TMI Blog1995 (1) TMI 105X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the assessment records that the assessee-company had not furnished audit report u/s 44AB for which the relevant Form was 10CCAC along with return nor had created any reserve as required in terms of the proviso to sec. 80HHC. It was also observed that the assessee was allowed relief u/s 80HHC amounting to Rs. 5,64,973 before the set-off of business losses, whereas the deduction u/s 80HHC is to be allowed only after the set-off of business losses of earlier years from the income determined in the year under reference. So, according to the AO, the relief/deduction u/s 80HHC was wrongly allowed in the original assessment order made on 30th March, 1989. He. therefore, resorted to the provisions of sec. 154 and called for objections from the assessee in this regard namely, to withdraw allowance of Rs. 5,64,973 u/s 80HHC. The assessee resisted this proposed action of the AO u/s 154 of the Act stating that the audit report u/s 44AB was enclosed, that since there were losses, no reserve was required to be created and the losses of earlier years have to be deducted after giving allowance u/s 80HHC. It was contended by the assessee before the AO that all the issues were highly contentiou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... HHC, the assessee's counsel submitted that this is not also a mandatory requirement but only a directory and non-creation of this reserve was not so fatal so as to disentitle the assessee from making its claim u/s 80HHC. In accordance with the accounting principles and commercial practices, a reserve can be created only when there are profits and not when there are losses. In the instant case, the assessee has accumulated losses in respect of past years and if they are to be taken into account, creation of reserve in respect of export sales was not necessary at all. To rely on the submission, the assessee's counsel has relied upon the Board's Circular issued in relation to the claim for development rebate reserve. Our attention was also drawn to the memorandum explaining the provisions in the Finance Bill, 1990 which was brought in after the landmark judgment of the Supreme Court in the case of Shree Subhalaxmi Mills Ltd. v. Addl. CIT [1989] 177 ITR 193 making the retrospective amendment to sec. 32A regarding creation of reserve. However, the assessee's counsel submitted that in order to make sufficient compliance of the proviso to sec. 80HHC, the assessee created a reserve as is e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n there are no profits, either there being loss or due to carry forward of unabsorbed losses are of highly contentious and debatable issues and there can be conceivably two opinions in regard to them as can be seen from the various decisions of the Courts as well as of the Tribunal reliance on which has been placed by the assessee's counsel. The Hon'ble Supreme Court in the case of T.S. Balaram, ITO v. Volkart Bros. [1971] 82 ITR 50 have held "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". This has been elaborated by various High Courts as well as different Benches of the Tribunal in several cases. A mistake which requires to be rectified u/s 154 should be a very glaring and apparent mistake on record and not a mistake which can be found out and rectified through a long drawn process of debate and arguments which may also result in conceivably two opinions based on decision of Courts. As stated by us above, the issues involved are highly deb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al assessment deduction u/s 80HHC in a sum of Rs. 5,64,973 was allowed first and from the resultant figure brought forward deficiencies of business loss, etc., were deducted. On the other hand, in the subsequently passed order u/s 154 brought forward deficiencies were deducted and the resultant figure was arrived at Rs. 1,72,120 in that order u/s 154. Since deduction u/s 80HHC was not at all allowed, the taxable income was determined at Rs. 1,72,124. However, it is important to note that if brought forward deficiencies of business loss and unabsorbed depreciation, etc., are to be deducted first then on the basis of figures extracted above, deduction u/s 80HHC will have to be restricted to a sum of Rs. 1,72,120 which is the gross total income arrived at in order u/s 154 against the corresponding figure of Rs. 5,64,973 adopted and deducted u /s 80HHC in the original assessment order dated 30th March, 1989. Thus, this aspect is quite material and involves quite a bit of tax effect. Next question of law is whether from the income for the relevant previous year (before deduction u/s 80HHC) brought forward deficiencies of business loss and unabsorbed depreciation, etc., should be deducte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... puted at a higher figure. In the instant case, on the basis of figures extracted above, it is obvious that deduction u/s 80HHC which was computed at a figure of Rs. 5,64,973 has to be restricted to the resultant figure of gross total income of Rs. 1,72,120. A plain reading of the relevant statutory provisions makes this clear. Therefore, Assessing Officer's action of allowing (from the income of the relevant previous year) deduction u/s 80HHC first in the original assessment order was clearly