Saurashtra Cement and Chemical Industries Ltd. vs Commissioner of Income Tax

D.H. Shukla, J.—The petitioner, Saurashtra Cement and Chemical Industries Ltd., Ranavam, District Porbandar, filed this special civil application for the issuance of a writ in the nature of mandamus or certiorari or any other writ, direction or order under article 226 of the Constitution of India to quash the order of the respondent, the Commissioner of Income Tax, Gujarat Circle, Ahmedabad, dated September 4, 1986 and to condone the delay and to direct the respondents to dispose of the concerned revision petition on merits and also to direct him to dispose of the revision petitions for the assessment year 1965-66 pending with him since December 26, 1972.

The facts leading to the filing of the present special civil application may shortly be termed as under :

The petitioner entered into an agreement with the Gujarat Electricity Board on September 23, 1959, for additional supply of electricity for working a plant on condition that the petitioner contributed towards the cost of laying a service line to its factory. In accordance with the said agreement, in the accounting year ending June 30, 1964, the petitioner contributed Rs. 3,00,600 towards the cost of laying of a service line to the factory. The petitioner capitalised the said amount and in the assessment year 1965-66 claimed depreciation thereof which was allowed by the concerned Income tax Officer by his order dated July 21, 1969.

For the next assessment year, i.e., 1966-67, the petitioner once again claimed depreciation on the written down value of the said amount being Rs. 2,70,540. The concerned Income Tax Officer, however, took the view that as the petitioner did not become the owner of the said service line under the terms of the agreement, the petitioner was not entitled to claim depreciation. The petitioner preferred an appeal to the Appellate Assistant Commissioner who rejected the petitioner''s appeal by his order dated December 21, 1970. The petitioner thereupon preferred further appeal to the Income tax Appellate Tribunal. At the hearing of the appeal before the Tribunal, the petitioner through its counsel, felt that in view of the terms of the agreement and in view of the approach of the Department on the question of depreciation, the petitioner had a better chance of claiming the said amount by way revenue expenditure instead of claiming depreciation though the same was allowed by the Income tax Officer for the assessment year 1965-66. The petitioner, therefore, sought permission of the Tribunal to withdraw his appeal pending before it to enable the petitioner to file a revision petition to the Commissioner of Income tax u/s 264 of the Act, for the assessment year 1965-66 for claiming the said amount by way of revenue expenditure. The Tribunal permitted the petitioner to withdraw the appeal by its order dated November 23, 1972 which order was received by the petitioner on December 7, 1972. On December 26, 1972, the petitioner preferred a revision petition under the section 264 to the Commissioner of Income tax and claimed that the said amount of Rs. 3,00,600 be allowed as revenue expenditure in the assessment year 1965-66, the year in which the then Income Tax Officer had allowed depreciation on the said amount, treating the same as capital expenditure. The petitioner also applied for condonation of delay in filing the said revision application, in view of the circumstance of the case which showed sufficient cause for not filing the revision petition earlier.

The then Commissioner of Income Tax, however, by his order dated March 29, 1975, rejected the petitioner''s revision petition on the ground of delay. The petitioner preferred a Special Civil Application No. 1061 of 1975, against the said order, contending that the Commissioner wrongly rejected the prayer for condonation of delay and he should have entertained the same on merits. The High Court, by its judgment dated February 16, 1978, held that there was sufficient cause for not filing the revision petitions earlier, set aside the order of the Commissioner refusing to condone the delay and directed that the Commissioner should proceed on the footing that there was sufficient cause and that delay must be condoned (vide Saurashtra Cement and Chemical Industries Ltd. Vs. Commissioner of Income Tax, Gujarat, . The Division Bench of this court was of the view that the discretion vested in the Commissioner was not exercised in a judicial manner and the result was that a substantial injury was caused to the petitioner company as far as the consideration of the question regarding the revenue expenditure of Rs. 3,00,600 was concerned.

While the revision application for the assessment year 1965-66 was thus pending before the respondents, a similar situation developed with regard to the assessment year 1969-70 for a similar claim of depreciation in respect of a sum of Rs. 6,00,000 as the petitioner''s further contribution to the Gujarat Electricity Board for laying of a service line to the petitioner''s factory. The petitioner claimed depreciation in respect of the aforesaid amount in the assessment year 1969-70 as the entry for the said amount was made on the last day of the accounting year relevant to the assessment year 1968-69. The Income Tax Officer rejected the claim of the petitioner for the depreciation by his order dated March 20, 1972, on the ground that the petitioner was not the owner of the said service line and, therefore, it was not entitled to depreciation. The petitioner preferred an appeal to the Appellate Assistant Commissioner in this regard. The said appeal was dismissed on September 30, 1972, and the appellate order was received by the petitioner on October 30, 1972. As the petitioner felt that it has a better chance about the allowability of the amount as revenue expenditure, the petitioner preferred a revision petition to the respondent on October 24, 1973, claiming the amount of Rs. 6,00,000 as revenue expenditure. The said revision petition was dismissed by the respondent by his order dated March 29, 1975, on a technical ground of limitation as, according to him, there was a delay of 11 days. The petitioner preferred Special Civil Application No. 1061 of 1975, which come up before the Division Bench of this court on February 16, 1978, and was heard along with the other writ petition for the assessment year 1965-66. In regard to this writ petition, the respondent''s standing counsel contended that as the said amount was debited on the last day of the accounting year on June 30, 1967, if the said amount was revenue expenditure at all, it would pertain to the accounting year June 30, 1967 corresponding to the assessment year 1968-69 and not for the assessment year 1969-70. The petitioner''s advocate, therefore, withdrew the said special civil application to enable the petitioner to adopt proper proceedings regarding this amount of Rs. 6,00,000 being treated as revenue expenditure in respect of the assessment year 1968-69. The permission to withdraw the said special civil application was granted and the petitioner thereafter immediately filed a revision petition to the respondent on February 21, 1978 u/s 264 of the Income Tax Act, for the assessment year 1968-69 claiming that the said amount of Rs. 6,00,000 be allowed as revenue expenditure and that the delay in filing the said petition be condoned in view of the previous litigation in the High Court and before the Commissioner on the very same issue. The said revision petition dated February 21, 1978, was submitted to the respondent.

