R.B.L. Banarsi Dass and Co. (P) Ltd. vs Commissioner of Income Tax

M.M. Kumar, J.

1.. This appeal filed by the assessee u/s 260A of the Income Tax Act, 1961 (for brevity, ''the Act''), is directed against order dated 17-5-2006 passed by the Tribunal, Chandigarh Bench ''A'', Chandigarh (for brevity, ''the Tribunal''), in ITA No. 1281/Chd/1996, in respect of assessment year 1989-90. The assessee appellant has claimed that following questions of law would arise for consideration of this Court:

(i) Whether under the facts and circumstances of the case, the Tribunal is justified in taxing amount received in pursuance of the insurance claim giving two divergent treatments as a capital receipt and as a revenue receipt?

(ii) Whether under the facts and circumstances of the case the Tribunal is justified in overlooking the doctrine of merger being the substance of the controversy on the interpretation of order in CWP No. 4637 of 1996 and ITA No. 122 of 2002 by this court?

(iii) Whether the Tribunal is justified in applying the provisions of Section 45(1A) retrospectively, which were inserted in the statute with effect from 1-4-2000 having prospective application?

(iv) Whether the Tribunal is justified in taking an adverse inference overlooking and ignoring that a mistake of fact and law cannot be an estoppel which is non est in eyes of law?

(v) Whether on the true and correct interpretation of the provisions of Section 50, a non obstante clause the scope stands fulfilled on the acquisition of the asset as distinct from the user of the same?

Brief facts of the case necessary for disposal of the instant appeal are that the assessee appellant is a company, which was subsequently wound up somewhere in 1996. The assessment for the year 1989-90 was completed on 27-3-1991 assessing the income u/s 143(3) of the Act at an amount of Rs. 67,010. However, the Commissioner in exercise of his revisional power u/s 263 of the Act vide order dated 23-3-1993, set aside the assessment on the ground that the assessing officer committed serious error causing prejudice to the interests of the revenue. He expressed the view that the assessing officer failed to give proper treatment to the sale of scrap of machinery and directed the assessing officer to complete the assessment afresh. Accordingly, the assessing officer in the course of assessment u/s 143(3) of the Act took cognizance of the fact that there was a fire in the factory and the assessee had lodged a claim with the insurance company for the loss due to fire. The claim to the extent of Rs. 15,34,177 was received. The assessee had also sold scrap of the machinery for a sum of Rs. 13,04,995. The Written Down Value (WDV) of the machinery was Rs. 1,42,042, which by adding the machinery of previous year of Rs. 20,06,705. came to the total of Rs. 21,48,747. The short-term capital gain was calculated by the assessee at Rs. 6,90,425 after deducting the aforementioned amount from the insurance claim and scrap value received from the sale of the same, which was set aside by the Commissioner in exercise of power u/s 263 of the Act. vide order dated 23-3-1993.

During the course of assessment proceedings u/s 143(3) of the Act, the submission made by the assessee that insurance claim was in lieu of damage/destruction by the fire, was rejected by the assessing officer on the ground that insurance claim was to be considered as short-term capital gain in terms of provisions of Section 50 of the Act. Fresh assessment was made on 28-2-1995 and no appeal was filed against the assessment order u/s 143(3) read with Section 263 of the Act.

On 10-11-1995 the assessee moved an application u/s 154 of the Act for rectification of a mistake in assessing the short-term capital gain u/s 50 of the Act. The assessing officer rejected the application on the ground that the claim of the assessee having been rejected u/s 143(3) of the Act, could not be considered afresh by invoking Section 154 of the Act and only an appeal was an appropriate remedy for the assessee against the assessment order dated 28-2-1995. The assessee thereafter preferred an appeal before the Commissioner (Appeals) against the order of rejection of application u/s 154 of the Act. The Commissioner (Appeals) after conferring due consideration on the contention of the assessee that the scrap was dumped on the assessee by the insurance company at determined value and since such claim was settled in kind, the same constituted the capital receipt and accordingly the Commissioner (Appeals) accepted the contention of the assessee and the assessment order made u/s 143(3) of the Act on 28-2-1995, was set aside vide order dated 4-10-1996 with a direction to the assessing officer to examine the issue in the light of the provisions of Section 50 of the Act.

