Commissioner of Income Tax Vs. Mewar Oil and General Mills Ltd. - Court Judgment

Rajesh Balia, J.

1. This appeal is directed against the order dt. 30th April, 2001, passed by the Tribunal, Jodhpur Bench, Jodhpur [for short 'the Tribunal'], whereby the Tribunal has decided appeals Nos. 663, 664, 666 and 700 of 1994 by a common order.

2. This appeal relates to the asst. yr. 1984-85 and arises out of appeal No. 663 of 1994. While admitting this appeal, the following substantial question of law was framed for consideration of this appeal.

'Whether, in the facts and circumstances of the case, the mistake pointed out by the AO for invoking jurisdiction under Section 154 of the IT Act can be considered as a mistake apparent from the record, which could confer jurisdiction to the AO for initiating and making orders under Section 154 of the IT Act, 1961, for the purpose of recomputing allowable deduction under Section 80I ?'

3. The above question relates to the rectification in the original assessment order in computing the deductions permissible under Chapter VT-A of the IT Act, 1961 [hereinafter to be referred to as 'the Act'] for the asst. yr. 1984-85. The original assessment order was passed on 27th March, 1988 and was modified on 30th March, 1988 by giving effect to the order of the CIT(A) under Section 257. While computing the income chargeable to tax, the assessee has been allowed deduction in respect of the investment allowance as well as deductions under Sections 80G, 80HH, 80HHC and 80I. The ITO was of the opinion that the deductions allowed to the assessee under Chapter VI-A of the Act are in breach of Section 80A(2) of the Act inasmuch as after allowing the investment allowance of Rs. 30,66,000 from the pre-incentive total income, the gross total income works out to Rs. 8,06,572 whereas the total allowance under Chapter VI-A works out at Rs. 19,30,247 and under Section 80A(2), the aggregate amount of deductions under Chapter VI cannot exceed the gross total income of the assessee.

4. Finding this to be an apparent mistake, a notice under Section 154 of Act was issued to the assessee. The AO was also of the opinion that the deductions allowable under Section 80I of the Act have also been wrongly computed and, therefore, it sought to work out the computation of deduction under Section 80I afresh. As the question suggests, the question regarding rectification of computation of deduction under Section 80I is only the subject-matter of this appeal and not the rectification to the extent, it referred to bringing out the deductions under Chapter VI-A in consonance with Section 80A(2) r/w Section 80A(4) of the Act.

5. The AO has sought to compute the income of the new undertaking for the purpose of computing deductions permissible under that section by setting off the loss carried forward from the asst. yr. 1983-84 by treating the new undertaking as the only source of income against which such losses carried forward could be set off. It is on this premise that deduction under Section 80I was recomputed by reducing the profit of the new industrial undertaking by setting off the carry forward losses of the year 1983-84 and on the reduced amount, the deductions under Section 80-I was computed.

6. The assessee has urged that there was no carry forward of losses of the asst. yr. 1983-84 which needed set off against the income of the asst. yr. 1984-85 in respect of which computation of income under Section 80I was sought to be rectified.

However, the AO did not accept this contention and relying on the decision in Cambay Electric Supply Industrial Co. v. CIT : [1978]113ITR84(SC) held that the carry forward unabsorbed losses of the priority industry was first to be reduced from the total income and before computing the income of the assessee for the purpose of deductions,

7. On appeal before the CIT(A), it was found that there was no carry forward of losses of the previous year from the industrial undertaking which needed to be adjusted against the income of the priority industry for the current year.

It was pointed out by the CIT(A) that entire losses of the previous year had been absorbed against the income of the asst. yr. 1983-84 and there being no carry forward of losses from 1983-84, there was no question of its further absorption against the income of new undertaking for the asst. yr. 1984-85. The CIT(A) after noticing the decision of the Supreme Court found that the case before the Supreme Court was one in which carry forward losses of the priority industry had not been set off against the income of the previous year so as to reduce disallowability and the losses were yet to be absorbed and, therefore, before arriving at the income from the priority industry for the purpose of calculating allowability of deductions under Section 80I, the unabsorbed depreciation or unabsorbed development rebate of the said new industrial undertaking which was carried forward in the previous year was required to be adjusted. However, this principle has no application where there is no carry forward of the previous year losses seeking adjustment against the income of the current year. Thus, finding that there was no mistake in the original assessment which needed to be rectified, the rectification for recomputation of the allowability of the deductions under Section 80I was set aside.

8. On further appeal, the Income-tax Appellate Tribunal (for short 'the Tribunal') found that the debatable issue cannot be made subject-matter of rectification and whether the set off of the carry forward losses against the current year income of the new industrial undertaking is permissible is a debatable issue and any subsequent decision does not make it any less debatable and, therefore, the ITO could not have resorted the recomputation of deductions under Section 80I in exercise of its jurisdiction under Section 154 of the Act.

9. Having considered the rival contentions which follow on the line noticed above, we are of the opinion that on finding the fact that there was no carry forward losses of 1983-84, which could be set off against the income of the current asst. yr. 1984-85, the recomputation of income from the new industrial undertaking by setting off of the carry forward of unabsorbed depreciation or depreciation allowance from previous year did not simply arise and on finding of facts noticed by the CIT(A), which has not been disturbed by the Tribunal and challenged before us, there was no error much less any error apparent on the face of the record which could be rectified. That question would have been germane only if there would have been carry forward of unabsorbed depreciation and unabsorbed development rebate or any other unabsorbed losses of the previous year arising put of priority industry and whether it was required to be set off against the income of the current year. It is not at all required that losses or other deductions, which have already been set off against the income of the previous year should be reopened again for computation of current income under Section 80I for the purpose of computing admissible deductions thereunder.

10. In view thereof, we are of the opinion that the Tribunal has not erred in holding that there was no rectification possible under Section 80I in the present case, albeit, for the reasons somewhat different from what has prevailed with the Tribunal. There being no carry forward of allowable deductions under head depreciation or development rebate which needed to be absorbed against the income of the current year and, therefore, recomputation of income for the purpose of computing permissible deduction under Section 80I for the new industrial undertaking was not required in the present case.

11. Accordingly, this appeal fails and is hereby dismissed with no order as to costs.