The Honourable Mr v. M/s.A.G.Granites (P) Ltd

In the High Court of Judicature at MadrasDated : 16.7.2007Coram :The Honourable Mr.Justice K.RAVIRAJA PANDIANandThe Honourable Mr.Justice P.P.S.JANARTHANA RAJATax Case (Appeal) No.946 of 2007The Commissioner of Income TaxSalem.. AppellantVsM/s.A.G.Granites (P) Ltd.,Muthu Gounder ColonyHarur 636 903... RespondentTAX CASE (APPEAL) under Section 260A of the Income Tax Actagainst the order of the Income Tax Appellate Tribunal Madras 'D'Bench dated 27.12.2006 made in I.T.A.No.1154/Mds/2005 for theassessment year 2002-03 against the order of Dy.Commissioner ofIncome Tax, Company Circle, 'D-Bench Salem, dt.27.12.2006, in ITANo.1154/mds-2005',against the order of Commissioner of Income Tax(Appeals) Salem, dt.25.2.2005 in ITA No.3 63/2004-05 arising out ofthe order of Assistant Commissioner of Income-Tax, Salem -7 dt.19.3.2004 in IDCA0060/ACIT/Coy/SLM for the assessment year 2002-2003.For Appellant : Mr.T.Ravi Kumar Standing Counsel (Income Tax)JUDGMENTJUDGMENT OF THE COURT WAS DELIVERED BY K.RAVIRAJA PANDIAN,JThe appeal is filed raising the following substantialquestions of law:-1. Whether on the facts and in thecircumstances of the case, the Income Tax Tribunal https://hcservices.ecourts.gov.in/hcservices/ is right in holding that deduction under Section10B as well as under Sec.80HHC could not berectified under Section 154 ?2. Whether on the facts and in thecircumstances of the case, the Income Tax Tribunalis right in holding that rectification orderunder Section 154 was not proper especially whenthe audit had raised an objection that the interestincome of Rs.2,14,457/- was to be brought to taxunder the head "income from other sources" ?3. Whether on the facts and in thecircumstances of the case, the Income Tax Tribunalis right in not considering the judgment of theSupreme Court in the case of Pandian Chemicals Vs.CIT reported in 262 ITR 278, wherein it was heldthat the interest income has to be considered asincome from other sources and that of the Punjaband Haryana Full Bench in the case of CITVs.Smt.Aruna Luthura reported in 252 ITR page 76which had held that proceedings for rectificationof an order can be initiated on the basis of anorder passed by jurisdictional High Court or theSupreme Court subsequent to the order passed by theauthority under the Act ?2. The necessary facts as culled out from the grounds are asfollows:-The assessee, a Company exporting granite blocks toforeign countries, had filed the return of income for theassessment year 2002-03 on 31.10.2002 admitting an income ofRs.9,68,900/- after claiming deduction under Section 10B to theextent of Rs.1,32,389/- The said return was processed underSection 143(1) and refund of Rs.1,280/- was allowed. On verificationof the records, it was noticed that the assessee had offeredinterest income of Rs.2,14,457/- on FD made under the head otherincome, but the same was required to be assessed under the head"income from other sources". Hence a notice under Section 154 of theAct was issued to the assessee calling for his objection, if anyfor treating the said income as indicated in the notice. Theassessing officer after considering the reply has rectified theassessment order by his order dated 19.3.2004 as proposed in thenotice. The appeal filed by the assessee in I.T.A.No.63/2004-2005before the Commissioner of Income Tax (Appeals), questioning thecorrectness of rectification of assessment under Section 154 wasdismissed on 25.2.2005. The assessee filed further appeal beforethe Income Tax Appellate Tribunal in I.T.A.No.1154/2005. TheTribunal allowed the appeal by holding that the debatable issuesshould not be rectified under Section 154 of the Income Tax Act. https://hcservices.ecourts.gov.in/hcservices/ Not satisfied with the order of the Tribunal, the presentappeal is filed by formulating the above said three questions oflaw.3. Learned Standing Counsel for the Revenue argued thatthe language employed in Section 154 of the Income Tax Act is verywide in its amplitude and it should be construed to encompass in itany mistake apparent from the record. In order to sustain thecase of the Revenue, the decision of the Supreme Court inPANDIAN CHEMICALS LTD. VS. COMMISSIONER OFINCOME-TAX (262 ITR 278)and the decision of the Full Bench of the Punjab and Haryana HighCourt in the case of COMMISSIONER OF INCOME-TAX VS.SMT. ARUNALUTHRA ( 252 ITR 76) have been relied upon. 4. We heard the arguments of the learned counselappearing for the Revenue and perused the materials on record. 5. The point in issue is, whether the "interest income"offered by the assessee under the head "other income" could be re-assessed under the head of "income from other sources" by way ofrectification and on the basis of the objection raised by the auditmembers. It is a debatable issue when there are two opinions aboutthe head of income under which the interest income has to beassessed one by the assessee and the other by the revenue. 6. Section 154 of the Income-tax Act provides forrectification of mistakes, which are apparent from the record. Thephraseology "mistake apparent from the record" has been consideredby several judicial opinions and all those judicial opinionsuniformly held that an error, which is not self evident, and has tobe detected by a process of reasoning, can hardly be said to be anerror apparent on the face of the record. There is a cleardistinction between an erroneous order and an error apparent on theface of the record, while the first could be corrected by the higherforum, later only could be corrected by exercise of power ofrectification. 