Dy. Commissioner of Income Tax , Circle-16(1), Hyderabad V. Srinivasa Chakravarthi Raju Gokaraju, Hyderabad

ITA 2114/Hyd/2018

AI Insights

The case involves an appeal by the Revenue against the order of the Commissioner of Income Tax (Appeals)-4, Hyderabad, which had granted relief to the assessee under section 154 of the Income Tax Act, 1961. The assessee, Sri Srinivasa Chakravarthi Raju Gokaraju, had declared additional income during search proceedings and filed a revised return, which was accepted by the Assessing Officer. However, the CIT(A) had dismissed the assessee's appeal for non-payment of admitted taxes. The Tribunal's decision focused on whether the Assessing Officer could rectify an order that had already been upheld by the CIT(A) and the Tribunal, emphasizing the principle of merger and finality of judicial decisions.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 133364 (ITAT-HYDERABAD)
• Duration Of Justice: 4 year(s) 7 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-06-2023
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: DB-B
• Next Hearing Date: 14-06-2023
• Assessment Year: 2010-2011
• Appeal Filed On: 04-11-2018
• Other Referred Cases: DCIT vs. M/s. Leo Meridian Infrastructure Projects & Hotels Ltd., Shri Krishna Kumar D. Shah, PCIT Vs. Engineer Works, JRD Stock Brothers (P) Ltd. Vs. CIT, TS Balram Vs. Volkart Brothers, Y. Ramachandra Reddy, Indwell Constructions, KNR Constructions
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Depreciation; Revised return; Liquidation
• Section: 37; 154; 143(3); 113

Judgement Text

आयकर अपीलीय अधिकरण, हैदराबाद पीठ में IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES “B”, HYDERABAD BEFORE SHRI RAMA KANTA PANDA, VICE PRESIDENT & SHRI LALIET KUMAR, JUDICIAL MEMBER आ.अपी.सं / ITA No. 2114/Hyd/2018 (निर्धारण वर्ा / Assessment Year: 2010-11) Dy. Commissioner of Income Tax, Circle-16(1), Hyderabad Vs. Sri Srinivasa Chakravarthi Raju Gokaraju, Hyderabad [PAN No. AEIPG9059B] अपीलधर्थी / Appellant प्रत्‍यर्थी / Respondent निर्धाररती द्वधरध/Assessee by: Shri Pawan Kumar Chakrapani, AR रधजस्‍व द्वधरध/Revenue by: Shri K. Madhusudan, CIT-DR सुिवधई की तधरीख/Date of hearing: 15/06/2023 घोर्णध की तधरीख/Pronouncement on: 21/06/2023 आदेश / ORDER PER LALIET KUMAR, JM: The present appeal is filed by the Revenue against the order dated 01/08/2018 passed by the learned Commissioner of Income Tax (Appeals)-4, Hyderabad (“Ld. CIT(A)”) for the assessment year 2010-11. 2. At the outset, learned DR had drawn our attention to the order of the Tribunal passed in the case of assessee for the assessment year 2010-11, dt. 19/07/2021 in ITA No. 816/Hyd/2015 and others. It was submitted by the learned ITA No. 2114/Hyd/2018 Page 2 of 12 DR that the assessee in the said appeal sought relief against the order passed by the AO/Ld. CIT(A) before the Tribunal, however, for the reasons best known to the assessee, assessee had withdrawn the appeal stating that the assessee is not pressing the same. He drew our attention to paragraph No. 2 of the decision of the Tribunal, to the following effect: “2. Coming to the assessee’s first and foremost appeal ITA No.816/Hyd/2015, learned counsel stated at the outset that he no more wishes to press for the same keep in mind the fact that necessary relief already stands granted to him in Section 154 rectification proceedings. Ordered accordingly. This first and foremost appeal ITA No.816/Hyd/2015 is dismissed as not pressed therefore in foregoing terms.” 3. Thereafter, the learned DR submitted that once the order of the AO had attained finality as the assessee has not pressed the appeal for the assessment year 2010-11, then there was no reason for the Ld. CIT(A) to grant relief to the assessee through the colourable means door by granting relief under section 154 of the Income Tax Act, 1961 (for short “the Act”). He relied upon the decision of the Tribunal in the case of Shri Krishna Kumar D. Shah in ITA No. 1605 to 1608/Hyd/2014. 4. Per contra, learned AR submitted that the Tribunal in the case of DCIT vs. M/s. Leo Meridian Infrastructure Projects & Hotels Ltd., in ITA No. 1243/Hyd/2014, dt. 16/01/2023 had dismissed the appeal of Revenue on the ground that the company has gone into liquidation and the resolution professional had been appointed by the National Company ITA No. 2114/Hyd/2018 Page 3 of 12 Law Tribunal (NCLT). It was submitted that the present appeal may be kept in abeyance, being filed by the Director of the company. Further, it was submitted that the quantum appeal filed by the assessee before the Ld. CIT(A) was dismissed on the ground that of non-payment of admitted taxes by the assessee, relief was granted under section 154 proceedings. Further findings of the Ld. CIT(A) in quantum appeal was not a finding on merits and accordingly the assessee was within its right to move application u/s. 154 of the Act for rectification. 