DCIT CIR 2(2), MUMBAI V. LIC HOUSING FINANCE LTD, MUMBAI

ITA 4541/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 49616 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-07-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2002-2003
• Appeal Filed On: 02-06-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MRS RINA JHA TRIPATHI
• Assessee Lawyers: SUNIL BHANDARI
• Keywords: Retrospective amendment; Advance ruling
• Section: 143(3); 263; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, A, MUMBAI BEFORE S/SHRI D.K.AGARWAL (JM) AND R.K.PANDA(A.M ) ITA NO.4540 AND 4541/MUM/2010 (ASSESSMENT YEARS:2001-02 AND 2002-03) DY. COMMISSIONER OF INCOME TAX, CIRCLE 2(2), ROOM NO.545, 5 TH FLOOR, AAYAKAR BHAVAN, M.K.ROAD, MUMBAI-400020 M/S LIC HOUSING FINANCE LTD. 2 ND FLOOR, BOMBAY LIFE BUILDING, 45/47, VEER NARIMAN ROAD, MUMBAI-400001 PAN: AAACL1799C APPELLANT V/S RESPONDENT DATE OF HEARING : 27.7.2011 DATE OF PRONOUNCEMENT : APPELLANT BY : MRS.RINA JHA TRIPATHI RESPONDENT BY : SHRI SUNIL B HANDARI O R D E R PER D.K.AGARWAL (JM) THESE TWO APPEALS PREFERRED BY THE REVENUE ARE DIRECTED AGAINST THE COMMON ORDER DATED 17.3.2010 P ASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (A) FOR T HE ASSESSMENT YEARS 2001-02 AND 2002-03. SINCE FACTS ARE IDENTICAL AND ISSUE INVOLVED IS COMMON, BOTH THESE APPEALS ARE DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE O F CONVENIENCE. ITA NO.4540 AND 4541/MUM/2010 (AYS:2001-02 AND 2002-03) 2 ITA NO.4540/MUM/2010(AY:2001-02) 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT ORIGI NAL ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF TH E INCOME TAX ACT, 1961 (IN SHORT THE ACT) ON 26.2.200 4 DETERMINING THE TOTAL INCOME AT RS.89,23,61,930/-WH ICH WAS SUBSEQUENTLY REASSESSED UNDER SECTION 143(3) R.W.S. 147 AT RS.93,91,96,930/- VIDE ORDER DATED 31.1.2005. ON VE RIFICATION OF THE RECORDS, THE AO NOTED THAT THE ASSESSEE HAD WITHDRAWN AN AMOUNT OF RS.17 CRORES FROM THE SPEC IAL RESERVE, BUT DID NOT INCLUDE THE SAME IN THE TOTAL INCOME AS PER THE PROVISIONS OF SECTION 41(4A) OF THE ACT. T HEREFORE, NOTICE UNDER SECTION 154 OF THE ACT WAS ISSUED. IN RESPONSE, THE ASSESSEE FILED EXPLANATION VIDE LETTER DATED 26 .3.2008 INTERALIA STATED THAT THE ASSESSMENT ORDER MADE UND ER SECTION 143(3) DOES NOT SUFFER FROM ANY MISTAKE WHI CH IS RECTIFIABLE UNDER SECTION 154 OF THE ACT. IT WAS FURTHER STATED THAT THE COMPANY HAS WITHDRAWN RS.17 CRORE S IN THE ASSESSMENT YEAR 2001-02 FROM THE SPECIAL RESERVE (DESIGNATED AS NO.1) CREATED PRIOR TO 1.4.1997. TH E AMOUNT SO WITHDRAWN IS NOT SUBJECT TO TAX IN VIEW OF THE L EGAL POSITION EXPLAINED BELOW : ITA NO.4540 AND 4541/MUM/2010 (AYS:2001-02 AND 2002-03) 3 THE FINANCE ACT, 1997 HAS AMENDED SECTION 36(1)(VI II) BY INSERTING THE WORDS AND MAINTAINED