engaged in the construction of industrial plants. A return of income lor the assessment year 1995-96. declaring total income of as 5,27,63,11)0/- was filed before the A.O. on 30.11.1995. This return was accepted under Section 143(1)(a) on 27.3.1996. The, return was thereafter selected for scrutiny vide notice under Section 143(2) issued to the assessee Company, During the assessment proceedings, the assessee Company was called to prove the genuineness of its claim of purchase of Gas Cylinders during the relevant accounting year and thereby to prove its claim for depreciation therein at the rate of 100% amounting to Rs. 3,05,05,014/-. The assessee Company submitted following documentary evidence during the assessment proceedings in order to prove the genuineness of purchases of Gas Cylinders and use of such assets during the relevant accounting year:
a) Copy of the purchase bills,
b) Copy of the purchase order,
c) Copies of the transportation documents,
d) Copy of the documents for having received the assets at various sites located in various parts of the Country wherein the assesses is carrying on its work of executing the project,
e) Photographs evidencing the existence of assets and its use at various locations.
f) Details of payment through account payee cheques,
g) Copies of bank, statement indicating the clearances of cheques and payment to the supplier.
Further, the assessee also submitted a detailed Note on the need for purchase of the asset and its use for various business activities. Totally more than 10 times the case was heared by the A.O. and enormous details, as sought by the A.O. were furnished by the assessee. The A.O thus having satisfied himself about the genuineness of the claim of depreciation allowed the same, vide order under Section 143(3) dt. 31.3.1998. In the said order on page No. 13, the A.O computed depreciation on his own and allowed more than claimed by the assessee. The relevant portion is extracted herein:
Depreciation:
In computation of income, assessee has claimed depreciation of Rs. 5,93,71,235/-. However, depreciation allowable as per WDV of I.T. records comes to Rs 6,03,10,585/-. The same is allowed as per chart enclosed.
A separate Chart prepared by the A.O was enclosed with the assessment order.
3. Later on, the A.O issued a Notice under Section 148 on 17.8.1998 marked as page No,31 of the Paper Book, wherein he directed the assessee to file a return to enable him to reassess the income, as he was of the view that certain income had escaped assessment at the time of original assessment. The original assessment completed by the A.C. resulted in determining the income of the assessee at Rs. 10,29,54,140/-. Substantial additions were made in the assessment. The assessee went in appeal against these additions to the C.I.T(A) who in turn more or less confirmed the additions made by the A.O. Aggrieved by the dismissal of the appeal, the assessee filed appeal before the Tribunal. On receipt of the Notice under Section 148, the assessee filed return alongwith a covering letter dt. 16.9,1998. This return was filed under protest. The income declared in this return is the same, which was originally returned by the assessee.
4. In the meantime, the Government of India announced a scheme for settlement of various disputes under various Statutes called "Kar Vivad Saaiadhan Scheme" (KVSS), Under the said scheme, various clarifications were issued by the Central Board of Direct Taxes from time to time to clarify and explain the applicability and provisions of KVSS, The learned Chief Commissioner of Income-tax, Pune, in his letter dated nil, November, 1998 addressed to Shri Vijay Mallya, Chairman of UB Group and also assessee's Company, outlining the scope of the scheme as well as inviting the Company to settle the unresolved differences and disputes. The contents of the said letter are extracted hereunder:
...
November, 1998 Mr Vijay Mallya, U.B. Engineering Ltd.
Sahyadri Sadan Tilak Road, Pune - 30 Sub: Kar Vivad Samadhan Scheme 1998 Dear Sir/Madam, The Income-tax department recognises your contribution towards the nation's progress in the form of payment of taxes. Yet, soma unresolved differences have led to a few cases being locked in appeals causing you and us mutual concern. Revenue isn't collected in time while you have to divert time and resources to appellate proceedings which can be avoided.
As you are probably aware the Government has proposed a remedy for the settlement of such cases in the form of Kar Vivad Samadhan Scheme, 1998.
Arrears of Income-tax or any other direct tax which are unpaid and under litigation are a source of extreme unease and they can now be settled quickly. For, though Samadhan you pay tax at current rates. Interest and penalty which could reach staggering proportions in some cases will be waived. If the arrears comprise only interest and/or penalty you pay 50% of this amount. In addition, the Department will not initiate prosecution proceedings.
You may also be aware that Samadhan will cease after this calendar year. However, I suggest that you not wait till the last date. You can yet rid of your worries right away. You may fill form 1A in duplicate and submit it to your Income-tax Commissioner. After you receive a certificate from him, pay Sine determined amount within 30 days. Your tax dispute will be a thing of the past.
Enclosed is a booklet with details on Samddhan. Unless you are covered under one of the exceptions mentioned in Section 95 of the Scheme you would probably like to avail of the Scheme, In case you have any doubts, you may contact the Commissioner concerned/Designated Authority who will help you resolve your difficulties.
Yours sincerely, Sd/-
(J.M. Mehta)....
The said letter was received by the Chairman of the assessee Company on 2.12.1998. According to the assesses, on receipt of the said letter, the Chairman of the Company instructed the Executives to hold discussion with the Income-tax Authorities, i.e. Chief Commissioner, Commissioner/Designated Authorities and the Joint Commissioner to explore the possibility I of settling all the disputes pending on the day. In the meantime, the Joint Commissioner, who was pursuing the re-assessment proceedings and had issued summons to the Managing Director of the Company and other Executives to record a statement on oath as well as to furnish the details, decided to adjourn the case to enable the Company to cover its dispute under the KVSS. Accordingly, the Company filed a Declaration under the KVSS on 31.12.1993 (placed at pages 97 to 102 of the Paper Book). This Declaration covered the entire disputes on various issues pending before the Tribunal. According to the assesses, thereafter the Authorities prevailed upon the assessee Company to cover the issues which were subject-matter of reopening under Section 148, by this time, consequent upon various hearings during the proceedings under Section 1.8, the assessee was made aware that the issue for re-assessment is the allowance of depreciation on Gas Cylinders purchased by the assessee amounting to Rs. 305 lakhs. According to the assessee, the-Authorities prevailed upon the assessee Company to cover the issue under KVSS. The assessee all along maintained that the original claim of depreciation was genuine. But, according to the assessee, the A.O. insisted that consequent upon certain information in his possession which, according to him, received subsequent to the assessment, was of the opinion that allowance of depreciation was incorrect as the entire transaction was suspected as bogus. According to the assessee, it with an intention to buy peace and to settle its disputes on all issues agreed with the A.O to cover this issue under KVSS. Accordingly, the assessee Company filed a petition for rectification on 13.1.1999 before the Joint Commissioner of Income-tax (placed at pages 46 and 47 of the paper Book). It is worthwhile to reproduce this application as follows:
Jt. Commissioner of Income-tax 13th January, 1999 Special Range-3, Pune Sir, Sub: Rectification of mistake apparent from record under Section 154 of the Income-tax Act - A.Y. 1995-96.
We refer to the order passed under Section 143(3) dt. 31.3.98, determining the total income of Rs 10.30 crorcs. Subsequently you have issued a notice under Section 148 and the proceedings are ending.
During the course of the proceedings you have expressed certain apprehension about the claim of depreciation on certain asset acquired by us amounting to Rs 305 lakhs on which we have claimed 100% depreciation.
On our part, we have independently validated the merits of our depreciation claim during the year. We have in our record sufficient documentary evidence in respect of purchase of assets made during the relevant year. However, in order to avoid an possible controversy on the issue, we agree for rectification of the assessment order, disallowing the depreciation claim. Vie are consenting to this course so that we can avail the Kar Vivad Sjmadhan Scheme (KVSS) in respect of all the items connected with the assessment (as clarified in the query No. 3 issued by CBJT).
