Gujarat High Court
Mastek Limited vs The Assistant Commissioner Of ... on 26 September, 2023
Bench: Bhargav D. Karia
NEUTRAL CITATION
C/SCA/3971/2019 CAV JUDGMENT DATED: 26/09/2023
undefined
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 3971 of 2019
With
R/SPECIAL CIVIL APPLICATION NO. 3973 of 2019
With
R/SPECIAL CIVIL APPLICATION NO. 3972 of 2019
With
R/SPECIAL CIVIL APPLICATION NO. 3977 of 2019
With
R/SPECIAL CIVIL APPLICATION NO. 3981 of 2019
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR. JUSTICE BIREN VAISHNAV
and
HONOURABLE MR. JUSTICE BHARGAV D. KARIA
==========================================================
1 Whether Reporters of Local Papers may be allowed
to see the judgment ?
2 To be referred to the Reporter or not ?
3 Whether their Lordships wish to see the fair copy
of the judgment ?
4 Whether this case involves a substantial question
of law as to the interpretation of the Constitution
of India or any order made thereunder ?
==========================================================
MASTEK LIMITED
Versus
THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-2(1)(2)
==========================================================
Appearance:
MR.S.N.SOPARKAR, LD. SENIOR ADVOCATE with MR B S
SOPARKAR(6851), ADVOCATE for the Petitioner(s) No. 1
MR.VARUN K.PATEL, LD. SENIOR STANDING COUNSEL with MR.DEV D.
PATEL, ADVOCATE (3802) for the Respondent(s) No. 1
==========================================================
CORAM:HONOURABLE MR. JUSTICE BIREN VAISHNAV
NEUTRAL CITATION
C/SCA/3971/2019 CAV JUDGMENT DATED: 26/09/2023
undefined
and
HONOURABLE MR. JUSTICE BHARGAV D. KARIA
Date : 26/09/2023
(PER : HONOURABLE MR. JUSTICE BIREN VAISHNAV)
1. All these petitions raise a common issue and
were heard together and are therefore decided
by this common judgement.
2. Heard learned Senior Advocate Mr.S.N.Soparkar
with Mr.B.S.Soparkar learned advocate for the
petitioners and Mr.Varun Patel learned Senior
Standing Counsel with Mr.Dev D. Patel learned
advocate for the respondent.
3. With consent of the parties, the matters are
taken up for final hearing.
4. RULE returnable forthwith. Mr.Varun Patel
waives service of Rule on behalf of the
NEUTRAL CITATION
C/SCA/3971/2019 CAV JUDGMENT DATED: 26/09/2023
undefined
respondent.
5. Challenge in all these petitions, except in Special
Civil Application No.3981 of 2019, are to the
notices issued by the respondent under Section
154 of the Income Tax Act, 1961. Special Civil
Application No.3981 of 2019 is challenging a
notice under Section 263 of Income Tax Act.
6. Special Civil Applications No.3971 of 2019, 3973
of 2019, 3972 of 2019, 3977 of 2019 and 3981 of
2019 pertain to Assessment Years 2008-2009,
2009-2010, 2011-2012, 2012-2013 and 2013-
2014 respectively. The only other distinction in
the other two petitions namely Special Civil
Application Nos.3973 and 3977 of 2019 is that
there were no orders giving effect.
7. FACTS OF SCA NO.3971 OF 2019
NEUTRAL CITATION
C/SCA/3971/2019 CAV JUDGMENT DATED: 26/09/2023
undefined
7.1 The petitioner is a public limited company
and a Global Information Technology Service
Provider offering a wide range of software
development and related services. A return of
income was filed for A.Y. 2008-2009 on
30.09.2008 declaring a total income of
Rs.1,76,66,295/- after claiming a deduction
under Section 10A of the Income Tax Act, 1961
('the Act for short). The case was selected for
scrutiny and notices under Section 142(1) and
143(2) were issued. During the assessment
proceedings, the respondent specifically inquired
into the computation of deduction under Section
10A of the Act and called for evidence and
justification in respect of the same which was
duly submitted by the petitioner.
7.2 The respondent passed an order dated
02.02.2012 assessing total income at
NEUTRAL CITATION
C/SCA/3971/2019 CAV JUDGMENT DATED: 26/09/2023
undefined
Rs.26,28,28,351/- making certain additions.
Deductions under Section 10A was not disputed
as the same was allowed in the assessment
order. No appeal on the ground of Section 10A
was filed. On other grounds raised in an appeal
before the CIT(A), the CIT(A) by an order dated
27.08.2014 granted relief to the petitioner.
7.3 In November 2014, the respondent initiated
reassessment proceedings for Assessment Year
2008-2009 by issuing a notice under Section 148
on 18.11.2014 to recompute deduction under
Section 10A of the Act.
7.4 In January 2015, pursuant to the reliefs
granted by CIT(A), Order Giving Effect ('OGE')
dated 30.01.2015 was passed. The notice under
Section 148 was quashed by the High Court vide
order dated 11.01.2016.
NEUTRAL CITATION
C/SCA/3971/2019 CAV JUDGMENT DATED: 26/09/2023
undefined
7.5 In March 2018, the respondent issued the
impugned notice dated 20.03.2018 and
24.04.2018 under Section 154 of the Act to
rectify the OGE dated 30.01.2015. According to
the respondent, a mistake of law and facts was
committed while passing OGE allowing the loss
(negative profit) of eligible 10A unit namely SDF
VI and SDF VII amounting to Rs.4,46,67,531/-
against income from House Property. Based on
the interpretation of the decision of the Supreme
Court in the case of CIT v. Yokogawa India
Ltd. rendered in Civil Appeal No.8498 of
2013, the respondent was of the view that profits
of eligible undertakings will be excluded from
computation of total income. Thus, the loss
(negative profit/will not be allowed to be set off
against any other income. This according to
respondent was a mistake, hence a notice.
NEUTRAL CITATION
C/SCA/3971/2019 CAV JUDGMENT DATED: 26/09/2023
undefined
8. Mr.S.N.Soparkar learned Senior Advocate for the
petitioner would make the following submissions:
8.1 The ground for rectifying OGE under
Section 154 is completely misconceived and
baseless. The respondent sought to rectify the
OGE on the following grounds:
a) The Respondent has stated in notice u/s
154 that in the assessment order dated
02.02.2012 passed for the said year,
deduction u/s 10A has been allowed only
after clubbing the business profits and
losses of all the units.
b) However, CIT(A) has directed that benefit
of 10A deduction should be given on the
basis of individual eligible unit and not after
clubbing the business profits and losses of
NEUTRAL CITATION
C/SCA/3971/2019 CAV JUDGMENT DATED: 26/09/2023
undefined
all the units.
c) While passing the OGE, the Respondent
has committed a mistake in allowing set-off
of losses against the income from House
Property and Other income.
d) The Respondent has referred the decision
of Honorable Supreme Court in case of CIT
v. Yokogawa India Ltd. (supra) as
mentioned in para 2.10 and based on his
interpretation of the decision, the profits of
eligible undertaking shall be excluded from
the computation of total income and thereby
intended to rectify the mistake u/s 154 of
the Act by not allowing set off of loss
(negative profit) of the eligible unit
amounting to Rs.4,46,67,531/- against any
other income.
NEUTRAL CITATION
C/SCA/3971/2019 CAV JUDGMENT DATED: 26/09/2023
undefined
8.2 The issuance of notice under Section 154 is
illegal and without jurisdiction.
8.3 That the issue of deduction under Section
10A was not a subject matter of appeal before
the CIT(A) for the said year and therefore there
was no question of making any mistake while
passing the OGE.
8.4 Mr.Soparkar would submit that the
jurisdiction and power of the Assessing Officer
while giving effect to the Appellate Authority's
order are confined only to the issue and aspect
involved in the appellate order. The Assessing
Officer cannot go beyond the issue and aspect
which he was directed to reconsider. The
Assessing Officer cannot travel beyond the
jurisdiction and limits of the directions of the
Appellate Authority.
NEUTRAL CITATION
C/SCA/3971/2019 CAV JUDGMENT DATED: 26/09/2023
undefined
8.5 Mr.Soparkar would submit that the time for
passing of the rectification order has expired.
The assessment order for the said year was
passed on 02.02.2012. The limitation prescribed
is four years from the end of the financial year in
which the order sought to be amended was
passed. The time has expired in March 2016.
Order therefore is barred by limitation.
8.6 The interpretation of the decision of the
Supreme Court in case of CIT v. Yokogawa
India Ltd. (supra) is incorrect. In the impugned
notice u/s 154, the Respondent, based on his
interpretation of the Honorable Supreme Court
decision in the case of CIT v. Yokogawa India
Ltd. (supra), in civil Appeal No 8498 of 2013, is
of the view that profits of eligible undertaking
will be excluded from the computation of total
income. Thus, the loss (negative profit)
NEUTRAL CITATION
C/SCA/3971/2019 CAV JUDGMENT DATED: 26/09/2023
undefined
determined for eligible unit amounting to Rs
4,46,67,531 will not be allowed to be set-off
against any other income. Therefore, being a
mistake apparent on record, the respondent has
issued notice u/s 154 to rectify the OGE dated
30.01.2015. The aforesaid decision of Honorable
Supreme Court is a landmark decision on
deduction u/s 10A/10B/10AA of the Act, wherein
the Honorable Supreme Court has actually
settled the controversy on a long drawn litigation
on whether the provisions of sections
10A/10B/10AA are deduction provisions or
exemption provisions and the stage at which
deduction is to be claimed. The Respondent has
interpreted the said decision incorrectly and
contrary to the principle laid down by Honorable
Supreme Court that profit/loss (which is negative
profit) incurred in 10A unit is to be excluded
from the computation of total income and
NEUTRAL CITATION
C/SCA/3971/2019 CAV JUDGMENT DATED: 26/09/2023
undefined
thereby loss (negative profit) shall not be allowed
to be set off against any other income. The
Petitioner respectfully submits that deduction u/s
10A has been correctly allowed by the
Respondent in the assessment order as well as in
the OGE passed for the A.Y 2008-09 i.e
undertaking specific and allowed from "Total
Business income", which is as per the principle
laid down by Honorable Supreme Court. Hence,
notice issued by Respondent is bad in law.
8.7 Mr.Soparkar would further submit that the
issues raised by the respondent due to incorrect
interpretation of the decision of the Hon'ble
Supreme Court is a legal and debatable issue and
such issue cannot be considered as mistake
apparent from the record to become a subject
matter of rectification under Section 154 of the
Act. The notice under Section 154 is therefore
NEUTRAL CITATION
C/SCA/3971/2019 CAV JUDGMENT DATED: 26/09/2023
undefined
void ab initio.
8.8 That the petition is maintainable. Alternative
remedy is not a bar when the notice is ex-facie
without jurisdiction.