a mistake apparent from record namely a mistake of law. 7. In spite of the clear-cut statutory provisions, some authorities - up to Tribunal's stage had in past held otherwise. Then came the High Court decisions. There are many of them. However, it is important to note that all of them are unanimous, i.e., upholding the proposition propounded in the immediately preceding para. Suffice it to note specifically five of those decisions in a chronological order (as regards reporting in the ITR) in a tabular form as follows :--- -------------------------------------------------------------------------------------------------------------------------------------------------- S. No. Name of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asonably clear that up to 1975 or 1977, department had to seek references because Tribunal had taken a view against the department. Thereafter, in 1979 onwards assessees had to seek references because the Tribunal took a view against the assessees. At any rate, by late eighties (i.e., 1989) the position of law on the specific point became reasonably settled; i.e., against the assessee. So, when the AO in this case passed order u/s 154 did. 30th March, 1992, the position of law was settled. A view taken to the contrary in the original assessment order dated 30th March, 1989, in this view of the matter, constituted a mistake of law apparent from record. 10. I may now refer to the two decisions on this point cited by the learned Advocate for the assessee. They are as follows :--- (i) Shalina Trading Co. P. Ltd.'s case (ii) Expo Machinery Ltd.'s case In respect of case at (i) above, the learned Advocate has furnished a typed copy of the Bombay Chartered Accountants Journal, March 1993, pages 1062-63 which gives the gist (and not the text) of the decision, i.e., the decision of the Tribunal rendered on 11-4-1991 and on this point the only thing stated therein is as follows : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on which we differ and refer the matter to the President of the Income-tax Appellate Tribunal for further appropriate action at his end. The points involved are as follows :--- " 1. Whether there existed a mistake apparent from record in terms of sec. 154 of the I.T. Act in the original assessment order dated 30th March, 1989 wherein the AO deducted from the current year's income relief u/s 80HHC first and then against the balance adjusted the brought forward business loss ? 2. Whether, on the facts and in the circumstances of the case, order passed u/s 154 of the I.T. Act can be partially upheld, if there is a debate on two out of three counts on a single issue; namely assessee's claim u/s 80HHC which is the subject-matter of proceedings u/s 154 of the Act ?" ORDER Per Jordan Kachchap, Judicial Member --- In conformity with the opinion of the Third Member dated 25-1-1995 and in accordance with the majority view, the assessee's appeal is partly allowed. OPINION OF THIRD MEMBER Consequent upon the difference in opinion between the learned Members of the Bench on certain points In this appeal, the following questions have been referred u/s 255(4) of the Income-tax A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iring it to show cause against the proposed action. The assessee-company appears to have opposed the proposed action of the AO on the grounds (i) that the audit report was filed in Form No. 3CD, which was applicable to the assessee, (ii) that non-creation of the export reserve in the year of loss would not disentitle it to deduction u/s 80HHC and (iii) that deduction u/s 80HHC was rightly allowed before setting off the losses of earlier years. The AO did not accept the explanation offered by the assessee-company and held that there existed a mistake apparent from record in his order dated 30-3-1989 and such mistake was rectifiable u/s 154 of the Act. Therefore, with a view to rectify such mistake he modified his order dated 30-3-1989 in the following manner vide his subsequent order dated 30-3-1992 :--- Total income as per assessment order dated 30-3-1989 after all disallowances Rs. 13,05,380 Less : Depreciation Rs. 3,72,311 -------------------------------- Rs. 9,33,069 Less Set-off 1. Business loss Rs. 3,76,081 2. Unabsorbed depreciation Rs. 3,83,677 3. Investment allowance Rs. 1,187 Rs. 7,60,945 ---------------------------- ------------------------------- Ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich deduction u/s 80HHC should be allowed in the computation of the total income, was concerned the learned Accountant Member did not agree with the learned Judicial Member that the point involved therein was highly contentious or debatable. He examined the relevant provisions of sees. 80A, 80B(5) and 80HHC as also certain cases of Bombay, Calcutta and Madras High Courts and came to the conclusion that by the time the original assessment was made in this case the position was well-settled that the gross total income is to be computed after setting off of the brought forward deficiencies of business loss and unabsorbed depreciation etc. and after such set-off from the income of the previous year if there is any positive figure left then deduction under Chapter VI-A should be allowed to that extent only even if the said deductions are otherwise computed at a higher figure. He, therefore, held