The Commissioner of Income-tax Vs. Gupta Engineering Works - Court Judgment

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head note: income tax act, 1961 . rectification--mistake apparent from record ao invoking powers under section 154 for withdrawal of deduction granted under section 32a instead of specific section 155(4b)--assessee, a partnership-firm having five partners was constituted on 1-4-1979 and later on it was dissolved w.e.f. 1-4-1981. the business of the firm was taken over by a company constituted by the partners of the firm. the transformation took place with effect from 1-12-1981. noticing that the new company had not taken over the business and properties of the firm in its entirety as one property had remained with one of the partners mg, the ao invoked jurisdiction under section 154 on account of violation of provisions of section 32a(7). accordingly, vide separate orders passed for each year, under section 154, the investment allowance already allowed to the firm was withdrawn and addition to that extent was made in the income of the assessee. cit(a) also held that a part of the immovable property having been retained by one of the partners mg, the succession in terms of section 32a(7) was not complete and accordingly, the investment allowance already granted was rightly withdrawn. tribunal found that the firm was succeeded by a company and, therefore, proviso to section to section 32a(7) was attracted. and held that it was a case where section 154 was not attracted but the matter squarely fell within section 155(4a), and therefore, investment allowance granted to the firm could not be withdrawn. held: for rectification of a mistake apparent from record, subsequent to the framing of assessment, the ao was not justified in invoking jurisdiction under section 154, instead of specific section 155(4b), for withdrawing deduction of investment allowance already granted under section 32 by placing reliance upon new facts and earlier findings which were sub-judice. section 154 of the act is a general section which provides for powers to various authorities under the act for rectification of any mistake apparent on the record. it does not deal with any specific situation under which a power could be exercised or should not be exercised and under what circumstances the power need to be exercised. whereas section 155(4a) of the act is a specific section which provides for jurisdiction to the competent authority to withdraw the investment allowance already granted under certain specified situations within certain time frame for violation of any condition of grant of investment allowance. the reason for issue of notice under section 154 of the act by the ao was the knowledge derived by the ao from the findings recorded while framing the assessment for the assessment year 1982-83 and as a consequence thereof, the ao was of the view that there was violation of provisions of section 32 a(7) of the act.the material which is sought to be relied upon by the ao for withdrawing the claim of deduction under section 32a of the act was subsequent to the framing of assessment in the years in question, meaning thereby, the same did not form the part of the record at the time of framing of assessment. it was also born out from the order passed under section 154 of the act that there was litigation pending even with regard to the findings recorded by the ao during the year 1982-83, which were relied upon for passing order under section 154 of the act, meaning thereby that even the findings relied upon to invoke the jurisdiction of section 154 of the act were still fluid and had not attained finality. there is a specific provision under the act to deal with the eventualities for exercise of power under the circumstances, which is sought to be exercised by the authorities. section 155(4a) of the act specifically deals with the withdrawal of deduction granted under section 32a of the act under certain specified situation and the ao did not invoke that power, rather invoked the general section. the instant case was not a fit case for invocation of power under section 154 as neither material sought to be relied upon for invocation of power was on record on the date of framing of assessment nor the same was free from doubt even on the date when the rectification order was passed. therefore, the invocation of jurisdiction under section 154 of the act in the instant case was not valid, the order passed thereupon failed and the question formed by this court deserves to be answered against the revenue and in favour of the assessee. [paras 10, 11, 12 & 13] income tax act, 1961 section 154 income tax act, 1961 section 155 - sections 80 (2) & 89 & punjab motor vehicles rules, 1989, rules 85 & 80: [t.s. thakur, cj, jasbir singh & surya kant, jj] appeal against orders of state or regional transport authority imitation held, a stipulation regarding the period of limitation available for invoking the remedy shall have to be strictly construed. that is because any provision by way of limitation is in the nature of a restraint on the remedy provided under the act. so viewed two inferences are clear viz., (1) sections 80 and 89 of the act read with rule 85 of the rules make it obligatory for the authorities making the order to communicate it to the applicant concerned and (2) the period of limitation for any appeal against the order is reckonable from the date of such communication of the reasons would imply communication of a copy of the written order itself, a party who