I.T.A. No. 17 of 2008 1 IN THE HIGH COURT OF PUNJAB & HARYANA AT CHANDIGARH I.T.A. No. 17 of 2008 Date of decision: 31.03.2008 Punjab State Coop. Supply & Marketing Federation Ltd., Chandigarh. ..... Appellant-assessee Versus Deputy Commissioner of Income-Tax, Circle 4(1), Chandigarh ..... Respondent-revenue CORAM: HON'BLE MR. JUSTICE SATISH KUMAR MITTAL HON'BLE MR. JUSTICE RAKESH KUMAR GARG Present:- Mr. M.L. Garg, Advocate for the appellant-assessee. RAKESH KUMAR GARG, J. The assessee has filed the present appeal under Section 260-A of the Income-Tax Act, 1961 ( hereinafter referred to as the “Act” ) against the order dated 27.02.2007 passed by the Income-Tax Appellate Tribunal, Chandigarh, Bench-B in I.T.A. No. 844/Chandi/2004 for the assessment year 1998-99. I.T.A. No. 17 of 2008 2 The return of income was processed under Section 143(1)(a) of the Act on 15.3.1999 at an income of Rs.35,38,62,548/- after making various adjustments. It is relevant to mention here that during the financial year 1996-97 corresponding to assessment year 1997-98, the appellant had made a provision of Rs.7.00 crores for payment of arrears of the salary to the employees. Since it was only a provision and the exact liability had not been quantified, it was added back as income in the return filed and the amount of Rs.7.00 crores was taxed. In the next financial year i.e. 1997-98, the liability was quantified and an amount of Rs.4,99.37,406/- was paid during the next year i.e. 1998-99. Since the amount was paid out of the provision made in financial year 1996-97, it was not charged to Profit & Loss account for the financial year 1997- 98. While computing the income for filing its return for the assessment year 1998-99, the appellant did not claim the said amount i.e. Rs.7.00 crores as expenses. As a result, the income of Rs.7.00 crores was assessed in excess for assessment year 1998-99. It is further pleaded in the appeal that thereafter the appellant filed an application under Section 154 of the Act before the Assessing Officer claiming that since the omission I.T.A. No. 17 of 2008 3 to claim the expenditure of Rs.7.00 crores was a mistake apparent from the record, this may be rectified and the income assessed be reduced by the said amount of Rs.7.00 crores. However, the Assessing Officer did not agree with the contention of the appellant and rejected the same vide order dated 08.12.2003 on the ground that the said deduction had not been claimed either in the return of income or during the course of assessment proceedings and therefore the said claim of deduction, which is not apparent from the record, can be allowed in the rectification application. Aggrieved against the said order, the assessee filed an appeal submitting therein that the provision of Section 154 of the Act does not provide for rectification only when a mistake in the order is detected. The mistake has to be on the record of the case and the record would include everything on the case file i.e. the return, the evidence and the order are a part of the record. The mistake can be detected from anything on the file and therefore, the appellant is entitled for rectification as prayed for. The Commissioner of Income-Tax ( Appeal ) accepted the appeal and directed the Assessing Officer to give relief as claimed by the appellant after verification vide order dated 06.05.2004. I.T.A. No. 17 of 2008 4 Aggrieved against the order of the Commissioner of Income-Tax ( Appeals ), Chandigarh dated 06.05.2004, the revenue filed an appeal before the Tribunal, wherein it was contended on behalf of the revenue that the decision of the Commissioner of Income-Tax ( Appeals ), Chandigarh was contrary to the well settled principles of law regarding the scope of provisions of Section 154 of the Act. It was further contended that the assessee never made a claim either in the return of income or in the course of assessment proceedings under Section 143(3) and further the assessee had also not filed a revised return. On the basis of these facts, it was argued that the Hon'ble Supreme Court in case of Goetze (India) Ltd. v. CIT, 284 ITR 323 (SC) has held that no deduction can be allowed to the assessee unless the same is claimed in the return of income or in the revised return of income. The revenue also placed reliance on the decision of this Court in the case of M/s Mittal Allys & Steels, Ludhiana v. CIT, Patiala ITR No. 74 of 1988 decided on 17.01.2007, where similar view