AFTER THE WORD CREATED FOR THE SPECIAL RESERVE REFERRED TO THE REIN. THE SAME FINANCE ACT HAS ALSO INSERTED SUB-SECTION 4A IN SECTION 41 OF THE INCOME TAX ACT WHICH PROVIDED FOR ANY WITHDRAWAL MADE FROM SUCH RESERVE, CREATED AND MAINTAINED BY THE ASSESSEE BEING TREATED AS DEEMED PROFIT OF BUSINESS OR PROFESSION IN THE YEAR OF WITHDRAWAL. BOTH THESE AMENDMENTS ARE EFFECTIVE FR OM 1.4.1998 (I.E AY 1998-99). IT IS CLEAR FROM THE RE ADING OF THE SECTION THAT IT IS ONLY IN RESPECT OF SUCH RES ERVE WHICH WAS CREATED AFTER THE AMENDED PROVISIONS CAME INTO OPERATION THAT THE CONDITIONS OF MAINTAINING THE SAME. AND TAXING IN CASE OF WITHDRAWAL ARE APPLICA BLE. THEREFORE, THE RESERVES CREATED PRIOR TO SUCH AMENDMENT (WHICH CAME INTO EFFECT FROM 1.4.1997) AR E NOT SUBJECT TO BOTH THE CONDITIONS AS MENTIONED IN SECTION 36(1) (VIII) AND SECTION 41 (4A) OF THE ACT . IN SUPPORT, THE RELIANCE WAS ALSO PLACED ON THE DE CISION OF THE HONBLE KERALA HIGH COURT IN THE CASE OF KERA LA FINANCE CORPORATION V/S CIT (261 ITR 708), WHEREIN THE HO NBLE HIGH COURT HAS CLARIFIED THAT UP TO AY 1997-98, T HE POSITION WAS THAT ONCE RESERVE IS CREATED BY DEBITING THE PR OFIT AND LOSS ACCOUNT, THE CONDITION IS FULFILLED EVEN IF SU CH RESERVE IS SUBSEQUENTLY TRANSFERRED TO ANOTHER ACCOUNT, E. G. PROVISION FOR BAD AND DOUBTFUL DEBT ACCOUNT ETC. THE WORD MAINTAINED HAS BEEN INSERTED FROM 1.4.1998 AND, THEREFORE, THE FURTHER CONDITION THAT SUCH RESERVE SHOULD BE MAINTAINED DOES NOT APPLY TO EARLIER ASSESSMENT Y EARS. IN THIS VIEW OF THE MATTER, THERE IS NO RECTIFICATION REQUIRED AS PROPOSED BY YOU. WE MUST INVITE YOUR KIND ATTENTIO N TO NOTE ITA NO.4540 AND 4541/MUM/2010 (AYS:2001-02 AND 2002-03) 4 NO.14(A&B) IN SCHEDULE 15 PART II (PAGE 28) FORMI NG PART OF THE AUDITED BALANCE SHEET AS AT 31.3.2001 WHICH S TATES IN CLEAR TERMS THAT SPECIAL RESERVE NO.1 RELATES TO A MOUNTS TRANSFERRED UPTO FINANCIAL YEAR 1996-97 FOR CREATE D SPECIAL RESERVE IN TERMS OF SECTION 36(1) (VIII). THE WITH DRAWALS REFERRED TO BY YOU FOR THE YEAR HAS BEEN EFFECTED D ISTINCTLY FROM THIS SPECIAL RESERVE NO.1 CREATED BEFORE 1.4 .1997. HENCE, THERE IS NO MISTAKE WHICH NEEDS RECTIFICATIO N. 3. HOWEVER, THE AO REJECTED THE CONTENTIONS OF THE ASSESSEE BY STATING THAT BY INSERTING THE WORD MAI NTAINED IN SECTION 36(1)(VIII), THE LEGISLATURE INDENTED T O DO AWAY WITH A MISCHIEF OF LACUNA IN THE PROVISIONS OF THAT SECTION. IT WAS FOUND THAT THE ASSESSEES WERE CLAIMING DEDUCTIO N FOR THIS SPECIAL RESERVE MERELY ON THE BASIS OF CREAT ION WITHOUT MAINTAINING THE SAME FOR ANY WORTHWHILE PE RIOD, THEREBY DEFEATING THE VERY OBJECTIVE BEHIND THE PR OVISION I.E. BUILD UP CAPITAL. READING OF THE PROVISIONS OF SECT ION 41(4A) DID NOT SUPPORT THE CONTENTIONS OF THE ASSESSEE AS IT DID NOT MAKE ANY DISTINCTION BETWEEN