8.9 In support of his submissions, Shri Soparkar
would rely on the following decisions:
I. Calcutta Discount Co. Ltd v. Income Tax
Officer; [1961] 41 ITR 191 (SC)
II. Jeans Knit (P.) Ltd v. Deputy
Commissioner of Income-tax, Banglore;
[2017] 390 ITR 10 (SC))
III. JMC Projects (India) Ltd v. Principal
Commissioner of Income-tax (Central);
[2016] 67 taxmann.com 258 (Gujarat)
IV. Engineering Professional Co. (P.) Ltd;
NEUTRAL CITATION
C/SCA/3971/2019 CAV JUDGMENT DATED: 26/09/2023
undefined
[2020] 115 taxmann.com 288 (Gujarat)
V. Coates of India Ltd. v. Deputy
Commissioner of Income-tax; [1995] 214
ITR 498 (Calcutta)
VI. Karsandas Bhagwandas Patel v. Income-
tax Officer; [1975] 98 ITR 255 (Gujarat)
VII. Ahmedabad Sarangpur Mills Co. Ltd v.
A.S.Manohar, Income-tax Officer; [1976]
102 ITR 712
VIII. Poonjabhai Vanmalidas v. Wealth-
tax Officer; [1978] 114 ITR 38 (GUJ.)
IX. Mettur Chemical & Industrial Corpn.
Ltd. v. Commissioner of Income-tax; [1977]
110 ITR 822 (Madras)
X. Standard Chemical Co. (P). Ltd v.
Income-tax Officer; [1977] 110 ITR 832
NEUTRAL CITATION
C/SCA/3971/2019 CAV JUDGMENT DATED: 26/09/2023
undefined
(Allahabad)
XI. Shree Naw Durga Bansal Cold Storage
& Ice Factory v. Commissioner of Income-
(Allahabad)
XII. T.S.Balaram, Income-tax Officer v.
Volkart Brothers; [1971] 82 ITR 50 (SC)
XIII. Commissioner of Income-tax v.
Hero Cycles (P.) Ltd; [1997] 228 ITR 463
(SC)
XIV.Commissioner of Income-tax v. C.D.R.
Laxmidevi; [1995] 211 ITR 858 (Gujarat)
XV. Income-tax Officer v. India Foils Ltd.;
[1973] 91 ITR 72 (Calcutta)
XVI.Padmavati Jaykrishna v. Commissioner
of Wealth-tax; [1976] 105 ITR 115 (Gujarat)
NEUTRAL CITATION
C/SCA/3971/2019 CAV JUDGMENT DATED: 26/09/2023
undefined
XVII. Commissioner of Income-tax v. Smt.
Pushpavati Kantilal; [1981] 129 ITR 582
(Gujarat)
XVIII. Mepco Industries Ltd. v.
Commissioner of Income-tax; [2009] 319
ITR 208 (SC)
XIX.Pr. Commissioner of Income Tax
Vadodara-1 v. Gulbrandsen Technologies
(India) Pvt. Ltd. rendered in Tax Appeal
No.278 of 2018 (original and recalled)
XX. Cosmo Films Limited v. Central Board
of Direct Taxes; W.P.(C) 3598/2019 Delhi
HC
XXI.Pr.Commissioner of Income Tax-1, Pune
v. Aesseal India Pvt. Ltd. (Bom) rendered in
Income Tax Appeal No.1368 of 2017
NEUTRAL CITATION
C/SCA/3971/2019 CAV JUDGMENT DATED: 26/09/2023
undefined
XXII. The Commissioner of Income-tax v.
M/s. Hical Technologies Pvt. Ltd (Kar)
rendered in Income Tax Appeal No.184 of
XXIII. The Principal Commissioner of
Income-tax-2 v. M/s.Indus Business System
Ltd (Andhra) rendered in Income Tax Appeal
No.409 of 2017
XXIV. Karle International (P) Ltd. v.
Assistant Commissioner of Income Tax,
taxmann.com 264 (Karnataka)
9. The only difference in Special Civil Application
No.3981 of 2019 is that the impugned notice
dated 23.02.2018 is a notice under Section 263
of the Act based on the incorrect interpretation
NEUTRAL CITATION
C/SCA/3971/2019 CAV JUDGMENT DATED: 26/09/2023
undefined
of the decision in the case of Yokogawa India
Ltd. (supra).
10.Mr.Varun Patel learned Senior Standing Counsel
for the Revenue would support the notice. He
would submit that only a notice under Section
154 of the Act is issued. In an order passed
under Section 154 of the Act appeal could lie to
the CIT(A) and therefore in view of the
alternative remedy, the petition is not
maintainable.
10.1 Making further submissions, Shri Patel
would submit as under.
10.2 Subject notices u/s 154 of the Act were
issued to rectify the order giving effect of the
CIT(A)'s order. Further, it is also noticed from
the order of the CIT(A) for A.Y. 2006-07 and A.Y.
NEUTRAL CITATION
C/SCA/3971/2019 CAV JUDGMENT DATED: 26/09/2023
undefined
2009-10 in the appellant's case that the CIT(A)
has directed to give benefit of section 10A to the
assessee, on the basis of individual eligible unit
and not after clubbing the income. Hence the
CIT(A) clearly directed to give the benefit of the
section 10A of the Act on individual unit basis
and not after clubbing the income in the
preceding years as well as succeeding years.
The A.O. made an apparent mistake while
passing the order of appeal effect by allowing
the setoff of losses from 10A eligible against the
non eligible income. Therefore, the notices u/s
154 of the Act was issued to rectify the apparent
mistake.
10.3 The CIT(A) in earlier year as well as
subsequent year has directed that the benefit of
Section 10A of the Act should be given on the
individual eligible unit basis. The A.O. while
NEUTRAL CITATION
C/SCA/3971/2019 CAV JUDGMENT DATED: 26/09/2023
undefined
giving the effect of CIT(A)'s order made an
apparent mistake by allowing the losses
(negative profit) of eligible 10A unit namely SDF
VI and VII amounting to Rs. 4,46,67,531/- to be
set off against the income from house property
and other income. Hence, it is clear that the A.O.
rightly issued the notice u/s 154 of the Act to
rectify the apparent mistake from record.
10.4 The notice u/s 154 of the Act is issued
within the time limit as provided by the section
154(7) of the Act.
10.5 In this case, order u/s 143(3) r.w.s.
144C was passed on 02.02.2012. After that the
assessee preferred an appeal before CIT (A). The
Ld. CIT (A) passed an order on 27.08.2014. After
that the A.O. passed the order giving appeal
effect on 30.01.2015. In this case notice u/s 154
NEUTRAL CITATION
C/SCA/3971/2019 CAV JUDGMENT DATED: 26/09/2023
undefined
of the Act was issued to the petitioner on
20.03.2018 which is under the time limit
provided u/s 154(7) of the Act.
10.6 In light of the above observation of the
Hon'ble Supreme Court, it is clear that the profit
of eligible undertaking will be excluded from the
computation of income. In view of the above
discussion and in light of the decision of the
Hon'ble Apex Court, it is clear that the assessee
wrongly set off losses from 10A eligible unit
against the income from house property and
other income and Assessing Officer erred in
allowing the same while giving the appeal effect
to the order of the CIT(A).
10.7 The A.O. rightly interpreted the order
of the Hon'ble Apex Court in the case of M/s
Yokogawa India Ltd. (supra). Further, it is
NEUTRAL CITATION
C/SCA/3971/2019 CAV JUDGMENT DATED: 26/09/2023
undefined
submitted that the issue under consideration is
not debatable. From observation of the Hon'ble
Supreme Court it is clear that the profit of the
eligible undertaking will be excluded from the
computation of Income.
10.8 The mistake which can be rectified u/s
154 is not confined to clerical or arithmetical
mistakes. The Supreme Court in the case of T.S.
Balaram, ITO v. Volkart Brothers and ors.
[1971] 82 ITR 50 (SC), had held that a mistake
apparent from the record must be an obvious
and patent mistake. In view of the above
discussion the contention of the assessee is not
acceptable.
11. Having considered the submissions made by the
learned counsel, we take up the discussion
thereon.
NEUTRAL CITATION
C/SCA/3971/2019 CAV JUDGMENT DATED: 26/09/2023
undefined
11.1 The rectification of mistakes is
empowered by virtue of the provisions of
Section 154 of the Income Tax Act, 1961.
Section 154 of the Act, reads as under:
Rectification of mistake.
154. [(1) With a view to rectifying any
mistake apparent from the record an
income-tax authority referred to in section
116 may,--
(a) amend any order passed by it under the
provisions of this Act ;
[(b) amend any intimation or deemed
intimation under sub-section (1) of section
143;]]
[(c) amend any intimation under sub-section
(1) of section 200A.]
(d) amend any intimation under sub-
section (1) of section 206CB.
[(1A) Where any matter has been
considered and decided in any proceeding
by way of appeal or revision relating to an
order referred to in sub-section (1), the
authority passing such order may,
notwithstanding anything contained in any
law for the time being in force, amend the
order under that sub-section in relation to
NEUTRAL CITATION
C/SCA/3971/2019 CAV JUDGMENT DATED: 26/09/2023
undefined
any matter other than the matter which has
been so considered and decided.]
(2) Subject to the other provisions of this
section, the authority concerned--
(a) may make an amendment under sub-
section (1) of its own motion, and
(b) shall make such amendment for
rectifying any such mistake which has been
brought to its notice by the assessee [or by
the deductor or by the Collector], and where
the authority concerned is the [the Joint
Commissioner (Appeals) or [Commissioner
(Appeals)], by the [Assessing] Officer also.
[* * *]
(3) An amendment, which has the effect of
enhancing an assessment or reducing a
refund or otherwise increasing the liability
of the assessee [or the deductor or the
Collector], shall not be made under this
section unless the authority concerned has
given notice to the assessee [or the
deductor or the Collector] of its intention so
to do and has allowed the assessee [or the
deductor or the Collector] a reasonable
opportunity of being heard.
(4) Where an amendment is made under this
section, an order shall be passed in writing
by the income-tax authority concerned.
NEUTRAL CITATION
C/SCA/3971/2019 CAV JUDGMENT DATED: 26/09/2023
undefined
[(5) Where any such amendment has the
effect of reducing the assessment or
otherwise reducing the liability of the
assessee or the deductor or the Collector,
the Assessing Officer shall make any refund
which may be due to such assessee or the
deductor or the Collector.]
(6) Where any such amendment has the
effect of enhancing the assessment or
reducing a refund [already made or
otherwise increasing the liability of the
assessee or the deductor or the Collector,
the Assessing Officer shall serve on the
assessee or the deductor or the Collector, as
the case may be] a notice of demand in the
prescribed form specifying the sum payable,
and such notice of demand shall be deemed
to be issued under section 156 and the
provisions of this Act shall apply
accordingly.
