Judgment:
ORDER
--Order of assessing officer based on law laid down by High Court.
Ratio:
Merely because revenue is contemplating to file SLP Commissioner cannot refuse to follow decision of court settling the law, therefore, order of assessing officer based on High Court decision was not erroneous and prejudicial, revision under section 263 not justified.
Held:
Assessing officer had allowed deduction relying on the law laid down by the courts and, therefore, it does not call for interference by CIT. It is not the case that the law laid down is otherwise. Merely because the department is contemplating to file an SLP, the CIT cannot refuse to follow the decision when the court has settled the law in question. It may happen that the decision of an appellate authority or the Tribunal pertaining to an earlier assessment year on a particular point is in favour of the assessee and that is followed in the assessment relating to subsequent assessment year. It may happen that the CIT may consider that such a decision of the appellate authority or the Tribunal is not in accordance with law and may also find that such a decision is subject-matter of further appeal or revision as the case may be. Therefore, merely because revenue is contemplating to file SLP Commissioner cannot refuse to follow decision of court settling the law, therefore, order of assessing offifer based on High Court decision was not erroneous and prejudicial, revision under section 263 not justified.
Application:
Also to current assessment years.
A. Y.:
1990-91
Income Tax Act 1961 s.263
Revision under s. 263--VALIDITY--Notice under s. 263 for withdrawal of excess interest allowed under s. 244A was vague.
Ratio:
Revision under section 263 was not valid because withdrawal of interest allowed under 244A was on the basis of notice which was vague.
Held:
In the show-cause notice, nothing is indicated. The notice is, therefore, vague. It may be that the Commissionermight have come to the conclusion from the record of the case that there is delay attributable to the assessee but then in that case, the same should have been mentioned in the notice. In the absence of that it can be said that the notice is vague. The assessing officer before whom the proceedings commenced and concluded, who is seized of the facts of the case, would be the best person to mention in his order if at all he is of the view that the delay in concluding has occasioned due to the delay caused by the assessee. Even by filing affidavit before this court, no material is placed. Therefore, in the absence of any material, it can be said that the notice is vague.
Application:
Also to current assessmentyears.
A. Y.:
1990-91
Income Tax Act 1961 s.263
B.C. Patel, J.
1. The petitioner filed a return of income along with audited final accounts and tax audit report on September 26, 1991. The Assessing Officer passed an order of assessment on March 29, 1993, disallowing investment allowance and allowing depreciation claimed. The respondent herein, the Commissioner of Income-tax, issued a notice under section 263 of the Income-tax Act, 1961 (hereinafter referred to as 'the Act'), on January 16, 1995, vide annexure 'C' to the petition, to which the petitioner submitted and elaborate reply on February 3, 1995. As mentioned in the notice, the notice has been issued on the following two grounds to the assessee which are as under :
(1) On verification, it is noticed that excess allowance of depreciation was given on increased value of assets due to fluctuations in rates of foreign currency during the period you remained debtor in respect of plant and machinery. Entire outstanding liability was enhanced due to devaluation of Indian rupee which was not correct because the cost of asset is to be determined only on actual payment of foreign currency and not on fluctuations in exchange rate after the agreement is made.
(2) It is also noticed that excess grant of refund under section 244A was allowed to you. As you had filed the return late on September 26, 1991, as against December 21, 1990, interest under section 244A amounting to Rs. 5,96,902 requires to be withdrawn.
The petitioner has challenged the issuance of the said notice in this petition.
2. It is contended by the learned advocate for the petitioner that the issuance of the notice under section 263 of the Act is bad, illegal and contrary to law. So far as depreciation is concerned, the Assessing Officer has passed an order of assessment in consonance with the law and the notice could not have been issued in view of the decision of the apex court in the case of CIT v. Arvind Mills Ltd. : [1992]193ITR255(SC) , the decision of this court in the case of New India Industries Ltd. v. CIT : [1993]203ITR933(Guj) and the Karnataka High Court in the case of CIT v. Widia (India) Ltd. : [1992]193ITR475(KAR) . The consistent view taken by this court following the principles laid down by the ape court and other High Courts is that depreciation is to be allowed on the fluctuation added cost.
3. Mr. Shah submitted that with regard to interest, the notice is absolutely vague and it does not give any reason as to why the authority issuing notice is not in agreement with the view taken by the Assessing Officer or that there is delay in the assessment which can be attributed to the assessee.