For your ready reference, we extract below the answer to query No. 8 and query No. 31.
Q. 8: Where only certain items of addition are in dispute, can the assessee take advantage of die scheme for the entire demand of the year?
Ans: Yes, the scheme is applicable to the entire demand of an assessment year.
Q. 31: What happens to the amount of tax arrears if the same is modified by an order under Section 143 passed after 31.3.1993?
Ans: The order under Section 154 would rectify the apparent mistake in the order passed on or before 31.3.1998 and hence it would relate back to that order. The tax arrears would accordingly stand modified and in such cases the modified tax arrears will constitute the tax arrears for the purposes of declaration under the scheme.
We further clarify that this petition is made to have our dispute on the issue settled amicably, fully and finally as provided under KVSS scheme and clarifications issued under the scheme.
In line with this petition under Section 154, we are filing a declaration under KVSS Scheme before the Commissioner of Income-tax, today.
We would request you to kindly pass the order under Section 154 as requested by us and quantify the demand of tax for the above assessment year.
Thanking you, Yours faithfully, for UB Engineering Limited.
From the above application, it is clear that the assessee requested the A.O to rectify the original assessment by disallowing depreciation which was originally allowed. In line with the understanding, the assessee also filed the second Declaration on the same day including this income of Rs. 305 lakhs, as multiple declarations were permitted under the KVSS.
5. The A.O. did not act upon the petition for rectification filed by the assessee. In the meantime, the learned Commissioner of Income-tax who was the Designated Authority under the KVSS issued a Certificate in Form 2A marked as page No. 112 of the Paper Book accepting the first Declaration filed by the assessee and while doing so, he made the following remarks:
...
Note: 1) The relief has been calculated as per the Form 1A filed on 31.12.1998 vide No. 282.
2) The declaration in second form 1A filed on 13.1.1999 vide receipt Mo.339 indicates the demands based on order under Section 154 that may be made. Such demand did not exist on 31.3.1998 as well as on the date of declaration. No such demand has been raised so far. Hence, the declaration dt. 13.1.1999 is redundant and is therefore filed....
On payment of the amount indicated in Form 2A, a Certificate of full and final settlement of tax arrears was granted in Form 3 dt. 16.3.1999 (placed at page No. 113 of the Paper Book), In the meantime, the assessee kept on reminding the A.O to pass the order of rectification so as to enable the assessee to avail the benefits of KVSS. It is pertinent to mention that Section 90(1) proviso empowers the designated Authority (D.A) to amend the Certificate for the reasons to be recorded in writing. Though the last date for declaration under the scheme ended on 31.1.1999, yet the D.A had power to rectify the certificate as in the event of rectification by the A.O under Section 154 as stated above is carried out, the date of demand dates back to 31.3.1998 in view of the clarification given by the CBDT to question No. 31 which is reproduced below:
Q. 31: What happens to the amount of tax arrears if the same is modified by an order under Section 154 passed after 31.3.1998?
Ans.: The order under Section 154 would rectify the n apparent mistake in the order passed on or before 31.3.1998 and hence it would relate back to that order. The tax arrears would accordingly stand modified and in such cases the modified tax arrears will constitute the tax arrears for the purposes of declaration under the scheme.
As rectification even on a later date would meet the requirements of the scheme, persistent effort was made to remind the A.O and other superior authorities to act on the petition for rectification. However, the A.O. did not carry out the rectification. Contrary to the expectations of the assessee, the A.C pursued the proceedings under Section 148 based on the notice issued earlier and issued various letters and summons to the assessee to produce various details. One of such notices issued to produce details is placed at pages No. 114 and 115 of the Paper Book, a perusal of which indicates that the questions asked are not usually asked in re-assessment proceedings. Aggrieved by this lack of action, the asses-see Company filed a Writ Petition before the Hon'ble High Court of Bombay. The Hon'ble High Court, after hearing both the sides, directed the A.C to dispose off the petition filed by the assessee under Section 154.
6. In the meantime, based on Form 3 issued on the D.A, the appeal pending before the Tribunal was dismissed by the Tribunal. According to the assessee, most of the issues under appeal were in favour of the assessee as there were many Decisions directly on the subject in favour of the assessee and the assessee had a good chance of success before the Tribunal.
7. Consequent upon the direction of the Hon'ble High Court, the A.O issued a letter dt. 14.2.2000 A wherein he outlined his objections for rectification as prayed by the assessee (placed at pages 136 to 138 of the Paper Book). A summary of the objections by the A.O is as under:
1. According to the A.O. the order under Section 143(3) does not exist after notice under Section 148 dt. 17.8.1993. He was of the view that no rectification can be carried out as no assessment order exists.
2. That having validly initiated proceedings under Section 148 provisions of Section 154 cannot be taken recourse too.
3. That Section 148 and Section 154 overlaps against each other and in such circumstances it is the choice of the A.C. to proceed under which ever section ho chooses and that the assessee cannot compel him to take recourse to any particular section.
4. There is no mistake apparent on record biased on the assessment proceedings and even if the information collected to issue notice under Section 148 is taken into consideration even then it cannot be said that there is any mistake apparent on record and hence provisions of Section 154 cannot be applied.
5. The last reason given by the A.C is extracted herewith "In the rectification application you have only agreed to withdraw depreciation claim and your this agreement has no meaning without any proposal from the department. Therefore no rectification application lies..."
He further reasoned that "...Therefore the only question that now arises is whether order under Section 154 can be passed in order to enable you to avail benefit of Kar Vivad Samadhan Scheie. The answer is definitely 'No.' Order under Section 154 can be passed only if the condition as explained in the earlier paras can be satisfied. Provision of Section 154 cannot be invoked by any other consideration including your submission that it should be passed to allow you to avail the benefit of Kar Vivadh Samadhan Scheme. In your application, agreement to withdraw depreciation is conditional to avail benefit of KVSS Scheme. It does not state that there is any mistake apparent from records. In view of what has been discussed in earlier paras you are required to explain why your application dt. 13.1.1998 should not be filed....
The assessee replied to the above objections and the assessee's reply is placed at pages 139 to 144 of the Paper Book and each of the point raised by the A.O was met and the assessee explained at length by citing various case laws and urged the A.C to carry out the rectification as prayed. Ignoring the objections raised by the assessee, the A.C in his order dt. 22.2.2000 virtually reproduced the objections raised in his letter dt. 14.2.2000 and rejected the petition of the assessee. He concluded as follows:
From the above discussion, it is clear that order passed under Section 143(3) dt. 31.3.98 does not exist for the purpose of rectification on the issue on which notice under Section 148 has been issued. Also the mistake pointed out by you cannot be called as mistake apparent from records. Had it been so, you would have definitely returned this income on account of incorrect depreciation claim in the return of income furnished by you in response to notice under Section 148 on 16.3.99 vide receipt No. 000046. Therefore, neither the order sought to be rectified exists nor there is any mistake apparent from records. It has already been clarified from this office that no order under Section 154 can be passed merely to enable you to avail the benefit of KVSS. In view of this, your rectification application dt.13.1.98 is hereby filed.