5. In rebuttal, learned DR has submitted that the assessee has concealed material particulars and also the order passed by the Tribunal in the case of assessee on 19/07/2021 in ITA No. 816/Hyd/2015 and others (supra). It was submitted that assessee had brought to the notice of Tribunal that the appeal filed by the Revenue against 154 order of Ld.CIT(A) is pending adjudication (present appeal). 6. We have heard the rival contentions of the parties and perused the material available on record. Admittedly, the assessee during the course of search proceedings, had declared additional income of Rs. 27 crores towards share application money in Leo Meridian Infrastructure Projects & Hotels Ltd., as ‘un-explained income’. The assessee had also filed the return of income declaring Rs. 27 crores as his income. On the basis of return filed by the assessee, AO had passed the assessment order admitting the revised return of income. Against that assessment order, the assessee had ITA No. 2114/Hyd/2018 Page 4 of 12 preferred the appeal before the CIT(A) and the Ld.CIT(A), however, had dismissed the appeal of assessee on the ground that the assessee has not paid the admitted tax liability as required u/s.249(4) of the Act vide order dt. 13/03/2015. The assessee after receiving the rejection order from the Ld.CIT(A), had filed 154 application before the AO and the AO has dismissed the 154 application of the assessee. Feeling aggrieved by the order of the AO, assessee had preferred the appeal u/s. 154 before the CIT(A). Ld.CIT(A) vide impugned order allowed the appeal of the assessee and the relevant findings of the Ld.CIT(A) are mentioned in para 8.1 to 8.3 as under: “8.1 The original appeal against the assessment order u/s. 143(3) as stated above was filed with regard to issue of agricultural income. But in the 154 application filed before the Assessing Officer, the appellant has raised the issue of not to treat an amount of Rs.27,35,28,865/- as Income under Other sources after considering the revised return. This issue was explained by the appellant during the course of assessment proceedings also before the Assessing Officer. But this issue was not decided in the original appeal as disposed by the CIT(A) vide order dated 13-03-2015, since the appellant not disputed and not filed ground. Therefore, this issue to be decided by Assessing Officer while disposing of 154 application. But the Assessing Officer failed to do so, therefore, the same is adjudicated now. 8.2 As per the remand report also, the AO mentioned that the revised return was filed but it was. not filed in Range-16, but it was filed in jurisdiction of ITO,Ward-6(1), Hyderabad. The original return was filed on 01-02-2011 and the revised return was filed on 20-03-2012 which was filed well in time as submitted by the appellant and the assessment u/s 143(3) was completed on 28-03-20 13. Therefore, as submitted by the appellant, the revised return was filed well in time. Therefore" the revised return has to be considered by the Assessing Officer. ITA No. 2114/Hyd/2018 Page 5 of 12 8.3 In the revised return, the appellant has not disclosed the amount of Rs. 27.35 crores as disclosed in the original return of income. During the appellate proceedings, the appellant explained that this amount of Rs.27.35 crores were amounts received from the different persons by the appellant and invested in company Leo Meridian Infra Projects and Hotels Ltd., as share application money in the A.Y. 2008-09. For this assessment year 2008-09 also, the appeal was decided by me vide order dated 30-03-2017 wherein this aspect of share application money was verified and concluded that this amount received from the firms and from that firm this share application money was invested in the' company Leo Meridian Infra Projects and Hotels Ltd. Since, the sources were explained, hence considered in the A.Y. 2008-09 while deciding the appeal. The same amount for this assessment year i.e.2010-11 was carried forward by the appellant as share application money in the above said company i.e.,Leo Meridian Infra Projects and Hotels Ltd. Since this share application money was not fresh investments during the said A.Y. 2010-11, hence, this income not to be considered for this assessment year as Income under Other sources. Further, in the company's appeal also which was decided by me; wherein it was concluded that this share application money does not pertain to this year and it pertains to A.Y. 2008-09. Therefore, all the submissions of the appellant are accepted and the AO is directed to consider the income disclosed as per Revised Return of Income.” 