... 1 ... IN THE HIGH COURT OF BOMBAY AT GOA TAX APPEALS NO.1 OF 2004, 2 OF 2004 AND 3 OF 2004 Commissioner of Income Tax, Having office at Aayakar Bhavan, Patto, Plaza, Panaji, Goa. ... Appellant v e r s u s M/s Bencomar Hotels (Goa) Pvt. Ltd. Colva, Goa. ... Respondent Shri S. R. Rivonkar, Advocate for the appellant. Shri R. G. Ramani, Advocate for the respondent. CORAM: S. C. DHARMADHIKARI, J. R. C. CHAVAN, J. Date : 19th September, 2008. ... 2 ... JUDGMENT: (Per S.C. Dharmadhikari, J.) This is an appeal under section 260-A of the Income Tax Act, 1961, by the Commissioner of Income Tax, Panaji, Goa. The appeal under section 260-A can be termed as Second Appeal as envisaged under section 100 of the Civil Procedure Code 1908. The appeal raises the following substantial question of law: (A) Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal, (ITAT) was justified in allowing the benefit of carry forward losses and depreciation relating to earlier years, even though the running of hotel was handed over by the Court to the Court Receiver ? (B) Whether on the facts and in the circumstances of the case, the ITAT was justified in holding that there was no mistake apparent on the record, where in fact, the Assessing Officer sought to rectify the said mistake based on the order passed by Commissioner of Income Tax (Appeal) [CIT (A)], Belgaum on 29.10.1993, declining to ... 3 ... grant benefit to the Assessee for the Assessment year 1987-1988, of carry forward of depreciation, losses, etc.? 2. In the instant appeal, the assessment order pertains to the year 1990-91 and in connected Tax Appeals No.2 and 3 of 2004, the assessment years pertain to 1991-92 and 1992-93. Since all the three appeals by the Department are in respect of the same assessee and involves identical issues, for the sake of convenience appeals are decided by this common order. 3. Factual aspects: (i) The respondent/assessee M/s Bencomar Hotels (Goa) Pvt. Ltd., Colva, Goa is a company engaged in running hotel business. (ii) The assessee filed his returns of income on 28.12.1990 disclosing a profit of Rs.12,38,710/- before set off of carry forward depreciation was declared 'nil' income for the assessment year 1990-91. ... 4 ... (iii) Subsequently, the assessee filed revised return on 5.2.1991 disclosing a gross total income on the same income, but claimed high carry forward of losses. The returns were processed under section 143 (1) (a) and was taken up for scrutiny. The Assessing Officer completed the assessment under section 143 (3) on 16.10.1992 allowing unabsorbed brought forward depreciation and business losses to be carried forward. - For reference said order of the Assessing Officer, Deputy Commissioner of Income Tax, Assessment, Special Range, Panaji is at Exh.A of the paper book. (iv) At the later date, for the Assessment year 1987-88, the assessment was reopened and completed u/s 143 (3) read with section 148 disallowing assessee's claim for carry forward of unabsorbed depreciation and business losses as the business was not carried by the assessee company but by the Court Receiver, which was decided by Commissioner of Income Tax (Appeals) Belgaun on 29.10.1993. (v) Based on the aforesaid order, the Assessing Officer issued notices under section 154 of the Act for the assessment year referred to above but withdrew the benefit of carry forward depreciation on business losses which, in fact, earlier allowed ... 5 ... on the purported ground that it was a mistake apparent from the record. The said order dated 19.1.1994 passed by the Deputy Collector, Special Range, Panaji is at Exh.C of paper book. 4. The above facts are taken from one of the appeals but it is common ground that except the figures and years of assessment, all other aspects are common to other appeals. Hence, we have not referred to each of the appeals. Feeling aggrieved by the aforesaid orders of the Assessment Officer under section 154 of the Act, the Respondent assessee preferred 3 appeals for the respective years before the Appellate Authority, Commissioner of Income Tax (Appeals), Belgaum. 5. The Commissioner of Income Tax (Appeals), Belgaum allowed the appeals filed by the assessee, firstly on the ground that the provisions of section 154 regarding rectification of mistake is not at all attracted. Secondly on merits also the impugned order was uncalled for and unwarranted. The relevant portion of the order is reproduced: ... 6 ... “These three appeals are are directed against order under section 154 passed by the Assessing Officer. It was submitted that the appellant had correctly claimed brought forward losses and depreciation in the returns of income. The appellant's claims were rightly by the allowed the Assessing Officer in the orders under section 143 (1) (a) of the Act. The Asst. years relates to 1991-92 and 92-93 and under section 143(3) for A.Y. 1990- 91. There were no mistakes apparent in the orders under section 143(1)(a) for A.Y.s 1991-92 and 1992-93 and in the order under section 143 (3) for A.Y. 1990-91. Withdrawal of the appellant's claim regarding brought forward losses and depreciation originally allowed under section 143 (1) (a)/143(3), by passing orders u/s 154 was therefore totally unwarranted and patently wrong. It was further submitted that the appellant had been running its hotel business right since its inception. There was no stoppage or cessation of the business by the appellant. In view of these facts it was submitted that the Assessing Officer erred in withdrawing the appellant's claim of depreciation and losses relating to earlier years by rectifying the orders passed u/s 143 (1) (a)/143(3) of the Act. ... 