that in the instant case, deduction u/s 80HHC was wrongly granted at Rs. 5,64,973 in the original assessment order and the same was required to be restricted to Rs. 1,72,120 or any other final figure, if there had been certain other adjustments in the meantime for some other reasons. In arriving ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmitted that in view of the fact that the learned Accountant Member had agreed with the learned Judicial Member on the character of the two aspects of the point relating to non-furnishing of auditor's report and omission to create export profits reserve as being quite debatable, the learned Accountant Member should have also held that the third aspect of the point relating to the sequence in which deduction u/s 80HHC should be allowed in the computation of total income was also highly contentious and debatable as was held by the learned Judicial Member. 12. The learned D.R., on the other hand, fully supported the proposed order of the learned Accountant Member and further submitted that the Assessing Officer, while making the assessment order on 30-3-1989 had totally misread the provisions contained in Chapter VI-A and his such misreading of the relevant provisions of law had left in his order mistakes apparent from record rectifiable u/s 154. He further submitted that as per scheme of Chapter VI-A deduction u/s 80HHC is required to be allowed after setting off of the brought forward deficiencies of business loss and unabsorbed depreciation, etc., as was rightly done by the AO in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refer was not created and (iii) wrong sequence for grant of deduction u/s 80HHC had been employed in computation of the total income. In so far as the first two aspects of the said mistake were concerned. those were in fact of the nature of procedural defects removable by the assessee on opportunity being given to it and thus to be cared or to be ignored by the AO or the defect to be condoned by him. On those two aspects there could have been the possibility of two different opinions and therefore, not rectifiable or to say more correctly not necessitating rectification at a later stage by recourse to action u/s 154. On that nature of the two aspects of the said mistake, both the learned Members of the Bench have agreed and that point does not remain for any consideration by me. 16. In so far as the third, and in fact the main aspect of the mistake is concerned, the position of law on that was, in my opinion, well settled in favour of the Department, as has been opined by the learned Accountant Member. A study of the provisions of sees. 80A, 80B(5) and 80HHC, the relevant parts of which have been reproduced by the learned Accountant Member in his order and the cases referred to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rlier years. It is of no significance that such cases did not involve the provisions of sec. 80HHC directly. What was material for the application of the ratio of such decisions was that they laid down the sequence for the working and allowability of the deductions contemplated by Chapter VI-A of the Act. And sec. 80HHC fell within the scope of the ratio decidendi of such decisions. It is noteworthy that no decision of any High Court wherein a view contrary to that taken in the cases cited by the learned Accountant Member, was brought to the notice of either the learned Members or of me. In that view of the matter the opinion held by various Benches of the Tribunal contrary to that of the unanimous view of several High Courts on that point cannot be claimed to be making a debatable issue. 19. In the case of CIT v. Smt. Godavari Devi Saraf [1978] 113 ITR 589, the Bombay High Court observed that an authority like Tribunal, acting anywhere in the country, has to respect the law laid down by the High Court in the country, though of different State, so long as there is no contrary decision of any other High Court on that question. On the same analogy the Gujarat High Court held in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stake, apparent from record, in the assessment order dated 30-3-1989 and the same was rectifiable u/s 154 of the Act and was rightly rectified by the AO by modifying his earlier order. This answers question No. 1 as referred to me. 23. On the second question, I am of the opinion that the two aspects of the mistake, as pointed out above, were quite Independent of and separate from the third one. They differed from each other in their nature and results. The first two were in fact of the character of curable defects likely to be Ignored or condoned by the AO without affecting the nature and effect of the third aspect. Even after holding that the two aspects relating to the non-furnishing of the audit report along with the return and omission to create export profit reserve did not make the subject of action u/s 154, it was open for the learned Accountant Member to hold that the third aspect regarding the sequence for computing the total income for the purpose of grant of deduction u/s 80HHC made a mistake apparent from record and hence rectifiable u/s 154 of the Act. This answers the second question. 24. Let the record of the case be put before the Bench, deciding the appeal, for ..... 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