THE SPECIAL RESERVE C REATED PRIOR TO 1.4.1998 OR SUBSEQUENT TO THE DATE. THE DECISION RELIED WAS ALSO NOT FOUND APPLICABLE AS THE SAME WAS MADE IN THE CONTEXT OF SECTION 36(1)(VIII) FOR ASSESSMEN T YEAR 1994-95. ACCORDINGLY, THE AO ADDED WITHDRAWAL OF RS.17 ITA NO.4540 AND 4541/MUM/2010 (AYS:2001-02 AND 2002-03) 5 CRORES FROM THE RESERVE AS ACCORDING TO HIM IT IS A MISTAKE APPARENT FROM THE RECORD AND DETERMINED THE TOTAL INCOME VIDE ORDER DATED 27.3.2008 PASSED UNDER SECTION 154 OF THE ACT AS UNDER : TOTAL INCOME AS PER ORDER UNDER SECTION 143(3) RWS 147 DATED 31.1.2005 93,91,96,930 ADD: WITHDRAWAL FROM RESERVE AS DISCUSSED ABOVE 17,00,00,000 REVISED TOTAL INCOME 110,91,96,930 4. ON APPEAL, THE LEARNED COMMISSIONER OF INCOME TA X (A) OBSERVED THAT THE TRIBUNAL IN THE ASSESSEES O WN CASE FOR THE ASSESSMENT YEARS 2003-04 AND 2004-05 IN W HICH EXACTLY ON SIMILAR FACTS AND CIRCUMSTANCES, IT WAS CATEGORICALLY HELD THAT THERE WAS CERTAINLY SCOPE F OR MORE THAN ONE VIEW. HE FURTHER OBSERVED THAT THE TR IBUNAL HAS DEALT WITH THE MATTER EXHAUSTIVELY AND HAS TAKEN INTO CONSIDERATION THE DECISIONS IN THE CASE OF KERALA FINANCE CORPORATION (261 ITR 708) (KER) AND ALSO OF RURAL ELECTRIFICATION CORPORATION LTD. (2009) (312 ITR 12 2)(AAR) WHEREIN IT HAS BEEN HELD THAT THE AMENDED PROVISION S SHOULD NOT BE APPLIED RETROSPECTIVELY. HE FURTHER OBSERV ED THAT THOUGH THE ISSUE BEFORE THE TRIBUNAL INVOLVED APPLI CABILITY OF SECTION 263 OF THE ACT, THE OBSERVATIONS THAT TWO VIEWS WERE POSSIBLE ON THE ISSUE WOULD EQUALLY APPLY TO THE AP PLICABILITY ITA NO.4540 AND 4541/MUM/2010 (AYS:2001-02 AND 2002-03) 6 OF THE PROVISIONS OF SECTION 154 AS WELL. HE FURTHE R OBSERVED THAT IT IS SETTLED LAW THAT A MISTAKE APPARENT ON THE RECORD MUST BE AN OBVIOUS AND PATENT MISTAKE AND NOT SOME THING WHICH CAN BE ESTABLISHED BY A LONGDRAWN PROCESS O F REASONING ON POINT ON WHICH THERE MAY CONCEIVABLY B E TWO OPINIONS. HE FURTHER OBSERVED THAT A DEBATABLE P OINT OF LAW IS NOT A MISTAKE APPARENT FROM THE RECORD. MISTAKE MUST BE SELFEVIDENT AND REACHED WITHOUT DEBATE OR DISSERTA TION. ACCORDINGLY, HE HELD THAT THE ACTION OF THE AO IS N OT JUSTIFIED AS THERE IS NO PRIMA FACIE CASE INVOLVING A MISTAKE APPARENT FROM THE RECORD AND HENCE DELETED THE ADDITION MADE BY THE AO. 5. BEING AGGRIEVED BY THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (A), THE REVENUE IS IN A PPEAL BEFORE US TAKING FOLLOWING GROUNDS OF APPEAL: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A), ERRED IN ALLOWING RELIEF TO THE ASSESSEE TO THE EXTENT IMPUGNED IN THE GROUND ENUMERATED BELOW:- 1. THE ORDER OF THE CIT(A) IS OPPOSED TO LAW AND FACTS OF THE CASE; 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE CIT(A) ERRED IN HOLDING THAT THE ORDER PAS SED BY THE AO UNDER SECTION 154 WAS