The respondent went on postponing the decision on this issue both for the assessment years 1965-66 and 1968-69 which were pending before him in spite of repeated reminders by the assessee to decide them. The respondent rejected the petitioner''s revision petition for the assessment year 1968-69 on the ground that there was a delay of five years and eleven months and the delay could not be condoned for the reasons mentioned by him in the said order. The petitioner submits that the order of the respondent rejecting the petitioner''s revision petition on the ground of delay is highly technical and erroneous in law on the face of record and particularly in view of the confused state of affairs obtaining on the vital issue whether the petitioner was entitled to claim depreciation on the said amount contributed by it for laying the service line or whether it was entitled to claim the same as revenue expenditure. It is further submitted that this court passed an order with regard to both the assessment years 1965-66 and 1969-70 on the same day, i.e., February 16, 1978, and condoned the delay for the assessment year 1965-66, while it permitted the petitioner to withdraw the second special civil application to enable the petitioner to prefer revision petition to the respondent for the year 1968-69 and accordingly the said revision petition was preferred by the petitioner within five days of the order of this court in this behalf.

We have heard Mr. K. H. Kaji, for the petitioner, and Mr. S. A. Soparkar, for the respondent. During the course of his submission, Mr. Kaji submitted by this time, the Commissioner has heard the earlier revision petition relating to the assessment year 1965-66 and has allowed the claim of the petitioner treating its contribution of Rs. 3,00,600 in the assessment year 1965-66 as revenue expenditure, We understand, therefore, that no direction is now required to be given to the respondent in regard to the claim of the petitioner in regard to the assessment year 1965-66.

Mr. S. N. Soparkar, reiterated the reasoning of the Commissioner of Income Tax, discussed in his order dated September 4, 1986 (a copy of which is produced at annexure "C" to the petition), that the assessee was fully aware as early as 1972 that it would be processing its claim of deduction as revenue expenditure in the year when the liability accrued and that, therefore, filing a revision petition in 1973 for the assessment year 1969-70 and not for 1968-69 was due to the negligence and mistake of the assessee in not taking into account the year in which the liability arose. He was also of the view that the assessee was guilty of inaction for a long period of time from 1973 to 1978. We are unable to agree with the view taken by the learned Commissioner of Income Tax. So far as the alleged inaction for a period of time from 1973 to 1978 is concerned, it must be noted that the petitioner was not guilty of any inaction, inasmuch as he was proceeding with his claim in regard to the assessment year 1969-70 instead of for the assessment year 1968-69 and in fact the special civil applications for the assessment years 1965-66 and 1969-70 came to be decided on the same date, i.e., February 16, 1978. May be there was a mistake on his part to claim deduction for the assessment year 1969-70 instead of the assessment year 1968-69 but he could not be held guilty of inaction in the sense that he lay idle all this time to put forth his claim in regard to the year 1968-69. So far as the other limb of the argument is concerned, namely, that the petitioner was guilty of negligence in claiming a deduction for the year 1969-70 whereas he should have claimed the same for the assessment year 1968-69, we are of the view that having regard to the facts involved in this matter in general and particularly taking into consideration the fact that the petitioner had claimed depreciation in respect of the aforesaid amount in respect of the assessment year 1969-70 as the entry for the said amount was made on the last day of the accounting year relevant to the assessment year 1968-69 the lapse on the part of the petitioner indicates an oversight on its part rather than negligence. Again, in our view, this oversight on its part cannot be considered as if it amounted to negligence in taking the necessary proceedings. The negligence to operate as a bar in considering a case for condonation must be such negligence as is related to the diligence in taking appropriate proceedings. The petitioner''s negligence, even if we call it negligence and not oversight, was in putting forth a claim for the assessment year 1969-70 instead of for the assessment year 1968-69. Such negligence had nothing to do with to the petitioner''s anxiety to take appropriate proceedings in this regard. The distinction is significant when a question for condonation of delay comes for consideration and is resisted on the ground of negligence by the other side. The distinction, with respect, was overlooked by the Commissioner when he declined to condone the delay with the result that substantial injury was caused to the petitioner company in so far as the consideration of the question regarding the revenue expenditure of Rs. 6,00,000 for the year of 1968-69 was concerned. Consequently, we are constrained to observe that his approach could not be said to be exercise of sound judicial discretion and his decision, therefore, becomes vulnerable. In our opinion, under the facts and circumstances of the present case, the delay must be condoned on the ground of sufficiency of cause. We, therefore, allow this special civil application, quash and set aside the order of the Commission of Income Tax, Gujarat Central, Ahmedabad, dated September 4, 1986, at annexure "C" to the petition, and direct him to dispose of the revision application on merits expeditiously on the footing that there was sufficiency of cause and that the delay is condoned. Rule is made absolute accordingly with no order for costs.