DCIT, Coimbatore V. M/s. Precot Mills Ltd., Coimbatore

ITA 1450/CHNY/2011

• Counselvise Citation: 145021714 RSA 2011
• Duration Of Justice: 2 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2000-2001
• Appeal Filed On: 18-08-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R B NAIK
• Assessee Lawyers: K RAVI
• Keywords: Depreciation; Opportunity of being heard; Additional depreciation; Procedural lapse
• Section: 80HHC; 234B; 154; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER I.T.A. NO. 1450/MDS/2011 (ASSESSMENT YEAR : 2000-01) THE DEPUTY COMMISSIONER OF INCOME TAX, 63-A, RACE COURSE ROAD, COIMBATORE 641 018. (APPELLANT) V. M/S PRECOT MILLS LTD., SUPREM, 737, GREEN FIELDS, PULIAKULAM ROAD, COIMBATORE 641 045. PAN : AABCP3038K (RESPONDENT) APPELLANT BY : SHRI R.B. NAIK, CIT-DR RESPONDENT BY : SHRI K. R AVI, ADVOCATE DATE OF HEARING : 20.10.2011 DATE OF PRONOUNCEMENT : 31.10.2011 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : IN THIS APPEAL FILED BY THE REVENUE, ITS GRIEVANC E IS THAT THE CIT(APPEALS) HAD QUASHED THE ORDER PASSED BY THE A. O. UNDER SECTION 154 OF INCOME-TAX ACT, 1961 (IN SHORT THE ACT) FOR THE IMPUGNED ASSESSMENT YEAR, FOR NON-SERVICE OF NOTICE STIPULATED UNDER I.T.A. NO. 1450/MDS/11 2 SECTION 154(3) OF THE ACT. AS PER THE REVENUE, NON -SERVICE OF SUCH NOTICE WAS ONLY A PROCEDURAL IRREGULARITY AND WOULD NOT RENDER THE ORDER NULLITY. 2. SHORT FACTS APROPOS ARE THAT ASSESSEE, ENGAGED I N THE MANUFACTURE OF COTTON AND POLYESTER YARN, HAD CLAIM ED DEDUCTION OF ` 3,19,41,402/- UNDER SECTION 80HHC OF THE ACT. THE RETURN FILED BY THE ASSESSEE WAS ACCEPTED BY WAY OF INTIMATION UNDE R SECTION 143(1)(A) OF THE ACT. THEREAFTER, ASSESSEE FILED A PETITION TO THE ASSESSING OFFICER FOR GRANT OF ADDITIONAL DEPRECIAT ION IN RESPECT OF MACHINERY REPLACEMENT CAPITALIZED DURING THE PREVIO US YEARS RELEVANT TO ASSESSMENT YEARS 1994-95 TO 1997-98 AND 1999-200 0. THE ASSESSING OFFICER, PURSUANT TO SUCH APPLICATION, AL LOWED THE CLAIM OF ADDITIONAL DEPRECIATION ON MACHINERY REPLACEMENT BU T, NEVERTHELESS, HE ALSO PROCEEDED TO REDUCE THE DEDUCTION ALREADY G RANTED UNDER SECTION 80HHC OF THE ACT BY SETTING OFF THE CARRIED FORWARD LOSS OF THE ASSESSEE. HOWEVER, THE REDUCTION OF THE DEDUCTION UNDER SECTION 80HHC OF THE ACT WAS CARRIED OUT WITHOUT ISSUING NO TICE TO THE I.T.A. NO. 1450/MDS/11 3 ASSESSEE. A.O. ALSO RE-COMPUTED INTEREST UNDER SE CTION 234B OF THE ACT IN SUCH ORDER UNDER SECTION 154 OF THE ACT. 3. AGGRIEVED BY THE ORDER OF THE A.O., ASSESSEE MOV ED IN APPEAL BEFORE LD. CIT(APPEALS) AND LD. CIT(APPEALS) IN THE FIRST ROUND OF THE PROCEEDINGS, PARTLY ALLOWED SUCH APPEAL. FURTHER A PPEAL WAS PREFERRED BOTH BY THE ASSESSEE AS WELL AS REVENUE B EFORE THIS TRIBUNAL, AND THIS TRIBUNAL DISMISSED REVENUES APP EAL, WHEREAS IN ASSESSEES APPEAL, REMITTED THE ISSUE REGARDING ALL EGED VIOLATION OF SUB-SECTION (3) OF SECTION 154 BACK TO LD. CIT(APPE ALS) FOR FRESH CONSIDERATION. IN THE SECOND ROUND OF PROCEEDINGS, PURSUANT TO SUCH TRIBUNAL DIRECTIONS, LD. CIT(APPEALS) HELD THAT SUB -SECTION (3) OF SECTION 154 WAS MANDATORY IN NATURE SINCE THE RECTI FICATION RESULTED IN ENHANCEMENT OF ASSESSMENT AND THEREBY INCREASING THE LIABILITY OF THE ASSESSEE. THEREFORE, ACCORDING TO HIM, SUCH