2012 (12) TMI 864 - HC - Income Tax

Rectification under section 154 - whether AO is entitled to invoke Section 154 to correct an assessment order of the appellate authorities based on his opinion that the orders of the CIT (Appeals) and the Tribunal are erroneous and contrary to law - The error was on account of the fact that a decision of the Supreme Court be applied to the case as recorded on 15th January, 1992 and the decision of the Tribunal was dated 3rd December, 1991. A plain reading of sub-section (1)(1A) of Section 154, makes it clear that the authority passing the order may amend the order. Thus, an order passed by the CIT(A) cannot be amended by the AO and an order passed by the Tribunal cannot be amended by the CIT(A) or the AO. In any event, neither the AO nor the CIT(A) can sit in judgment over the decision of the Tribunal and they cannot correct an order of the Tribunal. In the present case, the Revenue did not challenge the order of the Tribunal. The matter should have ended by the AO implementing the order of the Tribunal. In fact, upon remand, the AO erroneously did not implement the order of the Tribunal. The AO, ultimately, did so only when the CIT(A) by the said order dated 19th March, 1997 directed him to do so, stating that the AO was bound by the judgment of the Tribunal. The Revenue did not challenge this Order of the CIT(A) either. The matter regarding the claim for depreciation stood concluded, as far as the AO, the CIT(A), as well as the Tribunal are concerned. If the Revenue considered the order of the Tribunal incorrect, it was bound to challenge the same in accordance with law. The AO was not entitled suo motu under Section 154 to do so. AO had not only stated that the Tribunal did not have the benefit of the decision of the Supreme Court as it was rendered earlier, but has taken liberty of criticizing the Tribunal stating that the Tribunal granted depreciation even though the ITAT was aware that such custom duty was not payable by a subsequent notification by the Govt. of India in 1987. He ought not to have done so - It is not for the AO or for that matter even for this Court to consider whether a decision of the Supreme Court is a correct interpretation of the law or not. Decisions of higher Courts are bound to be followed, irrespective of the personal views of the lower Courts or authorities. This was a case where an application for rectification was made before the Income-tax Officer who had made the order sought to be rectified. In other words, it was not a case where the respondent sought an order from the Income-tax Officer for rectification of an order passed by the appellate authorities. - Decided against the revenue.

Summary

Issues:
1. Whether an Assessing Officer can invoke Section 154 to correct an assessment order based on his opinion that orders of appellate authorities are erroneous?
2. Whether the Income Tax Appellate Tribunal was right in quashing the order of the Commissioner of Income Tax (Appeals) and the Assessing Officer's rectification under section 154 in view of a subsequent judgment of the Supreme Court?

Analysis:

Issue 1:
The primary issue in this case was whether an Assessing Officer is entitled to use Section 154 of the Income Tax Act 1961 to correct an assessment order based on his opinion that orders of appellate authorities are erroneous. The High Court answered this question in the negative. It was established that the Assessing Officer cannot invoke Section 154 to correct orders of appellate authorities, such as the Commissioner of Income Tax (Appeals) and the Tribunal. The authority passing the order may amend the order, and orders passed by appellate authorities cannot be amended by lower authorities.

Issue 2:
The second issue revolved around the correctness of the Income Tax Appellate Tribunal's decision to quash the order of the Commissioner of Income Tax (Appeals) and the Assessing Officer's rectification under section 154. The Tribunal set aside the orders of the Assessing Officer and the Commissioner of Income Tax (Appeals), leading to the present appeal. The Assessing Officer attempted to justify his order by citing Section 154(1)(1A) of the Act. However, the High Court clarified that Section 154 can only be invoked for rectifying mistakes in the authority's own orders, not in orders passed by appellate authorities.

In conclusion, the High Court emphasized that decisions of higher courts must be followed, and lower authorities cannot sit in judgment over them. The Assessing Officer's attempt to rectify orders based on a subsequent Supreme Court judgment was deemed incorrect. The judgment of the Supreme Court in S.A.L. Narayana Row, CIT v. Model Mills Nagpur Ltd. was cited to illustrate the distinction between rectification sought before the same authority and rectification of orders passed by appellate authorities. The reliance on the judgment in Asstt. CIT v. Saurashtra Kutch Stock Exchange Ltd. was deemed misplaced as it involved a different scenario. The High Court ultimately dismissed the appeal, emphasizing that the issue raised was not a substantial question of law.