(7) Save as otherwise provided in section
155 or sub-section (4) of section 186 no
amendment under this section shall be
made after the expiry of four years [from the
end of the financial year in which the order
sought to be amended was passed.]
[(8) Without prejudice to the provisions of
sub-section (7), where an application for
amendment under this section is made by
the assessee [or by the deductor or the
Collector] on or after the 1st day of June,
2001 to an income-tax authority referred to
in sub-section (1), the authority shall pass
NEUTRAL CITATION
C/SCA/3971/2019 CAV JUDGMENT DATED: 26/09/2023
undefined
an order, within a period of six months from
the end of the month in which the
application is received by it,--
(a) making the amendment; or
(b) refusing to allow the claim.]"
11.2 Sub-section (7) of Section 154 provides
that no rectification is permissible under the
Section after expiry of four years from the end of
the financial year in which the order sought to be
amended was passed. In the facts on hand, the
order of assessment is dated 02.02.2012. In
terms of Section 154(7) of the Act, time to rectify
the error expired on 31.03.2016. The
rectification is sought in 2018. According to the
Revenue, the period of four years has not expired
as after the order of assessment was passed on
02.02.2012, the assessee preferred an appeal
before the CIT(A). The CIT(A) passed an order
on 27.08.2014. The Assessing Officer thereafter
NEUTRAL CITATION
C/SCA/3971/2019 CAV JUDGMENT DATED: 26/09/2023
undefined
passed an order giving effect on 30.01.2015.
Notice issued under Section 154 was dated
20.03.2018 and hence was within a period of
four years as provided under Section 154(7).
11.3 In the case of Poonjabhai Vanmalidas
(supra), the assessment order passed under the
Wealth Tax was dated 23.02.1971. The assessee
went in appeal before the Appellate Assistant
Commissioner who by his order dated
23.06.1971 reduced the net wealth of the
petitioner. Consequential orders in light of the
appellate orders was passed on 30.03.1974. The
revenue issued rectification notices on
15.01.1976. The principal contention of the
assessee was that they were time barred after
expiry of four years from the date of the orders
i.e. 22.02.1971. Considering the issue and
disposing of the matter before it, only on the
NEUTRAL CITATION
C/SCA/3971/2019 CAV JUDGMENT DATED: 26/09/2023
undefined
ground of limitation, the Division Bench of this
Court held that even after an appeal from an
order of assessment is decided, a mistake in that
part of the order of assessment which was not
the subject matter of review by the Appellate
Authority and was left untouched can be
rectified, however, that part of the order which
is sought to be rectified is the untouched part of
the original order. Applying it to the facts of the
case, what is evident is that the assessment
order was dated 02.02.2012. In an appeal to the
CIT(A) there was no dispute regarding Section
10A. The relief was granted in appeal on
27.08.2014. There too there was no dispute
regarding Section 10A provision. The order
giving effect was date 31.03.2015. Here also
since benefit of 10A was 'as per assessment
order', as held in the case of Poonjabhai
Vanmalidas (supra) in relation to issues not
NEUTRAL CITATION
C/SCA/3971/2019 CAV JUDGMENT DATED: 26/09/2023
undefined
appealable, the order of the appellate authority
does not subsume the original order and the time
for correcting the mistake in the original order
has to relate back to passing of the original order
and not the appellate order. The argument of
revenue therefore that the exercise was within
the time frame is misconceived. Relevant
observations in the case of Poonjabhai
Vanmalidas (supra) read as under:
"In Karsandas Bhagwandas Patel v. G.V.
Shah, Income-tax Officer [1975] 98 ITR 255
(Guj), the Division Bench consisting of
Bhagwati C.J. and one of us (P.D. Desai J.)
dealt with the provisions of rectification
proceedings under section 35(1) of the
Indian Income-tax Act, 1922, and the
question was, what part of the Appellate
Assistant Commissioner's order could be
said to be the final order and what part of
the original order of Income-tax Officer
could be said to be the final order. At page
259, Bhagwati C.J., speaking for the Division
Bench, observed:
"It is clear on a plain reading of the
language of section 35, sub-section (1),
that the power to rectify a mistake in
an order is conferred only on the
NEUTRAL CITATION
C/SCA/3971/2019 CAV JUDGMENT DATED: 26/09/2023
undefined
authority which passed the order. The
Income-tax Officer can rectify a mistake
only if it is a mistake in the order of
assessment made by him and similarly
the Appellate Assistant Commissioner
can rectify a mistake only if it is in the
order passed by him in appeal."
Under section 35(1) of the Wealth-tax Act
also the same scheme is preserved because
under section 35(1)(a) the Wealth-tax
Officer may amend any order of assessment
or of refund or any other order passed by
him. Proceeding further with the quotation
from Karsandas Bhagwandas Patel's case
[1975] 98 ITR 255 at 259-60 (Guj):
"It would, therefore, seem that if the
order of assessment made by the
Income-tax Officer has ceased to exist
by reason of having merged wholly in
the order of the Appellate Assistant
Commissioner, the Incometax Officer
cannot rectify a mistake in the order of
assessment; the . mistake, if any, which
vitiated the order of assessment would
then be a mistake in the order of the
Appellate Assistant Commissioner who
alone would be entitled to rectify it.
The question is whether this hypothesis
is correct. Does the doctrine of merger
apply in all its fulness so that an order
of assessment made by the Income-tax
Officer could be said to merge in the
order of the Appellate Assistant
Commissioner wholly, not only in
respect of items considered and
NEUTRAL CITATION
C/SCA/3971/2019 CAV JUDGMENT DATED: 26/09/2023
undefined
decided by the Appellate Assistant
Commissioner but also in respect of
items not considered and decided by
him?"
The Division Bench in Karsandas
Bhagwandas Patel's case [1975] 98 ITR 255
(Guj) held that, having regard to principles
as well as authority, it was not possible to
say that the doctrine of merger does not
apply at all to income-tax proceedings. At
page 261 it was pointed out:
"So also where an appeal is preferred
by an assessee against an order of
assessment in respect of all the items
considered and decided by the Income-
tax Officer so that the whole of the
order of assessment made by the
Income-tax Officer is for consideration
by the Appellate Assistant
Commissioner, the effect of the
decision of the Appellate Assistant
Commissioner would be to substitute
his determination for that of he Income-
tax Officer in respect of all items
considered and decided by the Income-
tax Officer and the order of the Income-
tax Officer would be merged wholly in
the order of the Appellate Assistant
Commissioner. But, what would be the
position when an appeal is preferred
against an order of assessment in
respect of some only out of several
items considered and decided by the
Income-tax Officer?"
NEUTRAL CITATION
C/SCA/3971/2019 CAV JUDGMENT DATED: 26/09/2023
undefined
At page 262, it was observed:
"If the Appellate Assistant
Commissioner were under an obligation
to examine the correctness of every
decision recorded by the Income-tax
Officer in the process of assessment, it
might be possible to contend that when
the Appellate Assistant Commissioner
does not say anything about a
particular decision recorded by the
Income-tax Officer, he may be pre-
sumed to have assented to it and an
inference of implied affirmance ay be
raised, but it cannot be disputed that,
though the Appellate Assistant
Commissioner has undoubted power to
revise any decision of the Income-tax
Officer suo motu, there is no obligation
on him to do so and in the absence of
such obligation, there can be no scope
for the application of the doctrine of
implied decision."
Then the Division Bench ([1975] 98 ITR
255 , 263 (Guj)) approved the following
passage from the decision of this court in
Commissioner of Income-tax v. Karamchand
Premchand P. Ltd. [1969] 74 ITR 254 , 264
(Guj):
"But it is apparent, and this indeed was
not disputed on behalf of the assessee,
that the Appellate Assistant
Commissioner was under no obligation
to examine the correctness of every
decision recorded by the Income-tax
NEUTRAL CITATION
C/SCA/3971/2019 CAV JUDGMENT DATED: 26/09/2023
undefined
Officer in the course of the assessment.
The entire assessment was of course
before him and he had the power, if he
so chose, to examine any particular
decision of the Income-tax Officer and
to correct it if the found it wrong but
there being no obligation on him to do
so, no inference can be drawn from his
omission to reverse the decision of the
Income-tax Officer on any particular
matter."
The Division Bench then proceeded to
observe ([1975] 98 ITR 255 , 263 (Guj)):
"There being no decision of the
Appellate Assistant Commissioner,
express or implied, in regard to the
particular item, we have to turn to the
order of assessment made by the
Income-tax Officer in order to see what
is the decision in regard to that matter
in the process of assessment. The
ultimate assessment in such a case
consists partly of decisions of the
Appellate Assistant Commissioner and
partly of decisions of the Income-tax
Officer. The collective effect of these
decisions results in the computation of
total income and determination of tax.
The order of assessment made by the
Income-tax Officer thus does not merge
wholly in the order made by the
Appellate Assistant Commissioner. It is
only that part of the order of
assessment which consists of decisions
reviewed by the Appellate Assistant
NEUTRAL CITATION
C/SCA/3971/2019 CAV JUDGMENT DATED: 26/09/2023
undefined
Commissioner--and when we use the
word 'reviewed', we mean, considered
and examined irrespective of whether
ultimately affirmed, modified or
reversed--that is superseded by the
order of the Appellate Assistant
Commissioner."
The legal position was thus summarized by
the Division Bench at page 265:
"The legal position may, therefore, be
summarized by stating that even after
an appeal from an order of assessment
is decided by the Appellate Assistant
Commissioner, a mistake in that part of
the order of assessment which was not
the subject-matter of review by the
Appellate Assistant Commissioner and
was left untouched by him can be
rectified by the Income-tax Office."
In the light of these principles with which
we are in entire agreement, we have to
consider as to what was the actual decision
of the Appellate Assistant Commissioner
because, if that part of the order which is
sought to be rectified was untouched by the
Appellate Assistant Commissioner, then
what is sought to be rectified under section
35 is the order of the Wealth-tax Officer as
originally passed and not the consequential
order passed in the light of the decision of
the Appellate Assistant Commissioner. In
the order of the Appellate Assistant
Commissioner, which is annexure "F" to the
petition, it has been pointed out:
NEUTRAL CITATION
C/SCA/3971/2019 CAV JUDGMENT DATED: 26/09/2023
undefined
"The appellant's status is that of an
HUF consisting of one female member.