BEYOND THE SCOPE OF SECTION 154, OVERLOOKING THE FACTS THAT THE AMENDED PROVISIONS OF SECTION 36(1)(VIII) W.E.F 1.4.1998 LE FT NO ROOM FOR ANY DOUBT ABOUT THE CORRECT APPLICATION OF THE RELEVANT PROVISIONS OF SECTION 36(1)(VIII) R.W.S.41 (4A). ITA NO.4540 AND 4541/MUM/2010 (AYS:2001-02 AND 2002-03) 7 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE CIT(A) ERRED IN DELETING THE ADDITION MAD E BY THE AO UNDER SECTION 36(1)(VIII) DESPITE THE FACT T HAT THE PROVISIONS OF SECTION 36(1)((VIII) R.W.S. 41(4A) SU PPORT THE ACTION OF THE AO FOR MAKING SUCH ADDITION UNDE R SECTION 154. 4. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING, THE DECISION OF THE CIT(A) MAY BE SET ASIDE AND THAT OF THE AO RESTORED. 6. AT THE TIME OF HEARING, THE LEARNED D.R. SUPPOR TS THE ORDER OF THE AO. 7. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE ASSESSEE WHILE RELYING ON THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (A) ALSO RELIED ON THE O RDER OF THE TRIBUNAL IN ASSESSEES OWN CASE IN LIC HOUSIN G FINANCE LTD. V/S DCIT IN I.T.A. NOS.672 & 673/MUM/2009 (A.Y S.: 2003-04 & 2004-05 ) ORDER DATED 2.12.2009 AND FUR THER SUBMITS THAT FOLLOWING THE SAME, THE ISSUE IS FULL Y COVERED IN FAVOUR OF THE ASSESSEE AND THEREFORE, THE ORDER PAS SED BY THE LEARNED COMMISSIONER OF INCOME TAX (A) BE UPHE LD. HE ALSO PLACED ON RECORD THE COPY OF THE SAID ORDER OF THE TRIBUNAL. 8. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THERE IS NO DISPUTE THAT THE COMPANY HAS ITA NO.4540 AND 4541/MUM/2010 (AYS:2001-02 AND 2002-03) 8 WITHDRAWN RS.17 CRORES IN THE ASSESSMENT YEAR 2001- 02 FROM THE SPECIAL RESERVE CREATED PRIOR TO 1.4.1997. A CCORDING TO THE ASSESSEE THE SAID RESERVE WAS CREATED PRIOR TO THE AMENDMENT MADE UNDER SECTION 36(1)(VIII) READ WITH SECTION 41(4A) OF THE ACT EFFECTIVE FROM 1.4.1998. PER CON TRA, THE CASE OF THE REVENUE IS THAT IT DID NOT MAKE ANY DI STINCTION BETWEEN THE SPECIAL RESERVE CREATED PRIOR TO 1.4 .1998 OR TO THE SUBSEQUENT DATE, THEREFORE, THE WITHDRAWAL OF RS.17 CRORES IS LIABLE TO BE ADDED AND HENCE THE AO WA S JUSTIFIED IN ADDING THE SAME UNDER SECTION 154 OF THE ACT. 9. WE FURTHER FIND THAT SIMILAR ISSUE HAS CAME UP B EFORE THE TRIBUNAL IN THE ASSESSEES OWN CASE (SUPRA) AGA INST THE ORDER PASSED UNDER SECTION 263 OF THE ACT. THE TRI BUNAL IN PARAGRAPH 7 OF THE SAID ORDER HAS OBSERVED AS UNDER : 7. SECTION 36(1)(VIII) PROVIDES FOR DEDUCTION OF A N AMOUNT NOT EXCEEDING 40% OF THE PROFITS DERIVED FRO M THE BUSINESS OF PROVIDING LONG TERM FINANCE, IF THE ASSESSEE CREATES A SPECIAL RESERVE. BEFORE 1.4.1998 , THE SECTION PROVIDED THAT IN RESPECT OF ANY SPECIAL RES ERVE CREATED BY A FINANCIAL CORPORATION ENGAGED IN PRO VIDING LONG TERM FINANCE FOR CERTAIN SPECIFIC PURPOSES, SU CH DEDUCTION WOULD BE GIVEN. BY THE FINANCE ACT, 