Thereafter, in pursuance of a Writ Petition filed by the assessee, the Hon'ble High Court of Bombay directed as under:
...At the outset, we do not wish to express any opinion on the merits. The only ground why we are inclined to stay the re-assessment proceedings is that the petitioner has a right to file an appeal under Section 246(A)(1)(c) and till the appeal is heard, the D.A should not reject the petitioner's application under K.V.S and I secondly, pending appeal if the re-assessment I proceedings were to proceed, it would nullify the appeal under Section 246. Hence, the following Order is passed:
a) Petitioner to file an appeal under Section 246 within 2 weeks.
b) A.A to decide the matter within 4 weeks from the receipt of the appeal.
c) Within 4 weeks from today Petitioner will deposit with the department Rs. 1.10 crore subject to the result of appeal. If the amount becomes refundable, it will be refunded with, interest at 10% p.a. It is clarified that the interest will not be refused under Section 93 of K.V.S. if the amount becomes refundable as stated above.
d) Further, in the event of the order being adverse to the Petitioner, the assessee would be free to go to ITAT in which event the D.A will not pass the order under K.V.S till ITAT decides the appeal. However, it is clarified that it would not be open to the assessee to contend that if ITAT decides the matter against assessee the D.A cannot proceed under K.V.S till assessee exhausts appeal under Section 260A. In other words for purpose of K.V.S it is made clear to Mr. Dastur that K.V.S will proceed on the decision of ITAT and will not await decision of II.C under Section 260A. This is accepted by Mr. Dastur. This order is passed on the facts of this case. It will not be cited as precedent.
e) Pending decision of ITAT the re-assessment proceedings are stayed. It is clarified that ITAT will try to dispose of the appeal within 3 months from the date of receipt of appeal.
f) If the amount as directed above is not deposited by petitioner within 4 weeks from today, W.P. shall stand dismissed automatically. Subject to above, Writ Petition is disposed of....
8. In line with the directions given by the Hon'ble high Court, the assessee filed an appeal before the CIT(A). The said appeal was heard by the CIT(A) after calling for objections from the assessee as well as the A.O. The CIT(A) also perused the records of the A.O and also perused the information available with the A.O which included the information collected by him upto the date of dismissing of petition for rectification. The CIT (A) held in para 9.1 that in view of the decision of the Hon'ble Supreme Court in the case of V. Jagmohan Rao 75 ITR 373 and H.M. Abdulla Ali 90 ITR 271 and the decision of Allahabad High Court in Sir Shadilal & Sons 92 ITR 403, the original order no longer exists after reopening under Section 148. He accordingly held that there was no mistake apparent from record and accordingly, the A.O was justified in rejecting the assessee's application under Section 154. Even though the proceedings under Section 147 were pending before the A.O. and the A.O had not passed any order under Section 143(3) read with sec, 147, the CIT(A) held in para 14 of his order that "the proceedings initiated by the A.O under Section 147 are valid proceedings."
9. Aggrieved by the orders of the authorities below, the assessee is in appeal before this Tribunal. Shri K.R. Pradeep, the learned Counsel for the assessee, first of all drew our attention to the salient features of KVSS announced by the Government of India. He further drew our attention to the various circulars issued by the C.B.D.T from time to time to clarify and explain the applicability and revisions of KVSS. He submitted that in pursuance of the KVSS, the then learned Chief Commissioner of Income-tax, Pune, had written a letter to Mr. Vijay Mallya, Chairman of UB Group and also of assessee Company, which we have reproduced in para (4) supra. He submitted that the said letter was received by the Chairman of the assessee Company on 2.12.1998 and soon on receipt of the said letter, the Chairman of the Company instructed the Executives to hold discussion with the Income-tax Authorities, i.e. Chief Commissioner of Income-tax, Commissioner/Designated Authorities and the Joint Commissioner to explore the possibility of settling all the disputes pending on the day. Accordingly, the Executives held different meetings with the aforesaid Authorities of the Income-tax Department and after prolonged discussions and after weighing pros and cons, the Company filed a Declaration under KVSS on 31,12.1998 marked as pages 97 to 102 of the Paper Book, This Declaration covered the entire disputes on various issues pending before the Tribunal. The learned Counsel asserted that thereafter the Authorities prevailed upon the assessee Company to cover the issues which were subject-matter of reopening under Section 148 because by this time consequent upon various hearings during the proceedings under Section 148, the assessee was made aware that the issue for re-assessment is the allowance of depreciation on Gas Cylinders purchased by the assessee amounting to Rs, 305 lakhs. The learned Counsel further asserted that the Authorities prevailed upon the assessee Company to cover the issue under KVSS. Even though the assessee all along maintained that the original claim of depreciation was genuine, ultimately, the assessee, with an intention to buy peace and to settle its issues on all issues, and after taking into consideration the clarification given by the CBDT, especially answer to question No. 8 and answer to question No. 31, agreed with the A.O to cover this issue under KVSS. The question No. 8 and answer to the same is reproduced as under:
Q. 8: Where only certain items of addition are in dispute, can the assessee take advantage in the scheme for the entire demand of the year?
Ans.: Yes, the scheme is applicable to the entire demand of an assessment year.
Qtuestion No. 31 and answer to the same has been reproduced on page 7 (supra). The learned Counsel submitted that it was in the background of above noted facts that the assessee filed a petition for rectification on 13.1.1999 before the Joint Commissioner of Income-tax (A.O). He drew our attention to para 3 of the said application reproduced on page 7 supra and submitted that the assessee filed the rectification application to avail the KVSS in respect of all items connected with the assessment (as clarified in query on 31 issued by the CBDT), In support of the submission that the rectification petition was filed after prolonged discussions with the Income-tax Authorities to avail of the KVSS, the learned Counsel filed a sworn Affidavit of Shri A.S. Bhide, who is the General Manager (Finance) of the Company. The Affidavit reads as follows:
AFFIDAVIT I Mr. A.S. Bhide, s/o Shanicar Purushottam Bhide aged 54 years residing at A/3 Moghul Gardens, Koregaon Park, Pune 411 001 solemnly affirm on oath and state as under:
In pursuance of the letter written by CCIT to our CMD Shri Vijay Mallya, I alongwith my colleagues met the CIT & the JCIT on number of occasions and in particular on these dates:
1. 7th December, 1998
2. 23rd December, 1998
3. 31st December, 1998
4. 12th January, 1999
5. 13th January, 1999
6. 14th January, 1999 to discuss the issue of availing of KVSS Scheme for the Assessment Year 1995-96. I further state that the department insisted and prevail-d on the Company to settle all the issues including the issue of depreciation. There was extensive discussion between the Company, CIT & JCIT on the modalities of availing the benefit. It was in line with the discussion and understanding that petition under Section 154 was filed before the JCIT. It has been the expectation of the company that the department would carry out the rectification and accept the petition under KVSS, settling the issue of depreciation. The above statement has been made with full understanding and to the best of knowledge and recollection.
Sd/-
(A.S. Bhide) Deponent Place: Pune Date: 06.11.2000 Before me Sd/-
Anil Vasudev Gogate Notary Govt. of Maharashtra Pune 6 NOV 2000 Shri Bhide appeared before us in person on 7.11.2000 and confirmed the contents of the Affidavit before us. The learned Counsel submitted that contrary to the understanding, the A.O did not act upon the petition for rectification filed by the assessee and it was only when the Hon'ble Bombay High Court directed the A.O to dispose of the petition filed by the assessee under Section 154 the A.O proceeded in the matter. According to the learned Counsel, it was a complete breach of trust reposed by the assessee in the Revenue Department.