4. It transpires from the record that for the assessment year 1989-90, the Assessing Officer permitted deduction on fluctuation added cost. On the ground raised at Sr. No. 1 for the year 1989-90, a notice under section 263 of the Act was issued by the Commissioner. The order passed by the Commissioner for the assessment year 1989-90 under section 263 of the Act is annexed to the petition at annexure 'D'. The language of section 43A(1) of the Act, speaks of an increase or reduction in the liability of the assessee as expressed in Indian currency for making payment towards the whole or a part of the cost of an imported asset or for repayment of the whole or a part of the moneys borrowed in foreign currency specially for the purpose of acquiring the capital asset, as a result of exchange rate fluctuations. The Commissioner accepted the case of the assessee for the assessment year 1989-90, relying on the decision of the apex court in the case of Arvind Mills : [1992]193ITR255(SC) , and held that for the purpose of allowance of depreciation, there is no pre-condition of actual repayment of foreign currency loan and the Assessing Officer has not erred in law in allowing the claim of the assessee as regards depreciation. In spite of this, for the assessment year 1990-91, the Commissioner has issued the impugned notice contending that excess allowance of depreciation given on increased value of assets due to fluctuations in rates of foreign currency is not in accordance with law as in his opinion the cost of asset is to be determined on actual payment of foreign currency and not on fluctuations in exchange rate after the agreement is made.
5. This court had an occasion to consider the scope of section 43A of the Act and the additional liability due to fluctuations in the rate of exchange, in the case of New India Industries Ltd. v. CIT : [1993]203ITR933(Guj) . One of the questions referred to this court was as under (at page 936) :
'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in not holding that, on the basis of the mercantile system of accounting, the additional liability had arisen at the end of the accounting year and the same was of revenue nature and/or capital nature includible in the cost of the machinery ?'
This court held that (at page 940) :
'In view of this clear pronouncement of the Supreme Court, the only aspect which we are required to examine is as to whether the liability of the assessee can be said to have increased on account of devaluation of the rupee in the relevant previous year. In our opinion, when the assessee purchased assets at a price, its liability to pay the same arose simultaneously. Merely because the said liability was to be discharged in instalments, it cannot be said that the liability and did not exist or accrue till the instalments become due and payable. It was that liability which had increased on account of fluctuation in the rate of exchange. In our opinion, therefore, the case of the assessee fell squarely within the sweep of section 43A, and it was thus entitled to claim the benefit of that section during the assessment year 1973-74. In our opinion, the contention raised on behalf of the Revenue that the liability to pay the price of the asset arose only when the instalments became due and payable cannot be accepted for the reason that we are considering a provision which is made, inter alia, for the purpose of determining the allowability of depreciation allowance. If the assessee becomes the owner of the machinery and starts using the same, it would become entitled to depreciation allowance. It is for the purpose of working out the amount of depreciation that one has to look at the cost of the asset in respect of which depreciation is claimed. It is in this context that we have to consider as to when the liability can be said to have arisen. If the contention raised on behalf of the Revenue is accepted, then it would defeat the very purpose of the provision. As pointed out by the Supreme Court, section 43A was introduced with a view to mitigate hardships which were likely to be caused to the assessees as a result of fluctuation in the rate of exchange.'
Observing thus, the court held the Tribunal was not right in holding that the assessee was not entitled to claim the benefit on the basis of this additional liability resulting from the exchange rate fluctuation. In other words, the court held that the assessee is entitled to claim the benefit on the basis of additional liability resulting from the exchange rate fluctuation.
6. Mr. Shah, the learned advocate for the petitioner, submitted that in light of the above, there was no question for the Commissioner to issue a show-cause notice and more particularly, when it was brought to his notice, he ought to have dropped the proceedings. Mr. Shah further submitted that the Commissioner being the highest officer in the Revenue Department in the State of Gujarat, must be aware about the law laid down by the apex court as well as by this court and if decisions are not followed, it would call for a serious action. Mr. Shah submitted that the authorities are bound by the decision of this court and the authorities are bound to follow the same. He also drew our attention to the decision of the apex court in the case of East India Commercial Co. Ltd. v. Collector of Customs, : 1983(13)ELT1342(SC) , wherein the apex court held that (at page 1905) :
'We, therefore, hold that the law declared by the highest court in the State is binding on authorities or Tribunals under its superintendence, and that they cannot ignore it either in initiating a proceeding or deciding on the rights involved in such a proceeding. If that be so, the notice issued by the authority signifying the launching of proceeding contrary to the law laid down by the High Court would be invalid and the proceedings themselves would be without jurisdiction.'
Mr. Shah submitted that in spite of a number of decisions to the effect that the income-tax authorities are bound to follow the decisions of the High Court and the Supreme Court, they are not following them. He further submitted that in certain cases, even after drawing their attention to the law laid down by the courts, they are not dropping the proceedings. If there are contrary decisions of this court or there is no decision on a particular point, Mr. Shah submitted that the Commissioner may issue a notice, but in the instant case, the law is laid down by the apex court and there is no alternative but to follow the decision. Mr. Shah submitted that for the previous assessment year, the Commissioner, relying on the decision of the apex court, permitted deduction on fluctuating currency rate, but, for the subsequent year, on the same issue, has issued a notice. This, in the submission of Mr. Shah, is ignoring the judgment of the court. We find much substance in what Mr. Shah stated. The Assessing Officer had allowed deduction relying on the law laid down by the courts and, therefore, it does not call for interference by the Commissioner. It is not the case that the law laid down is otherwise.
