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Mhp Chemical Industries (P.) Ltd. Vs. Income-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Ahmedabad
Decided On
Judge
Reported in(1984)8ITD652(Ahd.)
AppellantMhp Chemical Industries (P.) Ltd.
Respondentincome-tax Officer
Excerpt:
.....the ito set off unabsorbed depreciation of 1976-77 to the extent of rs- 351, thereby reducing the total income to rupees nil.3. subsequently, the ito realised that he had committed a mistake in granting the relief to the assessee under section 80m. accordingly, he issued a notice under section 154 to the assessee and after hearing him, he redetermined the total income of the assessee as follows: rs.business loss as per original assessment order (--) 16,289income from dividends (+) 41,600 (-1) 25,311less: set off of unabsorbed depreciation of assessmentyear 1976-77 to the exent of income available 25,311(46,171--25,311=20,860 will be c/f.) rs. nil, gross total income.the benefit of section 80m was not given to the assessee, as according to the ito, the gross total income was nil and as.....
Judgment:
1. By this appeal the assessee challenges'the rectification of the original assessment order made by the ITO under Section 154 of the Income-tax Act, 1961 ('the Act'). According to the assessee, the rectification is not permissible inasmuch as there was no mistake in the original assessment order apparent from record.

2. In order to appreciate the rival Submissions, it would be expedient to note the facts of the case, first. The assessee is a company. It has income from business and dividends. Its original assessment for the assessment year 1977-78 was completed by the ITO on 23-7-1979. In it the loss from business was determined at Rs. 16,289. Income from dividend was Rs. 41,600. The aforesaid dividend income was eligible for deduction under Section 80M of the Act at 60 per cent of the aforesaid dividend income. The ITO allowed the said exemption against the dividend income of Rs. 41,600 and, thus, took the net income from dividend at Rs. 16,640. This net income from dividend was adjusted against the loss of business of Rs. 16,289. The positive income of Rs. 351 for the assessment year under consideration was, thus, determined.

Against the aforesaid income, the ITO set off unabsorbed depreciation of 1976-77 to the extent of Rs- 351, thereby reducing the total income to rupees nil.

3. Subsequently, the ITO realised that he had committed a mistake in granting the relief to the assessee under Section 80M. Accordingly, he issued a notice under Section 154 to the assessee and after hearing him, he redetermined the total income of the assessee as follows: Rs.Business loss as per original assessment order (--) 16,289Income from dividends (+) 41,600 (-1) 25,311Less: Set off of unabsorbed depreciation of assessmentyear 1976-77 to the exent of income available 25,311(46,171--25,311=20,860 will be c/f.) Rs. Nil, Gross total income.

The benefit of Section 80M was not given to the assessee, as according to the ITO, the gross total income was nil and as such the benefit of Section 80M could not be granted to the assessee.

4. The assessee challenged the above order of the ITO before the Commissioner (Appeals) and urged before him that there was no mistake in granting relief under Section 80M in the original order and that amendment of the Act by enacting the new "section 80AA of the Act will not be applicable to the assessee's case and that, in any case, two opinions were possible as to whether or not there was any mistake in the original order of the ITO inasmuch as the said order of the ITO was in accordance with the decisions in the following cases: Indian Transformers Ltd. v. CIT [1972] 86 ITR 192 (Ker.) and CIT v. Balanoor Tea & Rubber Co. Ltd. [1974] 93 ITR 115 (Mys.).

5. The Commissioner (Appeals) rejected the above contentions of the assessee. He pointed out that the rectification was carried out by the ITO, not because of the new Section 80AA but because the ITO had allowed the deduction under Section 80M ignoring the provisions of Section 80A(2) read with Section 80B(5) of the Act. According to the Commissioner (Appeals), gross total income had to be computed after setting off the unabsorbed depreciation of the earlier years against the income from other sources and, if it was done, the gross total incorre would be nil and relief under Section 80M could not, in such a situation, be given to the assessee. Inasmuch as, according to him, the order of the ITO was in accordance with law, as laid down in Sub-section (2) of Section 80A and Sub-section (5) of Section 80B, there was no infirmity in his order and as such the order did not deserve any interference. Referring to the decisions cited by the learned counsel for the assessee, the Commissioner (Appeals) pointed out that they related to a different aspect of the law and had nothing to do with the controversy before him. In the event, he rejected the assessee's appeal and confirmed the order of the ITO. It is against the aforesaid order of the learned Commissioner (Appeals), that the assessee has filed the present appeal.

