JUDGEMENT
B.M. Kothari, Accountant Member -
(1.)THE revenue has preferred this appeal against the order passed by the CIT(A), raising the following grounds of appeal:
1. THE learned CIT( A) has erred in holding that on account of conflicting decisions of various High Courts, the matter was debatable one and as such, the ITO was not justified in passing the rectification order. THE matter was not debatable so far as Gujarat charge is concerned in view of the Gujarat High Court decision in the case of CIT v. Garden Silk & Weaving Factory [1975] 101ITR 658 which was binding for the Income-tax Officer working in Gujarat charge.
(2.)The learned CIT(A) is not justified in directing the ITO to remit the interest charged Under Section 215 of the Act.
2. The learned Departmental Representative submitted that the CIT(A) ought to have confirmed the order Under Section 154 passed by the ITO in which he had made an addition on account of unabsorbed depreciation pertaining to A. Ys. 1975-76 and 1977-78 as such unabsorbed depreciation cannot be validly carried forward in the hands of the firm and the same ought to have been allocated between the partners according to the judgment of Hon'ble Gujarat High Court in the case of CIT v. Garden Silk Wvg. Factory [1975] 101 ITR 658. He contended that the said judgment was delivered by the Hon'ble Gujarat High Court on 26th September, 1974. The assessment order for A.Y. 1980-81, which has been rectified by the ITO Under Section 154, was originally passed on 14th December, 1982 and the order of rectification Under Section 154 was passed on 10th January, 1986. He submitted that when the original assessment order was passed by the ITO for A.Y. 1980-81, the judgment of Hon'ble Gujarat High Court in the case of Garden Silk Wvg. Factory (supra) was already there and, therefore, the benefit Of carry forward of past unabsorbed depreciation allowed by the ITO in A.Y. 1980-81 was a mistake apparent from records and has rightly been rectified by the ITO. He placed reliance on the judgment of Hon'ble Gujarat High Court in the case of CIT v. Ramjibhai Hirjibhai & Sons [1977] 110 ITR 411 in which it was held that interest Under Section 139 can be charged by rectifying the assessment order Under Section 154, as the Hon'ble Gujarat High Court in the case of Dalwadi & Co. v. CIT had held that an omission to charge interest at the time of original assessment could be rectified as Section 139(8) is a mandatory provision of law providing for levy of interest. He also placed reliance on judgment of Hon"ble Gujarat High Court in the case of Standard Radiators v. CIT [1987] 165 ITR 178 in which the High Court held that it is implicit in the power of supervision conferred on a superior Tribunal that all the Tribunals subject to its supervision should conform to the law laid down by it. Hence the law laid down by the High Court has to be followed by the income-tax authorities situated in the area over which the High Court has jurisdiction. The learned D.R. contended on the basis of aforesaid judgments that in view of the aforesaid judgments of the Hon'ble High Court having territorial jurisdiction over the State of Gujarat the rectification order passed by the ITO Under Section 154, following the judgment of territorial High Court in Garden Silk Wvg. Factory's case (supra) ought to have been sustained by the learned CIT(A). He further submitted that the assessment orders for A.Ys. 1975-76 and 1977-78, to which the amount of unabsorbed depreciation in question related, were passed on 18th January, 1977 and 19th November, 1979 respectively and these assessment orders were also passed much after the date of judgment delivered by the Hon'ble Gujarat High Court in the aforesaid case holding that the unabsorbed depreciation of the firm cannot be carried forward in the hands of the registered firm but such unabsorbed depreciation allowance is allocable amongst the partners of the registered firm. He further contended that since effect of the unabsorbed depreciation pertaining to A.Ys. 1975-76 and 1977-78 was given while making the original assessment for A.Y. 1980-81, the same was rightly rectified within a period of four years from the date of passing the assessment order for A.Y. 1980-81. The learned D.R. contended that assessment order for A.Y. 1980-81 is the effective assessment order in which the benefit of unabsorbed depreciation of A.Ys. 1975-76 and 1977-78 has been allowed and, therefore, the fact that time limit prescribed Under Section 154(7) had expired with regard to assessment orders passed for A.Ys. 1975-76 and 1977-78 will not stand in the way of the department to rectify the assessment order for A.Y. 1980-81. In view of these facts, the learned D.R. contended that the CIT(A) ought to have sustained the order passed by the ITO Under Section 154 in which he had added an amount of Rs. 89,281 being the amount of unabsorbed depreciation pertaining to A.Ys. 1975-76and 1977-78.