1997, WHICH TOOK EFFECT FROM 1.4.1998 THE LANGUAGE OF THE PROVISION WAS AMENDED TO STATE THAT THE DEDUCTION W OULD BE AVAILABLE IN RESPECT OF ANY SPECIAL RESERVE CRE ATED AND MAINTAINED BY THE FINANCIAL CORPORATION. SIMULTANEOUSLY, SUB-SECTION (4A) WAS INSERTED IN SE CTION 41 WHICH PROVIDED THAT WHERE A DEDUCTION HAS BEEN ALLOWED IN RESPECT OF ANY SPECIAL RESERVE CREATED AND MAINTAINED UNDER CLAUSE VIII OF SUB-SECTION (1) OF SECTION ITA NO.4540 AND 4541/MUM/2010 (AYS:2001-02 AND 2002-03) 9 36, ANY AMOUNT SUBSEQUENTLY WITHDRAWN FROM SUCH SPECIAL RESERVE SHALL BE DEEMED TO BE THE PROFITS A ND GAINS OF BUSINESS AND ACCORDINGLY CHARGED TO INCOME TAX AS THE INCOME OF THE YEAR IN WHICH SUCH AMOUNT IS WITHDRAWN. THE CONTENTION PUT FORWARD BEFORE US ON BEHALF OF THE ASSESSEE WAS THAT THERE ARE TWO CATEG ORIES OF RESERVES TO BE CREATED BY AN ASSESSEE ENGAGED IN PROVIDING LONG TERM FINANCE (A) SPECIAL RESERVE C REATED AND (B) SPECIAL RESERVE CREATED AND MAINTAINED, AND THAT SECTION 41(4A) WOULD APPLY ONLY IN RESPECT OF THE L ATTER CATEGORY OF RESERVES, I.E. TO SAY, SPECIAL RESERVES CREATED AND MAINTAINED BY THE ASSESSEE AND WOULD NO T APPLY TO ANY SPECIAL RESERVE CREATED WITHOUT ANY OBLIGATION TO MAINTAIN THE SAME. IT IS CONTENDED TH AT IN ANY CASE IT IS A QUESTION OF INTERPRETATION OF THE STATUTORY PROVISIONS AND THE EFFECT OF THE AMENDMENTS MADE BY THE FINANCE ACT, 1997 ON THE SPECIAL RESERVES CREATED P RIOR TO 1-4-1998 AND SINCE MORE THAN ONE VIEW IS POSSIBL E ON THE EFFECT OF THE AMENDMENTS, THE ADOPTION OF ONE O F THE PLAUSIBLE VIEWS BY THE AO WHILE COMPLETING THE ASSESSMENTS DOES NOT CONFER JURISDICTION ON THE CIT U/S.263 TO HOLD THAT THE ASSESSMENTS SO MADE ARE ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE. IT HAS BEEN HELD BY THE TRIBUNAL AS UNDER : 8. ON A CAREFUL CONSIDERATION OF THE MATTER, WE AR E OF THE VIEW THAT THE ASSESSEE MUST SUCCEED ON THE QUES TION OF JURISDICTION OF THE CIT TO TAKE ACTION UNDER SEC TION 263 ON THE GROUND THAT THE ASSESSMENTS WERE ERRONEOUS A ND PREJUDICIAL TO THE INTEREST OF THE REVENUE. IN MALA BAR INDUSTRIAL CO. LTD. VS. CIT., 243 ITR 83, THE SUPRE ME COURT HELD THAT WHEN THE ASSESSING OFFICER HAS TAKE N ONE VIEW ON A QUESTION ON WHICH TWO OR MORE VIEWS A RE POSSIBLE AND THE CIT DOES NOT AGREE WITH THE VIEW T AKEN BY THE ASSESSING OFFICER AND WANTS TO SUBSTITUTE HI S VIEW, THE ASSESSMENT ORDER CANNOT BE TREATED AS ERRONEOUS OR PREJUDICIAL TO THE INTEREST OF THE REV ENUE UNLESS THE VIEW TAKEN BY THE ASSESSING OFFICER IS UNSUSTAINABLE IN LAW. IF WE APPLY THIS CASE TO THE CASE BEFORE US, IT WILL BE SEEN THAT ON THE QUESTION OF THE INTERPRETATION OF SECTION 36(1)(VIII) OF THE ACT AS AMENDED BY THE FINANCE ACT, 1997 WITH EFFECT FROM 1.4.1998, THERE ITA NO.4540 AND 4541/MUM/2010 (AYS:2001-02 AND 2002-03) 