6. It appears to us, that the entire controversy in the present case will turn on the question as to what would be the gross total income of the assessee on the facts and in the circumstances of the present case, and whether there could be two opinions with regard to the quantum of the gross total income. If two opinions could be possible with regard to it, apparently the action by the ITO under Section 154 would not be justified.

7. Gross total income has been defined vide Sub-section (5) of Section 80B as follows: 'gross total income' means the total income computed in accordance with the provisions of this Act, before making any deduction under this Chapter ..." 8. In the present case, the assessee had income from business and dividends. Income from business computed as per 'the original assessment order was at a loss of Rs. 16,289 after allowing depreciation of Rs. 59,243, allowable to the assessee for the previous year in question. While computing the above business loss, the ITO did not take into account the unabsorbed depreciation of the assessment year 1976-77 amounting to Rs. 46,171 and did not add it to the depreciation of the previous year which he was otherwise obliged to do in terms of Sub-section (2) of Section 32 of the Act which, so far as is relevant for our purpose, reads as follows: Where, in the assessment of the assessee ... full effect cannot be given to any allowance under Clause (i) or Clause (ii) ... of Sub-section (1) ... in any previous year owing to there being no profits or gains chargeable for that previous year, or owing to the profits or gains chargeable being less than the allowance, then, subject to the provisions of Sub-section (2) of Section 72 and Sub-section (3) of Section 73, the allowance or part of the allowance to which effect has not been given, as the case may be, shall be added to the amount of the allowance for depreciation for the following previous year and deemed to be part of that allowance, or if there is no such allowance for that previous year, be deemed to be the allowance for that previous year, and so on for the succeeding previous years.

9. It is a common ground in the present case that there is no unabsorbed loss to be carried forward and set off against the business income for the previous year under consideration. The parenthetical clause 'subject to the provisions of Sub-section (2) of Section 72 and Sub-section (3) of Section 73' occurring in Sub-section (2) of Section 32 has, therefore, no rule to play so far as the facts of the present case are concerned. In accordance with the fiction created by Sub-section (2) of Section 32, the unabsorbed depreciation allowance of the ealier years becomes part of the depreciation of this year and as such it becomes liable to be treated as business loss of the present year, which has to be set off against the assessee's income from other heads during the previous year. The assessee had dividend income over and above the loss in the business. The business loss of the assessee computed after adding the unabsorbed depreciation of the earlier years as being the depreciation of the present year had to be set off against the said dividend income under Section 71 of the Act. The above proposition stands concluded by the decision of the Hon'ble Supreme Court in the case of CIT v. Jaipuria China Clay Mines (P.) Ltd. [1966] 59 ITR 555. Their Lordships pointed out the position with regard to unabsorbed depreciation, as contained in the Indian Income-tax Act, 1922 ('the 1922 Act') the provisions of which relating to carry forward of unabsorbed depreciation are in pari materia with those of Sub-section (2) of Section 32 in the following words: The unabsorbed depreciation allowance is carried forward under proviso (b) to Section 10(2)(vi) and the method of carrying it forward is to add it to the amount of the allowance of depreciation in the following year and deeming it to be part of that allowance; the effect of deeming it to be part of that allowance is that it falls in the following year within Clause (vi) and has to be deduced as allowance ...

10. Being depreciation of the current year under Section 10(2)(vi) of the 1922 Act, the unabsorbed depreciation becomes eligible for set off against the income, profits and gains under other heads in terms of Section 24(1) of the 1922 Act (which is in pari materia with the provisions of Section 71 of the 1961 Act). In view of the above decision, the ITO had patently committed an error when in the original assessment order he did not deem unabsorbed depreciation of assessment year 1976-77 as part of the depreciation of the previous year in question and did not set it off against the income of the assessee from dividends. The income of the assessee from dividends was Rs. 41,600 before granting relief to the assessee under Section 80M. The definition of 'gross total income', as extracted above, stipulates that it would be computed 'in accordance with the provisions of this Act, before making any deduction under this Chapter', i.e., Chapter VI-A of the Act. The 'gross total income' for the year under consideration had, therefore, to be computed after setting off the dividend income against the loss of business computed in accordance with the provisions of the Act. Relief under Section 80M was to be given with regard to the dividends referred in Section 80M only if the result of computation of the 'gross total income' was a positive figure. If it was a negative figure, the effect to Section 80M could not be given as Sub-section (2) of Section 80A requires that 'the aggregate amount of the deductions under this Chapter shall not, in any case, exceed the gross total income of the assessee'. The aforesaid sub-section clearly visualizes that the deduction under Section 80M can be made to the extent that there is positive gross total income. If the gross total income is a loss, apparently nothing is available by way of relief under Chapter VIA. The ITO had, therefore, in our opinion, made an error while computing the "gross total income of the assessee as per the original assessment order. The gross total income, as per the working given above, would be a minus figure after adding the depreciation of the earlier years to the depreciation of the present year in accordance with Sub-section (2) of Section 32. That 'gross total income' is arrived at after adjusting unabsorbed depreciation of the earlier years, is also clear from the ratio of the decision of their Lordships in Cambay Electric Supply Industrial Co. Ltd. v.CIT [197$] 113 ITR 84 (SC). In that case, their Lordships pointed out that in computing the profits of the assessee for the purpose of the special deduction provided under Section 80E (which also fell under Chapter VIA of the Act) unabsorbed depreciation and unabsorbed development rebate carried forward from earlier years will have to be deducted before arriving at the figure from which the 8 per cent contemplated by Section 80E is to be deducted. In view of the above position in law, we are of the opinion that the original assessment order of the ITO did suffer from an error as indicated above.