7. In our view, once the appeal of the assessee against quantum additions have attained finality upto the level of the Tribunal then question arises as to whether the AO can rectify the order passed by him on an issue which is highly debatable and after the order got a seal of approval from the Ld.CIT(A). In our view, the answer is NO since in our considered opinion, it will amount to re-visiting the order of the assessment, which has attained finality. Recently, in the identical facts, in the case of Shri Krishna Kumar D. Shah (supra), the decision relied upon by the learned DR, we had examined the law on the subject and after examining the same, we have heed that the AO has no power to re-visit the order passed by the ITA No. 2114/Hyd/2018 Page 6 of 12 Tribunal or/Ld.CIT(A). The relevant observation of the Tribunal reads as under: “18. From the bare perusal of section 154 of the order, it is clear that the power of rectification is given to the Assessing Officer to rectify any mistake which is apparent from the record. The immediate questions arise as to whether there was any apparent mistake in the order passed by the Assessing Officer in the year 2009 . The apparent mistake is one which can be found out without any efforts and reasonings or for which no detailed reason or enquiry is required. In this regard, the law has been fairly settled by the Hon'ble Supreme Court in the case JRD Stock Brothers (P) Ltd. Vs. CIT (supra), wherein the Hon'ble Supreme Court has dismissed the SLP filed by the assessee and upheld the decision of Hon’ble Delhi High Court. Similarly, in the case of TS Balram Vs. Volkart Brothers (1971) 82 ITR 50 (SC), the Hon'ble Supreme Court had held as under : “We have now to see whether the Income-tax Officer was justified in opining that in the original orders of assessment, there was any apparent mistake. As seen earlier, in the original assessments of the firm for the relevant assessment years, the Income-tax Officer adopted the slab rates applicable to registered-firms. The question for decision is whether the first respondent's firm came within the mischief of section 17(1) of the Indian Income-tax Act, 1922. Section 17(1) reads : "Where a person is not resident in the taxable territories and is not a company, the tax, including super-tax, payable by him or on his behalf on his total income shall be an amount equal to— (a) the income-tax which would be payable on his total income at the maximum rate, plus (b) either the super-tax which would be payable on his total income at the rate of nineteen per cent. or the super-tax which would be payable on his total income if it were the total income of a person resident in the taxable territories, whichever is greater. ..." (Proviso to the section is not relevant for our present purpose.) Section 17(1)can apply to a "person". The expression "person" is defined in section 2(9) of the Indian Income-tax Act, 1922, thus : "'Person' includes a Hindu undivided family and a local authority." Unless a firm can be considered as a "person", section 17(1) cannot govern the assessment of the first respondent. In the ITA No. 2114/Hyd/2018 Page 7 of 12 Income-tax Act, 1961 (section 2(31)), the expression "person" is defined differently. That definition reads : "'Person' includes— (i) an individual, (ii) a Hindu undivided family, (iii) a company, (iv) a firm, (v) an association of persons or a body of individuals, whether incorporated or not, (iv) a local authority, and (vii) every artificial juridical person, not falling within any of the preceding sub-clauses." It is a matter for consideration whether the definition contained in section 2(31) of the Income-tax Act, 1961, is an amendment of the law or is merely declaratory of the law that was in force earlier. To pronounce upon this question, it may be necessary to examine various provisions in the Act as well as its scheme. Section 113 of the Income-tax Act, 1961, corresponded to section 17(1) of the Indian Income-tax Act, 1922, but that section has now been omitted with effect from April 1, 1965, as a result of the Finance Act, 1965. From what has been said above, it is clear that the question whether section 17(1) of the Indian Income-tax Act, 1922, was applicable to the case of the first respondent is not free from doubt. Therefore, the Income- tax Officer was not justified in thinking that on that question there can be no two opinions. It was not open to the Income-tax Officer to go into the true scope of the relevant provisions of the Act in a proceeding under section 154 of the Income-tax Act, 1961. A mistake apparent on the record must be an obvious and patent mistake and not something which can be established by a long drawn process of reasoning on points on which there may conceivably be two opinions. ( emphasis supplied by us) As seen earlier, the High Court of Bombay opined that the original assessments were in accordance with law though in our opinion the High Court was not justified in going into that question. In Satyanarayan Laxminarayan Hegde v. MallikarjunBhavanappa Tirumale [I960] 1 SCR 890, this court while spelling out the scope of the power of a High Court under article 226 of the Constitution ruled that an error which has to be established by a long drawn process of reasoning on points where there may conceivably be two