10 IS CERTAINLY SCOPE FOR MORE THAN ONE VIEW AND THE V IEW TAKEN BY THE AO CANNOT BE SAID TO BE UNSUSTAINABLE IN LAW. THE ASSESSEES VIEW IS THAT THE SPECIAL RESERV ES CREATED PRIOR TO THE AFORESAID DATE CANNOT BE ASSES SED UNDER SECTION 41(4A) WHEN THEY ARE WRITTEN BACK TO THE PROFIT AND LOSS ACCOUNT BECAUSE WHEN THEY WERE CREA TED THERE WAS NO STATUTORY CONDITION THAT THEY SHOULD A LSO BE MAINTAINED AS A RESERVE. THUS, THERE WAS NO OBLIGAT ION ON THE ASSESSEE TO MAINTAIN THOSE RESERVES. IF THAT IS SO, THE AMENDMENT DOES NOT AFFECT THOSE RESERVES AND WH EN THEY ARE WRITTEN BACK TO THE PROFIT AND LOSS ACCOUN T AFTER 1.4.1998 THEY CANNOT BE ASSESSED TO TAX. THE VIEW O F THE ASSESSEE FURTHER IS THAT THE CONDITION THAT THE RES ERVE SHOULD BE MAINTAINED AS SUCH ATTACHES ONLY TO THE SPECIAL RESERVES CREATED ON OR AFTER 1.4.1998 AND I F THAT CONDITION IS SUBSEQUENTLY VIOLATED BY WRITING IT BA CK TO THE PROFIT AND LOSS ACCOUNT, ONLY THEN SECTION 41(4 A) WOULD APPLY. IN OTHER WORDS, THE CONTENTION OF THE ASSESSEE IS THAT WHEN THERE IS NO CONDITION FOR MAINTAINING THE SPECIAL RESERVE AS SUCH, THERE IS N O QUESTION OF ANY VIOLATION OF THE CONDITION. ON THE OTHER HAND, THE CONTENTION OF THE REVENUE IS THAT IRRESPE CTIVE OF THE TIME IN WHICH THE SPECIAL RESERVE WAS CREATE D AND IRRESPECTIVE OF THE FACT THAT WHEN IT WAS CREATED T HERE WAS NO CONDITION THAT IT SHOULD ALSO BE MAINTAINED AS SUCH, THE AMENDMENT APPLIES WHENEVER THE SPECIAL RESERVE IS WRITTEN BACK TO THE PROFIT AND LOSS ACCO UNT SINCE THE OBJECT OF THE AMENDMENT IS TO PUT AN END TO THE MISCHIEF ADOPTED BY SOME ASSESSEES WHO WROTE BACK T HE SPECIAL RESERVE TO THE PROFIT AND LOSS ACCOUNT WITH OUT OFFERING THE SAME AS INCOME EVEN THOUGH WHEN THE SPECIAL RESERVE WAS CREATED THEY HAD OBTAINED A DEDUCTION. THE ASSESSEES CONTENTION SEEMS TO BE SUPPORTED BY CIRCULAR NO.763 DATED 18.02.1998 ISSUE D BY CBDT EXPLAINING THE AMENDMENTS MADE BY THE FINANCE ACT, 1997. IN PARA 21.1 OF THE CIRCULAR IT HAS BEEN STATED THAT CLAUSE 36(1)(VIII) AS IT STOOD BEF ORE THE AMENDMENT IMPOSES A CONDITION OF CREATION OF A SPE CIAL RESERVE, IT DOES NOT IMPOSE ANY CONDITION ON THE MAINTENANCE OF THE RESERVE. IN PARA 21.2, THE OBJE CT OF THE AMENDMENT HAS BEEN BROUGHT OUT BY SAYING THAT T HE WORDS SPECIAL RESERVE CREATED IN THE SECTION WAS AMENDED BY SUBSTITUTING IN THEIR PLACE THE WORDS SPECIAL RESERVE CREATED AND MAINTAINED IN ORDER TO INCORPORATE THE CONDITION REGARDING MAINTENANCE OF THE RESERVE. THE CIRCULAR ALSO SAYS THAT THE AMENDMENT WILL ITA NO.4540 AND 4541/MUM/2010 (AYS:2001-02 AND 2002-03) 11 APPLY FROM THE ASSESSMENT YEAR 1998-99 AND SUBSEQUE NT YEARS. ANOTHER QUESTION THAT IS THROWN UP BY THE AMENDMENT IS WHETHER THE VIEW TAKEN BY THE CIT WOUL D AMOUNT TO GIVING RETROSPECTIVE EFFECT TO A TAXING