2.1 As regards ground No. 2, the learned D.R. submitted that the CIT(A) was not justified in directing the ITO to remit the interest Under Section 215of the Act. It was submitted that an order of rectification passed Under Section 154 is covered by the term 'regular assessment' as held by the Hon'ble Gujarat High Court in Bardolia Textile Mills v. 770 [1985] 151 ITR 389 (FB). It was contended that interest Under Section 215 was originally charged by the ITO at Rs. 1,317 and since the income assessed and demand increased on account of order Under Section 154, interest charged Under Section 215 was also consequently increased to Rs. 9,541. The learned D.R. supported the order passed by the ITO in increasing the levy of penal interest Under Section 215 to Rs. 9,541.
The learned counsel for the assessee contended that the CIT(A) had rightly held that the point relating to carry forward of unabsorbed depreciation in the hands of a registered firm is a debatable point of law and is, therefore, outside the scope of Section 154. He invited our attention towards para 3 at page 3 of the order passed by the CIT(A) in which he has given reference of the various conflicting decisions of different High Courts on this point. He submitted that reliance placed by the learned D.R. on the judgment of Hon'ble Gujarat High Court in the case of Ramjibhai Hirjibhai & Sons (supra) is not correct as facts of that case are entirely different. In that case interest Under Section 139(8) was not charged at all and it was held by the Hon'ble Gujarat High Court that levy of interest Under Section 139(8) is mandatory and omission to charge such mandatory interest could be rectified Under Section 154. It was further submitted that the judgment of Hon'ble Gujarat High Court in the case of Standard Radiators (supra) is also apparently distinguishable on facts as in that case the question related to levy of tax on capital gains in the hands of the registered firm which was finally settled by the judgment of Hon'ble Gujarat High Court in the case of CIT v. Hasanali Khanbhai & Sons [1987] 165 ITR 195 referred to in the aforesaid judgment. He invited our attention towards the judgment of the Hon'ble Gujarat High Court in the case of Smt. Lilavatiben Harjivandas Kotecha v. J.V. Shah, ITO [1980] 122 ITR 863 in which it was held that where the point at issue was controversial there is no mistake apparent from the record and the ITO had no jurisdiction to pass the order of rectification. He further invited our attention towards the judgment of Hon'ble Calcutta High Court in the case of CIT v. Purtabpore Co. Ltd. 1986 54CTR (Cal.) 169 in which it was held that where there was conflict of judicial opinion between different High Courts and the matter was pending before the Supreme Court, such controversial matters are outside the scope of Section 154. It was, therefore, submitted by the learned counsel that the order passed by the ITO Under Section 154 for A.Y. 1980-81 was apparently invalid and the CIT(A) has rightly cancelled the same. Even on merits the learned counsel contended that the order passed by the ITO Under Section 154 for A.Y. 1980-81 is not valid and justified. The unabsorbed amount of depreciation relates to A.Ys. 1975-76 and 1977-78. He invited our attention towards the assessment orders for A.Ys. 1975-76 and 1977-78. In A.Y. 1975-76 the ITO, while passing the assessment order on 18th January, 1977, has clearly held that depreciation of Rs. 80,489 and 80J relief of Rs. 14,998 may be carried forward. In the order Under Section 158 for allocation of loss amongst the partners, the said amount of unabsorbed depreciation has not been allocated between the partners. Similarly while passing the assessment order for A.Y. 1977-78, the learned ITO, in the assessment order dated 19th November, 1979, has clearly observed that depreciation, investment allowance and relief Under Section 80J are allowed to be carried forward. The amount of unabsorbed depreciation has also not been allocated Under Section 158 between the partners of the said firm for A.Y. 1977-78. The learned counsel submitted that in case any mistake, as alleged by the revenue, had occurred it occurred in the assessment orders passed for A.Ys. 1975-76and 1977-78. Since these orders could not be rectified as time limit prescribed Under Section 154(7) had already expired, the benefit of carry forward of assessed amount of unabsorbed depreciation pertaining to these two years cannot be denied by resort to order Under Section 154 for A.Y. 1980-81. He invited our attention towards the judgment of the Allahabad High Court in the case CIT v. Kailashpat Jutha Lal [1980] 125 ITR 11, in which it was held that an assessment in the case of a registered firm becomes complete and final when the total income of the firm is determined and apportioned amongst the several partners. In, this case the assessments for A.Ys. 1975-76 and 1977-78 became final on 18th January, 1977 and 19th November, 1979 and the time limit for