1989 (12) TMI 67 - AT - Income Tax

Advance Tax, Assessment Order, Assessment Year, Carry Forward, High Court, Interest Payable By Assessee, Unabsorbed Depreciation

Summary

Issues Involved:
1. Whether the CIT(A) erred in holding that the matter was debatable and the ITO was not justified in passing the rectification order under section 154.
2. Whether the CIT(A) was justified in directing the ITO to remit the interest charged under section 215 of the Act.

Detailed Analysis:

Issue 1: Rectification Order under Section 154

Revenue's Argument:
The revenue argued that the CIT(A) should have confirmed the rectification order under section 154, where the ITO added unabsorbed depreciation from A.Ys. 1975-76 and 1977-78. According to the Gujarat High Court's decision in CIT v. Garden Silk Weaving Factory, such depreciation cannot be carried forward by the firm but should be allocated among the partners. The revenue contended that since the original assessment for A.Y. 1980-81 was passed after this judgment, the ITO's rectification was justified. The revenue also cited other judgments supporting the rectification under section 154, emphasizing that the law laid down by the High Court should be followed by income-tax authorities within its jurisdiction.

Assessee's Argument:
The assessee contended that the CIT(A) correctly held the issue as debatable and outside the scope of section 154. They pointed out conflicting decisions from various High Courts and emphasized that the original assessment orders for A.Ys. 1975-76 and 1977-78, which allowed the carry forward of unabsorbed depreciation, had become final and could not be rectified after the time limit prescribed under section 154(7). The assessee also referenced judgments indicating that controversial matters are outside the scope of section 154.

Tribunal's Decision:
The Tribunal upheld the CIT(A)'s decision, stating that the unabsorbed depreciation was explicitly allowed to be carried forward in the original assessment orders for A.Ys. 1975-76 and 1977-78. These orders had become final and could not be reopened under section 154 after the expiration of the time limit. The Tribunal emphasized that a matter barred by limitation cannot be revived by rectifying a subsequent year's order. They referenced the Supreme Court's decision in Behari Lal Ram Charan Ltd., which held that the ITO cannot take advantage of his own failure to allocate unabsorbed depreciation among partners. Consequently, the rectification order for A.Y. 1980-81 was invalid.

Issue 2: Remittance of Interest under Section 215

Revenue's Argument:
The revenue argued that the CIT(A) was wrong in directing the ITO to remit the interest charged under section 215. They contended that the rectification order under section 154 is considered a 'regular assessment,' and thus, the increased interest should be justified. The original interest was Rs. 1,317, which was increased to Rs. 9,541 following the rectification.

Assessee's Argument:
The assessee argued that the provisions of section 215(3) as they existed prior to the amendment in 1985 did not allow for an increase in interest due to rectification orders. They cited judgments supporting the view that reassessments are not included in 'regular assessments' for the purpose of section 215.

Tribunal's Decision:
The Tribunal agreed with the assessee, noting that the provision for increasing interest under section 215 due to rectification was introduced only from A.Y. 1985-86. Therefore, for the relevant assessment year, the increase in interest was not justified. The Tribunal confirmed the CIT(A)'s finding that the levy of increased interest under section 215 was not warranted.

Conclusion:
The Tribunal dismissed the departmental appeal, upholding the CIT(A)'s decision on both issues. The rectification order under section 154 was deemed invalid due to the finality of the original assessment orders, and the increase in interest under section 215 was not justified based on the provisions applicable during the relevant assessment year.