opinions cannot be said to be an error apparent on the face of the record. A decision on a debatable point of law is not a mistake apparent from the record—see Sidhramappa AndannappaManvi v. Commissioner of Income-tax [1952] 21 ITR 333 (Bom.). The power of the officers mentioned in section 154 of the Income- ITA No. 2114/Hyd/2018 Page 8 of 12 tax Act, 1961, to correct "any mistake apparent from the record" is undoubtedly not more than that of the High Court to entertain a writ petition on the basis of an "error apparent on the face of the record." In this case it is not necessary for us to spell out the distinction between the expressions "error apparent on the face of the record" and "mistake apparent from the record". But suffice it to say that the Income-tax Officer was wholly wrong in holding that there was a mistake apparent from the record of the assessments of the first respondent. For the reasons mentioned above, we dismiss this appeal with costs.” 19. Similarly, in the case of PCIT Vs. Engineer Works reported in (2021) 132 taxmann.com 172, the Hon’ble Andhra Pradesh High Court vide paras 5 to 9 of its order, held as under : “5. Section 154 of the Act empowers an Assessing Officer to rectify a mistake which is apparent from the record. A mistake can be said to be apparent on the record when it is a palpable and glaring one and not something which can be established by a long drawn process of reasoning on which may conceivably yield two opinions. A debatable point of law is not a mistake apparent on the face of the record. Only when such patent and obvious mistake is apparent from the record, the Assessing Officer is permitted to rectify or amend the Assessment Order, vide T.S. Balaram Income Tax Officer v. Volkart Brothers [1971] 82 ITR 50 (SC) 6. Mrs. M. Kiranmayee, learned standing counsel contends that the Assessing Officer in palpable contradiction to the ratio in KNR Constructions (supra), allowed deduction on the ground of depreciation after gross income was estimated at 12.5% on the main contractual receipts upon rejection of the books of accounts. Reliance is also placed on Indwell Constructions (supra) and it is argued in the event books of accounts are rejected, the same cannot be used to allow deduction on gross income. On the other hand, on behalf of the assessee, referring to the decision in Y. Ramachandra Reddy (supra) it is contended that depreciation is permissible even if the income is based on the estimation. Relevant portion of the said report reads as follows: "If an assessee is entitled to claim deduction of interest, be it under section 36(1)(iii) of the Act or any other relevant provision and of depreciation under section 37 of the Act, in the ordinary course of assessment, there is no reason why the same facilities be not extended to him, merely because of the profit is determined on the basis of estimation as was done in ITA No. 2114/Hyd/2018 Page 9 of 12 the instant case. We are of the view that depreciation and interest, which are otherwise deductible in the ordinary course of assessment, remain the same legal character, even where the profit of assessee is determined on percentage basis." 7. The legal position enunciated in Y. Ramachandra Reddy (supra) is that an assessee is not automatically disentitled to depreciation where the profit is determined on percentage basis. Hence, the issue of deduction on the score of depreciation from gross income which is computed on the basis of estimation is a debatable one and cannot be a palpable error on the face of the record. 8. We also find much substance in the argument on behalf of the assessee that in Indwell Constructions (supra), the Bench was not dealing with the issue of depreciation. In this regard it may be profitable to refer to the observations of this Court in Y. Ramachandra Reddy (supra) where the Bench distinguished Indwell Constructions (supra) in the following manner:- "The learned counsel for the appellant relied on a judgment of this Court in Indwell Constructions v Commissioner of Income Tax. That was a case in which this Court took the view that once the books of account are disbelieved for a particular purpose, they cannot be relied upon in the context of interest. In the instant case, we are concerned with the depreciation. The occasion to deny the deduction of depreciation or interest would arise if only the material placed before the Assessing Authority in proof of purchase of machinery and other items and payment of interest is disbelieved. No finding of that nature was recorded by the Assessing Officer." 9. In view of the ratio laid down in Y. Ramachandra Reddy (supra), we are of the opinion deduction of depreciation from gross receipts of income estimated at the rate of 12.5% on main contractual receipts is a debatable question of law and fact. Since the issue is not a palpable mistake on record but involves interpretation of the ratio laid down in KNR Constructions in the light of the law declared in Y. Ramachandra Reddy (supra), we are of the opinion that the invocation of jurisdiction under section 154 of the Act was not justified. Hence, no case to admit the appeal on the proposed questions of law or otherwise is made out. 10. The appeal is, accordingly, dismissed. No order as to costs. 