has been expressed by this Court. The Tribunal vide impugned order dated 27.02.2007 held that when the Assessing Officer could not allow the deduction in the course of assessment proceedings unless the claim was made by the assessee by I.T.A. No. 17 of 2008 5 filing the revised return, it cannot be said that there is a mistake in the assessment made by him under Section 143(3) of the Act and therefore, there was no mistake apparent from the record, which could be rectified by the Assessing Officer. Mr. M.L. Garg, learned counsel for the appellant argued that for the purpose of Section 154, the record does not mean the return of income and the assessment record of the same assessment year only. Since the provision had been made in the preceding year in respect of the arrears of salary payable to the employees and in the year under appeal, the assessee had made the payment out of the payment of the salary and the same was liable to be deducted to the assessee on payment basis. However, inadvertently the assessee had failed to make the said claim in the return of income and this was a mistake, which is apparent from the record, which could be rectified under Section 154 of the Act. Shri M.L. Garg, learned counsel for the assessee placed strong reliance upon the judgment of this Court in Commissioner of Income-Tax v. Smt. Aruna Luthra, 252 ITR 76 and the judgment of the Hon'ble Supreme Court in Anchor Pressing ( P. ) Ltd. v. Commissioner of Income-Tax, U.P. and others 161 ITR 159 in support of its case. I.T.A. No. 17 of 2008 6 We have heard Shri M.L. Garg, learned counsel for the assessee and perused the record. We find no force in the arguments raised by the learned counsel for the assessee. The facts of the case are not in dispute. In assessment year 1997-98, the assessee had made a provision for the payment of salary of Rs.7.00 crores to the employees on account of the arrears. The provision was added back in the statement of computation of income for the preceding year. In the assessment year i.e. 1998-99, the assessee had made a payment of Rs.4,99,37,406/- only as per the statement placed on record. This amount was adjusted against the provision made for the assessment year 1997-98. It appears that the assessee had also made a provision for the year under appeal of Rs.2,20,80,925/- . Thus, the total outstanding payable as on 31.3.1998 was reflected at Rs.4,21,43,519/-. This amount was claimed to have been paid in assessment year 1999-2000. Undisputedly the assessee did not make any claim on the basis of payment of arrears of salary either in the original return of income or during the course of assessment proceedings. It is not disputed that as per the books of account, no debit was made to the profit and loss account in so far as the amount paid was adjusted against the provision made. I.T.A. No. 17 of 2008 7 Therefore, it is evident that the assessee had not made a claim for the amount of Rs.7.00 crores either in the original return or during the course of assessment proceedings. The assessee had also not filed revised return at any stage of proceedings. The Hon'ble Supreme Court in the case of Goetze (India) Ltd. v. CIT ( supra ), held that deduction on account of any claim cannot be allowed to the assessee if such a claim is not made in the original return or unless a revised return is filed in accordance with the provisions of the Act. Relying upon the decision of the Hon'ble Supreme Court in the said case, this Court in case of M/s Mittal Alloys & Steels (supra) reiterated this principle. The facts of the judgment of this Court in case of Commissioner of Income Tax v. Smt. Aruna Luthra ( supra ), relied upon by the counsel for the appellant, are distinguishable. The precise question, which was before the Full Bench of this Court in that case was “Can proceedings for rectification of an order passed under the provisions of Income- Tax Act, 1961 be initiated on the basis of judgment delivered by the jurisdictional or statutorily Court, after passing of the said order?” In that case the assessee filed her return for the assessment year 1987-88 declaring an income of Rs.44,380. I.T.A. No. 17 of 2008 8 While computing the profit from business, the assessee claimed a deduction of Rs.74,205/- on account of loss in chit fund. The Assessing Officer framed the assessment under Section 143(1) (a) of the Income-Tax Act, 1961. Vide order dated March 30, 1988, the income as declared by the assessee was