Judgment:
1. The assessee has questioned first appellate order on the following grounds: 1) That on the facts of the case and in law order under Section 154 of I.T. Act, 1961 passed by the learned Commissioner of Income Tax (Appeals) Alwar is bad in law, violative of principle of natural justice and void ab initio.
2) That the learned Commissioner of Income Tax (Appeal) Alwar erred on facts and in law in upholding the action of the learned assessing officer, rejecting the petition filed by the assessee company under Section 154 with respect to issue of shares worth Rs. 53 lacs to the institutions against outstanding interest due to the institutions which due to oversight remained as unclaimed as interest expenses under Section 43 B. 3) That the learned Commissioner of Income Tax (Appeal) Alwar erred on facts and in law in stating that there is no material on record warranting such deduction and the mistake is not apparent from the face of record.
2. The facts in brief are that the assessee before the AO had moved an application under Section 154 of the IT Act pointing out therein that the assessee company had issued shares worth Rs. 53 lacs to the institutions against outstanding interest due to them but because of oversight it did not claim this interest as deduction under Section 43B of the IT Act in its return of income, and same may be allowed. The AO rejected this application mainly on the basis that the assessee had not made any claim in their return of income for the deduction of aforesaid amount on account of interest payment under Section 43B of the IT Act and since no claim was also made later on during the proceedings under Section 154 of the Act, order of which was passed on 15.9.98. The aggrieved assessee went in first appeal but could not succeed.
3. In support of the issue as to whether application under Section 154 moved by the assessee under the aforesaid facts and circumstances was allowable or not raised in the grounds of appeal, the Id. A/R submits that assessee is a public limited company and was engaged in manufacturing of tiles, which had taken loans from financial institutions. In the year 1994-95, the financial institutions converted the outstanding interest of Rs. 53 lacs due on loan into share capital as per the Scheme sanctioned by BIFR. It is very much apparent from the Balance Sheet wherein a Note in Schedule -1 has been mentioned as "Rs. 53 lacs has been converted into 5,30,000 equity shares of Rs. 10/- each fully paid up out of the outstanding funded interest of financial institutions during the year as per the Scheme sanctioned by BIFR". The assessee by mistake has not claimed this aforesaid amount of Rs. 53 lacs as interest paid under Section 43B of the IT Act. The assessee filed an application for rectification under Section 154 dated 17.11.99, which was rejected by the AO vide his order dated 21.12.99 on the basis that there was no mistake apparent from record to make rectification under Section 154 of the Act. The Id. CIT (A) has upheld the same. The Id. A/R submits that the assessee company had also submitted its reply in writing vide letter dated 12.10.1996 with reference to the hearing dated 4.9.96 in response to notice under Section 143(2) para 12, a copy of which has been placed at page No. 4 of the paper book, that major increase of Rs. 53 lacs represents conversion of funded interest due to financial institutions into equity as per the rehabilitation package sanctioned by the BIFR. A copy of this reply dated 12.10.96 has been placed at pages 5-8 of the paper book. The AO did not raise any query or any further explanation to substantiate the said claim of the assessee. He submits that the amount of funded interest of financial institutions as on 1.7.87 pertains to earlier years amounting to Rs. 1,06,07,107/- which was disallowed in the assessment in the A.Y. 1989-90 in para 6 of the assessment order, a copy of which has been placed at pages 31 to 34 of the paper book. He submits that out of above 50% amounting to Rs. 53 lacs was converted into shares of the company. Therefore, the material facts, evidence or documents which form the back rock of the claim of the assessee for allowing deduction of interest under Section 43B were before the Income-tax authorities at the time of assessment and did form part of the records. The Id. A/R submits that it was explained to the AO as well as to the CIT (A) that it is true that due to oversight no claim was made in the return of income nor any objection was raised at the time of subsequent stage of passing order under Section 154 in respect of issue of share worth Rs. 53 lacs to the financial institutions