Income Tax Appeal No. 147 of 2001 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. ---- Income Tax Appeal No. 147 of 2001 Date of decision: 18.11.2010 The Shahbad Cooperative Sugar Mills Ltd, Shahbad --- Appellant Versus The Deputy Commissioner of Income tax, Karnal --- Respondent. CORAM: HON’BLE MR. JUSTICE ADARSH KUMAR GOEL HON’BLE MR. JUSTICE AJAY KUMAR MITTAL ---- PRESENT:Mr. Rajesh Garg, Advocate for the appellant. Mr. Yogesh Putney, Central Government Standing Counsel for the respondent. ---- AJAY KUMAR MITTAL, J. This appeal under Section 260A of the Income-tax Act, 1961 (for short “the Act’”) has been filed by the assessee against the order dated 7.9.2000, passed by the Income Tax Appellate Tribunal, Delhi Bench (A), New Delhi (in short “the Tribunal”) in ITA No. 2211/DEL/95 relating to the assessment year 1990-91. The assessee has claimed the following question for determination by this Court: “Whether the tribunal was right in law in holding that the Assessing Officer was justified in rectifying the Assessment Income Tax Appeal No. 147 of 2001 2 Order in view of the judgment of the Hon’ble Supreme Court in 224 ITR 604 even though the judgment of the Supreme Court came on a date much after the rectification order was passed?” Briefly stated the facts necessary for adjudication, as narrated in the appeal, are that the appellant-assessee is a Co- operative Society. The assessee filed return declaring total income of Rs. 2,11,77,724/-, on 29.10.1990 and assessment was completed on 8.1.1993. An order under Sections 250/150 of the Act, dated 28.5.1993 was issued. The assessee filed an application under Section 154 of the Act, dated 23.6.1993 claiming that deduction under Section 80-I was to be allowed on gross total income without reducing it by unabsorbed allowances. The assessing officer vide order dated 27.8.1993 accepted the said application and allowed the claim of the assessee. Thereafter, on scrutiny of record, it was noticed that the assessee had been allowed relief under Section 80-I of the Act, on interest income of Rs. 17,74,215/- but the interest earned from the bank did not qualify for deduction under Section 80-I. It was further revealed that deduction under Section 80-I was worked before setting off the brought-forward losses, investment allowances and deduction under Section 80-G of the earlier years. The said mistake resulted in grant of excess deduction under Section 80-I and in order to rectify the said mistake, a notice under Section 154 of the Act was issued to the assessee in the year 1994. Finding that the assessee had nothing to say in the matter, the Deputy Commissioner of Income-Tax, Karnal vide order dated 29.9.1994, Annexure P-3, framed revised computation of income under Income Tax Appeal No. 147 of 2001 3 Section 154 of the Act, observing that the net taxable income of the assessee is Rs. 5,50,63,636/-. The assessee preferred appeal before the Commissioner of Income Tax (Appeals), [for short “CIT(A)”]. The CIT(A) quashed the order, Annexure P-3, and accepted the appeal vide order dated 31.1.1995, Annexure P-2, by holding that the issue, whether deduction under Section 80-I has to be allowed before the adjustment of brought-forward losses/allowances or after adjustment of the same, was highly debatable. The Revenue challenged the order of the CIT(A) by filing appeal before the Tribunal. The Tribunal vide order under appeal held that the rectification made vide Annexure P-3 was valid and partly accepted the appeal. The Tribunal held that in so far as unabsorbed losses/allowances are concerned, the same had to be reduced from gross total income for calculating deduction under Section 80-I of the Act. However, whether the interest income was entitled to deduction under Section 80-I or not, could not be rectified being debatable and it upheld the order of the CIT(A) to that extent. This is how the assessee has come up in appeal to this Court. We have heard learned counsel for the parties and have perused the record. Learned counsel for the assessee submitted that the issue, whether the unabsorbed losses/allowances of earlier years had to be deducted from gross total income of current year for calculating deduction under Section 80-I was highly debatable and, therefore, the assessing officer could not have resorted to Section 154 of the Act in Income Tax Appeal No. 147 of 2001 4 the light of judgment of the apex Court in T.S. Balaram Income Tax Officer Company Circle-IV, Bombay vs. Volkart Brothers and others (1971) 82 ITR 50. According to the learned counsel, the apex Court had settled this issue in Commissioner of Income Tax v. Kotagiri Industrial Co-operative Tea Factor Ltd. (1997) 224 ITR 604 by reversing the decision of the Madras High Court and the said decision was rendered on 5.3.1997 whereas resort to