Shahbad Co-Operative Sugar Mills Ltd. vs Deputy Commissioner of Income Tax

Ajay Kumar Mittal, J.—This appeal u/s 260A of the income tax Act, 1961 (for short "the Act"), has been filed by the assessee against the order dated September 7, 2000, passed by the income tax Appellate Tribunal, Delhi Bench (A), New Delhi (in short "the Tribunal") in I. T. A. No. 2211/Del/95 relating to the assessment year 1990-91. The assessee has claimed the following question for determination by this court:

Whether the Tribunal was right in law in holding that the Assessing Officer was justified in rectifying the assessment order in view of the judgment of the hon''ble Supreme Court in Commissioner of Income Tax, Tamil Nadu-V, Madras Vs. Kotagiri Industrial Co-operative Tea Factory Ltd., Kotagiri, even though the judgment of the Supreme Court came on a date much after the rectification order was passed ?

Briefly stated the facts necessary for adjudication, as narrated in the appeal, are that the appellant-assessee is a co-operative society. The asses-see filed a return declaring total income of Rs. 2,11,77,724, on October 29, 1990 and assessment was completed on January 8, 1993. An order u/s 250/150 of the Act, dated May 28, 1993 was issued. The assessee filed an application u/s 154 of the Act, dated June 23, 1993, claiming that deduction u/s 80I was to be allowed on the gross total income without reducing it by unabsorbed allowances. The Assessing Officer vide order dated August 27, 1993 accepted the said application and allowed the claim of the assessee. Thereafter, on scrutiny of the record, it was noticed that the assessee had been allowed relief u/s 80I of the Act, on interest income of Rs. 17,74,215 but the interest earned from the bank did not qualify for deduction u/s 80I. It was further revealed that deduction u/s 80I was worked out before setting off the brought forward losses, investment allowance and deduction u/s 80G of the earlier years. The said mistake resulted in grant of excess deduction u/s 80I and in order to rectify the said mistake, a notice u/s 154 of the Act was issued to the assessee in the year 1994. Finding that the assessee had nothing to say in the matter, the Deputy Commissioner of income tax, Karnal vide order dated September 29, 1994, annexure P-3, framed a revised computation of income u/s 154 of the Act, observing that the net taxable income of the assessee is Rs. 5,50,63,636. The assessee preferred an appeal before the Commissioner of income tax (Appeals), (for short "the CIT (A)"). The Commissioner of income tax (Appeals) quashed the order, annexure P-3, and accepted the appeal vide order dated January 31, 1995, annexure P-2, by holding that the issue, whether deduction u/s 80I has to be allowed before the adjustment of brought forward losses/allowances or after adjustment of the same, was highly debatable.

The Revenue challenged the order of the Commissioner of income tax (Appeals) by filing an appeal before the Tribunal. The Tribunal vide the order under appeal held that the rectification made vide annexure P-3 was valid and partly accepted the appeal. The Tribunal held that in so far as unabsorbed losses/allowances are concerned, the same had to be reduced from the gross total income for calculating the deduction u/s 80I of the Act. However, whether the interest income was entitled to deduction u/s 80I or not, could not be rectified being debatable and it upheld the order of the Commissioner of income tax (Appeals) to that extent.

This is how the assessee has come up in appeal to this court.

We have heard learned counsel for the parties and have perused the record.

Learned counsel for the assessee submitted that the issue, whether the unabsorbed losses/allowances of the earlier years had to be deducted from the gross total income of the current year for calculating the deduction u/s 80I was highly debatable and, therefore, the Assessing Officer could not have resorted to section 154 of the Act in the light of the judgment of the apex court in T.S. Balaram, Income Tax Officer, Company Circle IV, Bombay Vs. Volkart Brothers, Bombay, According to learned counsel, the apex court had settled this issue in Commissioner of Income Tax, Tamil Nadu-V, Madras Vs. Kotagiri Industrial Co-operative Tea Factory Ltd., Kotagiri, by reversing the decision of the Madras High Court and the said decision was rendered on March 5, 1997 whereas resort to section 154 was made in 1994 which could not be legally done.

