2015 (9) TMI 332 - HC - Income Tax

Revision u/s 263 - Rectification of mistake - Entitlement for interest exemption under Section 10(15)(iv)(e) allowed but claim of such amount under Section 80HHC denied - AO disallowing the interest exemption contending that on the basis of the direction of CIT(A) the issue being a legal matter, the error was being rectified under Section 154 of the Act as a mistake apparent from the record.whether Tribunal was not justified in setting aside the order of the Commissioner under Section 263 of the Act, inasmuch as, the assessment order was inconsistent with the direction of the Tribunal passed in the earlier round of litigation? Held that - AO while passing a fresh assessment order on 29.12.2008 considered the directions of the Tribunal and also considered the provisions of Section 10(15)(iv)(e) of the Act in detail and, after considering the evidence that was brought on record, came to the conclusion that conditions prescribed under Section 10(15)(iv)(e) of the Act are satisfied and that the assessee was entitled for exemption on interest received. In our view, such finding of the assessing officer, assuming it to be erroneous cannot be rectified in proceedings under Section 154 of the Act on the ground that a mistake apparent on the face of the record had occurred in the assessment order inasmuch as the assessment order was passed by a process of reasoning and after applying its mind. Once an order has been given by a process of reasoning and assuming that two views are possible it still cannot be treated as a mistake apparent from the record. We also find that the order under Section 154 of the Act has been passed by the assessing officer on the dictates of the Commissioner. The assessing officer is a quasi-judicial authority and is required to apply its own mind and cannot function on the dictates and directions of another authority. Consequently, on this ground also, the order of the assessing authority under Section 154 of the Act cannot be sustained. In so far as the appeal filed by the Department is concerned, we are of the opinion, that the Commissioner of Income Tax had no jurisdiction to pass an order under Section 263 of the Act. The Commissioner of Income Tax assumes jurisdiction under Section 263 of the Act when it issues a notice to the assessee under Section 263 of the Act to show cause as to why the order of the assessing authority should not be set aside on the ground that the assessment order was pre-judicial to the interest of the revenue. On this aspect, the assumption of jurisdiction takes place when a notice is issued under Section 263 of the Act. This notice under Section 263 of the Act was issued by the Commissioner on 18.3.2011 much after the assessment order dated 29.12.2008 was modified by an order dated 9.2.2010 under Section 154 of the Act. Once the assessment order dated 29.12.2008 merged with the order dated 9.2.2010 passed under Section 154 of the Act, the notice under Section 263 of the Act questioning the veracity and legality of the original assessment order dated 29.12.2008 was patently erroneous and invalid and, consequently, all the proceedings initiated pursuant to the said notice including the order dated 30.3.2011, passed under Section 263 of the Act, was also invalid and was rightly set aside by the Tribunal though for different reasons.

Summary

Issues Involved:
Assessment of interest earned on Exchange Earned Foreign Currency Account Term Deposit Receipt (EEFCTDR) under Section 10(15)(iv)(e) of the Income Tax Act; Rectification of assessment order under Section 154 of the Act; Jurisdiction of Commissioner of Income Tax under Section 263 of the Act.

Analysis:

Assessment of Interest Earned on EEFCTDR:
The dispute revolved around the exemption claimed by the assessee on interest earned on EEFCTDR under Section 10(15)(iv)(e) of the Income Tax Act. Initially, the assessing officer rejected the claim, leading to a series of appeals and orders. The Tribunal directed a fresh assessment considering the exemption under Section 10(15)(iv)(e), which was granted by the assessing officer. However, subsequent directions from the Commissioner of Income Tax led to disallowance of the exemption, triggering further legal actions. Ultimately, the High Court held that the assessing officer's decision, based on detailed consideration and evidence, could not be rectified under Section 154 as it was not a patent mistake.

Rectification of Assessment Order under Section 154:
The High Court referred to various Supreme Court judgments emphasizing that rectification under Section 154 should only address obvious and patent mistakes, not matters requiring extensive reasoning or involving debatable legal points. The Court noted that the assessing officer's order was a result of a reasoned process and could not be considered a mistake apparent from the record. Additionally, the Court highlighted that the assessing officer, as a quasi-judicial authority, should exercise independent judgment and not act solely on the directions of another authority.

Jurisdiction of Commissioner of Income Tax under Section 263:
Regarding the Commissioner's jurisdiction under Section 263, the High Court determined that the notice issued by the Commissioner questioning the original assessment order after it had been modified under Section 154 was invalid. The Court reasoned that once an assessment order was modified under Section 154, the original order ceased to exist, rendering subsequent actions based on the original order erroneous. Consequently, the Court quashed all notices and orders related to the original assessment order, ruling in favor of the assessee.

Conclusion:
The High Court allowed all writ petitions, quashing the notices and orders issued under Section 154 of the Act. The Court dismissed the appeals filed by the Department, emphasizing that no substantial questions of law arose for consideration. The judgment highlighted the importance of adhering to legal principles in assessments and rectifications under the Income Tax Act, ensuring fair and just outcomes for taxpayers.