Section 154 was made in 1994 which could not be legally done. Controverting the aforesaid submissions, learned counsel for the Revenue argued that the apex Court in Kotagiri Industrial Co- operative Tea Factor Ltd.’s case (supra) had held that unabsorbed losses of earlier years had to be reduced from the gross total income before calculating deduction under Section 80-P of the Act and, for this, reliance had been placed on its earlier judgment in Distributors (Baroda) P. Ltd. vs. Union of India and others, (1985) 155 ITR 120 wherein similar proposition of law was laid down in respect of inter- corporate dividend under Section 80-M to be the net amount and not the actual amount received. He submitted that in such a situation, the issue was not debatable when proceedings under Section 154 of the Act were initiated by the assessing officer for disallowance of unabsorbed lossess/allowances of earlier years. According to him, rather the order dated 23.6.1993 could not be passed by the then assessing officer under Section 154 of the Act being contrary to the apex Court judgment in Distributors (Baroda) P. Ltd.’s case (supra) and the settled legal position. He further urged that on merits as well, the assessee was not entitled to the claim made by it as learned Income Tax Appeal No. 147 of 2001 5 counsel for the assessee had not been able to deny that on merits the assessee is not entitled to have full deduction from gross total income under Section 80-I without reducing unabsorbed losses/allowances of earlier years. The solitary point for consideration in this appeal is, whether in the facts and circumstances of the case, the assessing officer was justified in taking recourse to rectification under Section 154 of the Act whereby he had calculated deductions under Section 80-I after reducing the gross total income by unabsorbed losses/allowances of earlier years. In order to adjudicate the controversy raised herein, it will have to discern, whether the matter stood settled by the apex Court decision in Distributors (Baroda) P. Ltd.‘s case (supra) or in Kotagiri Industrial Co-operative Tea Factor Ltd.’s case (supra) as the former decision was rendered on July 1, 1985 whereas the latter pronouncement was on March 5, 1997. The issue before the Constitution Bench of the apex Court in Distributors (Baroda) P. Ltd.’s (supra) was relating to deduction under Section 80-M of the Act. The question was, whether the assessee was entitled to claim deduction under Section 80-M on the amount of dividend computed in accordance with the provisions of the Act and forming part of gross total income or with reference to the full amount of dividend received by the assessee. The Supreme Court held that it is the net amount of dividend which will be deducted under Section 80-M of the Act. The relevant observations read thus: Income Tax Appeal No. 147 of 2001 6 “But the amount by way of dividend which would otherwise suffer tax in the hands of the assessee would be the amount computed in accordance with the provisions of the Act and not the full amount received from the paying company. Therefore, it is reasonable to assume that in enacting s. 80M, the Legislature intended to grant relief with reference to the amount of dividend computed in accordance with the provisions of the Act and not with reference to the full amount of dividend received from the paying company. It is difficult to imagine any reason why the Legislature should have intended to give relief with reference to the full amount of dividend received from the paying company when that is not the amount which is liable to suffer tax once again in the hands of the assessee. The Legislature could certainly be attributed with the intention to prevent double taxation, but not to provide an additional benefit which would go beyond what is required for saving the amount of dividend from taxation once again in the hands of the assessee.” Relying upon this decision, the apex Court in Kotagiri Industrial Co-operative Tea Factor Ltd.’s case (supra) had held that deduction under Section 80P is from gross total income determined in accordance with the provisions of the Act and unabsorbed losses of earlier years are to be set off before allowing deduction under Section 80-P of the Act. Accordingly, the legal position on the basis of which rectification under Section 154 of the Act had been initiated stood crystallized in 1985. Income Tax Appeal No. 147 of 2001 7 In view of the above, it cannot be said that the issue was debatable when assessing officer assumed jurisdiction to rectify order and rectification done was in order. Accordingly, no illegality is noticed in the order of the Tribunal and finding no merit in the appeal, the same is dismissed. (AJAY KUMAR MITTAL) JUDGE (ADARSH KUMAR GOEL) November 8, 2010 JUDGE *rkmalik*