As per the decision of the Supreme
Court in the case of Arundhati
Balkrishna [1970] 77 ITR 505 and
subsequent decisions of Tribunals,
value of jewellery is exempt not only as
articles of personal use, but also as
articles of household use. In this view
of the matter, since the female member
made use of the ornaments as and
when required, the value of ornaments
have to be exempted under section 5(1)
(viii) as articles of household use. The
appellant, therefore, gets reduction of
Rs. 15,000 "
For the assessment year 1965-66 annexure
"E" is the order of the Appellate Assistant
Commissioner whereas annexure "F" is in
respect of assessment years 1966-67 and
1967-68. In annexure "E" in connection with
assessment year 1965-66, there was an
additional point on the ground that,
admittedly, the tax liability of Rs. 94,023
was claimed as a deduction from the total
wealth of the appellant and that claim was
rejected by the Appellate Assistant
Commissioner. It was held by him that since
the liability was disputed, this could not be a
"debt owed" as per the provisions of the Act
and the second point was regarding the
deduction of Rs. 15,000 because of the
ornaments of the female member of the
family. Beyond these two points no other
point was touched by the Appellate
Assistant Commissioner and, therefore,
NEUTRAL CITATION
C/SCA/3971/2019 CAV JUDGMENT DATED: 26/09/2023
undefined
there was no reversal, express or implied, or
no review in the sense of affirmed, modified
or reversed nor was it considered and re-
examined irrespective of whether it was
ultimately affirmed, modified or reversed.
Under these circumstances it is obvious that
the question as to whether the additional
amount mentioned in clause (c) of
Paragraph A of Part I of the Schedule to the
Wealth-tax Act should or should not be
included was never dealt with nor touched
upon by the Appellate Assistant
Commissioner. It is, therefore, clear that the
omission in the original order passed on
February 22, 1971, was sought to be
rectified by the Wealth-tax Officer when he
initiated proceedings under section 35(1) of
the Act and he wanted to rectify it by
removing that error from the order of
assessment for each of the three years
under consideration. It is obvious that what
he was seeking to do was not in
consequence of the order passed by the
Appellate Assistant Commissioner nor was it
in consequence of what the Appellate
Assistant Commissioner had done in respect
of each of the three years under
consideration but was a matter which
should have been dealt with initially by the
Wealth-tax Officer himself and was not dealt
with by him at that stage when he passed
the orders on February 22, 1971. Therefore,
for the purpose of limitation under section
35, sub-section (7)(b), of the Wealth-tax Act,
the period of four years has to be calculated
from the date of the orders passed by the
Wealth-tax Officer himself, namely,
NEUTRAL CITATION
C/SCA/3971/2019 CAV JUDGMENT DATED: 26/09/2023
undefined
February 22, 1971; this point was not dealt
with by the Appellate Assistant
Commissioner and, therefore, it could not be
the basis of the consequential orders passed
by the Wealth-tax Officer in 1976. The
notice calling upon the petitioner to show
cause was issued on January 15, 1976, and
the ultimate order was passed on February
10, 1976. Even at the stage when the show
cause notice regarding rectification was
issued, the period of four years had expired
and, therefore, the action of the Wealth-tax
Officer was clearly time-barred and, hence,
wholly without jurisdiction. It is, therefore,
merely a purported exercise of power under
section 35 by the Wealth-tax Officer but not
under that Act. Under these circumstances,
this special civil application is allowed and
the orders of rectification for each of the
three years and the consequential notices of
demand are quashed and set aside. The rule
is made absolute accordingly. The
respondent will pay the costs, of this special
civil application to the petitioner."
11.4 In the case of Mettur Chemical &
Industrial Corpn. Ltd. (supra), the Madras
High Court has held that where proceedings are
initiated under Section 147, period of limitation
for rectification of mistake has to commence and
computed from the date of original assessment
NEUTRAL CITATION
C/SCA/3971/2019 CAV JUDGMENT DATED: 26/09/2023
undefined
and not from the date of reassessment order.
The relevant observations are as under:
"One of the contentions put forward before
the Tribunal was that there was no mistake
apparent from the records which could be
rectified by the Income-tax Officer under
section 154. Another objection raised was
that the proceedings under section 154
were barred by limitation. The Tribunal
rejected these contentions and dismissed
the appeals. It is thereafter, at the instance
of the assessee, the above two questions
have been referred to this hon'ble court for
its opinion. As far as the first question is
concerned, we are clearly of the opinion
that the answer to the said question must be
in the affirmative. Section 154 of the Act
enables the Income-tax Officer to rectify any
mistake apparent from the record. In this
case, as we already pointed out, the Income-
tax Officer had deducted the wealth-tax paid
by the assessee from the business income
for computing the assessable income from
the business. The decision of this court
referred to above, viz., Kumbakonam
Electric Supply Corporation Ltd. v.
Commissioner of Income-tax [1963] 50 ITR
809 (Mad) held that wealth-tax paid by a
company under the provisions of the
Wealth-tax Act, on the net wealth of the
company is not an allowable expenditure in
computing the taxable income of the
company, either under section 10(2)(xv)or
under section 10(1) of the Indian Income-tax
Act, 1922. This decision of this court is an
NEUTRAL CITATION
C/SCA/3971/2019 CAV JUDGMENT DATED: 26/09/2023
undefined
authoritative pronouncement as to the
scope of section 10(2) (xv) and section 10(1)
as far as the Income-tax Officer was
concerned. Consequently, this decision
made it clear that the Income-tax Officer
has committed an error in deducting the
wealth-tax paid by the assessee from the
income from the business and that error
was apparent from the record.
Consequently, the Income-tax Officer acted
well within his jurisdiction in proceeding
under section 154 of the Income-tax Act,
1961, in order to rectify a mistake apparent
from the record by adding back the wealth-
tax which he had originally deducted. We
are not referring to the subsequent
decisions on this question and the
retrospective amendment of the law in this
behalf because at the time when the
Income-tax Officer took proceedings under
section 154 this was the only binding
decision in existence and, therefore, it was
not merely the right but the duty of the
Income-tax Officer to give effect to the law
as declared by this court in the decision
referred to above by correcting the mistake
which he had already committed.
Consequently, our answer to the first
question referred to above is in the
affirmative and against the assessee.
This takes us to the second question and
that question is confined to the assessment
for 1959-60. As we already pointed out, the
assessment for this year was originally
completed on May 27, 1960, and the notice
under section 154 was issued for the first
NEUTRAL CITATION
C/SCA/3971/2019 CAV JUDGMENT DATED: 26/09/2023
undefined
time only on February 16, 1965.
Consequently, the notice was issued beyond
the period of four years prescribed under
section 154(7) for the purpose of enabling
the Income-tax Officer to exercise his
jurisdiction under that section. Therefore, if
the mistake was with reference to the order
dated May 27, 1960, the proceedings
initiated on February 16, 1965, are
obviously beyond the period of limitation
and, consequently, the Income-tax Officer
was not entitled to proceed under that
section. However, the learned counsel for
the department contended that the period of
limitation should be computed not from the
date of the original order of assessment,
namely, May 27, 1960, but from the date of
the subsequent order by which the
assessment was reopened under section
147(b) of the Income-tax Act. That order
was dated November 23, 1962, and if the
contention of the learned counsel for the
revenue is correct on this point, certainly
the notice under section 154 dated February
16, 1965, will be well within the period of
four years from the date of November 23,
1962. On the other hand, the argument
advanced on behalf of the assessee is that
the error had crept into the order dated
May 27, 1960, itself, and notwithstanding
the subsequent reopening of the
assessment, that error remained untouched
and, therefore, that error cannot be said to
have crept into the order dated November
23, 1962, so as to enable the Income-tax
Officer to compute the period of limitation
from that date and that the period of
NEUTRAL CITATION
C/SCA/3971/2019 CAV JUDGMENT DATED: 26/09/2023
undefined
limitation should be computed only from the
date of the original order, viz., May 21,
1960. This was sought to be countered by
the learned counsel for the revenue by
putting forward the argument that once the
Income-tax Officer took proceedings under
section 147 and passed a fresh order of
reassessment the original order has ceased
to have an independent existence and it had
merged in the subsequent order or it has
become non-existent.
We are of the opinion that the contention of
the learned counsel for the revenue is not
correct. Before giving our reasons in this
behalf we may refer to the only decision
which is directly in point rendered by the
Allahabad High Court. That decision is in
Standard Chemical Co. Pvt. Ltd. v. Income-
tax Officer (See Appendix page 832 infra).
In that case the assessee was a limited
company. For the assessment year 1966-67
in computing 'the total income the assessee
was granted development rebate in respect
of some machinery which had been installed
by it in the calendar year 1964. The
assessee had also claimed depreciation on
certain assets including land. However, the
Supreme Court in Commissioner of Income-
tax v. Alps Theatre [1967] 65 ITR 377 (SC)
had held that the depreciation was
allowable only on the value of buildings and
not on the value of land. Consequently, the
Income-tax Officer relying on the decision of
the Supreme Court took proceedings under
section 147 of the Income-tax Act, 1961, and
passed a supplemental assessment order on
NEUTRAL CITATION
C/SCA/3971/2019 CAV JUDGMENT DATED: 26/09/2023
undefined
October 16, 1969, withdrawing the
depreciation on the value of the land.
Subsequently, the Income-tax Officer felt
that the development rebate had also been
wrongly allowed to the assessee inasmuch
as the assessee had not created a reserve
for the same during the year the machinery
was installed. Therefore, he issued a notice
under section 154 of the Act on April 14,
1971, treating it as a case of rectification of
mistake. He finally passed an order under
that section on September 10, 1971,
withdrawing the development rebate which
has been allowed to the assessee in the
original assessment order after overruling
the assessee's objection that the
proceedings were time-barred. Thereafter,
the assessee approached the Allahabad
High Court by. a petition under article 226
of the Constitution of India to quash the
order of the Income-tax Officer passed
under section 154 of the Act. We may point
out in this context that since the original
order of assessment was dated 9th
February, 1967, the notice issued under
section 154 on April 14, 1971, was beyond
the period of four years just as in the
present case. However, the contention of
the department was that since the original
order of assessment was reopened under
section 147 of the Income-tax Act, 1961, and
a fresh order was passed on October 16,
1969, the four year period prescribed under
section 154(7) has to be computed from
October 16, 1969, and if it is so done the
notice dated April 14, 1971, was within four
years. The reasoning advanced on behalf of
NEUTRAL CITATION
C/SCA/3971/2019 CAV JUDGMENT DATED: 26/09/2023
undefined
the revenue in that case was that the
original assessment order had merged in
the order passed under section 148 by the
Incometax Officer, and, therefore, the
limitation should be counted from the date
of the later order. The Bench of the
Allahabad High Court rejected this
contention. The Bench said:
"An order under section 148 is a
separate order dealing with an item of
income which had escaped assessment.
The original assessment order does not
merge into an order passed under
section 148. Where reassessment is
made under section 148 (corresponding
to section 34 of the Indian Income-tax
Act, 1922) the Income-tax Officer's
jurisdiction is confined to the income
which had escaped assessment and
does not extend to revising, reopening
and reconsidering the whole
assessment. See Kashi Nath Bagla v.