10. The A.O. after hearing the assessee, did not reject the application for rectification, but "filed the same", so that the assessee may not be able to avail of the benefits of KVSS and for this, the A.O held that the order under Section 143(3) ceased to exist after issue of notice under Section 143 insofar XX on the issues on which valid notice under Section 143 has been issued. According to the learned Counsel, the reasons given by the A.O. for filing the application for rectification are factually incorrect and legally erroneous. The learned Counsel submitted the CIT(A) fell in the same error and held in para 9.1 that in view of the decisions of the Supreme Court in 71 ITR 373 and 90 ITR 271 and the decision of the Allahabad nigh Court in 92 ITR 402 the original order no longer exists after reopening under Section 148 and the CIT(A) further stated that there are no decisions contrary to the contentions of the A.O. The learned Counsel drew our attention to the judgment of the Hon'ble Supreme Court in the case of CIT v. Sun Engg. Works P. Ltd. 198 ITR 297 and submitted that the Hon'ble Supreme Court has dealt with the various issues and have held that in re-assessment proceedings the entire assessment would not be open for review or reconsideration and the re-assessment proceedings would be confined only to the escaped income. The learned Counsel further placeri reliance on the Hon'ble Andhra Pradesh High Court decision in the case of Nawab Mir Barakat Ali Khan Bhadur v. ITO 172 ITR 13 and the judgment of the Delhi High Court in Sharada Trading Co. v. CIT 149 ITR 19 wherein it has been held that just because a notice under Section 148 is issued the order of the original assessment does not become void ab initio or non est. The learned Counsel further submitted that in view of the above judgements, it is incorrect for the authorities below to contend that the order of original assessment dots not exist after issue of notice under Section 148.
11. Coming to the finding of the learned CIT(A) that the proceedings initiated by the A.O under Section 147 are valid proceedings, the learned Counsel submitted that the inference drawn by the CIT(a) is contrary to the evidence available on record and also contrary to his own findings on this issue. At this stage, the Bench raised an objection whether it is essential to deal with this issue and to give a finding on validity of proceedings under Section 148 which are still pending before the A.O. On this objection, it was submitted by the learned Counsel that the issue having arisen from the orders of the authorities below and being part of the grounds of appeal, it was imperative on the part of the Tribunal to consider and decide the issue. In support of this contention, he relied upon the decision of the Madras High Court in the case of CIT v. Ramdas Pharmacy 77 ITR 276 and the judgment of the Gujarat High Court in CIT v. Kartikey V. Sarabhai 131 ITR 42. The learned Counsel further submitted that there was sufficient material available to give a finding on the validity of the proceedings under Section 143 and the material available in this regard is as follows:
1. The reason sheet for reopening the assessment.
2. The underlying information which came into the possession of the A.O which prompted him to issue the notice under Section 148 consisting of;
a) Letter from postal authority regarding the availability of the supplier of cylinder at the address mentioned in the invoice,
b) The copies of sales tax returns filed by the supplier M/s Gargi Trading Corporation. These copies were provided to the department by the Sales Tax Authorities at Hajipur, Bihar.
According to the learned Counsel, all the information required to judge the validity of the proceedings was available and because the department sought to enforce the notice issued under Section 148 to defeat the claim of the assessee, the assessee prays that this issue requires to be decided by the Tribunal. Further, the finding given by the CIT(A) being adverse to the assessee, the same requires to be decided in appeal. During the course of hearing, the Bench offered to expunge all the reference to Section 148 and the findings thereon. The learned Counsel welcomed the offer by the Bench, but still maintained that it does not meet the prayer of the assessee. In view of this, he begged to submit that the finding on the validity of the proceedings be given in the interest of justice as other wise it will lead to multiplicity of proceedings on the same issue, non-consideration of grounds raised by the assessee and ignoring the objections taken by the assessee. Accordingly, the learned Counsel concluded that the assessee must succeed on both the issues.
12. Shri A.P. Srivastava, the learned senior D.R strongly supported the orders of the authorities below. He submitted that the contention of the assessee that there was agreement with the department and rectification application dt. 13.1.1999 proposing withdrawal of depreciation claim of Rs 305 lakhs and the second KVSS declaration dt. 13.1.1999 were in pursuance of the discussion and agreement with the department was without any basis and there was nothing on record of the A.O or the CIT(A) to suggest any such agreement. In support of this contention and as a rejoinder to the affidavit filed by the assessee, the learned senior D.R filed a sworn affidavit of the present Jt. CIT, Spl. Range 3, Pune which is reproduced as under:
AFFIDAVIT I, Surinder Jit Singh, Joint Commissioner of Income-tax, Special Range-3, Pune of 12 Sadhu Vaswani Chowk, Pune - 411 001 solemnly affirm/ make oath and state as follows:
1. I have discussed the issue of discussion and agreement with the department prior to filing of application under Section 154 by the applicant with the then, Commissioner of Income-tax-1, Pune, Shri J.G. Pendse and A.O Shri R.K. Gupta, Jt. CIT, and state that there was no discussion or agreement with the assessee prior to filing of application under Section 154 by the assesses dated 13.1.99.
Solemnly affirmed, Sd/-
(Surinder Jit Singh) Joint Commissioner of Income-tax Special Range-3, Pune at PUNE this 3rd day of October, 2000.
Befor me, Sd/-
Y.N. Londhe Associate/Magistrate Notary Govt., of India 3 OCT 2000 Shri Surinder Jit Singh, Jt. Commissioner of Income-tax, Special Range-3, Pune, appeared before us in person on 7.11.2000 and confirmed the contents of the Affidavit, The learned D.R further placed before us the factual Note received from the A.O. which is reproduced hereunder:
Facts of the case on assessee's appeal in ITA No. 934/PN/2000.
The appellant is a company in the construction of Industrial Plants. Return of income for this asstt. year was furnished by the assessee on 30.11.95. In the return assessee has claimed depreciation of Rs. 5,93,71,235/- which includes depreciation of Rs. 3,05,05,014/- at the rate of 100?o on gas cylinders purchased by the assessee. During the course of asstt. proceeding, the assessee was called upon to furnish a note on its depreciation claim. The same was furnished by the assessee alongwith the return filed on 6.2.98 (Annexure-1). The assessee also filed evidence in the form of purchase bill as well as bill of transportation, the claim of the assessee was accordingly allowed in an order under Section 143(3) dt. 31.3.93.
However after the completion of assessment proceeding, the A.C wrote a letter to the Addl.DIT (inv), Patna requesting him to verify the actual existence, capacity and actual purchase of gas cylinders by the asses see from M/s Gargi Trading Corporation, Morarji Road, Hajipur, Bihar and also the claim of the assessee that cylinders has been transported by M/s Magddh Transport Corporation, Jay Prakash Road, Kadamkua, Patna, Bihar, the ADIT (inv), Patna made enquiries and found that neither the concern M/s Gargi Trading Corporation existed at the given address nor the transporter, which is supposed to have transported the gas cylinders existed at the given address.
The ADIT (Inv), Patna further reported that one concern in the name of M/s Gargi Trading Corporation does exist at a different address and is registered with the bales Tax Commissioner at a different sales tax No. and total sale shown by M/s Garyi Trading Corporation is only Rs. 6,000/- for the whole year.
On this basis notice under Section 148 was issued to the assessee on 17.8.98 after recording reasons. Thus in this case it is clear that the assessee has made a false claim for depreciation in the return of income furnished on 30.11.95. It is not a case of where there is any mistake apparent from records there are provision of Section 154 will not be applicable in this case.
In addition to above it is found that for the purpose of sec, 154, the record is to be taken as record as on the date of passing the order. All information as stated above has been gathered by the A.O subsequent to the passing of order under Section 143(3) of the I.T. Act on 31.3.98. There was nothing on record as on 31.3,98 which goes to prove that depreciation to the assessee has been erroneously allowed. Any information gathered after the date of passing of order cannot be taken into account for the purpose of invoking the provision of Section 154. Reliance is placed on the decision of Bombay High Court in the case of Gammon India Ltd. v. CIT 214 ITR 50.
