2014 (8) TMI 1 - HC - Income Tax

Rectification of order u/s 154 Withdrawal of unabsorbed investment allowance to be set off Held that - The successive ITOs from 1983 onwards did not express any reservation about the admissibility of the investment allowance claim - the ITO, who dealt with the assessment of a subsequent year, can independently deal with the claim - it was competent for the respondent to deal with the investment allowance for the AY 1991-92 independently, and was not bound by the view expressed by his predecessors, in the preceding assessment years - If it were to be a case where no deduction whatever was permitted of the investment allowance, though claimed in the preceding assessment years, and the respondent addressed the question, the contention of the Department can certainly be accepted - the determination as to the admissibility has already taken place and substantial part of it was enforced by permitting deduction, any permission accorded to the respondent to undo whatever has been done earlier, would run contrary to the very letter and spirit of Section 154 of the Act, or for that matter, the facility created under Section 32A of the Act - The process of undoing any matter can be only through the known and prescribed procedure and not otherwise the order is set aside Decided in favour of Assessee.

Issues Involved:
1. Legitimacy of the Assessing Officer's invocation of Section 154 of the Income Tax Act, 1961, to withdraw unabsorbed investment allowance.
2. Authority of the Assessing Officer to modify the assessment order for a year without altering the orders of preceding years where the allowance was determined.

Detailed Analysis:

Issue 1: Legitimacy of the Assessing Officer's Invocation of Section 154
The primary controversy revolves around whether the Assessing Officer (AO) was competent to invoke Section 154 of the Income Tax Act, 1961, to withdraw the unabsorbed investment allowance set off in the assessment year 1991-92. The appellant, a construction company, had initially claimed investment allowance under Section 32A during the assessment year 1983-84, which was partially absorbed over subsequent years. In 1991-92, the AO allowed a set-off of Rs. 8,62,585/- from the carried-forward unabsorbed investment allowance. However, the AO later issued a notice under Section 154, citing a Supreme Court judgment in C.I.T. v. N.C. Budhiraja & Company, which held that construction work could not be treated as a manufacturing activity, thus disqualifying the investment allowance.

The appellant argued that the AO's action was contrary to law, as the initial determination of the investment allowance in 1983-84 had already been partially absorbed and carried forward over several years. The appellant contended that the AO's invocation of Section 154 was essentially a review of the earlier order, which was not permissible under the guise of rectifying a mistake. The Court noted that the power to rectify mistakes under Section 154 is subject to a four-year limitation period, which had expired in this case. The Court concluded that the AO's action was effectively a revision of the 1983-84 assessment order and thus barred by the limitation period.

Issue 2: Authority to Modify Assessment Order Without Altering Preceding Years' Orders
The second issue examines whether the AO could modify the assessment order for 1991-92 without altering the orders of the preceding years where the allowance was determined. The Court emphasized that the determination of the investment allowance in 1983-84 had been accepted and acted upon in subsequent years, thus assuming finality. The AO's attempt to disallow the investment allowance in 1991-92 based on a later Supreme Court judgment was deemed impermissible.

The Court referred to the Supreme Court's judgment in Commissioner of Income-Tax v. Manmohan Das, which held that each assessment year is a separate unit and findings from one year do not bind subsequent years. However, the Court distinguished this case, noting that the investment allowance had already been partially absorbed and carried forward over several years. Allowing the AO to disallow the allowance in 1991-92 would contradict the consistency intended by the Income Tax Act.

Conclusion:
The Court allowed the appeal, setting aside the order of the Income Tax Appellate Tribunal and reinstating the Commissioner's order, which had allowed the investment allowance. The AO's order dated 24.01.1994, disallowing the investment allowance, was annulled. The Court emphasized the importance of consistency and adherence to prescribed procedures in tax adjudication.

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