Commissioner of Income-tax [1950] 4
ITC 472 (All) and Kevaldas Ranchhodas
v. Commissioner of Income-tax [1968]
68 ITR 842 (Bom). Likewise, in
proceedings under section 34 the
assessee cannot reagitate questions
which have been decided in the original
assessment. So the original assessment
cannot be challenged in appeal against
an assessment order under section 34.
See Commissioner of Income-tax v. A.D.
Shroff [1957] 31 ITR 284 (Bom). It is
thus clear that the question of
development rebate had become final
NEUTRAL CITATION
C/SCA/3971/2019 CAV JUDGMENT DATED: 26/09/2023
undefined
when the original assessment order
was passed. It was not the subject-
matter of dispute in subsequent
proceedings under section 148 ; so the
original assessment order cannot be
said to have merged in the order under
section 148, which was restricted only
to depreciation."
This decision of the Allahabad High Court is
on all fours with the facts of the present
case and, therefore, on the basis of this
decision it must be held that the
proceedings initiated by the Income-tax
Officer in the present case under section
154 was barred by limitation."
11.5 Before the Madras High Court, the
order of assessment was dated 27.05.1960 and
notice for the first time under Section 154 was
issued on 16.02.1965. In these circumstances,
the Court held in the revenue's case that the
order of assessment was reopened and the four
year period has to be computed from the date
such order was negatived.
11.6 So also in the case of Standard
NEUTRAL CITATION
C/SCA/3971/2019 CAV JUDGMENT DATED: 26/09/2023
undefined
Chemical Co. (P). Ltd (supra) after the original
assessment was done in 1964, a notice for
reassessment was issued under Section 148 on
15.11.1968 and an order was passed on
16.12.1969. A notice for rectification was issued
on 14.04.1971 and an order was passed on
10.09.1971. The contention of the Standing
Counsel for the Revenue that the limitation
should count from the date the order passed
under Section 148 was not accepted. The Court
held as under:
"The petitioner, which is a private limited
company, was assessed to income-tax for
the aseessment year 1966- 67. In computing
the total income the assessee was granted
development rebate in respect of some
machinery which had been installed by it in
the calendar year 1964. The assessee had
also claimed depreciation on certain assets
including land. Later on, the Supreme Court
in a case, Commissioner of Income-tax v.
Alps Theatre [1967] 65 ITR 377 (SC) held
that depreciation was allowable only on the
value of buildings and not on the value of
land. The Income-tax Officer, accordingly,
realised that depreciation on land had
NEUTRAL CITATION
C/SCA/3971/2019 CAV JUDGMENT DATED: 26/09/2023
undefined
wrongly been allowed to the assessee and to
that extent a part of the assessee's income
had escaped assessment. He, accordingly,
issued a notice under section 148 of the
Income-tax Act on November 15, 1968, and
passed a supplementary assessment order
on October 16, 1969, withdrawing the
depreciation on the value of land.
Thereafter, the Income-tax Officer felt that
the development rebate had also wrongly
been allowed to the assessee inasmuch as
the assessee had not created a reserve for
the same during the year the machinery was
installed. He issued a notice under section
154 of the Act on April 14, 1971, treating it
as a case of rectification of mistake. He
finally passed an order under that section on
September 10, 1971, withdrawing the
development rebate which had been allowed
to the assessee in the original assessment
order after overruling the assessee's
contention that the order was time-barred.
The present petition is directed against that
order. The original assessment order under
which the development rebate was allowed
to the assessee was passed on 9th February,
1967. This order could be rectified under
section 154 within four years. The
rectification order passed on September 10,
1971, was, therefore, clearly barred by time.
The standing counsel for the income-tax
department says that the limitation should
be counted from the order passed under
section 148 and not from the original
assessment order. His plea is that the
original assessment order had merged in
the order passed under section 148 by the
NEUTRAL CITATION
C/SCA/3971/2019 CAV JUDGMENT DATED: 26/09/2023
undefined
Income-tax Officer and, therefore, the
limitation should be counted from the latter
order. We find absolutely no merit in this
contention. An order under section 148 is a
separate order dealing with an item of
income which had escaped assessment. The
original assessment order does not merge
into an order passed under section 148.
Where reassessment is made under section
148 (corresponding to section 34 of the
Indian Income-tax Act, 1922), the Income-
tax Officer's jurisdiction is confined to the
income which had escaped assessment and
does not extend to revising, reopening and
reconsidering the whole assessment. See
Kashi Nath Bagla v. Commissioner of
Income-tax [1930] 4 ITC 472 ; AIR 1932 All
1 and Kevaldas Ranchhodas v.
Commissioner of Income-tax [1968] 68 ITR
842 (Bom). Likewise, in proceedings under
section 34, the assessee cannot re-agitate
questions which have been decided in the
original assessment. So the original
assessment cannot be challenged in appeal
against an assessment order under section
34: See Commissioner of Income-tax v. A. D.
Shroff [1957] 31 ITR 284 (Bom). It is thus
clear that the question of development
rebate had become final when the original
assessment order was passed. It was not the
subject-matter of dispute in subsequent
proceedings under section 148; so the
original assessment order cannot be said to
have merged in the order under section 148
which was restricted only to depreciation.
Moreover, an order can be said to have
merged in another order only if the latter is
NEUTRAL CITATION
C/SCA/3971/2019 CAV JUDGMENT DATED: 26/09/2023
undefined
passed by a superior authority. It does not
merge into a subsequent order passed by
the same authority. We, therefore, cannot
accept the contention of the learned counsel
that the original assessment order had
merged into the order passed under section
148, and, therefore, it could be rectified
under section 154 after the expiry of four
years from the original assessment order.
The impugned order is clearly barred by
time and is liable to be quashed."
11.7 Even in the case of Shree Naw Durga
Bansal Cold Storage & Ice Factory (supra),
the High Court of Allahabad has held that the
period of limitation would commence from the
date of the original order. Paras 23 to 28 read as
under:
23. We also find that judgment relied by
learned counsel for Assessee in Hind Wire
Industries Ltd. (supra) also supports the
aforesaid view expressed by us. Therein an
assessment order was passed on
21.09.1979. On a rectification petition filed
under Section 154, assessment order was
rectified on 12.07.1982. Assessee again filed
rectification on 04.07.1986 contending that
he was entitled for depreciation allowance
on the factory building at the rate of ten
percent, while he was allowed depreciation
only to five percent. This application was
NEUTRAL CITATION
C/SCA/3971/2019 CAV JUDGMENT DATED: 26/09/2023
undefined
rejected by Assessing Officer being barred
by time under Section 154 (7) and order was
confirmed by Commissioner in appeal.
Tribunal took the view that for the purpose
of Section 154 (7), limitation would
commence from rectified order 12.07.1982
but on a Reference, High Court reversed the
view taken by Tribunal and held that period
of four years could be calculated from initial
order of assessment made on 21.09.1979
and not rectified assessment order dated
12.07.1982. Supreme Court while
construing Section 154 observed that word
'order' has not been qualified in any way
and does not necessarily means "original
order". It can be any order including the
"amended" or "rectified order". Assessee
therein had sought rectification of order
dated 12.07.1982 and Court held that word
'order' under Section 154 (7) would include
even "rectified order".
24. In Tony Electronics Ltd. (supra), Court
has held that judgment in Hind Wire
Industries Ltd. (supra) lays down that once
an order is rectified, initial order ceases to
operate and it is no more in existence.
Relevant observation reads as under:--
"What follows from the aforesaid is that
after the rectification order, the initial
order of assessment ceases to operate. It
is no more in existence and is substituted
by the fresh assessment order passed.
The court, thus, categorically held that
the word "any' in the expression "order
sought to be amended" would mean even
the rectified order." (Emphasis added)
NEUTRAL CITATION
C/SCA/3971/2019 CAV JUDGMENT DATED: 26/09/2023
undefined
25. With respect to Delhi High Court
judgment, the inference drawn from reading
of judgment in Hind Wire Industries Ltd.
(supra) is much more that what has actually
been said therein. Supreme Court very
clearly has said that:--
"word "order" has not been qualified in
any way and it does not necessarily
mean the original order. It can be any
order, including the amended or rectified
order." (Emphasis added)
26. The aforesaid word "including" makes it
very clear that an amended or rectified
order would not result in nullifying original
order and to say that the original order
would cease to exist, the observations made
in Delhi High Court judgment is more than
what has been said. The judgment referred
in Hind Wire Industries Ltd. (supra) related
to the cases wherein Court found that effect
of reopening and reassessment of
assessment is to vacate the initial order of
assessment and to substitute in its place the
order made on reassessment. With this
proposition there cannot be any quarrel and
this aspect is already covered in Dy. CCT
v.H.R. Sri Ramulu [1977] 39 STC 177 (SC),
V. Jaganmohan Rao v Commissioner of
Income-Tax and Excess Profits Tax [1970]
75 ITR 373 (SC) and CST v. H.M. Esufali
H.M. Abdulahi [1973] 90 ITR 271 (SC).
27. In Hind Wire Industries Ltd. (supra)
Supreme Court has used word "including" in
the amended or rectified order would mean
that word "order" as the case may be can be
NEUTRAL CITATION
C/SCA/3971/2019 CAV JUDGMENT DATED: 26/09/2023
undefined
either "original order" or "amended order"
or "rectified order" depending upon the fact
as to in which order Assessee is seeking
rectification. To read it as if, once rectified
order is passed, original order would
disappear, would result in nullifying the
effect of word "including" in the
observations made by Supreme Court, while
reading meaning of word "order" in Section
54 (7) of Act 1961.
28. In our case there may exist more than
one orders. As is evident from the fact that
Section 154 (7) used expression "order
sought to be amended" meaning thereby for
the purpose of attracting Section 154 (7),
such order which is sought to be amended,
would determine period of limitation."
11.8 Coming to the issue of the order being
bad because when there is a legal or debatable
issue such cannot be considered to be a mistake
apparent from record and therefore cannot
become a subject matter of rectification. The
Supreme Court in the case of Volkart Brothers
(supra) explaining such meaning, held as under:
"The first question that we have to decide is
whether, on the facts and in the
circumstances of the case, the Income-tax
NEUTRAL CITATION
C/SCA/3971/2019 CAV JUDGMENT DATED: 26/09/2023
undefined
Officer was within his powers in making the
impugned rectifications. He purported to
make those rectifications under section 154
of the Income-tax Act, 1961. That section, to
the extent material for our present purpose,
reads :
"154. (1) With a view to rectifying any
mistake apparent from the record--
(a) the Income-tax Officer may amend
any order of assessment or of refund or
any other order passed by him :...." The
corresponding section in the Indian
Income-tax Act, 1922, is section 35.
...
...