rectifying those orders Under Section 154 expired within a period of four years from the date of passing of the assessment orders. He also brought to our notice the judgment of Hon'ble Supreme Court in the case of CIT v. Behari Lal Ram Charan Ltd. [1987] 166 ITR 157/32 Taxman 32A in which it was held that the ITO was not entitled to take advantage of his own failure and reject the assessee's claim of carry forward and set off of loss on the ground that the loss had not been determined as required Under Section 24(3) of the Indian Income-tax Act, 1922. The learned counsel, therefore, submitted that even if it is assumed that in view of judgment of Hon'ble Gujarat High Court having territorial jurisdiction, an order Under Section 154 could be passed for A.Y. 1980-81, the same does not in any manner help the revenue as the amount of unabsorbed depreciation pertained to A.Ys. 1975-76 and 1977-78 and the ITO had given a definite finding that such unabsorbed depreciation is allowed to be carried foward. The very fact that the said unabsorbed depreciation was not allocated amongst the partners further clearly proves that the ITO who passed the assessment orders for A.Ys. 1975-76 and 1977-78 gave a definite finding that such unabsorbed depreciation should be allowed to be carried forward in the hands of the assessee firm in subsequent years. This view is further confirmed by the orders passed by the ITO for subsequent years. In A.Y. 1978-79, the ITO while passing the order Under Section 154 on 30th November, 1981 has given a complete chart of such unabsorbed depreciation pertaining to A.Ys. 1972-73 to 1977-78 totalling Rs. 4,10,967 which was allowed to be carried forward in subsequent years. In A.Y. 1979-80, the ITO while passing the order Under Section 154 on 30th January, 1981 had further allowed unabsorbed depreciation to the extent of available profits amounting to Rs. 3,20,609 and directed that remaining unabsorbed depreciation as under, totalling to Rs. 90,358 is allowed to be carried forward:
xxxxx
In view of the aforesaid orders passed by the ITO for A.Ys. 1975-76,1977-78,1978-79 and 1979-80, the denial of carry forward of the balance amount of unabsorbed depreciation pertaining to A.Ys. 1975-76 and 1977-78 in A.Y. 1980-81 is apparently contrary to the provisions of law especially because the orders passed for earlier years had become final and could not be validly reopened Under Section 154 or under any other provisions of the I.T. Act. The learned counsel, therefore, supported the order passed by the CIT(A) and contended that he has rightly cancelled the order Under Section 154 passed by the ITO in this respect.
3.1 As regards ground No. 2, the learned counsel contended that interest Under Section 215 was originally charged at the time of passing the original assessment order on 14th December, 1982 amounting to Rs. 1,317. The ITO has increased the amount of interest charged Under Section 215 at the time when he passed the order Under Section 154 on 10th January, 1986 to Rs. 9,541. He invited our attention towards the provisions of Section 215(3) as it existed prior to its amendment by the Taxation Laws (Amendment) Act, 1984 with effect from 1-4-1985, in which it was provided that where as a result of an order Under Section 154 ... the amount on which interest was payable under the section has been reduced, the interest shall be reduced accordingly and the excess interest paid, if any, shall be refunded. There was no provision for increasing of the interest charged Under Section 215 if as a result of an order Under Section 154 the amount on which interest was payable has been increased. Such an amendment enabling the department to increase the amount of interest charged Under Section 215 consequent upon the order passed Under Section 147, 154, 155, 250, 254 etc. has, for the first time, been provided by amendment of Section 215(3) with effect from 1-4-1985. This clearly proves that prior to A.Y. 1985-86, the increase of interest Under Section 215 consequent to passing of an order Under Section 154 was apparently beyond the scope of Section 215 as it existed during the relevant year. He also relied upon the following judgments to support his contention that a reassessment is not included in the term "regular assessment" for the purpose of Section 215:
Charles D'Souza v. CIT [1984] 147 ITR 694 (Kar.),
CIT v. Padma Timber Depot [1988] 169 ITR 646 (AP).
He further submitted that the judgment of Hon'ble Gujarat High Court in the case of Bardolia Textile Mills (supra) relied upon by the learned D.R. does not support the revenue in relation to ground No. 2 in any manner, as that was a case where the Hon'ble Gujarat High Court was considering the question relating to allowability of interest to the assessee Under Section 214 and not Section 215. Both these sections operated in different fields and are capable of different interpretations. He, therefore, supported the order passed by the learned CIT(A) with respect to ground No. 2 also.