against outstanding funded interest due to them but as soon as the mistake was detected, the claim was made well within the limitation period of 4 years for rectification of the mistake as per provisions of Section 154 of the IT Act, 1961. It was explained to the lower authorities that it has been held in various cases that when the materials were available in the assessment record for grant of relief, the application under Section 154 was clearly maintainable and relief could not be refused merely on the basis that the assessee had omitted to claim the same initially. The learned A/R places reliance on the following decisions: Ramco Cement Distributors Co. Pvt. Ltd. v. Deputy CTO 33 STC 180(Mad.) The Id. A/R submits that the Id. CIT (A) while making observation that nothing has been mentioned in regard to its allowability in Annexure-2 and col. No. 7 of the audit report in 3 CD under Section 44 AB of the IT Act, the only amount of interest on term loans mentioned in the audit report is of Rs. 1,51,21,908/-, which has been disallowed under Section 43B of the IT Act by the assessee itself in their computation of income filed along with the return, has ignored that there was no requirement in the assessment year 1995-96 to show interest payment made in current year against outstanding of earlier year, which was disallowed in earlier year in 3 CD under Section 44AB of the IT Act. As per Clause 7 of 3 CD under Section 44AB of the Act, it was required to state, any tax, duty or other sum, (a) Debited to Profit and Loss account but not paid during the previous year; (b) paid during the previous year but allowed as a deduction in any earlier year under Section 43B. He submits that the assessee has correctly shown the amount under both the clauses amounting to Rs. 1,51,21,908/- and Rs. 0 respectively as per annexure-2 of tax audit 3 CD under Section 44AB of the IT Act. In case the assessment order is inconsistent with the proviso of I.T. Act, then it has to be deemed to suffer from a mistake apparent from record. Since conversion of interest due on loan into share capital is not allowed under Section 43B as interest payment though the same was not claimed by the assessee due to oversight, therefore, order is inconsistent with the proviso of I.T. Act and, therefore, it has to be deemed to suffer from a mistake apparent from record. As the subject matter relating to computation of deduction under Section 43B was subject matter of appeal before the Assessing Authority and not a matter relating to applicability of Section 43B and no where in the assessment order the assessing authority has stated that the matter is debatable, submits the Id. A/R. The Id. A/R has also refers page nos. 46 to 53 of the paper book i.e. sanctioned scheme of BIFR; page No. 42 of the paper book i.e. copy of extract of Board Meeting held on 29th December, 1994, wherein as per the scheme of the BIFR it was resolved that a sum of Rs. 53 lacs out of the outstanding funded interest of Rs. 1.06 lacs due and payable to the financial institutions be and is converted into equity shares of the company. The Id. A/R also refers para 2 of the CBDT Circular No. 669 dated 25th October, 1993 on the subject of clarification regarding interpretation of Section 43B of the IT Act intimating that the Board has reconsidered the matter and are of the opinion that where the sums referred to in the first proviso under Section 43B had, in fact, been paid on or before the due dates mentioned therein, but the evidence therefor had been omitted to be furnished along with the return, the Assessing Officers can entertain applications under Section 154 for rectification of the intimations under Section 143(1)(a) or orders under Section 143(3), as the case may be, and decide the same on merits. This circular has been placed at page No. 71 of the paper book. The Id. A/R while referring the decision of Hon'ble Andhra Pradesh High Court in the case of CIT v. Mahindra Nissan Allywin Ltd., 233 ITR 493(AP), submits that even Tribunal is not debarred from giving effect to the evidence of funding of the balance outstanding amount which was not made available before the AO but it was produced before the Tribunal.
He also refers decision of Delhi Bench of the Tribunal in the case of Container Corporation of India Ltd. v. DCIT 94 TTJ 502 (Del.) wherein it has been held that jurisdiction under Section 154 can be assumed if there is mistake apparent from record, it is immaterial as to whose mistake it is.
4. The Id. D/R on the other hand opposes the aforesaid submissions and contentions of the Id. A/R while placing reliance on the orders of the lower authorities.