From what has been said above, it is clear
that the question whether section 17(1) of
the Indian Income-tax Act, 1922, was
applicable to the case of the first respondent
is not free from doubt. Therefore, the
Income- tax Officer was not justified in
thinking that on that question there can be
no two opinions. 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. As seen
earlier, the High Court of Bombay opined
that the original assessments were in
NEUTRAL CITATION
C/SCA/3971/2019 CAV JUDGMENT DATED: 26/09/2023
undefined
accordance with law though in our opinion
the High Court was not justified in going
into that question. In Satyanarayan
Laxminarayan Hegde v. Mallikarjun
Bhavanappa Tirumale [I960] 1 SCR 890, this
court while spelling out the scope of the
power of a High Court under article 226 of
the Constitution ruled that an error which
has to be established by a long drawn
process of reasoning on points where there
may conceivably be two opinions cannot be
said to be an error apparent on the face of
the record. A decision on a debatable point
of law is not a mistake apparent from the
record--see Sidhramappa Andannappa
Manvi v. Commissioner of Income-tax
[1952] 21 ITR 333 (Bom.). The power of the
officers mentioned in section 154 of the
Income-tax Act, 1961, to correct "any
mistake apparent from the record" is
undoubtedly not more than that of the High
Court to entertain a writ petition on the
basis of an "error apparent on the face of
the record." In this case it is not necessary
for us to spell out the distinction between
the expressions "error apparent on the face
of the record" and "mistake apparent from
the record". But suffice it to say that the
Income-tax Officer was wholly wrong in
holding that there was a mistake apparent
from the record of the assessments of the
first respondent.
11.9 In facts of the present case, the issue
was with regard to the interpretation of the
NEUTRAL CITATION
C/SCA/3971/2019 CAV JUDGMENT DATED: 26/09/2023
undefined
decision in the case of Yokogawa India Ltd.
(supra). In the case the Supreme Court has
settled the controversy on whether the
provisions of Sections 10A/10B/10AA are
deduction provisions or exemption provisions. A
question of interpretation therefore would not
make it an issue of a mistake apparent from
record.
11.10 Also in the case of Hero Cycles (P.)
Ltd (supra), in para 3, the Apex Court has held
as under:
"3. The ITO thereafter entertained
assessee's prayer for rectification of the
order and allowed the assessee's claim in
respect of matters like Coloured Albums,
Export Staff Travelling Expenses, Export
Sales Commission, E.C.G.C, Foreign Dealers
Visiting Expenses. Rectification under
section 154 of the Act can only be made
when glaring mistake of fact or law has
been committed by the officer passing the
order becomes apparent from the record.
Rectification is not possible if the question is
debatable. Moreover, the point which was
not examined on fact or in law cannot be
NEUTRAL CITATION
C/SCA/3971/2019 CAV JUDGMENT DATED: 26/09/2023
undefined
dealt as mistake apparent on the record.
The dispute raised a mixed question of fact
and law."
11.11 Even otherwise as submitted by Shri
S.N.Soparkar learned Senior Advocate for the
petitioner in any case the interpretation of
Yokogawa India Ltd. (supra) by the Assessing
Officer is erroneous as the said decision in fact
supports the case of the petitioner.
11.12 Before the Hon'ble Supreme Court in
the case of Yokogawa India Ltd. (supra), the
principal issue was the true and correct meaning
of and effect of the provisions of Section 10A of
the Income Tax Act, 1961. The broad questions
before the Supreme Court were as under:
"3. The broad question indicated above may
be conveniently dissected into the following
specific questions arising in the cases under
consideration.
(i) Whether Section 10A of the Act is beyond
the purview of the computation mechanism
of total income as defined under the Act.
NEUTRAL CITATION
C/SCA/3971/2019 CAV JUDGMENT DATED: 26/09/2023
undefined
Consequently, is the income of a Section
10A unit required to be excluded before
arriving at the gross total income of the
assessee?
(ii) Whether the phrase "total income" in
Section 10A of the Act is akin and pari
materia with the said expression as
appearing in Section 2(45) of the Act?
(iii) Whether even after the amendment
made with effect from 1.04.2001, Section
10A of the Act continues to remain an
exemption section and not a deduction
section?
(iv) Whether losses of other 10A Units or
non 10A Units can be set off against the
profits of 10A Units before deductions under
Section 10A are effected?
(v) Whether brought forward business
losses and unabsorbed depreciation of 10A
Units or non 10A Units can be set off
against the profits of another 10A Units of
the assessee."
11.13 After a detailed analysis of the
provisions, the Supreme Court after recording
the contentions of the assessees in para 11 of the
judgement, held that it has to be understood that
NEUTRAL CITATION
C/SCA/3971/2019 CAV JUDGMENT DATED: 26/09/2023
undefined
the Section embodies a clear enumeration that
its nature is one providing for deductions. The
relevant paragraphs read as under:
"11. On the other hand, on behalf of the
assessees, it is contended that though there
may be some features of deduction brought
in by the amendment to Section 10A, as for
example, disallowance of profits in regard to
domestic sales, the legislative intent in
retaining Section 10A in Chapter III of the
Act would clearly demonstrate the true
nature of the said provision of the Act even
after amendment thereof by the Finance Act
of 2000. Deductions from the total income
which is nowhere envisaged under the Act
and the reference to the total income of the
undertaking, referred to in several sub-
sections of Section 10A, would indicate that
the total income referred to in Section 2(45)
has no application to the computation under
Section 10A and the reference therein is
only to the total income of the eligible
unit/undertaking. The provisions of Section
10A(6), as amended by Finance Act of 2003
retrospectively with effect from 1.4.2001,
has also been stressed upon to contend that
with effect from the assessment year 2001-
02 losses and unabsorbed depreciation of
eligible units would be allowable for set off
immediately on the expiry of the period of
tax holiday i.e. 10 years. The provisions of
Sections 32, 32A, 33, 35 and part of 36 do
not separately apply to an eligible unit
during the period of tax holiday. During the
NEUTRAL CITATION
C/SCA/3971/2019 CAV JUDGMENT DATED: 26/09/2023
undefined
said period the deduction under the
aforesaid sections of the Act are deemed to
have been made. Similarly, under Section
10A(6)(ii) losses referred to in Section 72(1)
or 74(1) and 74(3) are also eligible to be
carried forward to the assessment year
following the end of the holiday period
commencing from the assessment year
2001-02. All these, according to the learned
counsels for the assessees, suggest that,
though heterogeneous elements exist in
Section 10A, the provision is really an
exemption provision. Alternatively,
according to the learned counsels, even if
Section 10A is understood to be providing
for deductions, the stage of such deductions
would be immediately after computation of
profits and gains of business and before the
aggregate of incomes under different heads
of other loss making eligible units or non-
eligible units of the assessee are taken into
account. In other words, it is immediately
after the computation of profits and gains of
business of the undertaking that the
deduction under Section 10A is required to
be made. There is no question of such
deductions being computed at the stage of
application of provisions of Chapter VI of
the Act.
12. We have considered the submissions
advanced and the provisions of Section 10A
as it stood prior to the amendment made by
Finance Act, 2000 with effect from 1.4.2001;
the amended Section 10A thereafter and
also the amendment made by Finance Act,
2003 with retrospective effect from
1.4.2001.
NEUTRAL CITATION
C/SCA/3971/2019 CAV JUDGMENT DATED: 26/09/2023
undefined
13. The retention of Section 10A in Chapter
III of the Act after the amendment made by
the Finance Act, 2000 would be merely
suggestive and not determinative of what is
provided by the Section as amended, in
contrast to what was provided by the un-
amended Section. The true and correct
purport and effect of the amended Section
will have to be construed from the language
used and not merely from the fact that it has
been retained in Chapter III. The
introduction of the word 'deduction' in
Section 10A by the amendment, in the
absence of any contrary material, and in
view of the scope of the deductions
contemplated by Section 10A as already
discussed, it has to be understood that the
Section embodies a clear enunciation of the
legislative decision to alter its nature from
one providing for exemption to one
providing for deductions.
14. The difference between the two
expressions 'exemption' and 'deduction',
though broadly may appear to be the same
i.e. immunity from taxation, the practical
effect of it in the light of the specific
provisions contained in different parts of the
Act would be wholly different. The above
implications cannot be more obvious than
from the case of Civil Appeal Nos.
8563/2013, 8564/2013 and civil appeal
arising out of SLP(C) No. 18157/2015,
which have been filed by loss making
eligible units and/or by non-eligible
assessees seeking the benefit of adjustment
of losses against profits made by eligible
NEUTRAL CITATION
C/SCA/3971/2019 CAV JUDGMENT DATED: 26/09/2023
undefined
units.
15. Sub-section 4 of Section 10A which
provides for pro rata exemption, necessarily
involving deduction of the profits arising out
of domestic sales, is one instance of
deduction provided by the amendment.
Profits of an eligible unit pertaining to
domestic sales would have to enter into the
computation under the head "profits and
gains from business" in Chapter IV and
denied the benefit of deduction. The
provisions of Sub-section 6 of Section 10A,
as amended by the Finance Act of 2003,
granting the benefit of adjustment of losses
and unabsorbed depreciation etc.
commencing from the year 2001-02 on
completion of the period of tax holiday also
virtually works as a deduction which has to
be worked out at a future point of time,
namely, after the expiry of period of tax
holiday. The absence of any reference to
deduction under Section 10A in Chapter VI
of the Act can be understand by
acknowledging that any such reference or
mention would have been a repetition of
what has already been provided in Section
10A. The provisions of Sections 80HHC and
80HHE of the Act providing for somewhat
similar deductions would be wholly
irrelevant and redundant if deductions
under Section 10A were to be made at the
stage of operation of Chapter VI of the Act.
The retention of the said provisions of the
Act i.e. Section 80HHC and 80HHE, despite
the amendment of Section 10A, in our view,
indicates that some additional benefits to
NEUTRAL CITATION
C/SCA/3971/2019 CAV JUDGMENT DATED: 26/09/2023
undefined
eligible Section 10A units, not contemplated
by Sections 80HHC and 80HHE, was
intended by the legislature. Such a benefit
can only be understood by a legislative
mandate to understand that the stages for
working out the deductions under Section
10A and 80HHC and 80HHE are
substantially different. This is the next
aspect of the case which we would now like
to turn to.
16. From a reading of the relevant
provisions of Section 10A it is more than
clear to us that the deductions contemplated
therein is qua the eligible undertaking of an
assessee standing on its own and without
reference to the other eligible or non-
eligible units or undertakings of the
assessee. The benefit of deduction is given
by the Act to the individual undertaking and
resultantly flows to the assessee. This is also
more than clear from the contemporaneous
Circular No. 794 dated 9.8.2000 which
states in paragraph 15.6 that, "The export
turnover and the total turnover for the
purposes of sections 10A and 10B shall be of
the undertaking located in specified zones
or 100% Export Oriented Undertakings, as
the case may be, and this shall not have any
material relationship with the other
business of the assessee outside these zones
or units for the purposes of this provision."
