HIGH COURT OF JUDICATURE AT ALLAHABAD
AFR
COURT NO.37
CIVIL MISC. WRIT PETITION (Tax) No. 197 of 2010
M/s Sheikh Abdullah & Sons
Vs.
Union of India, through Secretary Ministry of Finance,
New Delhi and others
Connected with:-
CIVIL MISC. WRIT PETITION (Tax) No. 217 of 2010
M/s Sheikh Abdullah & Sons
Vs.
Union of India, through Secretary Ministry of Finance,
New Delhi and others
And
CIVIL MISC. WRIT PETITION (Tax) No. 218 of 2010
M/s Sheikh Abdullah & Sons
Vs.
Union of India, through Secretary Ministry of Finance,
New Delhi and others
And
CIVIL MISC. WRIT PETITION (Tax) No. 219 of 2010
M/s Sheikh Abdullah & Sons
Vs.
Union of India, through Secretary Ministry of Finance,
New Delhi and others
And
CIVIL MISC. WRIT PETITION (Tax) No. 220 of 2010
M/s Sheikh Abdullah & Sons
Vs.
Union of India, through Secretary Ministry of Finance,
New Delhi and others
And
Income Tax Appeal No. 210 of 2015
Principal Commissioner of Income Tax, Varanasi
Vs.
M/s Sheikh Abdullah & Sons
And
Income Tax Appeal Defective No. 159 of 2015
Principal Commissioner of Income Tax, Varanasi
Vs.
M/s Sheikh Abdullah & Sons
And
Income Tax Appeal Defective No. 160 of 2015
Principal Commissioner of Income Tax, Varanasi
Vs.
M/s Sheikh Abdullah & Sons
And
Income Tax Appeal Defective No. 161 of 2015
Principal Commissioner of Income Tax, Varanasi
Vs.
M/s Sheikh Abdullah & Sons
And
Income Tax Appeal Defective No. 162 of 2015
Principal Commissioner of Income Tax, Varanasi
Vs.
M/s Sheikh Abdullah & Sons
***
Hon'ble Tarun Agarwala, J.
Hon'ble Surya Prakash Kesarwani, J.
(Per: Tarun Agarwala,J.)
1. In this group of petitions, the issue involved is the same and therefore all the petitions are being decided together. The dispute relates to the assessment years 1997-98, 1998-99 and 2000-01 under the Income Tax Act. For facility, the facts stated in Writ Petition No.197 of 2010, M/s Sheikh Abdullah & Sons vs. Union of India, through Secretary Ministry of Finance, New Delhi and others for the assessment year 1997-98 and Income Tax Appeal No.215 of 2015, Principal Commissioner of Income Tax, Varanasi vs. M/s Sheikh Abdullah and Sons for the assessment year 1997-98, is being taken into consideration.
2. The assessee is engaged in the business of manufacture and sale of carpet. In his return, the assesseee claimed that interest earned on Exchange Earned Foreign Currency Account Term Deposit Receipt (EEFCTDR) was exempted under Section 10(15)(iv)(e) of the Income Tax Act (hereinafter referred to as the "Act") and was not taxable. The assessing officer rejected the contention of the assessee and computed the deduction under Section 80HHC of the Act after reducing the said interest from business profit. The assessee filed an appeal which was rejected. The Tribunal by its order dated 3.4.2006 allowed the appeal and remanded the matter again to the assessing authority for reconsideration on the question of interest earned on EEFCTDR under Section 10(15)(iv)(e) of the Act. Pursuant to the direction of the Tribunal, the assessing officer passed a fresh assessment order under Section 143(3) of the Act dated 11.2.2007 and granted exemption on interest earned by the assessee under Section 10(15)(iv)(e) of the Act. Thereafter, the Commissioner of Income Tax passed an order dated 3.3.2008 under Section 263 of the Act holding that the order of the assessing officer was pre-judicial to the interest of the revenue holding that the assessing officer had not made the inquiry as mandated by the Tribunal nor inquiry was conducted in conformity with the provisions of Section 10(15)(iv)(e) of the Act The Commissioner of Income Tax accordingly cancelled the assessment order and directed the assessing officer to carry out the fresh assessment after making due inquiry on the issue of Section 10(15)(iv)(e) of the Act. The assessee, being aggrieved, filed an appeal before the Tribunal which was rejected by an order dated 24.7.2008. The Tribunal not only confirmed the order of the Commissioner of Income Tax, but also held that the order of the assessing officer was not in conformity with the direction of the Tribunal and was also pre-judicial to the interest of revenue.