knows about the making of an order cannot ignore the same and allow grass to grow under its feet and do nothing except waiting for a formal communication of the order or to choose a tenuous plea that even though he knew about the order, he was waiting for its formal communication to seek redress against the same in appeal. if a party does not know about the making of the order either actually or constructively it may claim that the period of limitation would start running from the date it acquires knowledge of the making of an order but one cannot understand how a party, who has acquired knowledge of the making an order either directly or constructively can ignore the same and belatedly seek redress just because the authority making the order had made a default in formally communicating the order to him. allowing a party to do so would amount to placing a premium on the lack of diligence of a party, who is remiss in seeking a remedy that was available to it. therefore, knowledge whether actual or construction of the order passed by the state or regional transport authority should result in commencement of the period of limitation. thus,. in cases where the state or regional transport authority has not communicated the order of refusal passed to the persons concerned, the period of limitation for filing an appeal would commence from the date when the parties concerned acquire knowledge of passing of the said order. - in appeals against the orders under section 154 of the act, the assessee failed. [1971]82itr50(sc) ,hon'ble the supreme court had defined the scope of rectification while holding that decisions on a debatable point of law or failure to apply the law to a set of facts which remain to be investigated cannot be corrected by way of rectification.rajesh bindal, j. 1. the following questions of law, arising out of order dated 12.5.1993 passed by the income tax appellate tribunal, chandigarh bench, chandigarh (for short, `the tribunal') in i.t.a. nos.1211 to 1215/chandi/1987, for the assessment years 1977-78 to 1981-82 have been referred for opinion of this court:1. whether, on the facts and in the circumstances of the case, the tribunal was right in law in holding that the entire assets of the firm were taken over by the newly-formed company and thus the conditions of section 32a(7) of the i.t. act were fulfilled and the investment allowance granted to the firm could not be withdrawn? 2. whether, on the facts and in the circumstances of the case, the tribunal was right in law in holding that section 154 of the income tax act was not attracted and the matter squarely fell under section 155(4a) of the act, though it was a case where the assessing officer had only made a wrong mention of section 154 in his order? 2. briefly, the facts are that the assessee was a partnership firm constituted under a partnership deed dated 1.4.1979 having five partners. with effect from 1.4.1980, the profit sharing ratio of the partners was changed and a new partnership deed was signed. thereafter, the firm was dissolved with effect from 1.4.1981 and a new firm was constituted admitting one new partner. the business of the firm was taken over by a company constituted by the partners of the firm, namely, m/s gupta foundry works (pvt.) ltd. the transformation took place with effect from 1.12.1981. noticing that the new company had not taken over the business and properties of the firm in its entirety as one property had remained with one of the partner smt. meena gupta, the assessing officer invoked jurisdiction under section 154 of the income tax act, 1961 (for short, `the act') on account of violation of provisions of section 32a(7) of the act. while dealing with the issue in proceedings initiated under section 154 of the act, it was observed by the assessing officer that during the course of assessment proceedings for the assessment year 1982-83 it was held that the newly constituted company having not been transferred the entire business and properties of the firm, there being violation of provisions of section 32a(7) of the act, the investment allowance already granted to the firm deserved to be disallowed. accordingly, vide separate orders passed for each year, under section 154 of the act, the investment allowance already allowed to the firm was withdrawn and addition to that extent was made in the income of the assessee. in appeals against the orders under section 154 of the act, the assessee failed. the commissioner of income tax (appeals) also held that a part of the immovable property having been retained by one of the partner smt. meena gupta, the succession in terms of section 32a(7) of the act was not complete and accordingly, the investment allowance already granted was rightly withdrawn. 