accepted. On April 4, 1989, a Division Bench of this Court decided the case of Soda Silicate and Chemical Works v. CIT (1989) 179 ITR 588 holding that contributions made to the chit fund could not be treated as revenue expenditure nor could the payment or receipt of any amount to and from the chit fund be treated as the business activity of the assessee. The transactions involved did not give rise to any income assessable to income tax nor any revenue loss in respect of which any deduction could be claimed. Thus, the order of the Tribunal, disallowing the assessee's claim for deduction on account of loss in the chit fund was upheld. After the above decision, the Assessing Officer issued a notice under Section 154 of the Act to the assessee and vide order dated 13.2.1992 the order of assessment was rectified and the assessee's claim for deduction of Rs.74,205/- on account of loss in chit fund by debiting the amount to her profit and loss account, was, thus, disallowed. The appeal I.T.A. No. 17 of 2008 9 filed by the assessee was dismissed by the Commissioner of Income-Tax ( Appeals ), Faridabad, vide order dated September 17, 1992. The assessee challenged the order before the Income-tax Appellate Tribunal and vide order dated July 5, 1999, the Tribunal took the view that the issue regarding the admissibility of the deduction was “debatable thus, it goes out of the purview of the provisions of Section 154.” Aggrieved against the said order, the Revenue filed the appeal before this Court and maintains that in view of the decision of the jurisdictional of this Court, the Tribunal could not have held that issue was debatable. In the background of these facts, the following questions of law came up for consideration of this Court:- “(i) Whether the Income Tax Appellate Tribunal was justified in law in holding that as there was no mistake on the part of the Assessing Officer, the rectification sought by the appellant cannot be rectified? (ii) Whether the order of the Income Tax Appellate Tribunal is against the law laid down by the Jurisdictional High Court wherein it was held that mistake can be committed by anybody and the same I.T.A. No. 17 of 2008 10 should be rectified when detected from the record which means record of all years and would include every thing on the case file?” The question as posed at the outset is answered in favour of the Revenue. Similarly the reliance of appellant on the judgment of the Hon'ble Supreme Court in Anchor Pressing ( P. ) Ltd. v. Commissioner of Income-Tax, U.P. and others (supra) is also misplaced. In that case the appellant had not made any claim for relief under Section 84 of the Income Tax Act, 1961 and the assessment for the year 1963-64 was made without granting the relief. The application filed by the assessee for rectification for the grant of relief under Section 84 of the Act was rejected by the authorities. The writ petition filed by the assessee was also dismissed by this Court. On an appeal filed before the Hon'ble Supreme Court, it was held as under:- “The jurisdiction under Section 154 of the Income-tax Act, 1961, to rectify mistake is wider than that provided in Order XLVII, rule 1, of the Code of Civil Procedure, 1908. None the less, there must be material to support the claim for relief under Section 84 and unless such material can be referred to, no grievance can be made if the ITO refuses relief.” I.T.A. No. 17 of 2008 11 Thus,from the above discussion, it is crystal clear that the omission of the assessee to claim deduction on account of payment of the salary to its employees in the income tax return or during the course of assessment preceding is not a mistake apparent on the record of the case to which proceedings provision of 154 of the Act can be attracted. Thus, even in this case, the claim of the assessee was declined as the assessee failed to show that all the material required for satisfying the conditions requisite for the grant of relief under Section 84 existed in the income tax record at the time of assessment, was completed and therefore, it cannot be said that the Income Tax Officer committed a mistake apparent from the record in the grant of relief under the said section. Therefore, we find no error in the order of the Tribunal. No substantial questions of law are arising for determination of this Court in this appeal and the same is hereby dismissed. ( RAKESH KUMAR GARG ) JUDGE ( SATISH KUMAR MITTAL ) JUDGE 31.03.2008 dinesh