Tsai Tea Enterprises (P.) Ltd. Vs Commissioner of Income Tax

M.H.S. Ansari, J.@mdashPursuant to the direction of the court u/s 256(2) of the Income Tax Act, 1961, the Income Tax Appellate Tribunal (for short "the ITAT"), has drawn up a statement of case and referred the following questions of law :

"(i) Whether, on the facts and in the circumstances of the case and on correct interpretation of section 246(1)(c) of the Income Tax Act, 1961, the Tribunal was right in law in holding that as the statute does not confer an express right of appeal against the order of the specific refusal to carry forward the loss determined on assessment, this issue is debatable ?

(ii) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the Commissioner of Income Tax (Appeals)-X had no jurisdiction to rectify the order of the Commissioner of Income Tax (Appeals)-I, u/s 154 ?

(iii) Whether, on the facts or in the circumstances of the case, the Tribunal was right in law in allowing the departmental appeal and cancelling the order u/s 154 of the Commissioner of Income Tax (Appeals)-X, thus depriving the assessee-company of its right to carry forward the loss ?"

2. The brief facts leading to the reference are as under : 2

3. For the assessment year 1982-83, the assessee filed a return on July 29, 3 1983, showing "loss". The assessment was made by an order dated March 20, 1985. In the said order, the loss was computed and the Assessing Officer held that as the return was not filed in time the loss is not allowed to be carried forward to the next year. Aggrieved by the order of assessment, the assessee preferred an appeal before the learned Commissioner of Income Tax (Appeals) (for short "the learned CIT(A)"). In his order dated March 7,1988, the learned Commissioner of Income Tax (Appeals) granted certain reliefs to the assessee but dismissed the assessee''s appeal with regard to the carry forward of loss by holding that such ground of appeal was not competent.

4. By an order dated December 8,1989, the Assessing Officer (for short the 4 "AO") gave effect to the order of the learned Commissioner of Income Tax (Appeals) dated March 7, 1988, and once again held that the business loss will not be allowed to be carried forward as per the original assessment order and also as per the direction of the learned Commissioner of Income Tax (Appeals). Aggrieved thereby, the assessee once again filed an appeal before the learned Commissioner of Income Tax (Appeals). The learned Commissioner of Income Tax (Appeals) in his order dated March 8, 1991, held that there cannot be any interference in the Assessing Officer''s order dated December 8, 1989, which merely gave effect to the appellate order since the appeal on that ground with regard to carry forward of loss was dismissed by the order dated March 7, 1988. However, relying upon the judgment of the Supreme Court in Commissioner of Income Tax, Punjab Vs. Kulu Valley Transport Co. P. Ltd., and that of the Calcutta High Court in the case of Presidency Medical Centre (P.) Ltd. Vs. Commissioner of Income Tax, , the learned Commissioner of Income Tax (Appeals) opined that the refusal in the original assessment order dated March 20,1985, to allow carry forward of loss was contrary to the said decisions and therefore observed that the finding given in the appeal order dated March 7, 1988, was a mistake apparent from the record inasmuch as the appellant did have a grievance in view of the specific finding of refusal in the original assessment order dated March 20, 1985. The learned Commissioner of Income Tax (Appeals) opined that the refusal to carry forward loss was contrary to the aforesaid decisions and held that the appeal order dated March 7, 1988, was to be rectified and accordingly rectified the same and directed the Assessing Officer to pass an order to the effect that the assessee (appellant) will be entitled to carry forward the loss determined in the assessment for the assessment year 1982-83.