3. in further appeal before the tribunal, the assessee succeded. while accepting the appeal filed by the assessee, the tribunal held as under:4. we have considered the rival contentions and we find that it is a case where entire assets and liabilities have been transferred from the firm to the new company. the ld. d.r has, however, invited our attention to even of assets which remained with one partner veena gupta. he has argued that since some property remained with the partner, it has not a case where the entire assets and liabilities could be treated to have been taken over by the new company and, therefore, the conditions laid down under section 32a(7) were not fulfilled. we, however, find that the asking over agreement dated 1.12.1981 was clear in terms and there is no room for any doubt that running business of the firm was taken over long with its assets and liabilities. it has also to be noted that proceedings were initiated under section 154, which did not appear to be the appropriate provision. the ld. counsel was argued that section 155(4a) could be applied because it was that sub-section which was attracted to such a situation. he has invited our attention to the order of the tribunal dated 7.2.1992 in i.t.a. no. 342/chandi/88 for assessment year 1982-83 in the case of the assessee itself wherein it has been held that such a matter did not come within the ambit of section 154. reliance was placed on a decision of the hon'ble supreme court in the case of volkart brothers and ors. (82 itr 50). in that case, it has been held that where the mistake was something which was to be established by a long drawn process of reasoning on points on which there may be conceivably two opinions, it could not be called to be a mistake apparent on record. it has thus been argued that the application of section 154 was misplaced one. 5. looking to the entire facts and circumstances of the case, we find force in this appeal and, therefore, the orders of the lower authorities cannot be sustained. we find that the firm was succeeded by a company and, therefore, proviso to section 32a(7) was attracted. there was no new asset and liability in the new company but all the assets and liabilities were taken over from erstwhile firm only. it was a case where section 154 was not attracted but the matter squarely fell within section 155(4a) of the act.4. in our opinion, the real issue involved in the present case has not been depicted in the questions of law referred to this court for opinion namely the invocation of the jurisdiction under section 154 of the act. accordingly, we frame following additional question for adjudication in the present case:whether in the facts and circumstances of the case, the invocation of jurisdiction by the assessing officer under section 154 of the act was valid?5. at this stage, it would be relevant to refer the provisions of section 32a of the act as existed at the relevant time:32a. (1) in respect of a ship or an aircraft or machinery or plant specified in sub-section (2), which is owned by the assessee and is wholly used for the purposes of the business carried on by him, there shall, in accordance with and subject to the provisions of this section, be allowed a deduction, in respect of the previous year in which the ship or aircraft was acquired or the machinery or plant was installed or, if the ship, aircraft, machinery or plant is first put to use in the immediately succeeding previous year, then, in respect of that previous year, of a sum by way of investment allowance equal to twenty-five per cent of the actual cost of the ship, aircraft, machinery or plant to the assessee:provided that no deduction shall be allowed under this section in respect of-(a) any machinery or plant installed in any office premises or any residential accommodation, including any accommodation in the nature of a guest-house; (b) any office appliances or road transport vehicles; (c) any ship, machinery or plant in respect of which the deduction by way of development rebate is allowable under section 33; and (d) any machinery or plant, the whole of the actual cost of which is allowed as a deduction (whether by way of depreciation or otherwise) in computing the income chargeable under the head 'profits and gains of business or professions' of any one previous year. xx xx xx xx xx (7) where a firm is succeeded to by a company in the business carried on by it as a result of which the firm sells or otherwise transfers to the company any ship, aircraft, machinery or plant, the provisions of clauses (a) and (b) of sub-section (6) shall, so far as may be, apply to the firm and the company. explanation: the provisions of this sub-section shall apply only where-(i) all the property of the firm relating to the business immediately before the succession becomes the property of the company; (ii) all the liabilities of the firm relating to the business immediately before the succession become the liabilities of the company; and (iii) all the shareholders of the company were partners of the firm immediately before the succession.6. in addition to this, sections 154 and 155(4a) of the act, as has been relied upon by the tribunal to accept the plea raised by the assessee, also deserves reference:154. (1) with a view to rectifying any mistake apparent from the record-(a) the income-tax officer may amend any order of assessment or of refund or any other order passed by him; (b) the appellate assistant commissioner [or the commissioner (appeals)] may amend any order passed by him under section 250 or section 271; (bb) [omitted by the taxation laws (amendment) act, 1975, w.e.f. 1-4-1976.] (c) the commissioner may amend any order passed by him in revision under section 263 or section 264. (1a) where any matter has been considered and decided in any proceeding by way of appeal or revision relating to an order referred to in sub-section (1), the authority passing such order may, notwithstanding anything contained in any law for the time being in force, amend the order under that sub-section in relation to any matter other than the matter which has been so considered and decided. (2) subject to the other provisions of this section, the authority concerned-(a) may make an amendment under sub-section (1) of its own motion, and (b) shall make such amendment