2004 (11) TMI 96 - HC - Income Tax

Rectification of mistake - Whether Tribunal has been correct in law in upholding the CIT (Appeals) order directing accepting of the assessee s request made u/s 154 that it was an industrial undertaking and the mistake of its being treated as non-industrial one was apparent on the face of the record? - Revenue submitted that the respondent itself had declared it to be a trading company in its return and therefore there was no mistake apparent on the record which could have been rectified under section 154 Held that Tribunal has committed a manifest error of law in upholding the order of the Commissioner of Income-tax (Appeals) for treating the respondent as an industrial company

Summary

Issues Involved:
1. Whether the Tribunal was correct in law in upholding the Commissioner of Income-tax (Appeals) order directing the acceptance of the assessee's request under section 154 of the Income-tax Act, 1961, to treat it as an industrial undertaking for the assessment years 1972-73 to 1975-76.

Issue-wise Detailed Analysis:

1. Tribunal's Decision on Commissioner of Income-tax (Appeals) Order:
The Tribunal upheld the Commissioner of Income-tax (Appeals) order, which directed the Income-tax Officer to rectify the assessment orders under section 154 of the Income-tax Act, 1961. The Commissioner had observed that the respondent should be assessed as an industrial company based on the nature of its operations, not merely on the description given in the return. The Tribunal noted that the Income-tax Officer had treated the respondent as an industrial company in subsequent years (1977-78 and 1978-79) and that the Department had accepted these assessments without seeking further reference.

2. Revenue's Argument:
The Revenue argued that the respondent had declared itself as a trading company in its returns, and therefore, there was no apparent mistake on the record that could be rectified under section 154. The Tribunal's reliance on subsequent years' assessments was deemed erroneous. The Revenue cited the Supreme Court decisions in T.S. Balaram, ITO v. Volkart Bros. and CIT v. Hero Cycles P. Ltd., which emphasized that a mistake apparent on the record must be obvious and not subject to debate.

3. Respondent's Argument:
The respondent contended that it was indeed an industrial company engaged in the manufacture, sale, and export of brass artwares, a fact not disputed by the Revenue. The respondent argued that the Income-tax Officer should have granted the benefit of a lower tax rate applicable to industrial companies, regardless of the respondent's initial mistake in its return. The respondent relied on a Central Board of Direct Taxes circular and Supreme Court decisions in Navnit Lal C. Javeri v. K.K. Sen, Ellerman Lines Ltd. v. CIT, and Addl. CIT v. District Co-operative Bank Ltd., which supported the principle that relief should not be denied due to an assessee's ignorance.

4. Court's Analysis:
The court noted that the assessment proceeded on the basis that the respondent was a trading company, and a higher tax rate was applied accordingly. The court emphasized that each assessment year is an independent unit, and orders from subsequent years should not form the basis for rectification under section 154. The court referred to the Supreme Court's rulings in Volkart Bros. and Hero Cycles, which clarified that a mistake apparent on the record must be clear and not subject to extensive reasoning or debate.

5. Determination of Industrial Company Status:
The court highlighted that determining whether the respondent was an industrial company required examining whether it was engaged in manufacturing or processing goods and whether its income from such activities constituted at least 51% of its total income. This determination involved factual analysis, and the necessary details might not be available on record. The court cited the Supreme Court's decision in Anchor Pressings (P.) Ltd. v. CIT, which held that the Income-tax Officer must have sufficient material on record to grant relief under section 84 (now section 80J) of the Act.

6. Conclusion:
The court concluded that neither the Commissioner of Income-tax (Appeals) nor the Tribunal had adequately addressed whether there was sufficient material on record to classify the respondent as an industrial company. The court held that the Tribunal was incorrect in upholding the Commissioner's order based solely on subsequent years' assessments. The court directed the Tribunal to reconsider the appeal, focusing on whether the respondent could be treated as an industrial company based on the material available for each assessment year.

Judgment:
The court answered the question in the negative, in favor of the Revenue and against the assessee. The Tribunal was instructed to decide the appeal afresh, considering the observations made by the court. No order as to costs was made.