5. Aggrieved by the said decision of the learned Commissioner of Incometax (Appeals), the Revenue preferred an appeal before the Income Tax Appellate Tribunal (the ITAT). In its order allowing the appeal of the Revenue, the Income Tax Appellate Tribunal held that the learned Commissioner of Income Tax (Appeals) posed to himself a wrong question. The question is not whether the assessee was entitled to carry forward the loss to the subsequent years but according to the Income Tax Appellate Tribunal the real question is whether there was a right of appeal against the order of the Assessing Officer refusing to carry forward the loss. It was further observed by the Income Tax Appellate Tribunal that in his earlier order dated March 7, 1988, the learned Commissioner of Income Tax (Appeals) had held that there was no such right and this order was allowed to attain finality. No appeal having been preferred against the same by the assessee, the Income Tax Appellate Tribunal held that the appeal by the assessee against the order of the Assessing Officer giving effect to the order of the learned Commissioner of Income Tax (Appeals) was not appealable as that would be nothing but a reiteration of the decision earlier taken by the learned Commissioner of Income Tax (Appeals). The Income Tax Appellate Tribunal held that the learned Commissioner of Income Tax (Appeals) erred in rectifying his earlier order dated March 7, 1988. That being a debatable question, the learned Commissioner of Income Tax (Appeals) could not have rectified his order u/s 154 of the Act and such rectification, it was held by the Income Tax Appellate Tribunal, was without jurisdiction.

6. Having heard Mr. Mihir Lal Bhattacharya, learned counsel for the appellant, and Mr. R. K. Chowdhury, learned counsel for the Revenue, we are of the view that question No. 1 is not happily worded. It needs to be clarified with reference to the circumstances and the context in which the Incometax Appellate Tribunal made the observations giving rise to the framing of question No. 1.

7. The maintainability of the appeal against an order of refusal to carry forward the loss determined by the Assessing Officer in the case on hand arose in the context that when the Assessing Officer gave effect to the order dated March 7, 1988, passed by the learned Commissioner of Income Tax (Appeals), the Income Tax Appellate Tribunal was of the view that as the earlier appeal was dismissed on the ground of carry forward of loss by the learned Commissioner of Income Tax (Appeals) in his said order dated March 7, 1988, and that order having been allowed to attain finality as no appeal had been preferred against the same by the assessee an appeal once again by the assessee on the said ground to the learned Commissioner of Income Tax (Appeals) was not competent.

8. Mr. Bhattacharya, learned counsel for the appellant is justified in relying upon the judgment of the Supreme Court in Commissioner of Income Tax, Punjab Vs. Kulu Valley Transport Co. P. Ltd., and the judgment of the Calcutta High Court in Presidency Medical Centre (P.) Ltd. Vs. Commissioner of Income Tax, and Commissioner of Income Tax Vs. Nagpur Steel and Alloys (P.) Ltd., which have been considered in Commissioner of Income Tax Vs. Mrinal Sen, , wherein it was held that the loss was entitled to be carried forward when the return was filed within the extended period. The question, however, is whether the order of the learned Commissioner of Income Tax (Appeals) dated March 7,1988, could have been rectified as was done by the learned Commissioner of Incometax (Appeals). The judgments in Commissioner of Income Tax, Punjab Vs. Kulu Valley Transport Co. P. Ltd., and Presidency Medical Centre (P.) Ltd. Vs. Commissioner of Income Tax, were available when the order dated March 7,1988, was passed. The assessee chose not to file an appeal against the order of the learned Commissioner of Income Tax (Appeals). The Assessing Officer gave effect to the order of the learned Commissioner of Income Tax (Appeals) dated March 7, 1988. The appeal filed against that order of the Assessing Officer dated December 8,1989, was not competent as the order of the Assessing Officer was made pursuant to the appeal order dated March 7,1988, passed by the learned Commissioner of Income Tax (Appeals). The Income Tax Appellate Tribunal was, therefore, justified in stating that the same was not appealable as that would be a reiteration of the decision already taken by the learned Commissioner of Income Tax (Appeals). The learned Commissioner of Income Tax (Appeals) himself held that there cannot be any interference with the order of the Assessing Officer dated December 8, 1989, giving effect to the appeal order since the appeal on that ground was dismissed by the order dated March 7, 1988. The Income Tax Appellate Tribunal, therefore, in our view, rightly held that the learned Commissioner of Income Tax (Appeals) erred in rectifying his order dated March 7, 1988, u/s 154. The same was not a mistake apparent from the record but was a debatable issue.