for rectifying any such mistake which has been brought to its notice by the assessee, and where the authority concerned is the appellate assistant commissioner [or the commissioner (appeals)], by the income-tax officer also. (3) an amendment, which has the effect of enhancing an assessment or reducing a refund or otherwise increasing the liability of the assessee, shall not be made under this section unless the authority concerned has given notice to the assessee of its intention so to do and has allowed the assessee a reasonable opportunity of being heard. (4) where an amendment is made under this section, an order shall be passed in writing by the income-tax authority concerned. (5) subject to the provisions of section 241, where any such amendment has the effect of reducing the assessment, the income-tax officer shall make any refund which may be due to such assessee. (6) where any such amendment has the effect of enhancing the assessment or reducing a refund already made, the income- tax officer shall serve on the assessee a notice of demand in the prescribed form specifying the sum payable, and such notice of demand shall be deemed to be issued under section 156 and the provisions of this act shall apply accordingly. (7) save as otherwise provided in section 155 or sub-section (4) of section 186 no amendment under this section shall be made after the expiry of four years from the date of the order sought to be amended. xx xx xx xx xx xx 155(4a) where an allowance by way of investment allowance has been made wholly or partly to an assessee in respect of a ship or an aircraft or any machinery or plant in any assessment year under section 32a and subsequently-(a) at any time before the expiry of eight years from the end of the previous year in which the ship or aircraft was acquired or the machinery or plant was installed, the ship, aircraft, machinery or plant is sold or otherwise transferred by the assessee to any person other than the government, a local authority, a corporation established by a central, state or provincial act or a government company as defined in section 617 of the companies act, 1956 (1 of 1956), or in connection with any amalgamation or succession referred to in sub-section (6) or sub-section (7) of section 32a; or (b) at any time before the expiry of ten years from the end of the previous year in which the ship or aircraft was acquired or the machinery or plant was installed, the assessee does not utilise the amount credited to the reserve account under sub-section (4) of section 32a for the purposes of acquiring a new ship or a new aircraft or new machinery or plant [other than machinery or plant of the nature referred to in clauses (a), (b) and (d) of the proviso to sub-section (1) of section 32a] for the purposes of the business of the undertaking; or (c) at any time before the expiry of the ten years referred to in clause (b), the assessee utilises the amount credited to the reserve account under sub-section (4) of section 32a-(i) for distribution by way of dividends or profits; or (ii) for remittance outside india as profits or for the creation of any asset outside india; or (iii) for any other purpose which is not a purpose of the business of the undertaking, the investment allowance originally allowed shall be deemed to have been wrongly allowed, and the income-tax officer may, notwithstanding anything contained in this act, recompute the total income of the assessee for the relevant previous year and make the necessary amendment, and the provisions of section 154 shall, so far as may be, apply thereto, the period of four years specified in sub-section (7) of that section being reckoned,-(i) in a case referred to in clause (a), from the end of the previous year in which the sale or other transfer took place; (ii) in a case referred to in clause (b), from the end of the ten years referred to in that clause; (iii) in a case referred to in clause (c), from the end of the previous year in which the amount was utilised. explanation: for the purposes of clause (b), 'new ship' or 'new aircraft' or 'new machinery or plant' shall have the same meanings as in the explanation to clause (vi) of sub-section (1) of section 32.]' we have heard learned counsel for the revenue and perused the paper book. the only contention raised by learned counsel for the revenue is that the assessee having violated the provisions of section 32a of the act was not entitled to the deduction as already claimed by it and the same deserved to be withdrawn. he further submitted that provisions of section 154 of the act were rightly invoked by the assessing officer, as there was error apparent on record. still further he submitted that it is not in dispute that a part of the property had remained with one of the partners and succession of the firm to the company was not in its entirety which disentitled the assessee to claim the benefits under section 32a of the act. the same was rightly withdrawn by invoking the provisions of section 154 of the act. he submitted that these facts having come to the notice of the assessing officer while framing assessment of the company for the assessment year 1982-83, the rectification of the orders passed for the assessment years 1977-78 to 1981-82 was rightly carried out. merely non- mention of section 155(4a) of the act in the notice does not have any effect on the orders passed by the assessing officer as in sum and substance the effect is same. 7. for the purpose of adjudication of the issues involving in the present case, we will have to deal with the scope of powers conferred on various authorities under sections 154 and 155(4a) of the act. in celeberated judgment in t.s. balaram, income tax officer, company circle iv, bombay v. volkart brothers and ors. : [1971]82itr50(sc) , hon'ble the supreme court had defined the scope of rectification while holding that decisions on a debatable point of law or failure to apply the law to a set of facts which remain to be investigated cannot be corrected by way of rectification. 