Income Tax Appeal No. 15 of 2008 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. --- Income Tax Appeal No. 15 of 2008 Date of decision: 30.5.2011 Commissioner of Income Tax, Faridabad --- Appellant Versus Surat Singh --- Respondent CORAM: HON’BLE MR. JUSTICE ADARSH KUMAR GOEL ACTING CHIEF JUSTICE HON’BLE MR. JUSTICE AJAY KUMAR MITTAL --- Present: Ms. Urvashi Dhugga, Senior Standing Counsel for the appellant-Revenue. Mr. S.P. Chahar, Advocate for the respondent-assessee. --- AJAY KUMAR MITTAL, J. This appeal under Section 260A of the Income-Tax Act, 1961 (for short “the Act”) has been filed by the Revenue against the order dated 16.1.2007, passed by the Income Tax Appellate Tribunal Delhi Bench-I, Delhi (in short “the Tribunal”) whereby six appeals, i.e. ITA Nos. 2602 to 2607 of 2005, relating to the assessment years 1994-95 to 1999-2000 were disposed by a common order. 2. The appeal was admitted by this Court for determination of the following substantial question of law: Income Tax Appeal No. 15 of 2008 2 “Whether on the facts and circumstances of the case, the order passed by the CIT, Faridabad under Section 154 of the Income-tax Act, 1961, subsequent to the order under Section 263, was not within the provisions of Section 154, in view of Apex Court’s judgment in the case of ITO vs. Bombay Dyeing & Mfg.Co.Ltd. (34-ITR-143)” 3. The facts, in brief, necessary for adjudication as narrated in the appeal, are that the dispute herein relates to six assessment years, i.e. 1994-95 to 1999-2000, in respect of an individual. In response to notice issued under Section 148 of the Act, the assessee filed his returns relating to the aforesaid assessment years wherein he had calculated interest received on the amount of enhanced compensation, on accrual basis. The returns were, however, later on revised by taking the said interest on receipt basis. Assessments for all the above said assessment years were completed by a common order dated 22.3.2002 and the income as returned by the assessee was accepted except for assessment year 1999-2000 in which agricultural income was taken at Rs. 30,000/- against nil agricultural income declared by the assessee. In the wake of the passing of the said order, an order under Section 154 of the Act was passed on 28.3.2002 whereby an amount of Rs. 9,01,153/- was determined to be refundable to the assessee. Thereafter, the Commissioner of Income Tax, Faridabad [for short “the CIT”], having observed that the orders dated 22.3.2002 and 28.3.2002 passed by the assessing officer were erroneous and prejudicial to the interests of the revenue, cancelled the same vide order dated 23.3.2004 in exercise of its power under Section 263 of the Act. The order dated 23.3.2004 was Income Tax Appeal No. 15 of 2008 3 further rectified by the CIT by order dated 31.3.2005 and a direction was issued to the assessing officer to pass assessment orders in respect of the interest payable on the amount of enhanced compensation, on actual receipt basis in the year of receipt from HUDA. The relevant observations are as under: “It has been brought to my notice that during the course of proceedings before the AO consequent upon the order u/s 263 it came to light that he assessee had received total amount of interest of Rs. 1,15,31,770/- pertaining to the period from 15th March 1989 to 15th August, 1998 relevant to the assessment year 1989-90 to 1999-2000 as against the total interest on enhanced compensation shown at Rs. 9,37,888/- (i.e. 1/5th of interest of Rs. 46,89,444/-). When the total amount of interest of Rs. 1,15,31,770/- is proposed to be bifurcated on year to year basis it is seen that the interest of Rs. 50,88,357/- pertaining to the assessment year 1989-90 to 1993-94 remained untaxed in view of the fact that the assessee has not filed returns of income for the assessment years 1990-91 to 1999-2000 on year to year accrual basis. The u/s 263 was passed based on the facts on the date of order available on record but as of now keeping the interest income of Rs. 1,15,31,770/- in view, it is apparent from the records that the assessee has not made a full and true disclosure of his income. Considering these facts and the judicial pronouncements, the income needs to be assessed on actual receipt basis and not on accrual Income Tax Appeal No. 15 of 2008 4 basis. With a view to amend the order u/s 263, a notice u/s 154 was given to the assessee on 31.3.2005. In response to which Sh. Raj Karan Jakhar, CA along with Sh. Y.P. Bahl, C.A., and Sh. Madan Mohan s/o assessee appeared and filed the written reply which is placed on record. In the said reply, the counsel for the assessee has submitted that the assessments of the assessee should be completed on accrual basis only as the assessee has declared the whole amount of interest received on enhanced compensation without any concealment. As already stated, the assessee has declared the sum of Rs. 9,37,888/- for the assessment years 1994-95 to 1999-2000 against the actual receipt of Rs. 1,15,31,770/- on account of interest of delayed payment of enhanced compensation. The contention of the assessee is, therefore, found to be incorrect as the assessee has not made a full and true disclosure of his income in the assessment years i.e. 1990-91 to 1999- 2000 in keeping with the concept of accrual on year to year basis. It is important to rely on the judgment of the Hon’ble Madras High Court in the case of CIT vs. Govindarajula Chetty 87-ITR 22 wherein it was held by the said High Court and subsequently approved by the Hon’ble Supreme Court in 165 ITR 231 that the assessibility of income on accrual basis or on receipt would depend on the basis of the method of accounting employed by the assessee and, therefore, the interest on Income Tax Appeal No. 15 of 2008 5 enhanced compensation is taxable on receipt basis in case where the assessee maintained no regular books of accounts and the same is taxable on accrual where the assessee maintained his accounts on mercantile basis. The assessee is agriculturist and during the relevant period did not employ any method of account. Considering the facts and circumstances mentioned above, the assessing officer is directed to pass the assessment orders in respect of the interest on enhanced compensation on actual receipt basis in the year of receipt of interest from the HUDA. The order passed u/s 263 on 23.3.2004 stands amended to this extent.” 