3. Based on the order dated 3.3.2008, passed by the Commissioner of Income Tax, under Section 363 of the Act, as affirmed by the order of the Tribunal, the assessing officer passed a fresh assessment order dated 29.12.2008 after making due inquiry and, after considering the directions of the Tribunal as contained in its order dated 3.4.2006. The assessing officer after considering the provision of Section 10(15)(iv)(e) of the Act held that the conditions prescribed in Section 10(15)(iv)(e) of the Act had been satisfied by the assessee, and therefore, the assessee was entitled for interest exemption under Section 10(15)(iv)(e) of the Act, but, could not claim such amount under Section 80HHC.
4. It transpires that the Commissioner of Income Tax, Varanasi issued a letter dated 12.10.2009 regarding his interpretation of Section 10(15)(iv)(e) of the Act and accordingly directed the assessing officer to take remedial action and disallow the interest exemption. Based on the said direction the assessing officer issued a notice dated 27.11.2009 under Section 154 of the Act, and thereafter, passed an order dated 9.2.2010 under Section 154 of the Act disallowing the interest exemption contending that on the basis of the direction of the Commissioner of Income Tax, the issue being a legal matter, the error was being rectified under Section 154 of the Act as a mistake apparent from the record. The petitioner, being aggrieved by the issuance of the notice under Section 154 of the Act filed the present writ petition. Subsequently, upon passing of the order under Section 154 of the Act, the writ petition was amended and a prayer for quashing of the order under Section 154 of the Act was added.
5. Much after the passing of the order under Section 154 of the Act, the Commissioner of Income Tax issued a notice dated 18.3.2011, under Section 263 of the Act directing the petitioner to show cause as to why the assessment order dated 29.12.2008 should not be cancelled as it was pre-judicial to the interest of the revenue. The assessee filed his objection, and thereafter, the Commissioner of Income Tax passed an order dated 30.3.2001 under Section 263 of the Act setting aside the assessment order and directing the assessing officer to pass a fresh assessment order in the light of the direction contained therein. The assessee, being aggrieved, filed an appeal before the Tribunal, which was allowed by an order dated 22.4.2015 and the order of the Commissioner passed under Section 263 of the Act set aside. The Department, being aggrieved, has filed the present appeal under Section 260A of the Act praying that a substantial question of law arises for consideration, namely, that the Tribunal was not justified in setting aside the order of the Commissioner under Section 263 of the Act, inasmuch as, the assessment order was inconsistent with the direction of the Tribunal passed in the earlier round of litigation.
6. In this backdrop we have heard Sri S.D.Singh, the learned senior counsel along with Sri Krishna Dev Vyas, the learned counsel for the assessee and Sri Ashok Kumar along with Sri Shubham Agarwal, the learned counsel for the Income Tax Department.
7. Section 154 of the Act provides for rectification of the mistake. The provision confers a limited power to rectify any mistake which is apparent from the record.
8. In T.S.Balaram, Income Tax Officer, Company Circle IV, Bombay vs. M/s Volkart Brothers, Bombay, 1971(2)SCC 526, the Supreme Court held paragraph:
"It was not open to the Income-tax Officer to go into the true scope of the relevant provisions of the Act in a proceeding under Section 154 of the Income-tax Act, 1961. 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 conceivably be two opinions".