8. it has further been held in commissioner of income-tax v. keshri metal pvt. ltd. : [1999]237itr165(sc) by hon'ble the surepme court that under section 154 of the act, a reference to the word `record' would mean material already on record. a reference to outside documents would not be permissible for invocation of jurisdiction under section 154 of the act. 9. a similar view was expressed by andhra pradesh high court in commissioner of wealth-tax v. r.d. shah : [1994]207itr271(ap) wherein following a judgment of karnataka high court in e.m. viswanathan chettiar v. agricultural income-tax officer : [1983]142itr244(kar) , it was held that the mistake discovered as the result of inquiry made subsequent to the assessment would not be said to be forming part of the record for the purpose of rectification. 10. still further, we find that section 154 of the act is a general section which provides for powers to various authorities under the act for rectification of any mistake apparent on the record. it does not deal with any specific situation under which a power could be exercised or should not be exercised and under what circumstances the power need to be exercised. whereas section 155(4a) of the act is a specific section which provides for jurisdiction to the competent authority to withdraw the investment allowance already granted under certain specified situations within certain time frame for violation of any condition of grant of investment allowance. considering the facts of the case on record, it is the admitted case of the revenue, as is even evident from the order passed under section 154 of the act by the assessing officer that reason for issue of notice under section 154 of the act by the assessing officer was the knowledge derived by the assessing officer from the findings recorded while framing the assessment for the assessment year 1982-83 and as a consequence thereof, the assessing officer was of the view that there was violation of provisions of section 32a(7) of the act and the investment allowance already granted deserved to be withdrawn. 11. keeping in view the pronunciation of law on the scope of section 154 of the act, we find that in the case in hand, the material which is sought to be relied upon by the assessing officer for withdrawing the claim of deduction under section 32a of the act was subsequent to the framing of assessment in the years in question, meaning thereby, the same did not form the part of the record at the time of framing of assessment. hence, in terms of the law laid down by hon'ble the supreme court in volkart brothers' case (supra) and the views expressed by andhra pradesh and karnataka high courts, powers under section 154 of the act could not be exercised. even otherwise the mistake, which was sought to be rectified, was not free from debate. as is evident from record, new facts had come into notice of the assessing officer, which were sought to be relied upon. it is also borne out from the order passed under section 154 of the act that there was litigation pending even with regard to the findings recorded by the assessing officer during the year 1982-83, which were relied upon for passing order under section 154 of the act. meaning thereby that even the findings relied upon to invoke the jurisdiction of section 154 of the act were still fluid and had not attained finality. accordingly, there was no occasion to rely upon those findings to carry out the rectification in the orders passed for the assessment years in question. from the facts of the case in hand, it is clear that the issue sought to be rectified by the assessing officer was not free from doubt. still further, we find that there is a specific provision under the act to deal with the eventualities for exercise of power under the circumstances, which is sought to be exercised by the authorities. section 155(4a) of the act specifically deals with the withdrawal of deduction granted under section 32a of the act under certain specified situation and the assessing officer did not invoke that power, rather invoked the general section. 12. if the facts of the present case are examined keeping in view law on the subject, we find that the case in hand was not a fit case for invocation of power under section 154 of the act as neither material sought to be relied upon for invocation of power was on record on the date of framing of assessment nor the same was free from doubt even on the date when the rectification order was passed. accordingly, once we hold that the invocation of jurisdiction under section 154 of the act in the present case was not valid, the order passed thereupon fails and the question framed by us deserves to be answered against the revenue and in favour of the assessee. 13. in view of our findings on the real issue involved in the case in hand having been determined against the revenue, questions referred by the tribunal do not call for any discussions. accordingly, the reference is answered against the revenue and in favour of the assessee.