17. If the specific provisions of the Act
provide [first proviso to Sections 10A(1);
10A (1A) and 10A (4)] that the unit that is
NEUTRAL CITATION
C/SCA/3971/2019 CAV JUDGMENT DATED: 26/09/2023
undefined
contemplated for grant of benefit of
deduction is the eligible undertaking and
that is also how the contemporaneous
Circular of the department (No.794 dated
09.08.2000) understood the situation, it is
only logical and natural that the stage of
deduction of the profits and gains of the
business of an eligible undertaking has to be
made independently and, therefore,
immediately after the stage of
determination of its profits and gains. At
that stage the aggregate of the incomes
under other heads and the provisions for set
off and carry forward contained in Sections
70, 72 and 74 of the Act would be
premature for application. The deductions
under Section 10A therefore would be prior
to the commencement of the exercise to be
undertaken under Chapter VI of the Act for
arriving at the total income of the assessee
from the gross total income. The somewhat
discordant use of the expression "total
income of the assessee" in Section 10A has
already been dealt with earlier and in the
overall scenario unfolded by the provisions
of Section 10A the aforesaid discord can be
reconciled by understanding the expression
"total income of the assessee" in Section
10A as 'total income of the undertaking'."
11.14 In the perception of the Revenue, the
view is otherwise. If the interpretation of the
Revenue is permitted to hold then such
treatment would amount to treating Section 10A
NEUTRAL CITATION
C/SCA/3971/2019 CAV JUDGMENT DATED: 26/09/2023
undefined
provision as an exemption provision and not a
deduction provision.
11.15 In the decision of the Karnataka High
Court in the case of Karle International (supra)
in Tax Appeal, the Court was considering
whether the Tribunal was right in law in allowing
the claim of the assessee towards set off of
losses. The Division Bench therein held as
under:
"9. Admittedly, in the instant case, two units
of the assessee namely unit No.II and unit
No.III were export oriented units and were
eligible for exemption. The assessee had
sustained loss in respect of unit No.I and
therefore, the assessee had claimed set off,
as permissible under Section 70 of the Act
and had offered the balance as income
taxable under the head income from
business of Rs.12,89,762/- which has been
declared in the return. The provisions of
Section 70 of the Act have to be given effect
to. It is pertinent to mention here that
Income Tax Appellate Tribunal had taken a
similar view in MINDTREE CONSULTING
(P) LTD., supra, which was upheld by a
Division Bench of this Court in
NEUTRAL CITATION
C/SCA/3971/2019 CAV JUDGMENT DATED: 26/09/2023
undefined
COMMISSIONER OF INCOME-TAX Vs.
YOKOGAWA INDIA LTD., supra. Similar
view has been taken by Bombay High Court
in GALAXY SURFACTANTS LTD., supra. We
respectfully agree with the view taken by
the Division Bench of this Court as well as
Bombay High Court.
It is pertinent to mention here that decision
of the Supreme Court in YOKOGAWA, supra
is not an authority for the proposition that
an assessee cannot claim set off under
Section 70 of the Act and therefore, the
aforesaid decision has no application to the
facts of the case. Since we have dealt with
the issues involved in this appeal with
reference to the return filed for the
assessment year 2008-09 on 30.08.2009,
therefore, it is not necessary for us to deal
with the contention raised by the learned
counsel for the revenue that the return had
filed beyond prescribed period and
therefore, has no legal sanctity."
11.16 The interpretation therefore of the
Revenue as elaborated in law is clearly not
legally permissible.
11.17 Having held that the notice under
Section 154 of the Act is barred by limitation,
that it was a debatable issue not therefore within
NEUTRAL CITATION
C/SCA/3971/2019 CAV JUDGMENT DATED: 26/09/2023
undefined
the parameters of Section 154 of the Act, the
notices under Section 154 of the Act are bad.
Even on the parameters of interpretation, notice
under Section 263 in one of the petitions must
also fail.
11.18 Challenge to such a notice is
maintainable under Article 226 of the
Constitution of India.
11.19 In the case of JMC Projects (India)
Ltd (supra), the Court held as under:
"1. This petition is filed by the assessee
challenging a notice dated 11.02.2015, as at
Annexure-I to the petition, issued by the
Commissioner of Income Tax initiating
revisional proceedings under section 263 of
the income-tax Act, 1961 ("the Act" for
short) for assessment years 2008-09 to
2012-13. Brief facts are as under:
3. Despite resistance from the assessee, the
assessing officer held that the expenses
claimed by the assessee under profit & loss
account to the tune of Rs.105.36 crore
NEUTRAL CITATION
C/SCA/3971/2019 CAV JUDGMENT DATED: 26/09/2023
undefined
(rounded off), which represented the
payments made to such vendors for sub-
contracts, were not verifiable. The assessee
had claimed such expenditure in the profit
& loss account. The assessing officer,
therefore, was not satisfied with the
correctness of the accounts of the assessee
and rejected the books of accounts of the
assessee in terms of section 145 (3) of the
Act. He thereafter proceeded to compare
the gross profit ratio of various other
agencies in the similar business and made
additions on this score spread over all the
assessment years, namely, assessment years
2008-09 to 2012-13.
5. The petitioner has challenged this notice
on various grounds. Counsel for the
petitioner vehemently contended that the
Commissioner had no authority to take the
orders of assessment under revision in
exercise of powers under section 263 of the
Act. He pointed out that the assessing
officer had made additions on account of
non-verifiability of the payments made to
176 vendors which additions totally came to
Rs.123 crore (rounded off). Thus, as against
the proposed addition of Rs.105.36 crore
suggested by the Commissioner in his
impugned notice, the assessing officer had
already made much greater additions
concerning the same expenditure. The order
of the assessing officer, therefore, cannot be
stated to be prejudicial to the interest of the
revenue. On such premises, counsel for the
petitioner raised the following contentions:
NEUTRAL CITATION
C/SCA/3971/2019 CAV JUDGMENT DATED: 26/09/2023
undefined
(i) That the orders of assessments were not
prejudicial to the interest of revenue. The
Commissioner, therefore, had no jurisdiction
to issue the notice under section 263 of the
Act;
(ii) Original assessments were made in
consultation with higher authorities as
required under the law. It was, therefore,
not open for the Commissioner to revise
such orders.
(iii) Assessee's appeals were pending before
the CIT (Appeals) and were being heard,
where the main issue is the additions made
by the assessing officer, which is also
subject-matter of the notice for revision
issued by the Commissioner. At that stage,
therefore, it was not open for the
Commissioner to exercise such revisional
powers.
7. On the other hand, learned counsel Mr.
M.R. Bhatt for the Revenue resisted the
petition contending that, at this stage where
the Commissioner has merely issued a
notice, scrutiny by the Court would be
extremely limited to finding out whether the
exercise of jurisdictional power is justified
or not. The Commissioner has in the notice
itself pointed out that the additions made by
the assessing officer were based on the
rejection of books of accounts and on re-
calculation of the G.P. Rate. In fact, the
assessing officer should have disallowed the
entire expenditure of Rs.105.36 crore which
he failed to do. He, therefore, submitted
NEUTRAL CITATION
C/SCA/3971/2019 CAV JUDGMENT DATED: 26/09/2023
undefined
that such addition should have been
correctly made by the assessing officer so
that the same can be sustained. Merely
because the assessing officer has made
certain additions by itself would not
preclude the Commissioner from exercising
the powers under section 263 of the Act,
particularly when it is found that the
assessing officer has not made additions on
proper premises. Counsel for the revenue
also submitted that in view of the statutory
mechanism provided under the Act, the
order of the Commissioner that may be
passed on the basis of the impugned notice
is appealable. This Court, therefore, in
exercise of its extraordinary jurisdiction
would not interfere at this stage. In this
context, reliance was placed on the decision
of the Supreme Court in case of CIT v.
Chhabil Dass Agarwal [2013] 357 ITR
357/217 Taxman 143/36 taxmann.com 36.
9. The Commissioner does not dispute this
aspect of the matter. Though in the
impugned notice there is no such clear-cut
admission to detailed assertion made by the
petitioner in the petition backed by
materials on record, there is no denial in the
reply filed by the Commissioner. We would,
therefore, proceed on the basis that against
the proposed addition of Rs.105.36 crore
suggested by the Commissioner in the
imugned notice, the assessing officer under
the same heads for the assessment years in
question had made addition of Rs.123 crore
to the income of the assessee. The crucial
question, therefore, arises whether
NEUTRAL CITATION
C/SCA/3971/2019 CAV JUDGMENT DATED: 26/09/2023
undefined
revisional powers under section 263 of the
Act can be exercised. As held by the
Supreme Court in the case of Malabar
Industrial Co. Ltd. (supra), powers under
section 263 of the Act would be available
when an order of assessment is shown to be
erroneous and prejudicial to the interests of
the revenue. In other words, both the
conditions, namely, that the order of
assessment is erroneous and that is also
prejudicial to the interests of the revenue
must exist to give jurisdiction to the
Commissioner to take an order of
assessment in revision.
11. In the case of ITO v. D.G. Housing
Projects Ltd. [2012] 343 ITR 329/20
taxmann.com 587/[2013] 212 Taxman 132
(Mag.) (Delhi), Division Bench of Delhi High
Court held that, a finding that the order is
erroneous is a condition or requirement
which must be satisfied for exercise of
jurisdiction under section 263 of the Act.
The matter cannot be remanded for a fresh
decision to the the assessing officer to
conduct further inquiries without a finding
that the order is erroneous.
17. In the result, in our opinion, the
Commissioner lacked jurisdiction to issue
the impugned notice. When the question is
the very foundation of the notice and
jurisdiction of the Commissioner to exercise
such powers, the question of relegating the
petitioner to alternative remedy or to permit
the Commissioner to complete the
proceedings and thereafter to direct the
NEUTRAL CITATION
C/SCA/3971/2019 CAV JUDGMENT DATED: 26/09/2023
undefined
petitioner to take appeal route does not
arise."
11.20 Even in the case of Engineering
Professional Co. (P.) Ltd; (supra), the Division
Bench of this Court has held thus;
"13. Having regard to the basic infirmity in
the impugned order passed by the Assessing
Officer, we are of the view that we should
not reject this writ application only the
ground that the writ applicant has an
alternative efficacious remedy of preferring
an appeal before the CIT (Appeals). In this
context, we may refer to a decision of the
Supreme Court in the case of CIT v. Chhabil
Dass Agarwal [2013] 36 taxmann.com
36/217 Taxman 143/357 ITR 357 (SC). We
rely upon the observations made in paras 15
to 20. The same reads thus:
'15. Before discussing the fact proposition,
we would notice the principle of law as laid
down by this Court. It is settled law that
non-entertainment of petitions under writ
jurisdiction by the High Court when an
efficacious alternative remedy is available is
a rule of self-imposed limitation. It is
essentially a rule of policy, convenience and
discretion ather than a rule of law.