7. The scope and amplitude of Section 154 of the Income-tax Act, 1961 has been considered by the Supreme court in the caseof T.S.BALARAM, INCOME TAX OFFICER, COMPANY CIRCLE IV, BOMBAY VS.VOLKART BROTHERS (82 ITR 50) wherein it was held that a mistakeapparent on the record must be an obvious and patent mistake and notsomething which can be established by a long drawn process ofreasoning on points on which there may be conceivably two opinions.A decision on a debatable point of law is not a mistake apparentfrom the record, which is not amenable for rectification underSection 154 of the Income-tax Act.8. A Division Bench of this Court in the case of COMMISSIONER https://hcservices.ecourts.gov.in/hcservices/ OF INCOME TAX VS. SHARP INDUSTRIES ( 2006) 282 ITR 336), in whichone of us (P.P.S.Janarthanaraja,J.) was a party, while consideringthe question of law as to "whether the Income-tax Appellate Tribunalwas right in holding that the assessee therein was entitled todeduction in respect of interest income under sections 80HHC and 80-I of the Income-tax Act", has held that interest income is eligiblefor special deduction under sections 80HHC and 80-I of the Income-tax Act, 1961, provided it is included in the computation of profitsand gains of the business. Special deduction cannot be disallowed inrectification proceedings under section 154 of the Act, especiallywhen the interest income is included in the profits of the business.9. In yet another Division Bench decision of this Court in thecase of COMMISSIONER OF INCOME TAX VS. SESHASAYEE PAPER AND BOARDSLTD (2006) 283 ITR 200) , while considering the question of law, asto "whether the Tribunal was right in holding that the assesseeshould be granted the benefit of section 80HHC as per its claim, asthe quantification could not be considered under Section 154 of theIncome-tax Act", it was held that the question of relief undersection 80HHC of the Act was a debatable issue and would not fallwithin the purview of Section 154 of the Income-tax Act. 10. The decision of the Supreme Court relied on by the learnedcounsel for the revenue in the case of PANDIAN CHEMICALS LTD. VS.COMMISSIONER OFINCOME-TAX (262 ITR 278), we are of the view, is nothelpful to the revenue on the point in issue, whether a debatableissue can be rectified by invoking Section 154 of the Income-taxAct. That was a case in which the High Court while considering theissue, "whether the Appellate Tribunal was right in holding that theinterest on deposits with Tamil Nadu Electricity Board should betreated as income derived by the industrial undertaking for thepurpose of section 80HH", answered the question in favour of theDepartment and against the assessee. On appeal to the Supreme Court,the Supreme Court rendered the meaning to the phraseology "derivedfrom" employed under Section 80HHC and held that the interestderived by the industrial undertaking of the assessee thereon on thedeposits made with the Electricity Board for the supply ofelectricity for running the industrial undertaking could not be saidto flow directly from the industrial undertaking itself and was notprofits or gains derived by the undertaking for the purpose ofspecial deduction under section 80HH. Hence, the decision is no wayhelpful to resolve the point in issue in this case. 11. The Full Bench decision of the Punjab and Haryana HighCourt in the case of COMMISSIONER OF INCOME-TAX VS. SMT.ARUNALUTHRA ( 252 ITR 76) relied on by the revenue also does not advancethe case of the revenue, because in that case also, uniform judicialopinion has been re-affirmed by stating as follows: https://hcservices.ecourts.gov.in/hcservices/ "... While an assessment under section 143 or 144has to be normally made within a period of one or twoyears, the mistake can be rectified at any time duringthe period of four years. The obvious intention of theLegislature is that if the mistake has come to the noticeof the authority within the prescribed time, it shouldnot be allowed to continue. Section 154 clearly providesfor the intervention of the authority within thespecified time, subject to the condition that the mistakeis apparent and the issue is not debatable.(emphasis supplied)12. As we have already come to the conclusion that the issue asto the head under which the "interest income" has to be assessed isa debatable issue, the above said decision of the Punjab and HaryanaHigh Court goes against the plea of the revenue. 13. For the fore-going reasons, we are of the view that theappellant has not made out any question of law for determination inthis appeal and the appeal fails and the same is dismissed. Sd/Asst.Registrar/true copy/Sub Asst.Registrarkrr/uskTo1. The Assistant Registrar, Income Tax Appellate Tribunal, Chennai-600 034 2. The Commissioner of Income-tax (Appeals) Salem3.The AssistantCommissioner of Income Tax, Company Circle Salem. https://hcservices.ecourts.gov.in/hcservices/

4.The Deputy Commissioner of Income-TaxCompany Circle, Salem 636 007.5.The Asst. Registrar,Income Tax Appellate Tribunal,Bench 'C' Rajaji Bhavan, 3rd Floor, Besant Nagar,Madras -90.6.The Secretary,Central Board of Direct Taxes,New Delhi.+1cc to Mr.N.Muralikumaran, Advocate Sr 43142MDR (CO)km/17.10.Tax Case (Appeal) No.946 of 2007