11. Miscellaneous petitions, if any pending in this appeal, shall stand closed.” ITA No. 2114/Hyd/2018 Page 10 of 12 20. The word “any” under the income tax authority is defined u/s 116 of the Act which includes the Assessing Officer and ld.CIT(A) and etc. However, the question which is required to be examined is whether the income tax authorities mentioned under section 116 of the Act can rectify any mistake in its order which is though not apparent but will have any effect of setting aside the order passed by the superior authorities. There cannot be any doubt that the income tax authority can rectify any apparent mistake in its order however, when the order of the Assessing Officer, has been upheld by the ld.CIT(A) and thereafter by the Tribunal, in that eventuality, Assessing Officer is denuded from rectifying any such mistake, as it would lead to giving unbridled power to Assessing Officer/ ld.CIT(A) to unsettled the settled position of fact and law and will lead to chaos and anarchy. 21. In the present case, after the Tribunal had dismissed the appeal of the assessee on merit, the Assessing Officer has rightly dismissed the rectification application filed by the assessee as the Assessing Officer was duty bound to implement the order passed by the Tribunal. The Hon’ble Supreme Court and High Courts had time and again reiterated the concept of merger of order of lower authority with the order of superior authority i.e., when the order of lower authority is approved by the superior authority/Tribunal then the order of the lower authority merged with the order of the superior authority. In other words after approval of the order without modification by the superior authority, the order of the lower authority ceases to exist. 22. The order of the Tribunal/superior authority passed by it can only be modified, set aside and annulled by process known to law. Admittedly, the Tribunal has neither recalled its order nor an appeal has been preferred against the order passed by the Tribunal before the hon’ble High Court. Therefore, the order passed by the Tribunal has attained finality and is required to be executed / enforced by the Assessing Officer. We cannot subscribe the view of the ld. AR that by rectification, the alleged jurisdictional issue can be looked into by the Assessing Officer or ld.CIT(A) thereby annulling the entire assessment proceedings, more particularly, when the assessment proceedings have already attained finality by virtue of the order of the Tribunal. There cannot be two contradictory orders of the Tribunal one by upholding the assessment and other quashing the assessment based on the jurisdictional error. ITA No. 2114/Hyd/2018 Page 11 of 12 23. Further, we may point out that the decisions relied upon by the assessee are not applicable to the facts of the case as there was no pending assessment proceedings before the Assessing Officer. For the purpose of applying the ratio of all the judgments relied upon by the assessee, it is necessary that there should be live proceedings or collateral proceedings pending before the Assessing Officer / ld.CIT(A). In the present case, neither the substantial proceedings nor the collateral proceedings were pending before the Assessing Officer and therefore, the Assessing Officer was right in not entertaining the application for rectification filed by the assessee and had rightly dismiss the same. Further, a mistake which can be rectified is required to be apparent and should be known to the Assessing Officer without any in-depth analysis. The Hon'ble Supreme Court in the case of Volkart Brothers (supra) had elaborately discussed the scope of section 154 , hence the mistake pointed by the assessee can not be said to be apparent in nature . Examining the issue either from the prospective of finality of the first order or from the scope of section 154, we allow the appeal of Revenue and accordingly, the appeal of the Revenue is allowed.” 8. In view of the above, respectfully following our own decision in the appeal cited supra, we allow the appeal of Revenue. Order pronounced in the open court on this the 21 st day of June, 2023. Sd/- Sd/- (RAMA KANTA PANDA) (LALIET KUMAR) VICE PRESIDENT JUDICIAL MEMBER Hyderabad, Dated: 21/06/2023 TNMM ITA No. 2114/Hyd/2018 Page 12 of 12 Copy forwarded to: 1. Dy. Commissioner of Income Tax, Circle-16(1), Hyderabad. 2. Sri Srinivasa Chakravarthi Raju Gokaraju, Leo Meridian Infra Projects Hotels Ltd., Plot No. 13, Leo Resorts, Bommaraspet, Shamirpet, R.R.Dist., Hyderabad. 3. Pr.CIT-4, Hyderabad. 4. DR, ITAT, Hyderabad. 5. GUARD FILE TRUE COPY ASSISTANT REGISTRAR ITAT, HYDERABAD