11. The controversy in the present appeal does not, however, get determined by registering the above finding alone. In order to conclude it, we have further to see whether the above mistake was apparent from record or whether it needed a detailed argument in order to reach the above conclusion and whether two opinions could be possible with regard to the computation of gross total income. The law on the above point has been very succinctly stated by their Lordships of the Hon'ble Supreme Court in the case of T.S. Balaram, ITO v. Volkart Bros. [1971] 82 ITR 50, which says that "a mistake apparent on the record must be an obvious and patent mistake and not something which can be established by a long-drawn process of reasoning on points on which there may be conceivably two opinions.... A decision on a debatable point of law is not a mistake apparent from the record". We have, therefore, to answer the above question in the light of the principles enunciated by their Lordships in the above case.

12. The mistake committed by the ITO was one of law. If his order was based on a debatable point of law, the mistake committed by him would not be a mistake apparent from record. If, however, his order can be shown to be based on a total misconception of law, about which there could never be two opinions and in respect of which a genuine debate could not develop the mistake committed by him, though of law, would be a mistake apparent from record. Taking into account the definition of gross total income, as contained in Sub-section (5) of Section 80B, the provisions of Sub-section (2) of Section 80A, the provisions of Sub-section (2) of Section 32 and the authoritative enunciation of law as contained in the Supreme Court decisions in the cases of Jaipuria China Clay Mines (P.) Ltd. (supra) and Cambay Electric Supply Industrial Co. Ltd. (supra), the mistake committed by the ITO appears to us to admit of no genuine debate. The only correct course open to the ITO, while determining the assessee's gross total income, was to have added the unabsorbed depreciation of the assessment year 1976-77 to the depreciation of the previous year in question in terms of the plain language of Sub-section (2) of Section 32 and to have set it off against the assessee's dividend income in terms of Section 71 and, thus arrive at a negative gross total income. Once the gross total income was found to be negative, the operation of Chapter VIA stood completely suspended in view of the provisions of Sub-section (2) of Section 80A.Two opinions are, in our opinion, not possible with regard to this point.

13. The assessee's learned counsel had relied on the decision of the Hon'ble Madras High Court in the case of CIT v. Katpadi Co-operative Timber Works Ltd. [1982] 135 ITR 287 in support of his contention that the ITO had committed no mistake in not carrying forward the unabsorbed depreciation of the earlier years and adding it to the depreciation of the current year.

14. We have gone through the above decision and we find that it does not lend support to the assessee's case. In the above case, the question which their Lordships were considering, was not of bringing forward unabsorbed depreciation and deeming it to be part of the depreciation of the previous year in question. The said decision concerned itself with the unabsorbed losses of the earlier years, and as to whether the said unabsorbed losses should have been first set off against the business income of the previous year in question before allowing relief to the assessee in terms of Sub-section (2) of Section 80P of the Act. In the present case, we are not concerned with the question of unabsorbed losses. There is no deeming provision under the Act with regard to the said losses that they will be treated as the losses of the current year. There is, however, such deeming provisions with regard to unabsorbed depreciation, viz., that unabsorbed depreciation of the earlier years will be deemed to be part of the depreciation of the previous year in question. The ratio of the case in Katpadi Co-operative Timber Works Ltd. (supra) does not, therefore, establish that two opinions are possible with regard to the question of treating the unabsorbed depreciation as part of the depreciation of this year. On this question, as noted above, the statute is unambiguously clear and forthright and two opinions can never be possible with regard to it. We, therefore, confirm the order of the Commissioner (Appeals) and reject the 'assessee's appeal.


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