7 ... After carefully considering the submissions of the learned counsel for the appellant I find considerable force in them. The appellant's claim of set off of losses and depreciation pertaining to the earlier years was accepted by the Assessing Officer under section 143 (1)(a) for A.Y.s 1991-92 and 1992-93 and u/s 143 (3) for A.Y. 1990-91. There was no mistake apparent from the orders u/s 143 (1) (a)/143(3) warranting rectification of these orders and withdrawal of set off of losses and depreciation pertaining to the earlier years allowed to the appellant through these orders. The power of rectification u/s 154 can be exercised only if there is a mistake apparent from the records of assessment. In order to attract the power to rectify u/s 154 it is not sufficient that there is merely a mistake in the order sought to be rectified but the mistake must be one apparent from the records. A mistake apparent from the records must be an obvious and patent mistake and not something which could be established by a long drawn process of reasoning on points on which there may be conceivably two opinions. The very fact that the presumption of the appellant's business being closed was a debatable ... 8 ... point, there was no mistake apparent from the records warranting rectification. It is worthwhile to mention here that the matter relating to allowance of losses and depreciation pertaining to the earlier years has been decided in favour of the appellant by the CIT(A) for the A.Y. 1985-86 and against the appellant for A.Y. 1987-88 by the CIT(A). In view of these facts I am of the considered opinion that there was no mistake apparent from records which warranted rectification. Even on merits the appellant was entitled to carry forward and set off of losses and depreciation relating to the earlier years. The hotel business was started by the appellant with effect from 6.5.1981 after running the hotel for some time, the appellant entered into an agreement on 22.6.83 with UTC Tourist Pvt. Ltd. for the purpose of running of the hotel. During the period from 1.7.84 to 24.8.84 the hotel was run under the agreement with UTC Tourist P. Ltd. As UTC Tourist Pvt. Ltd. was not ful-filling the terms of the agreement, as suit was filed by the appellant in the Court on 2.7.1984. The running of hotel was handed over by the Court to the Court receiver who was none but one of the directors of ... 9 ... the company. One of the directors of the company accordingly ran the hotel business as a Court receiver from 24.8.84 to 4.2.88, on which date the court decided the matter and handed over the possession of the hotel to the appellant. Thereafter, the appellant ran hotel business on its own. From these facts it is apparent that there was no stoppage or cessation of the business of the hotel at any point of time. The appellant therefore, could not be denied the benefit of carry forward and set off of losses and depreciation relating to earlier years. Thus even on merits the appellant was entitled to the carry forward and set off of losses and depreciation relating to earlier years. In view of the foregoing discussion the Assessing Officer was not justified in withdrawing the appellant's claim of set off of losses and depreciation relating to the earlier years through order under section 154 passed by him. Consequently all the three orders under section 154 passed by the Assessing Officer are canceled. In the result all the three appeals are allowed.” ... 10 ... 6. Being aggrieved by the order of the Commissioner of Income Tax Exh.D, the Revenue filed appeals before the Income Tax Appellate Tribunal, Panaji bearing ITA No.422, 423 and 424/PAN/95 (Assessment Year 1990-91, 1991-92, 1992-91). Needless to say that the ITAT confirmed the order passed by the CIT (A) and dismissed the Revenue's appeals. Order passed by ITAT is at Exh. E of the paper book which is reproduced below: “We have considered the totality of the fact and circumstances of the case as well as the provisions of law relating to allowance of benefits of brought forward unabsorbed business losses and unabsorbed depreciation as well as the scope of provisions of section 154 of the Act and after careful consideration are of the opinion that the observations of the AO in assessment order for AY 1987-88 relating to carry forward of business losses and unabsorbed depreciation were of no consequence because, as held by the Hon'ble Supreme Court in case of CIT vs. Manmohan Das – 59 ITR 699 “a decision recorded by the ITO who ... 