PROVISION NAMELY SECTION 41(4A). IN ADDITION TO THE CIRCULAR THE JUDGEMENT OF THE KERALA HIGH COURT CIT ED SUPRA ALSO SUPPORTS THE ASSESSEES POINT OF VIEW. I N THIS JUDGEMENT, IT WAS HELD THAT THE CONDITION PRESCRIBE D BY SECTION 36(1)(VIII) AS IT STOOD BEFORE BEING AMENDE D WAS ONLY THAT A SPECIAL RESERVE SHOULD BE CREATED AND T HAT THERE WAS NO CONDITION THAT IT SHOULD BE CONTINUED TO BE MAINTAINED. THE REQUIREMENT THAT IT SHOULD BE MAINT AINED AS SUCH WAS BROUGHT IN ONLY BY THE AMENDMENT TO THE SECTION AND BY INSERTION OF SUB-SECTION (4A) OF SEC TION 41 WHICH DO NOT HAVE ANY RETROSPECTIVE EFFECT. THE ORD ER OF THE AUTHORITY FOR ADVANCE RULING IN THE CASE OF RUR AL ELECTRIFICATION CORPORATION LTD. (312 ITR 122) ALSO SUPPORTS THE ASSESSEES INTERPRETATION. IN THIS ORD ER IT WAS HELD THAT BUT FOR THE AMENDMENT TO SECTION 36(1)(VIII), THE RESTRICTION AGAINST WITHDRAWAL OF THE SPECIAL RESERVE CANNOT BE READ INTO THE SECTION. IT WAS FURTHER HELD THAT IT IS NOT PERMISSIBLE TO READ WOR DS INTO A PROVISION WHICH IS OTHERWISE CLEAR, MERELY BECAUSE THE OBJECT OF THE AMENDMENT WILL BE SERVED BETTER. IT W AS OBSERVED THAT THE ADDITIONAL WORDS INTRODUCED INTO SECTION 36(1)(VIII) BY THE AMENDMENT IMPOSED AN ADDITIONAL OBLIGATION WHICH IS NOT MERELY DECLARATO RY OF THE EXISTING PROVISION. WHILE MAKING THESE OBSERVAT IONS, THE AUTHORITY REFERRED TO THE CIRCULAR AND THE JUDG EMENT OF THE KERALA HIGH COURT CITED ABOVE AS ALSO AN ORD ER OF THE CHANDIGARH BENCH OF THE TRIBUNAL IN THE CASE OF DELHI FINANCIAL CORPORATION VS. JCIT, (2007) 13 SOT 170. IN ADDITION TO THESE CASES, WE MAY ALSO REFER TO THE GENERAL PRINCIPLE THAT IN THE ABSENCE OF CLEAR WORD S INDICATING THAT THE AMENDMENT IS CLARIFICATORY, IT SHOULD NOT BE GIVEN RETROSPECTIVE EFFECT, PARTICULARLY WHE N THE PRE-AMENDED PROVISION IS CLEAR AND UNAMBIGUOUS. IT IS ALSO TO BE NOTED THAT WHERE A NEW PROVISION IMPAIRS AN EXISTING RIGHT IN THIS CASE, THE RIGHT OF THE ASS ESSEE TO UTILIZE THE RESERVE FREELY FOR OTHER PURPOSES - OR CREATES A NEW OBLIGATION IN THIS CASE, AN OBLIGATION TO M AINTAIN THE RESERVE AS SUCH - RETROSPECTIVELY CANNOT BE REA DILY INFERRED. IT WAS ALSO HELD IN GOVIND DAS VS. ITO (1 976) 103 ITR 123 THAT IF THE ENACTMENT IS EXPRESSED IN LANGUAGE WHICH IS FAIRLY CAPABLE OF EITHER INTERPRE TATION, IT OUGHT TO BE CONSTRUED PROSPECTIVELY ONLY. ITA NO.4540 AND 4541/MUM/2010 (AYS:2001-02 AND 2002-03) 12 9. IN VIEW OF THE FOREGOING DISCUSSION, IT SEEMS TO US THAT IN THE PRESENT CASE, THE ACTION OF THE CIT IS BASED ON HIS INTERPRETATION OF THE AMENDED PROVISIONS OF SECTION 36(1)(VIII) AND SECTION 41(4A), INTRODUCED BY THE F INANCE ACT, 1997 WITH EFFECT FROM 1.4.1998, WHEREAS THE ASSESSING OFFICER HAS ACCEPTED THE INTERPRETATION CANVASSED BY THE ASSESSEE. THE CASE THUS FALLS SQUA RELY WITHIN THE