2015 (1) TMI 1167 - HC - Income Tax

Rectification of mistake - Scope of Section 154 - Whether power of CCIT u/s 154 can only be exercised for rectification of a mistakes which are apparent on record and not when an elaborate reasoning is to be provided to arrive at the finding that there appears to be a mistake apparent on record? - petitioner is substantially financed by the State of Sikkim and entitled to an exemption under Section 10 (23C) (iiiab) of the Act - Held that - The assessment order, passed on the return file in pursuance of the notice under Section 148 of the Act, was based on the fact that the petitioner is not entitled to an exemption under the said Section. The Appellate Tribunal reversed the said order with categorical finding that the petitioner is substantially financed by the Government of Sikkim and is, therefore, entitled to an exemption under Section 10 (23C) (iiiab) of the said Act. The CCIT is bound by the decision of the Appellate Tribunal which is admittedly a superior forum. The hierarchical system of dispensation of justice, which exists in our country, requires a strict adherence and respect to avoid any abuse or misuse of the power and conflict in views. The authority of the Court standing on a lower pedestal is bound by the decision of the higher authority or the Court and it is not open to disregard the decision. It does not require any debate on the proposition of law that the principle of res judicata cannot be applied in a matter of taxation because each year s assessment is final in that year and does not have any bearing at the time of determination of the tax for a subsequent period or other period as held in Installment Supply (P) Ltd. & Another (1961 (5) TMI 53 - SUPREME COURT OF INDIA). It is not a case of the petitioner that the principle of res judicata is applicable in the present case. The CCIT has wrongfully invoked the jurisdiction under Section 154 of the Act by recording an elaborate reasoning in the garb of the mistake apparent from the record and has, in fact, percolate the sense of change of opinion. Furthermore, the CCIT cannot sit as an Appellate Authority over the decision of the Appellate Tribunal. The CCIT is bound by the decision of the Appellate Tribunal which is a higher forum and cannot take a contrary view to what has been taken therein. This Court, therefore, finds that the order impugned suffers from illegality and/or infirmity and cannot be allowed to stand. Accordingly, the order dated 17th January, 2013 is hereby quashed and set aside. - Decided in favour of assessee.

Issues Involved:
1. Jurisdiction and scope of Section 154 of the Income Tax Act, 1961.
2. Applicability of the principle of res judicata in taxation matters.
3. Hierarchical adherence to appellate tribunal decisions.
4. Distinction between a patent error and a change of opinion.
5. Validity of rectification orders in the context of pending appeals.

Issue-wise Detailed Analysis:

1. Jurisdiction and Scope of Section 154 of the Income Tax Act, 1961:
The petitioner challenged the rectification order passed by the Chief Commissioner of Income Tax (CCIT) under Section 154 of the Income Tax Act, 1961. The petitioner argued that Section 154 could only be invoked for rectifying mistakes apparent from the record and not for errors requiring elaborate reasoning. The court agreed, emphasizing that a mistake apparent from the record must be an obvious and patent mistake, not one discernible only through a long-drawn process of reasoning. The court cited precedents, including *T.S. Balaram, Income Tax Officer, Company Circle IV, Bombay v. M/s Volkart Brothers, Bombay* and *Deva Metal Powders (P) Ltd. v. Commissioner, Trade Tax, Uttar Pradesh*, to support this interpretation.

2. Applicability of the Principle of Res Judicata in Taxation Matters:
The respondent argued that the principle of res judicata does not apply in taxation matters because each year's assessment gives rise to a fresh cause of action. The court acknowledged this principle, referencing the Supreme Court's judgment in *Installment Supply (P) Ltd. & Another v. The Union of India & Ors*. The court clarified that the petitioner did not invoke the principle of res judicata but focused on the wrongful invocation of Section 154 by the CCIT.

3. Hierarchical Adherence to Appellate Tribunal Decisions:
The court highlighted that the appellate tribunal, being a superior forum, had categorically held that the petitioner was substantially financed by the Government of Sikkim and thus entitled to exemption under Section 10(23C)(iiiab) of the Income Tax Act. The CCIT, as a subordinate authority, was bound by this decision and could not take a contrary stand. The court cited *Assistant Collector of Central Excise v. Dunlop India Ltd.* to emphasize the necessity of lower courts and authorities adhering to the decisions of higher appellate tribunals.

4. Distinction Between a Patent Error and a Change of Opinion:
The court distinguished between a patent error and a change of opinion. It stated that the CCIT's action of rectifying the order based on a detailed reasoning process constituted a change of opinion rather than a rectification of a patent error. The court referenced *Mepco Industries Limited, Madurai v. Commissioner of Income Tax & another* to illustrate that a change of opinion does not justify invoking Section 154.

5. Validity of Rectification Orders in the Context of Pending Appeals:
The court noted that the appellate tribunal's decision, which was in favor of the petitioner, was under challenge before the High Court. However, there was no interim stay on the tribunal's order. The court reiterated that merely filing an appeal does not stay the operation of the order being appealed. The court referenced *Hans Raj Dhir v. State of Himachal Pradesh & ors* to support this point.

Conclusion:
The court concluded that the CCIT wrongfully invoked Section 154 by recording elaborate reasoning in the guise of rectifying a mistake apparent from the record. The CCIT's action was deemed a change of opinion, which is not permissible under Section 154. Additionally, the CCIT could not override the appellate tribunal's decision. Consequently, the rectification order dated 17th January 2013 was quashed, and the writ petition was allowed. There was no order as to costs.

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