Kerala Financial Corporation vs Joint Commissioner of Income Tax and Another

C.N. Ramachandran Nair J.

The petitioner is challenging exhibit P-5 order whereunder the Commissioner of Income Tax dismissed the revision petition filed by the petitioner u/s 264 of the Income Tax Act, 1961, challenging the validity of the income escaping assessment completed u/s 147 of the Act for the assessment year 1992-93. The assessee, a Government of Kerala undertaking, filed original return for the assessment year on December 31, 1992, declaring a taxable income of Rs. 50,48,761. This income included business income of Rs. 49,98,241 which was arrived at after claiming a deduction of Rs. 32,27,451 u/s 36(1)(viii) of the Income Tax Act. The entire income declared was set off against brought forward losses relating to earlier years. Thereafter, the assessee filed another return whereunder the total income shown was Rs. 54,03,613 which again was completely set off against carry forward loss of earlier years. The income from business covered by the revised return was Rs. 53,53,096 which was computed after claiming deduction of Rs. 35,68,730 u/s 36(1)(viii) of the Income Tax Act. The assessment was completed u/s 143(1) on January 20, 1995, accepting the return filed by the assessee and without making any variation of the income returned. Subsequently, the Assessing Officer noticed that the assessee''s claim for deduction u/s 36(1)(viii) was not permissible because there was no income available after setting off of carry forward losses. Consequently, the Assessing Officer issued notice u/s 148 and revised the assessment u/s 147 read with Section 143(3) of the Act raising a demand after disallowing the deduction claimed u/s 36(1)(viii) of the Act, but by allowing set off of full carry forward losses.

The assessee does not dispute the fact that the deduction claimed u/s 36(1)(viii) of the Act was irregular and the assessee was not entitled to claim the deduction because after setting off of carry forward losses, there was no income available to claim deduction. However, the assessee raised objection against revision of assessment u/s 147 on the ground that the mistake committed by the officer in approving the claim in terms of the return cannot be rectified under an income escaping assessment. The specific case of the assessee is that there was no change in the law from the date of original assessment till date of revision of assessment and the revision of assessment effected is only based on a change of opinion of the Assessing Officer which cannot be the basis from income escaping assessment u/s 147 of the Act. The assessee, therefore, filed a revision petition before the Commissioner of Income Tax challenging the validity of the income escaping assessment completed u/s 147 read with Section 143(3) of the Act. Even though reliance was placed on the decision of the Delhi High Court in Jindal Photo Films Ltd. Vs. The Deputy Commissioner of Income Tax, , the Commissioner rejected the revision petition and upheld the assessment by following the decision of the Supreme Court in M/s. Phool Chand Bajrang Lal and another Vs. Income Tax Officer and another, . It is against this revisional order of the Commissioner the assessee has filed this O. P.

I heard senior counsel appearing for the petitioner-assessee and senior standing counsel appearing for the respondents. As already stated, the assessee does not support its claim of deduction u/s 36(1)(viii) of the Act which admittedly it was not entitled. Therefore, the claim of deduction made was irregular. However, the assessee''s case is that even though a claim wrongly made was allowed by the officer by mistake, the Assessing Officer has no authority to rectify the mistake and bring to tax the escaped income by resort of Section 147 of the Income Tax Act. In support of the petitioners contention, counsel has relied on the decision of the Delhi High Court in Jindal Photo Films Ltd. Vs. The Deputy Commissioner of Income Tax, , the decision of the Karnataka High Court in Deshanur Oil Mills v. CTO reported in [1982] 49 STC 356(SC), the decisions of the Supreme Court in M.K. Venkatachalam, I.T.O. and Another Vs. Bombay Dyeing and Mfg. Co., Ltd., , The Income Tax Officer, Alwaye Vs. The Asok Textiles Ltd., Alwaye, , in P. S. SUBRAMANYAN, Income Tax OFFICER, COMPANIES CIRCLE 1(1), BOMBAY, AND ANOTHER Vs. SIMPLEX MILLS LTD., , Commissioner of Income Tax Vs. Eicher Ltd., , Bombay Cycle Stores Co. (P.) Ltd. Vs. Commissioner of Income Tax, Nagpur, ; Assistant Commissioner of Income Tax Vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd., andCIT v. Kelvinator of India Ltd. [2002] 256 FTR 1 delhi [FB]. Counsel appearing for the Revenue on the other hand relied on the very same decision relied on by the Commissioner of Income Tax in the impugned order. I do not find the facts in this case are similar to the facts based on which the decision relied on by the assessee are rendered by the Supreme Court and the Delhi High Court. Admittedly, the assessee was not entitled to claim deduction u/s 36(1)(viii) of the Act and the assessee by making the claim was trying whether the officer could be persuaded to commit a mistake and get the claim approved. The assessee initially succeeded because the officer accepted the return probably because the assessee being a Government of Kerala concern was not expected to make a bogus claim in the return filed. However, the question to be considered is whether the assessee can be the beneficiary of its own fraud or mistake and whether the Assessing Officer is prevented from correcting the same u/s 147 of the Income Tax At. It is to be noted that the Explanation to Section 147(2) of the Act specifically provides that the excessive relief granted under the Act leading to escapement of chargeable income is a ground for reopening of assessment to bring to tax the escaped income. This is a clear case of the assessee claiming deduction which it is not entitled and, therefore, escapement of income is on account of the excessive relief claimed by the assessee and allowed by the officer by mistake. The assessee has no case that the issue was discussed and allowed in the original assessment completed u/s 143(1) of the Act. Therefore, the assessee cannot contend that there is a change of opinion on the part of the Assessing Officer inasmuch as originally he was of the view that the claim was allowable and later he changed the said opinion. In fact, the original assessment allowing the claim is a patently wrong order which could have been even corrected u/s 154 of the Act. The Supreme Court has explained the scope of Section 147 in the above decision in M/s. Phool Chand Bajrang Lal and another Vs. Income Tax Officer and another, in the following words (page 478):

We have to look to the purpose and intent of the provisions. One of the purposes of Section 147 appears to us to be to ensure that a party cannot get away by wilfully making a false or untrue statement at the time of original assessment and when that falsity comes to notice, to turn around and say ''you accepted my lie, now your hands are tied and you can do nothing''. It would be a travesty of justice to allow the assessee that latitude.

I am of the view that the above view expressed by the Supreme Court squarely applies to the facts of this case and if the assessee''s claim is allowed, loss of revenue on account of assessee''s mistake or fraud will be perpetuated. I, therefore, find no ground to interfere with exhibit P-5 order and consequently dismiss the O.P.