The revenue approached the Tribunal by raising the issue that the appeal before the Commissioner (Appeals) was against the order u/s 154 of the Act and therefore, he, had no power to set aside the assessment framed u/s 143(3) of the Act, as no appeal was filed by the assessee against that order. The revenue raised various other issues. The assessee also raised the principal issue that the assessing officer having ignored the legal provisions of Section 50 of the Act committed a mistake apparent on record, which is rectifiable u/s 154 of the Act and that Section 45(1A) of the Act was incorporated with effect from 1-4-2000 and it was not applicable to the assessment year 1989-90. The Tribunal took the view that the assessee had made a specific claim during the course of assessment proceedings u/s 143(3) read with Section 263 of the Act that the amount received from the insurance company was a capital receipt which was rejected by the assessing officer by observing that the judgment of Hon''ble the Supreme Court in the case of Vania Silk Mills (P) Ltd. Vs. Commissioner of Income Tax, Ahmedabad [OVERRULED], , did not apply to the facts of the present case. The assessing officer had further held that the sale of scrap was liable to short-term capital gain in terms of provisions of Section 50 of the Act and that the assessee did not file any appeal against the decision of the assessing officer. The assessee, however, filed an application u/s 154 of the Act which was rejected. The Commissioner (Appeals) did not decide the issue whether the assessing officer was justified in rejecting the application of the assessee u/s 154 of the Act on the ground that the same very issue had already been raised and decided by the assessing officer u/s 143(3) read with Section 263 of the Act and that the issue was highly debatable. The Tribunal further held that the Commissioner (Appeals) did not pass any speaking order on the issue but has issued direction to the assessing officer to consider the claim of the assessee u/s 50 of the Act afresh as if he was deciding the appeal against the assessment order dated 28-2-1995 passed u/s 143(3) read with Section 265 of the Act. The Tribunal placed reliance on a judgment of Hon''ble the Supreme Court in the case of T.S. Balaram, Income Tax Officer, Company Circle IV, Bombay Vs. Volkart Brothers, Bombay, and went on to observe as under:

...In our considered view, the powers or the assessing officer u/s 154 are limited to rectification of mistake apparent from record. The mistake must be obvious and patent and not something which can be established by a long-drawn process of reasoning on points on which there may be conceivably two opinions as held by the Supreme Court in the case of T.S. Balaram, Income Tax Officer, Company Circle IV, Bombay Vs. Volkart Brothers, Bombay, . A decision on a debatable point of law is not a mistake apparent from record. In the present case, whether the amount received from the insurance company including the sale of scrap was a capital receipt or not was highly debatable. Moreso, such claim was specifically rejected by the Income Tax Officer at the time of completing the assessment u/s 143(3). In our considered view, the issue relating to the assessment of short-term capital gain in the light of provisions of Section 50 is highly debatable. The assessing officer had expressed an opinion in the assessment order passed u/s 143(3).

The Tribunal further observed that the correctness of the view taken by the assessing officer relating to his finding in the order passed u/s 154 of the Act should have been decided by the Commissioner (Appeals) and that he had travelled beyond his powers in substituting his own opinion on the issue relating to the provisions of Section 50 of the Act, to the opinion of the assessing officer in the absence of any appeal before him against the order dated 28-2-1995,passed by the assessing officer u/s 143(3) of the Act. Accordingly, the order of the Commissioner (Appeals), dated 4-10-1996 was set aside and the order of the assessing officer u/s 154 of the Act was restored.

The aforementioned facts and circumstances show that only the following question of law would arise for determination:

Whether the order dated 28-2-1995 passed by the assessing officer u/s 143(3) read with Section 263 of the Income Tax Act, 1961, which has attained finality, could be reversed while hearing appeal against the order dated 2nd Feb., 1996 passed by the assessing officer u/s 154 of the Act?

After hearing learned Counsel for the parties we are of the considered view that the order passed by the Tribunal is in conformity with law. The order dated 28-2-1995, passed by the assessing officer u/s 143(3) read with Section 263 of the Act had attained finality and it was only order dated 2-2-1996,passed by the assessing officer u/s 154 of the Act seeking rectification, which was the subject-matter of challenge before the Commissioner (Appeals). However, the Commissioner (Appeals) illegally set aside the assessment order dated 28-2-1995, passed u/s 143(3) of the Act, vide its order dated 4-10-1996 (A-2), with a direction to the assessing officer to examine the issue in the light of the provisions of Section 50 of the Act. The Tribunal, on further appeal, has rightly held that as no appeal against the order of assessment passed u/s 143(3) of the Act was filed and the appeal was preferred only against the rectification order dated 2-2-1996 (A-3), the Commissioner (Appeals) did not enjoy any jurisdiction to set aside the aforementioned order. The jurisdiction of an assessing officer to rectify an assessment order u/s 154 of the Act is limited as he could make correction of errors apparent on the face of the record. In that regard reliance has rightly been placed on the judgment of Hon''ble the Supreme Court in T.S. Balaram''s case (supra). Similar, view has been reiterated in the case of Commissioner of Income Tax, Jabalpur Vs. Keshri Metal Pvt. Ltd., Raipur, . The order of assessment, dated 28-2-1995 passed u/s 143(3) of the Act, has attained finality and there was no appeal filed against that order. We find no legal infirmity in the impugned order. Therefore, the appeal fails and the same is dismissed.