(3.)WE have carefully considered the rival submissions made by the learned representatives of both sides and we have also gone through the orders passed by the learned authorities below and have perused the various assessment orders and other documents to which our attention was drawn during the course of hearing. After considering the entire material and submissions made with regard to ground No. 1, we are of the considered opinion that ground No. 1 taken by the revenue cannot succeed. The aforesaid conclusion derived by us is supported by the following reasons: There is no doubt that the income-tax authorities situated within the jurisdiction of a particular High Court is bound by the judgment of the High Court and such judgment is a valid foundation for passing an order of rectification Under Section 154. Merely because some other High Courts have taken a different view it is not correct to say that the issue, which has been subjected to rectification, was debatable one in so far as that particular State is concerned. In our considered view it is permissible for the income-tax authorities to resort to the provisions of Section 154 for bringing a matter in consonance with the judicial pronouncements of the High Court of the State where such authorities are working. This view is fully supported by the judgments of the Hon'ble Gujarat High Court in the cases of Ramjibhai Hirjibhai & Sons (supra) and Standard Radiators (supra) relied upon by the learned D.R. However, the unabsorbed depreciation was held to be eligible for being carried forward in the hands of the assessee firm in assessment order for A. Ys. 1975-76 and 1977-78. While completing the assessments for these two years, the ITO has given a definite and specific finding that the unabsorbed depreciation is" allowed to be carried forward. The amount "of unabsorbed depreciation was accordingly not allocated between the partners while passing order Under Section 158 simultaneously with the passing of the assessment orders for these two years. The partners of the firm did not derive the benefit of set off in respect of their share in the unabsorbed depreciation in A. Y. 1975-76 and 1977-78, as such amount of unabsorbed depreciation has not been allocated between them. The ITO had himself allowed carry forward in respect of unabsorbed depreciation of earlier years including A.Ys. 1975-76 and 1977-78 while passing the above referred orders Under Section 154 for A.Ys. 1978-79 and 1979-80. This clearly shows that the error existed in the assessment orders passed by the ITO for A.Y. 1975-76 on 18th January, 1977 and for A. Y. 1977-78 on 19th Nov.79. The said error or mistake apparent from records could be rectified by passing appropriate orders Under Section 154 for A.Ys. 1975-76 and 1977-78, provided such rectification orders would have been passed within the time limit of four years prescribed Under Section 154(7). Once a right has been extinguished under the provisions of law and once a matter has become barred by limitation of time, it cannot be revived by such an indirect route of passing an order Under Section 154 for a subsequent year, namely A.Y. 1980-81. The Hon'ble Supreme Court has clearly held in the case of Behari Lal Ram Charan Ltd. (supra) that the ITO was not entitled to take advantage of his own failure and reject the assessee's claim of carry forward and set off of loss on the ground that loss had not been determined as required Under Section 24(3) of I.I.T. Act, 1922. In this case also the ITO had chosen not to allocate the amount of unabsorbed depreciation of A.Ys. 1975-76 and 1977-78, which was contrary to the judgment of Hon'ble Gujarat High Court in the case Garden Silk Wvg. Factory (supra), and has thus denied the right to set off of the respective shares of the partners in unabsorbed depreciation against other income in A.Ys. 1975-76 and 1977-78. The ITO had clearly given a finding that such unabsorbed depreciation will be allowed to be carried forward in the hands of the assessee firm and in fact a substantial amount of past unabsorbed depreciation of past several years has been allowed to be carried forward and set off against income of the assessee firm in A.Ys. 1978-79 and 1979-80. Thus the assessment orders passed for A.Ys. 1975-76 and 1977-78, in which it was held that the unabsorbed depreciation is allowed to be carried forward in the hands of the firm, became final and complete and the time limit for rectification of those orders Under Section 154 had also expired. In view of this fact the proceedings of rectification pertaining to A.Ys. 1975-76 and 1977-78, which had already become barred by limitation of time, cannot be revived by allowing the ITO to pass an order Under Section 154 for A.Y. 1980-81 to deny carry forward of past assessed amount of unabsorbed depreciation pertaining to A.Ys. 1975-76 & 1977-78. In view of these reasons and in view of detailed reasons given by the CIT(A) in his order, we have no hesitation in sustaining the findings given by the learned CIT(A) with regard to ground No. 1. Accordingly ground No. 1 taken by the revenue stands rejected.
4.1 As regards ground No. 2, we are inclined to accept the submissions made on behalf of the assessee. The interest Under Section 215 was originally charged to the tune of Rs. 1,317. The provisions of Section 215(3) as it existed prior to its amendment with effect from 1-4-1985 did not provide for any enhancement or increase in the amount of interest charged Under Section 215 where the amount payable increased as a result of an order of rectification or an order on appeal .or revision etc. The provision providing for consequent increase or enhancement in the amount of interest charged Under Section 215 has for the first time been introduced by the Taxation Laws (Amendment) Act, 1984 with effect from 1-4-1985. The very fact that the aforesaid amendment has not been made with any retrospective effect clearly supports the assessee's contention that prior to A.Y. 1985-86 interest charged Under Section 215 could not be increased where as a result of an order Under Section 154 or 147 or 250 or 254 etc. such amount has been increased. In view of aforesaid discussions the findings given by the CIT(A) that the levy of interest Under Section 215 is not justified is confirmed.