These facts are sufficient to hold that provisions of Section 154 are not applicable in this case.
The learned D.R. submitted that the stand taken by the assessee is contradictory, inasmuch as on one hand the assessee stated before the A.O that the bills of purchases of these Cylinders were there and depreciation was correctly claimed and, on the other hand, the assessee stated that the claim was wrongly made. Then, what is the grievance of the assessee. According to the learned D.R. in fact, the assesses wants X&X a back door entry to ward off the proceedings validly initiated under Section 147 which would result in concealment of income and subsequent penal proceedings to avail of KVSS. He submitted that there is no ulterior motive on the part of the Revenue to reject the offer of the assessee under KVSS. The offer of the assessee was rejected because the offer did not fall within the parameters of KVSS. He submitted that there is no evidence which shows that the Revenue prevailed upon the assessee to avail of KVSS and there was only some routine correspondence which was addressed to most of the assessees and such a correspondence cannot be called as an agreement. The learned D.R submitted that after the assessment was completed under Section 143(3), same material came to the notice of the A.O and he validly initiated proceedings under Section 147 on 17.8.1998. The petition under Section 154 was filed much later, i.e. on 3.1.11.99. He submitted that the A.C was free either to act under Section 147 or to act under Section 154 and when two potations are available, the choice is with the A.O. In support of this contention, he relied upon the decision of the Andhra Pradesh High Court in G. Sreerama Murthy v. ITO 97 ITR 290 A.P. and the judgment of the Kerala High Court in Mrs. Gladys S. Koder v. ITU 104 ITR 220. The learned D.R. further submitted that the decisions relied upon by the learned Counsel are distinguishable on facts. On the other hand, the Bombay High Court decision in Gammon India Ltd. v. CIT 214 ITR 50 has held that claim for double tax relief cannot be considered in rectification proceedings. The learned D.R further submitted that there was no mistake apparent from record and by filing a rectification application followed by second KVSS, the asses see wanted to avail of a benefit which was legally not available to the assessee and accordingly, the A.O rightly rejected the rectification application and since after rejection of the application for rectification, no proceedings were pending, second application filed under KVSS was rightly rejected.
13. On the validity of proceedings under Section 147, the learned D.R. submitted that the same were rightly initiated because after the assessment was completed under Section 143(3), the A.C. came across some information which had not been disclosed by the assessee at the time of original assessment. He, however, admitted that the proceedings initiated under Section 147 have not been completed by the A.O so far and the same are pending before the A.O. But notwithstanding this fact, the order of the CIT(A) on this issue serves to of upheld. At the end, the learned drew our attention to the well-known decision of the Hon'ble Supreme Court in the case of T.S. Balaram, ITO, Com. Cir. IV, Bombay v. Volkart Brothers and Ors. 82 ITR 50 SC where it has been held that 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 and submitted that there was no mistake which needed to be rectified, because no such mistake was found by the A.O., but it was the assessee who had filed a sou motu application under Section 154.
14. As a rejoinder to the argument of the learned senior D.R. Pradeep submitted that by filing an application under Section 154 what the assesses was doing was to settle all issues in one deal under a package deal under KVSS which was announced by the Government of India with great expectations and it cannot be said to be a back door entry. The assessee was asking for what was due to it. He submitted that the Affidavit filed by the Jt. CIT is inconsistent with the direction of the Tribunal, because the Tribunal had directed the senior D.R. to seek Affidavit from the Chief Commissioner of Income-tax or the then C.J.T or the then Jt. CIT regarding the issue of filing of application under Section 154. In the absence of any affidavit from the aforesaid Authorities, it has to be treated that no Affidavit has been filed as directed by the Tribunal. The learned Counsel further submitted that the Affidavit filed by the Jt. CIT is incomplete and does not evidence any fact. The Affidavit refers to merely about some discussion between the present Jt. CIT and earlier Authorities and does not state any fact. He prayed the Affidavit should be dismissed as hearsay, is the Affidavit has been very cleverly drafted to escape from any adverse consequences. He submitted that the reliance placed by the learned D.R on the decision of the Hon'ble Bombay High Court in 214 ITR 50 (supra) is misplaced, because the decision is net applicable in the light of decision of the Supreme Court in CEIT v. Sun Engg. Works P. Ltd. (supra).
15. We have considered the rival submissions and perused the facts on record. Both the A.C an, the learned CIT(A) are legally incorrect in holding that the original order no longer exists after reopening under Section 148. The Hon'ole Supreme Court in the case of CIT v. Sun Engineering Works P. Ltd. 198 ITR 297 has held that where reassessment is made under Section 147 in respect of income which had escaped tax, the ITO's jurisdiction is confined only to such income which has escaped tax or has been under assessed and does not extend to revising, reopening or reconsidering the whole assessment or permitting the assessee to are agitate questions which had been decided in the original assessment proceedings. It has further been held by the Apex Court that it is only the underassessment which is set aside and not the entire assessment when reassessment proceedings are initiated. The I.T.O cannot make an order of reassessment inconsistent with the original order of assessment in respect of matters which are not the subject-matter of proceedings under Section 147. The Hon'ble Andhra Pradesh High Court in Nawab Mir Barakat Ali Khan Bahadur v. ITO 172 ITR 13 has held as under:
Just because a notice under Section 143 is issuer the order of the original assessment does not become void ab initio or non est. The original assessment order remains good, valid and effective till it is substituted by the reassessment order.
The mere issurance of a notice under Section 148 does not affect the validity or efficacy of the original assessment order, or the appeals other proceedings arising therefrom, or other proceedings, if any, taken in pursuance of such original assessment order.
Further, the Hon'ble Delhi High Court in Sharada Trading Co. v. CIT 149 ITR 19 has held as under:
The mere issue of a notice of reassessment by the ITC under Section 147/148 of the I.T. Act does not have the effect of cancelling or/rendering non est the earlier order of assessment and, pending the notice and so long as an order of reassessment has not been mad, the Commissioner has jurisdiction under Section 263 to revise the earlier order of assessment, cancel it and direct the ITC to make a fresh assessment in accordance with law.
In view of the above judicial authorities, it is incorrect for the authorities below to contend that the order of original assessment does not exist after the issue of notice under Section 148. We accordingly hold that when the assessee filed an application under Section 154, the original order of assessment did exist.
16. The word "assessment" is used in the income-tax Act in a number of provisions in a comprehensive sense and includes all proceedings starting with the filing of the return or issue of notice therefor and ending with determination of the tax payable by the assessee. The proceedings for rectification of assessment of tax are thus proceedings of assessment. S. Sankappa v. ITO .
17. "Misstake" is an ordinary word, but in taxation law, it has a special signification. It is not an arithmetical or clerical error alone that comes within its purview. It comprehends errors which, after a judicious probe into the record from which it is supposed to emanate, are discerned. The word "mistake" is inherently indefinite in scope, as what may be a mistake for one may not be one fur another. It is something which is duly and judiciously instructed mind can find out from the record - T.S. Uajan v. Controller of Estate Duty .
18. The "record" contemplated in Section 154 does not mean only the order of assessment, but it comprises all proceedings on which the assessment is based, and the A.C is entitled, for the purpose of exercising rectification jurisdiction, to look into the whole evidence and the law applicable to ascertain whether there, was an error.