9. Mr. Bhattacharya, learned counsel for the assessee, relying upon the judgment of the Supreme Court in L. Hirday Narain Vs. Income Tax Officer, Bareilly, , contended that the exercise of power to rectify an order apparent from the record is conferred upon the Income Tax authorities in aid of enforcement of a right. The power to rectify the order of assessment conferred upon the Income Tax authorities is to ensure that injustice to the assessee or to the Revenue may be avoided. Reliance was placed upon the following observations made in that judgment (page 32) :

"... It is implicit in the nature of the power and its entrustment to the authority invested with quasi-judicial functions under the Act, that to do justice it shall be exercised when a mistake apparent from the record is brought to his notice by a person concerned with or interested in the proceeding.

The High Court was, in our judgment, in error in assuming that exercise of the power was discretionary and the Income Tax Officer could, even if the conditions for its exercise were shown to exist, decline to exercise the power."

10. Mr. Bhattacharya, learned counsel for the assessee, relied upon the judgment of the Supreme Court in The Commissioner of Income Tax, West Bengal 1, Calcutta Vs. Vegetables Products Ltd., wherein it was held that if two reasonable constructions of taxing provisions are possible, that construction which favours the assessee must be adopted. In our view, the said judgments are of no assistance to the assessee on the facts of the instant case as there is no ambiguity with regard to any provision of the Act nor do we find that on the facts and circumstances of the case on hand any conditions for the exercise of power to rectify were shown to exist warranting the rectification of the order dated March 7,1988, by the learned Commissioner of Income Tax (Appeals).

11. The Assessing Officer determined the loss for the assessment year in question, viz., 1982-83. The question whether the same is allowed to be carried forward or not in the subsequent years is dependent upon the fulfilment of the conditions prescribed in section 72 of the Act, namely :-

"(i) the loss should be the ''net result of the computation under the head "Profits and gains of business or profession"

(ii) the loss is to the same assessee against whose business income it is sought to be set off;

(iii) the business from which it has resulted is not speculation business ;

(iv) the loss could not be, or is not, wholly set off against income under any other head of income in accordance with the provisions of section 71, then, the entire, or so much of the, loss as has not been so set off-

(a) shall be carried forward to the assessment year following ;

(b) it shall be set off against the profits and gains, if any, of any business or profession carried on by the assessee and assessable for that assessment year, (i.e., the assessment year following) if the business or profession for which the loss was originally computed continued to be carried on by the assessee in the previous year relevant to that assessment year ; and

(c) if, against the income of such (following) assessment year, the loss is not capable of being wholly or partly set off due to insufficiency of income, the unabsorbed portion of such loss shall be similarly carried forward and set off against similar incomes of future years up to the eighth assessment year immediately succeeding year for which the loss sought to be set off was first computed."

12. The question, therefore, whether the loss in any year may be carried for- ward to the subsequent year and set off against the profits and gains of the following and/or subsequent years has to be determined by the Assessing Officer who deals with the assessment of the following and/or subsequent year.

13. Thus, on the facts of the case on hand, the actual set off of the carried 13 forward loss determined for the assessment year 1982-83 will take place in some future assessment years. The direction that loss could not be allowed to be carried forward had not in any manner affected the determination of loss and, therefore, the assessee could not be said to be aggrieved. It was not, therefore, a matter which could be regarded as a mistake apparent from the record warranting rectification u/s 154 by the learned Commissioner of Income Tax (Appeals). With respect to the assessment year 1982-83, as noticed before, the return was filed showing a loss and the order of assessment also shows that loss was computed. The question of giving effect to the loss determined in the assessment for the assessment Income Tax Reports 28-2-2005 26 year 1982-83 in the subsequent assessment years was dependent upon the fulfilment of the conditions prescribed in section 72. It was therefore a debatable question.

14. In the result, we return our answer to the questions framed, as under : Questions Nos. (i) (ii) and (iii) are answered in the affirmative, in favour of the Revenue and against the assessee.

15. Reference is accordingly answered without any order as to costs.

Soumitra Pal, J.

16. I agree.