4. Assessment under Section 143(3) of the Act in respect of the above assessment years was completed by the assessing officer on 31.3.2005 at an income of Rs. 68,43,803/- and Rs. 47,67,968/- for the assessment years 1995-96 and 1999-2000 respectively, and at nil plus agricultural income relating to remaining four assessment years, keeping in view the directions of the CIT in the orders passed under Sections 263 and 154 of the Act. 5. Appeal carried at the instance of the assessee before the Commissioner of Income Tax (Appeals) [for short “the CIT(A)”], challenging the order of the assessing officer was dismissed vide order dated 4.1.2006. The Tribunal, however, accepted the appeal of the assessee by an order which is the subject matter of the present appeal. 6. We have heard learned counsel for the parties and have perused the record. Income Tax Appeal No. 15 of 2008 6 7. Learned counsel for the Revenue submitted that recourse to exercise of powers under Section 154 of the Act by the CIT in its order passed under Section 263 of the Act, was justified whereas the Tribunal has held contrary, which is unsustainable in law. Learned counsel submitted that by invoking jurisdiction under Section 154 while rectifying the order under Section 263, the CIT had directed that the interest which was received by the assessee on the enhanced amount of compensation was taxable on receipt basis and not on accrual basis which was originally done in the order passed under Section 263 of the Act. On the other hand, learned counsel for the respondent supported the order of the Tribunal and submitted that there is no error of law in the said order and, thus, no scope for interference therewith by this Court. 8. We have given our thoughtful consideration to the submissions and find substantial force in the submissions made by the counsel for the Revenue. 9. Section 154 of the Act deals with rectification of mistake apparent on the face of the record. The relevant provision thereof, i.e. sub-section (1) of the said Section is reproduced as under: “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.” Income Tax Appeal No. 15 of 2008 7 10. A Full Bench of this Court in Commissioner of Income- Tax v. Smt. Aruna Luthra, (2001) 252 ITR 76, while discussing the scope of Section 154 of the Act had held as under: “The power given to the authority is wide. It can correct “any mistake” provided it is “apparent from the record”. The first question that arises for consideration is-when a mistake can be said to be apparent from the record? The plain language of the provision suggests that the mistake should be apparent. It must be patent. It must appear ex facie from the record. It must not be a mere possible view. The issue should not be debatable. Mr. Sawhney contended that when the view taken by an authority is ex facie contrary to the decision of the jurisdictional High Court of a superior court, the case would fall within the mischief of section 154. However, Mr. Bansal submitted that while deciding a matter, an authority cannot anticipate the view that might be taken by the High Court or the Supreme Court on a subsequent date. If at the time of the passing of the order, the authority takes a particular view, which is not contrary to the existing interpretation of law, the provision of section 154 cannot be invoked. Apparently, the argument of Mr. Bansal appears to be attractive. If the issue of error in the order is to be examined only with reference to the date on which it was passed, it may be possible to legitimately contend that it was legal on the date of its passing. Thus, the provision Income Tax Appeal No. 15 of 2008 8 of section 154 is not applicable. However, such a view shall be possible only if the provisions were to provide that the error has to be seen in the order with reference to the date on which it was passed. Such words are not there in the statute. Resultantly, such a restriction cannot be introduced by the court. Thus, the contention raised counsel for the assessee cannot be accepted.” 11. Adverting to the factual matrix in the present case, the interest received by the assessee on the enhanced amount of compensation was taxable in the year of receipt unless the assessee justified and showed that the method of accountancy followed was mercantile system and that he was declaring the interest on accrual basis in the returns filed for the assessment years from 1989-90 to 1999-2000. 12. Accordingly, we are of the view that the CIT was right in invoking the provisions of Section 154 of the Act and rectifying its earlier order passed under Section 263 of the Act. The decision to the contrary taken by the Tribunal is not sustainable in law. Consequently, the appeal is allowed and the substantial question of law is answered in favour of the Revenue. The matter is remanded to the Tribunal for decision afresh on merit in accordance with law. (AJAY KUMAR MITTAL) JUDGE (ADARSH KUMAR GOEL) May 30, 2011 ACTING CHIEF JUSTICE *rkmalik* Income Tax Appeal No. 15 of 2008 9