19. In the case before us, the assessee, after going through its records, came to the conclusion that it had made a mistaken claim of depreciation and accordingly, it pointed cut the mistake by filing an application under Section 154. Sub-section (2) of Section 154 clarifies that the power of rectification may be exercised by the Authority concerned on ids own initiative, on discover by him of any mistake apparent from record and the power is similarly to be exercised if the assessee concerned points out such mistake. So, the assessee had a right to file an application under Section 154 taking into consideration its own perception of its records. If a statute invests a public officer with authority to do an act in a specified set of circumstances, it is imperative upon him to exercise his authority in a manner appropriate to the case when a part interested and having a right to apply moves in that behalf and circumstances for exercise of authority are shown to exist. Even ii the words used in the statute are prima facie enabling, the courts will readily infer a duty to exercise power which is invested in aid of enforcement of a right - public or private - of a citizen. The power to rectify the order of assessment conferred on the I.T.O. by Section 154 is to ensure that injustice to the assesses or to the Revenue may be avoided. It is implicit in the nature of the power and its entrustment to the authority invested with quasi-judicial functions under the Act, that to do justice it shall be exercised when a mistake apparent from the record is brought to his notice by a person concerned with or interested in the proceeding. That power is not discretionary and the I.T.O. cannot, if the conditions for its exercise were shown to exist, decline to exercise it. - L. Hirday Narain v. ITO 78 ITR 26 SC.
20. The Income-tax Appellate Tribunal, Nagpur Bench (Special Bench) in the case of Rahulkumar Bajaj v. ITO 69 ITD 1 SB to which one of us (A.M.) was a party, has held in para 16 of the judgment as follows:
It is the basic principle of jurisprudence that if there is a mistake committed by the Court or the Tribunal, it needs to be rectified as no one should suffer or come to grief on account of the mistake committed by the Court. Even the rules of procedure and technicalities should not come in the way in rendering the justice to parties by correcting the mistakes committed by Court or the or the Tribunal. In one of the recent cases i.e. S. Nagaraj v. State of Karnataka (1993) Suppl. (4) SCC 595, decided by the Hon'ble Supreme Court, Justice Sahai speaking for the Court explained the law on the subject thus:
Justice is a virtue which transcends all barriers. Neither the rules of procedure nor technicalities of law can stand in its way. The order of the Court should not be prejudicial to any one. Rule of stare devises is adhered for consistency but it is not as inflexible in Administrative Law as in Public Law. Even the law bends before justice. Entire concept of writ jurisdiction exercised by the higher Courts is founded on equity and fairness. If the Court finds that the order was passed under a mistake and it would not have exercised the jurisdiction but for the erroneous assumption which in fact did not exist and its perpetration shall result in miscarriage of justice then it cannot on any principle be precluded from rectifying the error. Mistake is accepted as valid reason to recall an order. Difference lies in the nature of mistake and scope of rectification, depending on if it is of fact or law. But the root from which the power flows is the anxiety to avoid injustice. It is either statutory or inherent. The latter is available where the mistake is of the Court. In Administrative Law the scope is still wider. Technicalities apart if the Court is satisfied of the injustice then it is its constitutional and legal obligation to set it right by recalling its order.
In para 17, the Special Bench went on to add, Rectification of an order stems from the fundamental principle that justice is above all. It is exercised to remove error and not for disturbing finality.
In para 18, the Spl. Bench went on to add further, "The purpose of the Tribunal is to render justice and not to negate it. We are approaching this problem keeping the above wholesome principle in view.
21. While deciding this issue, we cannot ignore the background in which the application for rectification under Section 154 was filed before the A.O. The background is "Kar Vivad Samadhan Scheme" - a scheme for settlement of various disputes under the various statutes. This scheme was brought by the Government of India with great expectations and the purpose was to bring down number of appeals etc, and to collect tax quickly. Under the said scheme, various clarifications were issued by the Central Board of Direct Taxes from time to time clarify and explain the applicability of provisions of KVSS. The learned Chief Commissioner of Income-tax, Pune, in his letter, reproduced in para 4 above, addressed to Shri Vijay Mallya, Chairman of UB Group and also of assesses company outlined the scope of the scheme as well as invited the Company to settle the unresolved differences and disputes. On receipt of the said letter, the Chairman of the Company instructed the executives to hold discussion with the Income-tax Authorities, i.e. Chief Commissioner, Commissioner/Designated Authorities and the Joint Commissioner to explore the possibility of settling all the disputes pending on the day. In the meantime, the Jt. CIT, who was pursuing the re-assessment proceedings and had issued summons to the Managing Director of the Company and other Executives to record a statement on oath as well as to furnish details, decided to adjourn the case to enable the Company to cover its disputes under the KVSS. Accordingly, the Company filed a Declaration under KVSS on 31.12.1998. This Declaration covered the entire Disputes on various issues pending before the Tribunal. Further discussions were held by the Authorities and the Authorities suggested the assessee Company to cover the issues which were subject-matter of reopening under Section 148, because by this time consequent upon various hearings during the proceedings under Section 148, the assessee was made aware that the issue of re-assessment is allowance of depreciation on Gas Cylinders purchased by the assessee amounting to Rs 305 lakhs. To settle the dispute and to buy peace with the department, the assessee owned up the mistake in the matter of claiming depreciation on Gas Cylinders and accordingly filed an application under Section 154, In the application, it was made clear that, "this petition is made to have our dispute on the issue settled amicably, fully and finally as provided under KVSS Scheme and clarifications issued under the scheme." In the said application, the assessee had also referred to question No. 31 which gave clarification about the proceedings under Section 154. Thus, it is clear that the application under Section 154 was made after due deliberations with the departmental authorities and on the basis of such deliberations, under a bona fide belief -that the mistake suo motu pointed out by the assessee will be rectified by the A.O and in the process the assessee will settle its disputes under tCVSS. The fact that the assessee held discussions with the departmental authorities after Shri Vijay Mallya receiver letter referred to in para supra is confirmed by Shri A.S, Bnide, General Manager (Finance) by way of a sworn Affidavit. Revenue has not placed any evidence before us to rebut the contents of the sworn Affidavit. No doubt, Revenue has filed a swron Affidavit from Shri Surinder Jit Singh, Jt. CIT, Spl. Range 3, Pune, who is the present A.O., but the contents of the said Affidavit do not throw any light on the controversy. Shri Surinder Jit Singh was not the A.O. at the relevant time and in the Affidavit, he has made a summary statement that he had discussed the issue of discussion and arrangement with the department prior to filing of application under Section 154 by the Applicant with the then C.I.T.-I, Pune Shri J.G. Pendse and the A.O. Shri R.K. Gupta, Jt. CIT and stated that there was no discussion or agreement with the assesses prior to filing of application under Section 154 by the assessee dt. 13.1.99. It is significant to note that, the Revenue has not filed any Affidavit from Shri J.G. Pendse, the then CIT-I, Pune and Shri R.K. Gupta, the then A.O. We, therefore, hold that the Affidavit filed by Shri Surinder Jit Singh is of no assistance to the Revenue, because it is a fact that then Chief CIT had written to Shri Vijay Mallya and thereafter, discussions did take place, as is clear from the sworn Affidavit of Shri A.S. Bhide, General Manager (finance) and two KVSS petitions were filed by the assessee after due deliberations with the departmental authorities. To maintain the second KVSS, the assessee suo motu and rightly filed an application under Section 154 pointing out mistake about the claim of depreciation on Gas Cylinders. In our opinion, by filing an application under Section 154 what the assessee was doing was to settle all its disputes in one go under a package deal under KVSS which was announced by the Government of India with great expectations and it cannot be said to be a back door entry. The assessee was asking for what was cue to it. In our view, when an assessee comes forward to offer as income something more than what has been assessed, the Administration should, not spurn the opportunity to collect more taxes, because such an act would-be against the spirit of KVSS. Therefore, if an assessee makes an application for rectification, he has the legitimate expectation that the application would be accepted in quantifying the demand. We further hold that under the Scheme, rejection of a rectification application will not be in public interest.