EN HANCEMENT WOULD CURTAIL THE CLAIM OF ASSESSEE OF DEDUCTION UNDER SE CTION 80HHC OF THE ACT, AND COULD NOT HAVE BEEN DONE WITHOUT ISSUI NG A NOTICE UNDER SECTION 154(3) OF THE ACT. FURTHER, AS PER LD. CIT (APPEALS), THE QUESTION WHETHER SETTING OFF OF CARRIED FORWARD LOS SES HAD TO BE DONE PRIOR TO COMPUTATION OF DEDUCTION UNDER SECTION 80H HC OF THE ACT, I.T.A. NO. 1450/MDS/11 4 WAS A DEBATABLE ONE AND IN VIEW OF THE DECISION OF HON'BLE APEX COURT IN THE CASE OF MEPCO INDUSTRIES V. CIT (319 I TR 208), A RECTIFICATION ON SUCH A POINT WAS NOT POSSIBLE UNDE R SECTION 154 OF THE ACT. HE, THEREFORE, ALLOWED THE APPEAL OF THE ASSESSEE AND HELD THAT THE DISALLOWANCE OR CURTAILMENT OF DEDUCTION U NDER SECTION 80HHC OF THE ACT WAS NOT WARRANTED. 4. NOW BEFORE US, LEARNED D.R., STRONGLY ASSAILING THE ORDER OF LD. CIT(APPEALS), SUBMITTED THAT SUB-SECTION (3) OF SEC TION 154 OF THE ACT WAS ONLY A PROCEDURAL REQUIREMENT, AND AT THE BEST, THE PROCEEDINGS WOULD HAVE TO GO BACK TO THE STAGE WHERE THERE WAS VIOLATION OF SUB- SECTION (3) OF SECTION 154. ACCORDING TO HIM, THIS WOULD NOT RENDER THE ORDER ITSELF VOID. IT WAS ONLY A IRREGULARITY WHICH COULD BE RECTIFIED AND IT WAS NOT A ILLEGALITY WHICH WENT TO THE ROOT OF THE JURISDICTION. 5. PER CONTRA, LEARNED A.R. SUPPORTED THE ORDER OF LD. CIT(APPEALS). 6. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL C ONTENTIONS. FIRST QUESTION IS WHETHER SUB-SECTION (3) OF SECTIO N 154 IS PROCEDURAL OR MANDATORY. SUB-SECTION (3) OF SECTION 154 STATE S AS UNDER:- I.T.A. NO. 1450/MDS/11 5 AN AMENDMENT, WHICH HAS THE EFFECT OF ENHANCING AN ASSESSMENT OR REDUCING A REFUND OR OTHERWISE INCREA SING THE LIABILITY OF THE ASSESSEE, SHALL NOT BE MADE UNDER T HIS SECTION UNLESS THE AUTHORITY SO CONCERNED HAS GIVEN NOTICE T O THE ASSESSEE OF ITS INTENTION SO TO DO AND HAS ALLOWED THE ASSESSEE A REASONABLE OPPORTUNITY OF BEING HEARD. AN ORDER, WHICH HAS THE EFFECT OF ENHANCEMENT OF AS SESSMENT, DEFINITELY AFFECTS SUBSTANTIAL RIGHTS OF ASSESSEE. AS SUBSTANTIAL RIGHTS ARE AFFECTED, NECESSARILY A NOTICE HAS TO BE GIVEN PRIOR TO THE ACTION TAKEN BY THE ASSESSING OFFICER IN THIS REGARD. STI PULATION IN THE STATUTE ON THIS ASPECT CANNOT BE CONSIDERED AS PROC EDURAL. IT IS DEFINITELY MANDATORY. IN ANY CASE, THE QUESTION WH ETHER DEDUCTION HAD TO BE DONE PRIOR TO SETTING OFF OF CARRIED FORW ARD LOSSES OR AFTER SETTING OFF OF CARRIED FORWARD LOSSES, WAS DEFINITE LY A DEBATABLE ONE AND THERE WERE DECISIONS FOR AND AGAINST ASSESSEE. CONSIDERATION OF SUCH A DEBATABLE ISSUE WOULD AUTOMATICALLY FALL OUT SIDE THE PURVIEW OF SECTION 154 OF THE ACT. SECTION 154 ALLOWS ONLY RE CTIFICATION OF A MISTAKE WHICH WAS APPARENT ON RECORD AND NOTHING MO RE. WE, THEREFORE, FIND THAT LD. CIT(APPEALS) WAS WELL JUST IFIED IN QUASHING THE ORDER OF THE A.O. PASSED UNDER SECTION 154 OF THE A CT. NO INTERFERENCE IS CALLED FOR. I.T.A. NO. 1450/MDS/11 6 7. IN THE RESULT, THE APPEAL FILED BY THE REVENUE S TANDS DISMISSED. THE ORDER WAS PRONOUNCED IN THE COURT ON 31 ST OCTOBER, 2011 SD/- SD/- (HARI OM MARATHA) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 31 ST OCTOBER, 2011. KRI. COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT(A)-I, COIMBATORE (4) CIT-I, COIMBATORE (5) D.R. (6) GUARD FILE