11 ... computes loss in the previous year ... that the loss cannot be set off against the income of the subsequent year is not binding on the assessee.” Therefore, that observation can not be taken so as to make the allowance of benefits of brought forward losses/depreciation as a mistake apparent from the record so as to bring the revenue's case within the ambit of provisions of section 154 of the Act. The provisions of section 154 can be invoked only if there is a mistake either of a fact or law from the records. It is not sufficient that there is merely a mistake. A mistake must be apparent from the records and must be an obvious and patent mistake and not something which could be established by a long drawn process of reasoning on the point of which there may be conceivable two opinion. So far as the question of granting benefits of the set off brought forward unabsorbed business losses and depreciation is concerned, we are of the opinion that the issues was a debatable one not only in law but on facts also, and therefore, CIT (A) was quite justified in canceling the orders passed under section 154 for withdrawing the benefits already allowed. ... 12 ... So far as the order of the CIT (A) on merits is concerned, the learned DR having not refuted the observations and findings, which are based on fact, we uphold the order of the CIT (A) on merits also.” 7. In the backdrop of these facts, the present appeals are filed before this Court. 8. Heard learned counsel Shri S. R. Rivonkar for the appellants and Shri R. G. Ramani for the respondents. 9. For the reasons set out in the orders passed by the Commissioner of Income Tax as well as ITAT as reproduced in the aforesaid paragraphs, we are of the considered view that no substantial question of law much less, the question of law is involved in these appeals. As far as the questions raised as (A), (B) and (C) we are of the view that in the facts noted above, there was no cessation of business by the Assessee. The business was of ... 13 ... the assessee and remained with it. It was managed by a Receiver, who was none other than its own Director. The business and assets never vest with the Receiver but remained that of the assessee, is the conclusion on these facts. On merits, apart from there being no case to invoke Section 154 of the Income Tax Act, it is held that the assessee was entitled to carry forward set off of losses and depreciation relating to earlier years is the conclusion. 10. In this case, the First Appellate Authority/Commissioner of Income Tax (Appeals) and the Appellate Tribunal-ITAT have recorded concurrent findings of facts in respect of the issue as to whether the Assessing Officer was justified in invoking section 154 of the Act regarding rectification. Section 154 of the Income Tax Act deals with rectification of mistakes. Section 154 can only be invoked for the limited purpose. If any authority is required for this proposition, one may refer to the decisions of the Supreme Court in State of Punjab v. Darshan Singh reported in (2004) 1 Supreme Court Cases 328 and Bijay Kumar Saraogi v. State of Jharkhand reported in (2005) 7 Supreme Court Cases 748. ... 14 ... 11. Having considered the arguments of the learned counsel of the respective parties and gone through the records, we are of the considered view that the two questions set out in paragraph 1 can not be termed to be the substantial questions of law. We affirm the concurrent finding of facts arrived at by the Commissioner of Income Tax as well as Income Tax Appellate Tribunal that, in the instant case, the Assessing Officer (Dy. Commissioner of Income Tax), Panaji had clearly erred in invoking the provisions of section 154 of the I.T. Act. Even, on merits the findings arrived at by both the authorities cannot be termed to be perverse. Hence the appeals are dismissed. No order as to costs. S. C. DHARMADHIKARI, J. R. C. CHAVAN, J. lh/. ... 15 ... 10. Section 260-A of the Income Tax Act as is relevant reads as under: “260A. (1) An appeal shall lie to the High Court from every order passed in appeal by the Appellate Tribunal, if the High Court is satisfied that the case involves a substantial question of law. (2) [The Chief Commissioner or the Commissioner or an assessee aggrieved by any order passed by the Appellate Tribunal may file an appeal to the High Court and such appeal under this sub-section shall be -] a) filed within one hundred and twenty days from the date on which the order appealed against is [received by the assessee or the Chief Commissioner or Commissioner]; b) [***] ... 16 ... c) in the form of a memorandum of appeal precisely stating therein the substantial question of law involved. (3) Where the High Court is satisfied that a substantial question of law is involved in any case, it shall formulate that question. (4) The appeal shall be heard only on the question so formulated, and the respondents shall, at the hearing of the appeal, be allowed to argue that the case does not involve such question: Provided that nothing in this sub-section shall be deemed to take away or abridge the power of the Court to hear, for reasons to be recorded, the appeal on any other substantial question of law not formulated by it, if it is satisfied that the case involves such question. (5) The High Court shall decide the question of law so formulated and deliver such judgment thereon containing the grounds on which such decision is founded and may award such cost as it deems fit. ... 