Undoubtedly, it is within the discretion of
the High Court to grant relief under article
226 despite the existence of an alternative
remedy. However, the High Court must not
NEUTRAL CITATION
C/SCA/3971/2019 CAV JUDGMENT DATED: 26/09/2023
undefined
interfere if there is an adequate efficacious
alternative remedy available to the
petitioner and he has approached the High
Court without availing the same unless he
has made out an exceptional case
warranting such interference or there exist
sufficient grounds to invoke the
extraordinary jurisdiction under article 226.
(See: State of U.P. v. Mohammad Nooh, AIR
1958 SC 86; Titaghur Paper Mills Ltd. v.
State of Orissa, (1983) 2 SCC 433;
Harbanslal Sahnia v. Indian Oil Corpn. Ltd.
(2003) 2 SCC 107; State of H.P. v. Gujarat
Ambuja Cement Ltd., (2005) 6 SCC 499).
16. The Constitution Benches of this Court
in K.S. Rashid and Sons v. Income Tax
Investigation Commission, AIR 1954 SC
207; Sangram Singh v. Election Tribunal,
Kotah, AIR 1955 SC 425; Union of India v.
T.R. Varma, AIR 1957 SC 882; State of U.P.
v Mohd. Nooh, AIR 1958 SC 86 and K.S.
Venkataraman and Co. (P.) Ltd. v. State of
Madras, AIR 1966 SC 1089 have held that
though article 226 confers a very wide
powers in the matter of issuing writs on the
High Court, the remedy of writ absolutely
discretionary in character. If the High Court
is satisfied that the aggrieved party can
have an adequate or suitable relief
elsewhere, it can refuse to exercise its
jurisdiction. The Court, in extraordinary
circumstances, may exercise the power if it
comes to the conclusion that there has been
a breach of principles of natural justice or
procedure required for decision has not
been adopted.
NEUTRAL CITATION
C/SCA/3971/2019 CAV JUDGMENT DATED: 26/09/2023
undefined
17. In Nivedita Sharma v. Cellular
Operators Assn. of India, (2011) 14 SCC
337, this Court has held that where
hierarchy of appeals is provided by the
statute, party must exhaust the statutory
remedies before resorting to writ
jurisdiction for relief and observed as
follows:
"12. In Thansingh Nathmal v. Supdt. of
Taxes, AIR 1964 SC 1419 this Court
adverted to the rule of self-imposed
restraint that the writ petition will not be
entertained if an effective remedy is
available to the aggrieved person and
observed: (AIR p. 1423, para 7).
"7. ... The High Court does not therefore act
as a court of appeal against the decision of a
court or tribunal, to correct errors of fact,
and does not by assuming jurisdiction under
article 226 trench upon an alternative
remedy provided by statute for obtaining
relief. Where it is open to the aggrieved
petitioner to move another tribunal, or even
itself in another jurisdiction for obtaining
redress in the manner provided by a statute,
the High Court normally will not permit by
entertaining a petition under article 226 of
the Constitution the machinery created
under the statute to be bypassed, and will
leave the party applying to it to seek resort
to the machinery so set-up."
13. In Titaghur Paper Mills Co. Ltd. v. State
of Orissa, (1983) 2 SCC 433 this Court
observed: (SCC pp. 440-41, para 11)
NEUTRAL CITATION
C/SCA/3971/2019 CAV JUDGMENT DATED: 26/09/2023
undefined
"11. ... It is now well recognised that where
a right or liability is created by a statute
which gives a special remedy for enforcing
it, the remedy provided by that statute only
must be availed of. This rule was stated with
great clarity by Willes, J. in Wolverhampton
New Waterworks Co. v. Hawkesford, 141 ER
486 in the following passage: (ER p. 495) '...
There are three classes of cases in which a
liability may be established founded upon a
statute. ... But there is a third class viz.
where a liability not existing at common law
is created by a statute which at the same
time gives a special and particular remedy
for enforcing it. ... The remedy provided by
the statute must be followed, and it is not
competent to the party to pursue the course
applicable to cases of the second class. The
form given by the statute must be adopted
and adhered to.' The rule laid down in this
passage was approved by the House of
Lords in Neville v. London Express
Newspapers Ltd., 1919 AC 368 and has
been reaffirmed by the Privy Council in
Attorney General of Trinidad and Tobago v.
Gordon Grant and Co. Ltd., 1935 AC 532
(PC) and Secy. of State v. Mask and Co., AIR
1940 PC 105. It has also been held to be
equally applicable to enforcement of rights,
and has been followed by this Court
throughout. The High Court was therefore
justified in dismissing the writ petitions in
limine." 14. In Mafatlal Industries Ltd. v.
Union of India, (1997) 5 SCC 536 B.P.
Jeevan Reddy, J. (speaking for the majority
of the larger Bench) observed: (SCC p. 607,
para 77) "77. ... So far as the jurisdiction of
NEUTRAL CITATION
C/SCA/3971/2019 CAV JUDGMENT DATED: 26/09/2023
undefined
the High Court under article 226--or for
that matter, the jurisdiction of this Court
under article 32--is concerned, it is obvious
that the provisions of the Act cannot bar and
curtail these remedies. It is, however,
equally obvious that while exercising the
power under article 226/article 32, the
Court would certainly take note of the
legislative intent manifested in the
provisions of the Act and would exercise
their jurisdiction consistent with the
provisions of the enactment."" (See: G.
Veerappa Pillai v. Raman & Raman Ltd., AIR
1952 SC 192; CCE v. Dunlop India Ltd.,
(1985) 1 SCC 260; Ramendra Kishore
Biswas v. State of Tripura, (1999) 1 SCC
472; Shivgonda Anna Patil v. State of
Maharashtra, (1999) 3 SCC 5; C.A. Abraham
v. ITO, (1961) 2 SCR 765; Titaghur Paper
Mills Co. Ltd. v. State of Orissa, (1983) 2
SCC 433; H.B. Gandhi v. Gopi Nath and
Sons, 1992 Supp. (2) SCC 312; Whirlpool
Corpn. v. Registrar of Trade Marks, (1998) 8
SCC 1; Tin Plate Co. of India Ltd. v. State of
Bihar, (1998) 8 SCC 272; Sheela Devi v.
Jaspal Singh, (1999) 1 SCC 209 and Punjab
National Bank v. O.C. Krishnan, (2001) 6
SCC 569)
18. In Union of India v. Guwahati Carbon
Ltd., (2012) 11 SCC 651, this Court has
reiterated the aforesaid principle and
observed:
"8. Before we discuss the correctness of the
impugned order, we intend to remind
ourselves the observations made by this
Court in Munshi Ram v. Municipal
NEUTRAL CITATION
C/SCA/3971/2019 CAV JUDGMENT DATED: 26/09/2023
undefined
Committee, Chheharta, (1979) 3 SCC 83. In
the said decision, this Court was pleased to
observe that: (SCC p. 88, para 23).
"23. ... when a revenue statute provides for
a person aggrieved by an assessment
thereunder, a particular remedy to be
sought in a particular forum, in a particular
way, it must be sought in that forum and in
that manner, and all the other forums and
modes of seeking [remedy] are excluded.""
19. Thus, while it can be said that this Court
has recognised some exceptions to the rule
of alternative remedy, i.e., where the
statutory authority has not acted in
accordance with the provisions of the
enactment in question, or in defiance of the
fundamental principles of judicial
procedure, or has resorted to invoke the
provisions which are repealed, or when an
order has been passed in total violation of
the principles of natural justice, the
proposition laid down in Thansingh Nathmal
case, Titaghur Paper Mills case and other
similar judgments that the High Court will
not entertain a petition under article 226 of
the Constitution if an effective alternative
remedy is available to the aggrieved person
or the statute under which the action
complained of has been taken itself contains
a mechanism for redressal of grievance still
holds the field. Therefore, when a statutory
forum is created by law for redressal of
grievances, a writ petition should not be
entertained ignoring the statutory
dispensation.
NEUTRAL CITATION
C/SCA/3971/2019 CAV JUDGMENT DATED: 26/09/2023
undefined
20. In the instant case, the Act provides
complete machinery for the
assessment/reassessment of tax, imposition
of penalty and for obtaining relief in respect
of any improper orders passed by the
Revenue Authorities, and the assessee could
not be permitted to abandon that machinery
and to invoke the jurisdiction of the High
Court under article 226 of the Constitution
when he had adequate remedy open to him
by an appeal to the Commissioner of Income
Tax (Appeals). The remedy under the
statute, however, must be effective and not
a mere formality with no substantial relief.
In Ram and Shyam Co. v. State of Haryana,
(1985) 3 SCC 267 this Court has noticed
that if an appeal is from "Caesar to Caesar's
wife" the existence of alternative remedy
would be a mirage and an exercise in
futility. In the instant case, neither has the
assessee-writ petitioner described the
available alternate remedy under the Act as
ineffectual and non-efficacious while
invoking the writ jurisdiction of the High
Court nor has the High Court ascribed
cogent and satisfactory reasons to have
exercised its jurisdiction in the facts of
instant case.'
14. Thus, the dictum of law, as laid in the
aforesaid decision, is that although the Act
provides complete machinery for the
assessment/reassessment of tax, imposition
of penalty and for obtaining relief in respect
of any improper orders passed by the
Revenue Authorities, yet the remedy under
the statute, however, must be effective and
NEUTRAL CITATION
C/SCA/3971/2019 CAV JUDGMENT DATED: 26/09/2023
undefined
not a mere formality with no substantial
relief. It is true that when a statutory forum
is created by law for redressal of grievance,
a writ petition should not be entertained
ignoring the statutory dispensation. But,
such principles, in a given case, maybe
given a go-bye, if the Court is convinced
that on the face of it, the impugned order is
not sustainable in law. We are of the view
that we should look into the matter on
merits while overruling the preliminary
objection raised on behalf of the Revenue."
12.For all the aforesaid reasons, the impugned
notices dated 20.03.2018 and 24.04.2018 in
Special Civil Application No.3971 of 2019, the
impugned notices dated 19.03.2018 and
24.04.2018 in Special Civil Application No.3972
of 2019, the impugned notices dated 19.03.2018
and 24.04.2018 in Special Civil Application
No.3973 of 2019, the impugned notices dated
20.03.2018 and 24.04.2018 in Special Civil
Application No.3977 of 2019 and impugned
notice dated 23.02.2018 in Special Civil
Application No.3981 of 2019 are quashed and set
NEUTRAL CITATION
C/SCA/3971/2019 CAV JUDGMENT DATED: 26/09/2023
undefined
aside.
13.Petitions are accordingly allowed. Rule is made
absolute accordingly with no order as to costs.
(BIREN VAISHNAV, J)
(BHARGAV D. KARIA, J)
ANKIT SHAH