22. Coming to the arguments of the learned senior D.R., we have already pointed out that we do not agree with his view that by filing an application under Section 154 the asses see wanted a back door entry to ward off the proceedings validly initiated under Section 147 which would result in concealment of income and subsequent penal proceedings to avail of RVSS. Firstly, the proceedings under Section 147 have only been initiated; these have not culminated into assessment and validity of such proceedings is yet to be established, and, secondly, there-is no surety that the proceedings under Section 147 will culminate into penalty proceedings/prosecution. We do agree with the contention of the learned that the A.O was free either to act under Section 147 or to act under Section 154 when both the options are available, as held by the Andhra Pradesh High Court in G. Sreerama Kurthy v. ITO (supra) and the Hon'ble Kerala High Court in Mrs. Gladys S. Koder v. ITO (supra). But, it is also a settled proposition of law that the course which favours the assessee should be adopted. Reference in this connection is invited to the judgment of the Hon'ble Supreme Court in CIT v. Nagal Hills Tea Co. Ltd. 89 ITR 236 and CIT v. Vegetable Products Ltd. 88 ITR 192 SC. In our view, especially in a case like that of the assessee where the assessee suo motu filed an application under Section 154 to settle all its disputes under VSS which was brought by the Government of India with great expectations, the course of rectification under Section 154 should have been favoured against the course of action under Section 147, especially when the assessee had filed return in response to notice under Section 148 under protest. In a situation like this, it is always desirable to follow a pragmatic and more practical path.
23. Coming to the reliance placed by the learned senior D.R on the well-known decision of the Hon'ble Supreme Court in the case of Volkart Brothers 82 ITR 50, we do agree that Section 154 applies to a mistake apparent on the record, but at the same time, we find that the said expression i.e. "mistake apparent from the record" has a wider context than the expression "error apparent on the face of the record" occurring in Order 7, Rule 1 of the Civil Procedure Code. The restrictions on the power of review under Order 47 Rule 1 of Civil Procedure Code do not hold good in the case of Section 254(2) and Section 154 Kil Cotagiri Tea & Coffee Estates Co. Ltd. v. ITAT 174 ITR 579. As pointed out by us in para 17 (supra) a mistake apparent on record is not an arithmetical or clerical error alone that comes within the purview of Section 154 and it comprehends errors which, after a judicious probe into the record from which it is supposed to emanate, are discerned; it is something which is duly and judiciously instructed mind can find out from the record. In the present cast, the assessee judiciously went through its record and came out with the mistake before the A.O.
24. As regards the findings of the A.O and the CIT(A) and then supported by the learned senior D.R that proceedings under Section 147 were validly initiated, we hold that such a finding is premature. The A.O initiated the proceedings under Section 147 by issuing a notice under Section 147 and the proceedings are still pending before the A.O and ouch proceedings have been stayed by the Hon'ble high Court till disposal of application under Section 154 by the A.O. CICE (A) and the Tribunal. How can the proceedings which are still pending be termed as valid proceedings because validity will come into question only after the A.O passes an order under Section 143(3) read with Section 147/140. In our view, the CIT(A) was not justified in giving the inning that the proceedings were valid, because by doing so, he has pre-judged an issue and has tried to pre-empt the assessed from seeking further remedy. During the course of hearing, we offered to the parties to delete all portions of the CIT(A)'s order dealing with proceedings under Section 147; while Shri K.R. Pradeep welcomed the offer, the learned D.R. was little hesitant. As that be, we hold that the CIT(A) is not justified in holding in this appeal that the proceedings under Section 147 are validly initiated. We accordingly delete the portions of the order of the CIT(A) dealing with proceedings under Section 147 from his appellate order, because the basic issue before the A.O was application under Section 154 and the CIT(A) ought to have confined to an adjudication on application under Section 154 of the income-tax Act.
25. In the light of above discuss-ion, we hold that the assessee rightly filed an application under Section 154 pointing out therein suo motu mistake about the claim of depreciation on Gas Cylinders; the Jt.CIT was not justified in filing/rejecting the said application. We reverse the findings of the CIT(A) and allow the application under Section 154.
26. In the result, the appeal is allowed.
K.C. Singhal, (JM)
27. The proposed order of my Learned Brother appears to be very attractive, but after giving my deep thoughts to the issue before us, it is not possible for me to agree with the conclusion arrived at by him that the impugned order of assessment dated 31-3-98 could be rectified under Section 154. The reasons for dissent are given hereafter.
28. The question for our consideration is whether on the facts and in the circumstances of the case, the impugned order of assessment dated 31-3-98 could be rectified by the AO under Section 154. The facts of the case and the respective arguments have been incorporated in the proposed order and therefore, need not be repeated. The relevant facts wherever necessary would be referred to by me at the appropriate place in my order.
29. The perusal of Section 154 shows that two conditions must be satisfied before rectifying any order i.e. there must be a mistake and such mistake must be apparent from the record. In my opinion, a mistake can be said to have been committed by taxing authority if either a relevant material or evidence has not been taken into consideration or some irrelevant factor has been taken into consideration or relevant provisions of statute have not been applied or the binding decisions of the Apex Ax Court or Jurisdictional High Court have been ignored. However, there are two exceptions namely, retrospective amendment by the Legislature and the declaration of the law by Supreme Court after the impugned order passed by the taxing authority. Reason behind these exceptions is that retrospective legislation is deemed to be on the statute on the date when the impugned order was passed. Similarly the decision of Apex Court is also deemed to be in force on the date of impugned order inasmuch as such decision amounts to declaration of law from the date when the relevant provision was brought on the statute. That means, one has to restrict himself to the material or evidence or the legal position which was available before the Taxing Authority. The words "apparent from the record" in Section 154 further strengthen this legal position. Therefore, a person can be said to have committed a mistake apparent from record if the conclusions or findings arrived at by him could not have been arrived at on the basis of material or evidence on the record and the legal provision and binding decision prevailing on the date of impugned order. Consequently, to ascertain a mistake apparent from record, one has to restrict himself to such material or evidence and the legal position and consequently, any material/evidence/circumstance coming into possession of the AO after the impugned order has to be excluded while ascertaining a mistake.
30. The aforesaid view is fully supported by the binding judgment of the Bombay High Court in the case of Gammon India Ltd. 214 ITR 50, which was heavily relied on by the Learned Senior D.R. which, however, does not find place in the operative part of the proposed order. The relevant portion of that judgment appearing at page 56 of the said report is reproduced below:
The expression "record" has not been defined in the Act, It has, therefore, to be construed and understood in the context in which it appears. Section 154 empowers the income-tax authorities to rectify mistakes which are "apparent from the record". "Record" in such a case would mean record of the case comprising the entire proceedings including documents and materials produced by the parties and taken on record by the authorities which were available at the time of passing of the order which is the subject-matter of proceedings for rectification. They cannot go beyond the records and look into fresh evidence or materials which were not on record at the time the order sought to be rectified was passed.
The other binding decision on this issue is the decision of the Hon'ble Supreme Court in the case of Maharana Mills Pvt. Ltd., 36 ITR 350 wherein it has been held that record means the material or evidence on the basis of which the assessment was made. The relevant observations of their Lordships are reproduced as below:
"The record" contemplated by Section 35 does not mean only the order of assessment but it comprises all proceedings on which the assessment order is based and the Income-tax Officer is entitled for the purpose of exercising his jurisdiction under Section 35 to look into the whole evidence and the law applicable to ascertain whether there was an error.