9. Similar view was again given by the Supreme Court in Commissioner of Central Excise, Belapur, Mumbai vs. RDC Concrete (India) Private Limited, 2011 (12)SCC 166, wherein the Supreme Court held that power to rectify a mistake should be exercised only when the mistake is a patent one and should be quite obvious and that a mistake cannot be such which can be ascertained by a long drawn process of reasoning. Similarly, in Income Tax Officer vs. Ashok Textiles Ltd., AIR 1961 SC 699, the Supreme Court held that an erroneous view of law or a debatable point cannot be rectified as a mistake apparent on the face of the record and further held that incorrect application of law cannot be corrected.
10. Similar view was again reiterated by the Supreme Court in Mepco Industries Ltd. vs. Commissioner of Income-Tax and another, 2009 319 ITR 208, wherein the Supreme Court held that a rectifiable mistake is a mistake which is obvious and not something which has to be established by a long drawn process of reasoning or where two opinions are possible. Further, a decision on a debatable point of law cannot be treated as a mistake apparent from the record.
11. In the light of the aforesaid decisions, we find that the assessing officer while passing a fresh assessment order on 29.12.2008 considered the directions of the Tribunal and also considered the provisions of Section 10(15)(iv)(e) of the Act in detail and, after considering the evidence that was brought on record, came to the conclusion that conditions prescribed under Section 10(15)(iv)(e) of the Act are satisfied and that the assessee was entitled for exemption on interest received. In our view, such finding of the assessing officer, assuming it to be erroneous cannot be rectified in proceedings under Section 154 of the Act on the ground that a mistake apparent on the face of the record had occurred in the assessment order inasmuch as the assessment order was passed by a process of reasoning and after applying its mind. Once an order has been given by a process of reasoning and assuming that two views are possible it still cannot be treated as a mistake apparent from the record.
12. We also find that the order under Section 154 of the Act has been passed by the assessing officer on the dictates of the Commissioner. The assessing officer is a quasi-judicial authority and is required to apply its own mind and cannot function on the dictates and directions of another authority. Consequently, on this ground also, the order of the assessing authority under Section 154 of the Act cannot be sustained.
13. In so far as the appeal filed by the Department is concerned, we are of the opinion, that the Commissioner of Income Tax had no jurisdiction to pass an order under Section 263 of the Act. The Commissioner of Income Tax assumes jurisdiction under Section 263 of the Act when it issues a notice to the assessee under Section 263 of the Act to show cause as to why the order of the assessing authority should not be set aside on the ground that the assessment order was pre-judicial to the interest of the revenue. On this aspect, the assumption of jurisdiction takes place when a notice is issued under Section 263 of the Act. This notice under Section 263 of the Act was issued by the Commissioner on 18.3.2011 much after the assessment order dated 29.12.2008 was modified by an order dated 9.2.2010 under Section 154 of the Act.
14. We are of the opinion that once the assessing officer modifies the assessment order under Section 154 of the Act, the original assessment order dated 29.12.2008 does not exist and, therefore, there was no question of the order of the assessing authority dated 29.12.2008 becoming pre-judicial to the interest of the revenue. Once the assessment order dated 29.12.2008 merged with the order dated 9.2.2010 passed under Section 154 of the Act, the notice under Section 263 of the Act questioning the veracity and legality of the original assessment order dated 29.12.2008 was patently erroneous and invalid and, consequently, all the proceedings initiated pursuant to the said notice including the order dated 30.3.2011, passed under Section 263 of the Act, was also invalid and was rightly set aside by the Tribunal though for different reasons.
15. In the light of the aforesaid, for the reasons stated aforesaid, the impugned notice dated 27.11.2009 and the order dated 9.2.2010 passed under Section 154 of the Act are quashed. Similarly all the notices and orders passed under Section 154 of the Act in the connected writ petitions are also quashed. All the writ petitions are allowed.
16. For the reasons stated aforesaid, no substantial questions of law arises for consideration in the appeals. The appeals filed by the Department miserably fails and are dismissed.
Dated:1.9.2015.
AKJ.
(Surya Prakash Kesarwani, J.) (Tarun Agarwala, J.)