Controverting the aforesaid submissions, learned counsel for the Revenue argued that the apex court in Commissioner of Income Tax, Tamil Nadu-V, Madras Vs. Kotagiri Industrial Co-operative Tea Factory Ltd., Kotagiri, had held that unabsorbed losses of the earlier years had to be reduced from the gross total income before calculating the deduction u/s 80P of the Act and, for this, reliance had been placed on its earlier judgment in Distributors (Baroda) Pvt. Ltd. Vs. Union of India (UOI) and Others, wherein a similar proposition of law was laid down in respect of intercorporate dividend u/s 80M to be the net amount and not the actual amount received. He submitted that in such a situation, the issue was not debatable when proceedings u/s 154 of the Act were initiated by the Assessing Officer for disallowance of unabsorbed losses/allowances of the earlier years. According to him, rather the order dated June 23, 1993 could not be passed by the then Assessing Officer u/s 154 of the Act being contrary to the apex court judgment in Distributors (Baroda) Pvt. Ltd. Vs. Union of India (UOI) and Others, and the settled legal position. He further urged that on the merits as well, the assessee was not entitled to the claim made by it as learned counsel for the assessee had not been able to deny that on the merits the assessee is not entitled to have full deduction from the gross total income u/s 80I without reducing unabsorbed losses/allowances of the earlier years.

The solitary point for consideration in this appeal is, whether in the facts and circumstances of the case, the Assessing Officer was justified in taking recourse to rectification u/s 154 of the Act whereby he had calculated deductions u/s 80I after reducing the gross total income by unabsorbed losses/allowances of the earlier years.

In order to adjudicate the controversy raised herein, it will have to discern, whether the matter stood settled by the apex court decision i Distributors (Baroda) Pvt. Ltd. Vs. Union of India (UOI) and Others, or in Commissioner of Income Tax, Tamil Nadu-V, Madras Vs. Kotagiri Industrial Co-operative Tea Factory Ltd., Kotagiri, as the former decision was rendered on July 1, 1985 whereas the latter pronouncement was on March 5, 1997. The issue before the Constitution Bench of the apex court in Distributors (Baroda) Pvt. Ltd. Vs. Union of India (UOI) and Others, was relating to deduction u/s 80M of the Act. The question was, whether the assessee was entitled to claim the deduction u/s 80M on the amount of dividend computed in accordance with the provisions of the Act and forming part of the gross total income or with reference to the full amount of dividend received by the assessee. The Supreme Court held that it is the net amount of dividend which will be deducted u/s 80M of the Act. The relevant observations read thus (page 134):

But the amount by way of dividend which would otherwise suffer tax in the hands of the assessee would be the amount computed in accordance with the provisions of the Act and not the full amount received from the paying company. Therefore, it is reasonable to assume that in enacting section 80M, the Legislature intended to grant relief with reference to the amount of dividend computed in accordance with the provisions of the Act and not with reference to the full amount of dividend received from the paying company. It is difficult to imagine any reason why the Legislature should have intended to give relief with reference to the full amount of dividend received from the paying company when that is not the amount which is liable to suffer tax once again in the hands of the assessee. The Legislature could certainly be attributed with the intention to prevent double taxation, but not to provide an additional benefit which would go beyond what is required for saving the amount of dividend from taxation once again in the hands of the assessee.

Relying upon this decision, the apex court in Commissioner of Income Tax, Tamil Nadu-V, Madras Vs. Kotagiri Industrial Co-operative Tea Factory Ltd., Kotagiri, had held that deduction u/s 80P is from gross total income determined in accordance with the provisions of the Act and unabsorbed losses of the earlier years are to be set off before allowing the deduction u/s 80P of the Act. Accordingly, the legal position on the basis of which rectification u/s 154 of the Act had been initiated stood crystallized in 1985. In view of the above, it cannot be said that the issue was debatable when Assessing Officer assumed jurisdiction to rectify order and rectification done was in order. Accordingly, no illegality is noticed in the order of the Tribunal and finding no merit in the appeal, the same is dismissed.