5. We have considered the arguments advanced by the parties in view of orders of lower authorities, material available on record as well as the decisions relied on by the Id. A/R. It is not in dispute that the assessee was not entitled to claim deduction under Section 43B of the IT Act of Rs. 53 lacs on account of interest payment which was due to the financial institutions and under the scheme of BIFR. It was paid through converting into shares issued to them @ Rs. 10/- each. It has also not been denied by the lower authorities that application under Section 154 to allow the aforesaid claim was moved before the AO well within the prescribed time limitation of 4 years. Now the question before us is as to whether there was any mistake in the assessment order in not allowing the aforesaid claim of the assessee for which it was very much entitled to, within the meaning of provisions laid down under Section 154 of the Act. The lower authorities have rejected the application under Section 154 of the Act moved by the assessee for allowing the deduction under Section 43B of the Act of payment of interest of Rs. 53 lacs by it to the financial institutions by way of converting the same into issuance of shares to them, on the basis that no such claim was made out by the assessee in its return of income nor on subsequent occasion of passing of an order under Section 154 of the Act by the AO any objection in this regard was raised, hence there is no mistake apparent in the order to allow the application under Section 154 of the Act. There is no dispute on facts that under some sanctioned scheme of BIFR, copy of which has been placed at page Nos. 46 to 53 of the paper book, that company had resolved that a sum of Rs. 53 lacs out of the outstanding funded interest of Rs. 106 lacs due and payable to the financial institutions was converted into equity of the company, by passing a resolution by the Board of Directors of the assessee company on 29th December, 1994, copy whereof has been placed at page 40 of the paper book. The lower authorities have also not denied this contention of the assessee that by way of Note in Schedule-1 it has been clearly mentioned in the Balance Sheet that Rs. 53 lacs being interest on the term loan has been converted into equity shares of equal value, nor the department has denied the existence of reply dated 12.10.96 of the assessee in response to the query raised in the notice under Section 143(2) placed at pages 5-8 of the paper book, wherein in para 12 it has been replied that no expenditure was incurred for increase in share capital or share application money as there was no public issue of the company's shares and that major increase of Rs. 53 lacs representing conversion of funded interest due to IDBI, IFCI and ICICI into equity under the rehabilitation package sanctioned by IDBI/BIFR. The query No.12 raised in this regard by the department has been placed at page No.4 of the paper book. In the CBDT Circular No. 669 dated 25.10.93 referred by the Id. A/R, a copy of which has been placed at page No. 15 of the paper book filed on behalf of the assessee on 17.5.2006, under the subject "Interpretation of Section 43B of the Income-tax Act, 1961 clarification - regarding" it has been made clear vide para No. 2 as under: The Board have reconsidered the matter and are of the opinion that where the sums referred to in the first proviso under Section 43B had, in fact, been paid on or before the due dates mentioned therein, but the evidence therefor had been omitted to be furnished alongwith the return, the Assessing Officers can entertain applications under Section 154 of rectification of the intimations under Section 143(1)(a) or orders under Section 143(3), as the case may be, and decide the same on merits.
Undisputedly, the department is bound to follow the Circular of the CBDT. The expression "Record" has to be construed and understood in the context in which it appears and in context of expression apparent from the record in Section 154. 'Record' would mean the record of the entire proceeding of the case including documents and materials produced by the parties and taken on record by the authorities, which were available at the time of passing of the order which is the subject matter of proceeding for rectification. It is admitted by the assessing authority that the assessee company filed its return of income with other statutory reports, accounts etc. The Company has taken loans from financial institutions. In the year 94-95, the financial institutions converted interest due on loan amounting to Rs. 53 lacs into share capital. This has clearly been shown on the face of Balance sheet by way of a note in Schedule-1, where it was mentioned that Rs. 53 lacs has been converted into 530000 equity shares of Rs. 10 each fully paid up, out of outstanding, funded interest of the financial institutions during the year as per the scheme sanctioned by BIFR, therefore the mistake is apparent from the record. As no where in the assessment order the assessing authority has stated that the matter is debatable.
When the materials were available in the assessment record for grant of relief, the application under Section 154 was clearly maintainable and relief could not be refused merely on the ground that the assessee had omitted to claim the same originally.
6. The decision of Hon'ble Supreme Court in T.S. Balram ITO v. Volkart Bros. that a mistake apparent on record must be an obvious and patent mistake and not some thing which can be established by long drawn process of reasoning as points on which there may be concavely two options. A decision on a debatable point of law is not a mistake apparent from the record. Glaring and obvious mistake of law can be rectified under Section 154 as a mistake of law apparent from the record. In case assessment order is inconsistent with the proviso of Income Tax Act, then it has to be deemed to suffer from a mistake apparent from record.