7. Mr. Thakore, learned counsel for the Revenue, submitted that as stated in the affidavit filed on behalf of the Revenue, the Department being aggrieved by the decision of this court in the case of New India Industries Ltd. v. CIT : [1993]203ITR933(Guj) has preferred a MCA under section 260 of the Act now seeking a certificate of fitness before this court on September 28, 1993, and the Department may contemplate filing of special leave petition before the Supreme Court against that decision, and, therefore so far as the Income-tax Department is concerned, the ratio as laid down by this court has not become final at this stage. Mr. Thakore was not in a position to convey to us what is the fate or stage of the said application or whether a special leave petition is filed or not. However, one thing is to be kept in mind, and what is, a decision rendered by this court relying on the judgment of the apex court is a binding decision. We are of the view that merely because the Department is contemplating to file a special leave petition, the Commissioner cannot refuse to follow the decision when the court has settled the law in question. It may happen that the decision of an appellate authority or the Tribunal pertaining to an earlier assessment year on a particular point is in favour of the assessee and that is followed in the assessment relating to the subsequent assessment years. It may happen that the Commissioner may consider that such a decision of the appellate authority or the Tribunal is not in accordance with law and may also find that such a decision is the subject-matter of further appeal or revision as the case may be. He may expect that the higher court or authority may decide in favour of the Revenue, but that may take a number of years. He may be of the view that by the time of decision of the higher court or authority arrives, a number of years may elapse by which time the exercise of the power under section 263 may become barred. When an Assessing Officer has passed an order on the basis of the law laid down by the court, can it be said that the Assessing Officer's order is erroneous We are of the view that exercising of the power to review in such a situation is not in accordance with law for the simple reason that the order of the assessing authority cannot be said to be erroneous as he has rendered the decision following the decision of a higher authority or a court on the same point. It is required to be note that the decisions reached by the Tribunal or the High Court are binding upon the Assessing Officer and discipline demands that he should follow the decision of the Tribunal or the High Court, as the case may be. It is not open for him to ignore the same on the ground that the Tribunal's or the High Court's ruling on the question is the subject-matter of revision or appeal before the higher forum. If he is permitted to take such a view, it would introduce nothing but judicial indiscipline, which is not called for. It would lead to a chaotic situation. The grievance of the Revenue may be real and substantial in certain cases but such situation cannot be provided for by judicial interpretation by courts but only by an appropriate agency (Russell Properties Pvt. Ltd. v. Addl. CIT : [1977]109ITR229(Cal) and K. N. Agrawal v. CIT [1991] 189 ITR 769 .
8. The next question is the legality of the notice pertaining to interest. The return is filed on September 26, 1991, as against December 21, 1990. Under section 244A, all the powers are to be exercised by the Assessing Officer for allowing interest on the refund. Sub-section (2) of the said section reads as under :
'If the proceedings resulting in the refund are delayed for reasons attributable to the assessee, whether wholly or in part, the period of the delay so attributable to him shall be excluded from the period for which interest is payable, and where any question arises as to the period to be excluded, it shall be decided by the Chief Commissioner or Commissioner whose decision thereon shall be final.'
Mr. Thakore submitted that the interest amount of Rs. 5,46,902 requires to be withdrawn. We put a pointed question as to whether the amount which is to be withdrawn is for a period between December 21, 1990, and September 26, 1991, i.e., the appointed date, for filing the return and the actual date on which the return is filed, or is it for the period of delay which can be attributed to the assessee in deciding the proceedings to which there was no answer. Looking to the language used in sub-section (2) of section 244A, it is very clear that the Assessing Officer, considering the facts before him, will have to determine whether the assessee is entitled to refund or not and if he is entitled to refund, then for what period he is entitled to interest. In the show-cause notice, nothing is indicated. The notice is, therefore, vague. It may be that the Commissioner might have come to the conclusion from the record of the case that there is delay attributable to the assessee but then in that case, the same should have been mentioned in the notice. In the absence of that, it can be said that the notice is vague. The Assessing Officer before whom the proceedings commenced and concluded, who is seized of the facts of the case, would be the best person to mention in his order if at all he is of the view that the delay in concluding has occasioned due to the delay caused by the assessee. Even by filing the affidavit before this court, no material is placed. Therefore, in the absence of any material, it can be said that the notice is vague so far as the second question is concerned.
9. In the result, the impugned notice at annexure 'C' is quashed and set aside. Rule made absolute accordingly. No order as to costs.