17 ... (6) The High Court may determine any issue which - (a) has snot been determined by the Appellate Tribunal; or (b) has been wrongly determined by the Appellate Tribunal, by reason of a decision on such question of law as is referred to in sub- section (1). [(7) Save as otherwise provided in this Act, the provisions of the Code of Civil Procedure, 1908 (5 of 1908), relating to appeals to the High Court shall, as far as may be, apply in the case of appeals under this section.]” Sub section 7 of Section 260A provides that the provisions of the Code of Civil Procedure, 1908 relating to appeals to the High Court shall, as far as may be, apply in the case of appeals under the said section save otherwise provided. Section 100 of the Civil Procedure Code, after 1976 amendment is relevant ... 18 ... and material and the same reads as under: “100. Second appeal - (1) Save as otherwise expressly provided in the body of this Code or by any other law for the time being in force, an appeal shall lie to the High Court from every decree passed in appeal by any Court subordinate to the High Court, if the High Court is satisfied that the case involves a substantial question of law. (2) An appeal may lie under this section from an appellate decree passed exparte. (3) In an appeal under this section, the memorandum of appeal shall precisely state the substantial question of law involved in the appeal. (4) Where the High Court is satisfied that a substantial question of law is involved in any case, it shall formulate that question. (5) The appeal shall be heard on the question so formulated and the respondent shall, at the hearing of the appeal, be allowed to argue that the case does not involve such question: ... 19 ... Provided that nothing in this sub-section shall be deemed to take away or abridge the power of the Court to hear, for reasons to be recorded, the appeal on any other substantial question of law, nor formulated by it, if it is satisfied that the case involves such question.” 11. Now after the 1976 amendment, the scope of section 100 has been drastically curtailed and narrowed down. The High Courts would have jurisdiction of inferring in any substantial question of law involved and these questions must be clearly formulated in the memorandum of appeal. The language used in the amended section incorporates the words 'substantial question of law' which is legislative intention. The legislature never wanted Second appeal under the IT Act to become third trial of facts or one more dice in the gamble. Thus the condition precedent for High Court to interfere in appeal under section 263Acan be stated as under: (i) The High Court would be justified in admitting ... 20 ... the Second Appeal only when the substantial question of law is formed. (ii) The substantial question of law precisely states such question. (iii) The duty has been cast on the High Court to formulate substantial question of law before hearing the appeal. (iv) Another part of the section is that the appeal shall be heard only on that question. 12. If we consider the scheme of the Finance Act (2) 1988 which was brought into effect from 1st October, 1990 and the changes made thereunder by the Finance Act 1999 whereby section 260A and 260B are inserted and added under the sub heading “cc-appeals to High Court.” It is clear that legislature never wanted Second appeal under the IT Act to become third trial of facts or one more dice in the gamble. 13. Now, what is the meaning of the phrase “substantial question of law ?” In Santosh Hazari v. Purushottam Tiwari reported in (2001) 3 Supreme Court Cases 179, three Judges ... 21 ... bench of the Apex Court delineated the scope of section 100 of the Civil Procedure Code which is parimateria to section 260A of Income Tax Act. The Supreme Court observed that an obligation is cast on the appellant to precisely state in the memo of appeal, the substantial question of law involved in the appeal and which the appellants proposes to urge before the Court. According to the Apex Court, the word 'substantial' as qualifying 'question of law' means – of having substance, essential, real, or sound worth, important or considerable. It is to be understood as something in contradistinction to technical, of no substance or consequence, or academic merely. However, it is clear that the legislature has chosen not to qualify the scope of 'substantial question of law' by suffixing the words 'of general importance' as has been done in many other provisions such as Section 109 of the Code or Article 133 (1) (a) of the Constitution. Thus, it is clear that findings arrived at by the First Appellate Tribunal cannot be interfered with in an appeal under section 260A as no substantial question of law would have flowed out of such a finding. In other words, the High Court in its jurisdiction under section 260A would not justify in ... 22 ... interfering with the findings of facts. It is the obligations of the Courts of law to further the clear intentment of the legislature and not frustrate it by excluding the same. The Apex Court in a catena of decisions held that where the finding of fact by the lower Appellate Tribunal are based on evidence, the High Court in Appeal under section 260A cannot substitute its own finding on re- appropriation merely on the basis of another view is possible. In short, the High Court would not be justified in interfering with the concurrent finding of facts. Thus, the High Court has no jurisdiction to interfere with the findings arrived at by the lower Appellate Tribunal.