The aforesaid view was taken on the basis of provisions of Section 35 of 1922 Act which is in pari materia with the revisions of Section 154 of 1961 Act. Therefore, the said decision is fully applicable to the present case. The above observations held in clear terms that record is restricted to the entire material available before the AO on the basis of which, the assessment was made. Consequently, consideration of any other material, evidence or circumstance extraneous to the assessment record is not permitted to be considered to ascertain a mistake apparent from the record.
31. If the above legal position is applied to the facts of the present case, then in my opinion, it cannot be said that any mistake was committed by the AO while allowing the claim of depreciation of the assessee. In order to claim depreciation, two conditions are to be satisfied namely (1) that asset must be owned by the assessee and (2) such asset was used by the assessee in his business. The material/evidence furnished by the assessee and considered by AO regarding ownership and user of asset have been enumerated in para 2 of the proposed order and there is no dispute about this factual aspect as is apparent from page No. 15 of the written submissions of the assessee filed before us. These materials/evidences, in my opinion, were more than sufficient to satisfy the two conditions Under Section 32 and consequently, the AO rightly allowed the depreciation claimed by the assessee. Even it is not the case of the assessee that mistake was committed on the basis of material on record at the time of assessment. On the other hand, the contention of the assessee is based merely on the alleged circumstances and understanding with the Department coming into existence after the date of assessment order. Such contention, in my opinion cannot be accepted in view of the above settled legal position. The only conclusion which could be arrived at on the basis of material available in assessment proceedings was that claim assessee under Section 32 was in order. Consequently, it cannot be said that any mistake apparent from the record was committed by the AO. Accordingly, it held so.
32. The reliance placed by the Ld. Counsel for the assessee on the decision of Supreme Court in the case of Manjunathesware Packing Products 231 ITR 53 and the decision of Madras High Court in the case of M.M.M. Plantation Pvt. Ltd. 240 ITR 660 is mis-placed. The Supreme Court was concerned with the interpretation of the provisions of Section 263, the scope of which, is entirely different from the provisions of Section 154. Section 263 allows the CIT to cause an enquiry before holding the order of AO being erroneous. That means, the CIT can use the material obtained in the course of such enquiry. It is therefore clear that scope of Section 263 is of wide amplitude and the meaning of the word "record" cannot be restricted to the record which was before the AO. It is because of this context the Hobble Supreme Court held that for the purpose of Section 263, the word "record" would include the material available before the CIT. The relevant portion of the judgment appearing at page 62 - 63 of 231 ITR is extracted below:
It, therefore, cannot be said, as contended by learned Counsel for the respondent, that the correct and settled legal position, with respect to the meaning of the word "record" till June 1,1988, was that it meant the record which was available to the Income-tax Officer at the time of passing of the assessment order. Further, we do not think that such a narrow interpretation of the word "record" was justified, in view of the object of the provision and the nature and scope of the power conferred upon the Commissioner. The revisional power conferred on the Commissioner under Section 263 is of wide amplitude. It enables the Commissioner to call for and examine the record of any proceeding under the Act. It empowers the Commissioner to make or cause to be made such enquiry as he deems necessary in order to find out if any order passed by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the Revenue, After examining the record and after making or causing to be made an enquiry if he considers the order to be erroneous then he can pass the order thereon as the circumstances of the case justify. Obviously, as a result of the enquiry he may come into possession of new material and he would be entitled to take that new material into account. If the material, which was not available to the Income-tax Officer when he made the assessment could thus be taken into consideration by the Commissioner after holding an enquiry, there is no reason way the material which had already come on record though subsequently to he making of the assessment cannot be taken into consideration by him. Moreover, in view of the clear words used in Clause (b) of the Explanation to Section 263(1), it has to be held that while calling for and examining the record of any proceeding under Section 263(1) it is and it was open to the Commissioner not only to consider the record of that proceeding but also the record relating to that proceeding available to him at the time of examination.
The above observations of their Lordships clearly show that wider meaning of the word "record" was given because of the wide powers of the CIT to cause enquiry before holding the order of AO being erroneous. But, no such powers are available to the taxing authority invoking Sec, 154 and therefore, there are no compelling reasons to take the same meaning of the word "record" while defining the scope of Section 154. Scope of Section 154 in this regard is fully covered by the earlier Supreme Court judgment in the case of Maharana Mills Pvt. Ltd. 36 ITR 350. Hence, the decision of the Supreme Court relied on by the Ld. Counsel for the assessee is fully distinguishable. The decision of Madras High Court has followed the said decision of the Supreme Court 231 ITR 53 without noting the difference in the language employed by the legislature in Section 154 and Sec, 263. This decision, though favours the assessee, cannot be applied in the present case being contrary to the decision of Bombay High Court 214 ITR 50 and the decision of Supreme Court 36 ITR 350.
33. There is another reason for rejecting the stand of the assessee. The Supreme Court in the case of Volkart Brothers 82 ITR 50 has held clearly that mistake apparent from record must be an obvious and patent mistake and not something which is established by long drawn process of reasoning. Therefore, a disputable point cannot be a mistake to be rectified. In the present case, the application under Section 154 of the assessee dated 13-1-99 which has been reproduced in para 4 of the proposed order nowhere states in clear terms that AO committed any mistake apparent from the record in granting the depreciation allowance to the assessee on Gas Cylinders. For the benefit of this order, it would be useful to refer the relevant portion of that application as under:
On our part, we have independently validated the merits of our depreciation claim during the year. We have in our record sufficient documentary evidence in respect of purchase of assets made during the relevant year. However, in order to avoid an possible controversy on the issue, we agree for rectification of the assessment order, disallowing the depreciation claim. We are consenting to this course so that we can avail the Kar Vivad Samadhan Scheme (KVSS) in respect of all the items connected with the assessment (as clarified in the query No.3 issued by CBDT).
The above statement of the assessee clearly shows that though there was no obvious or patent mistake in the order of assessment, yet the application was being made under Section 154 to avoid possible controversy and to avail KVS Scheme. There was no notice under Section 154 issued by the AO. The assessee agreed to rectification merely to cover its a case under the provisions of KVSS. At this stage, it is pertinent to note that on one-hand the assessee is challenging the validity of the notice issued under Section 148 on the ground that all relevant material facts regarding the claim of depreciation were disclosed to the AO at the time of assessment k and thereby defending the order of assessment granting the depreciation allowance while on the otherhand, it is seeking rectification permitting the AO to disallow the claim of depreciation. Such contradictory stand goes against the assessee. Therefore, in my opinion, the application of assessee was mis-conceived. If the assessee want rectification in the order of assessment, it must demonstrate beyond doubt that conclusions of AO was patently wrong on the basis of material on record which was available in the course of assessment proceedings. In the absence of the same, it is held that there was no mistake apparent from the record.
34. Before parting with my order, it is mentioned that answers given by CBDT in response to question No. 8 and 31 as reproduced in the application under Section 154 do not permit the assessee to compel the AO to rectify an order unless there is a patent mistake. These answers presume a valid application under Section 154. KVSS is applicable only where the demand is raised on the basis of a valid application under Section 154 and not otherwise. The provisions of Section 154 cannot be availed of to cover the possible dispute, even though no mistake existed in the impugned order.
In view of the above discussion, it is held that there was no mistake apparent from the record in the impugned assessment order and therefore, no rectification could be made under Section 154, Consequently, the AO was justified in filing the application of the assessee. Hence, the appeal of the assessee is dismissed.