Commissioner of Income Tax vs Digvijay Cement Co. Ltd.

D.A. Mehta, J.—This reference raises the following common question of law which has been referred by the Income Tax Appellate Tribunal, Ahmedabad Bench "A" u/s 256(2) of the Income Tax Act, 1961 ("the Act") at the instance of the Commissioner of Income Tax.

Whether the Appellate Tribunal is right in law and on facts in confirming the order made by the Commissioner of Income Tax (Appeals) rejecting the application made by the Assessing Officer u/s 154 for excluding interest on deferred payment on purchase of machineries in view of Explanation 8 to Section 43(1) with retrospective effect?

The assessment years are 1982-83 and 1983-84, but, for the assessment year 1982-83 the controversy emanates from two different proceedings "one from the assessment u/s 143(3) of the Act which was carried in appeal before the Commissioner (Appeals) and after an order was made by the Commissioner (Appeals) the Revenue invoked the provision of Section 154 of the Act seeking rectification of order which was rejected by the Commissioner (Appeals); the second emanating from exercise of powers u/s 154 of the Act by the Assessing Officer himself. However, the issue in all the three appeals, before the Tribunal, relates to one point, namely, whether it was open to the Assessing Officer to invoke the provision of Section 154 of the Act and exclude interest on deferred payment towards purchase of machineries in view of Explanation 8 to Section 43(1) of the Act.

Heard Mr. M.R. Bhatt, learned senior standing counsel for the applicant-Revenue. Though served, there is no appearance on behalf of the respondent-assessee.

The fact of the matter is that rectification proceedings were undertaken by the Assessing Officer on July 1, 1988, by placing reliance on Explanation 8 to Section 43(1) of the Act which was inserted by the Finance Act, 1986, with retrospective effect from April 1, 1974, to withdraw depreciation and investment allowance on the component of interest which had been capitalized. The assessee resisted the action by placing reliance on the decision of the Madras Bench of the Tribunal in the case of (1988) 26 ITD 413 which was rendered on January 14, 1988, wherein an identical issue had been decided in favour of the assessee. The Assessing Officer did not accept the contention of the assessee that the issue was debatable in nature and in the light of two contrary views, in relation to the same provision, Section 154 of the Act was not applicable.

The assessee carried the matter in appeal before the Commissioner (Appeals), who accepted the submissions of the assessee and held that rectification was not permissible u/s 154 of the Act considering the fact that the issue was debatable in nature. The Tribunal, vide the impugned order dated December...1994 upheld the order of the Commissioner (Appeals) by placing reliance on the apex court''s decision in the case of T.S. Balaram, ITO v. Volkart Brothers reported in [1971] 32 ITR 50.

In the light of the aforesaid decision the day when rectification proceedings were undertaken by the Assessing Officer the Tribunal''s decision rendered by the Madras Bench was available and was expressing a contrary view in relation to the same provisions and hence the view expressed by the Commissioner (Appeals) and the Tribunal concurrently, that the issue, being debatable, cannot form the subject-matter of rectification proceeding merits acceptance in the light of settled legal position. The apex court has consistently held that where in relation to interpretation of a provision there are conceivably two opinions rectification cannot be resorted to. In the circumstances, the Tribunal was justified in confirming the order made by the Commissioner (Appeals) rejecting the application made by the Assessing Officer u/s 154 of the Act for excluding the interest on deferred payment on purchase of machineries for the purposes of calculating the actual cost for computing allowable depreciation and investment allowance. The question referred for the opinion of this Court is, therefore, answered in the affirmative, i.e., in favour of the assessee and against the Revenue.

Reference stands disposed of accordingly with no order as to costs.