7. That matter relating to computation of deduction under Section 43B was subject matter of appeal and not matter relating to applicability of Section 43B, and no where in the assessment order, the AO has stated that the matter is debatable, therefore, the same should be allowed under Section 154 Where the assessee omits to claim a relief allowable to him under the provisions of the Act, he is entitled to get that relief.
entitled to relief under Section 35B but it was not claimed by him during the original assessment proceedings. On appeal it was held that it is the duty of the taxing authorities to inform the assessee that he is entitled to a relief, if it is clear from the material available in the proceeding of assessment. That he is so entitled in this case relief could be granted to the assessee under Section 154. A similar decision was also rendered by the Hon'ble Calcutta High Court in West Bengal State Housing Corporation v. CIT . In this case the assessee did not claim exemption of its income which came within the purview of the then Section 89 now Section 10(29) of 1961 Act and hence exempt either before the assessing Officer or the appellate authority. Later he moved rectification application to claim such exemption. On appeal it was held that the assessing authority had no justification to assess such income and it was an obvious error, which ought to be rectified.
held that the provision of Section 154 does not provide for rectification only when a mistake in the order is detected. The mistake has to be on record of the case. The record would include everything on the case file. The returns, the evidence and the order are a part of the record. Thus even in case of assessment order under Section 143(1), it has not to be assumed that there can not be error apparent from the record. As for the decision in the case of Hero Cycle the rule laid down by Their Lordships is that the mistake can be of fact and law. However, the rectifications can be made only when a glaring mistake of fact or law becomes apparent from the record.
10. Under these facts and circumstances of the present case, we thus are of the view that non-allowing a benefit for which the assessee was very much entitled to well within the provisions of law and it was also intimated to the AO by the assessee vide its reply in answer to query raised by the department during the assessment proceedings and sufficient materials were there available on the record of the AO, the denial of the same by the AO in the assessment order is a mistake apparent from the record which needs rectification under Section 154 of the Act. It is an established position of law that an AO is supposed to pass a just assessment order, even allowing the statutory benefit as per the law for which the assessee has not made any claim in its return of income or otherwise for which it is very much entitled to. The only lapse on the part of the assessee as apparent from the aforesaid fact of the case, in our view is that it did not press its claim before the AO during the assessment proceedings or subsequently on the occasion when an order under Section 154 of the Act was passed by the AO on 15.9.98. These lapses, if any, on the part of the assessee cannot be treated as waiver by them to prohibit them to request for allowing the same by moving an application under Section 154 of the Act, specially when the AO himself was supposed to allow that benefits for which the assessee was otherwise very much entitled to. In this regard we find support from the decision of Delhi Bench of the Tribunal in the case of Container Corporation of India Ltd. v. DCIT (supra) relied on by the Id. A/R wherein after discussing several decisions of Hon'ble Courts including that of Anchor Pressings P. Ltd. v. CIT 58 CTR (SC) 126 and distinguishing the same with decision of Hon'ble Supreme Court in the case of CIT v. Mahendra Mills 243 ITR 56 (SC), it has been held that the jurisdiction under Section 154 can be assumed if there is mistake apparent from record. It is immaterial as to whose mistake it is. If on the basis of material on record, assessee is entitled to a relief which has remained to be allowed, then it would constitute mistake apparent from record and consequently, such relief cannot be denied merely because the assessee omitted to claim by mistake. The Hon'ble Supreme Court in the case of Anchor Pressings Pvt. Ltd. (supra) was pleased to hold that jurisdiction under Section 154 of the Act to rectify the mistake is much wider than provided in Order XLVII Rule 1 of CPC, 1908, and, therefore, relief could be allowed in the rectification proceedings if all the factual materials necessary for allowing the relief were available on record and such relief could not be denied merely because assessee had omitted to claim the same. We thus holding the mistake, if any, on the part of the assessee to press its above claim before the AO during the assessment proceedings or on subsequent occasion as bonafide one, hold further that such omission constituted mistake apparent from record which can be rectified under Section 154 of the Act. We, therefore, while setting aside orders of the lower authorities in this regard, direct the AO to allow application under Section 154 dated 17.11.1999 on its merits accordingly. The issue raised in the ground is thus decided in favour of the assessee.