RATIO OF MALABAR INDUSTRIAL COMPANY LTD. (SUPRA), WHERE IT WAS HELD THAT THE CIT CANNOT HOLD THE ASSESSMENT TO BE ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE MERELY ON THE GROUND THAT H IS INTERPRETATION OF THE STATUTORY PROVISIONS SHOULD B E PREFERRED TO THE INTERPRETATION WHICH APPEALED TO T HE ASSESSING OFFICER. IN THIS VIEW OF THE MATTER, WE H OLD THAT THE CIT HAD NO JURISDICTION TO TAKE PROCEEDINGS UND ER SECTION 263. 10. IN KERALA FINANCE CORPORATION (SUPRA) IT HAS BE EN HELD THAT THE CONDITION PRESCRIBED BY SECTION 36(1)(VIII ) AS IT STOOD BEFORE BEING AMENDED WAS ONLY THAT A SPECIAL RESERV E SHOULD BE CREATED AND THAT THERE WAS NO CONDITION THAT IT SHOULD BE CONTINUED TO BE MAINTAINED. THE REQUIREMENT THAT IT SHOULD BE MAINTAINED AS SUCH WAS BROUGHT IN ONLY BY THE AM ENDMENT TO THE SECTION AND BY INSERTION OF SUB-SECTION (4A) OF SECTION 41 WHICH DO NOT HAVE ANY RETROSPECTIVE EFFECT. 11. THE ORDER OF THE AUTHORITY FOR ADVANCE RULING I N THE CASE OF RURAL ELECTRIFICATION CORPORATION LTD. (312 ITR 122) ALSO SUPPORTS THE ASSESSEES INTERPRETATION. IN THI S ORDER IT WAS HELD THAT BUT FOR THE AMENDMENT TO SECTION 36(1 )(VIII), THE RESTRICTION AGAINST WITHDRAWAL OF THE SPECIAL R ESERVE ITA NO.4540 AND 4541/MUM/2010 (AYS:2001-02 AND 2002-03) 13 CANNOT BE READ INTO THE SECTION. IT WAS FURTHER HEL D THAT IT IS NOT PERMISSIBLE TO READ WORDS INTO A PROVISION WHIC H IS OTHERWISE CLEAR, MERELY BECAUSE THE OBJECT OF THE A MENDMENT WILL BE SERVED BETTER. IT WAS OBSERVED THAT THE ADD ITIONAL WORDS INTRODUCED INTO SECTION 36(1)(VIII) BY THE AM ENDMENT IMPOSED AN ADDITIONAL OBLIGATION WHICH IS NOT MEREL Y DECLARATORY OF THE EXISTING PROVISION. WHILE MAKING THESE OBSERVATIONS, THE AUTHORITY REFERRED TO THE CIRCULA R AND THE JUDGEMENT OF THE HONBLE KERALA HIGH COURT CITED AB OVE AS ALSO AN ORDER OF THE CHANDIGARH BENCH OF THE TRIBUN AL IN THE CASE OF DELHI FINANCIAL CORPORATION VS. JCIT, (2007 ) 13 SOT 170. 12. IN T.S.BALARAM, INCOME TAX OFFICER V/S VOLKART BROTHERS AND OTHERS (82 ITR 50) (SC) IT HAS BEEN OB SERVED BY THE HONBLE SUPREME COURT (PAGE 50 HEAD NOTE) : A MISTAKE APPARENT ON THE RECORD MUST BE AN OBVIO US AND PATENT MISTAKE AND NOT SOMETHING WHICH CAN BE ESTABLISHED BY A LONG DRAWN PROCESS OF REASONING ON POINTS ON WHICH THERE MAY BE CONCEIVABLY TWO OPINIO NS. A DECISION ON A DEBATABLE POINT OF LAW IS NOT A MIS TAKE APPARENT FROM THE RECORD. 13. APPLYING THE RATIO OF THE ABOVE DECISIONS TO TH E FACTS OF THE PRESENT CASE, WE ARE OF THE VIEW THAT IT WAS A CASE WHERE TWO VIEWS ARE POSSIBLE. THE DECISION ON THE DEBATABLE ITA NO.4540 AND 4541/MUM/2010 (AYS:2001-02 AND 2002-03) 14 POINT OF LAW IS NOT A MISTAKE APPARENT FROM THE R ECORD. THIS BEING SO, WE ARE OF THE VIEW THAT THE AO WAS NOT JU STIFIED IN INVOKING THE PROVISIONS OF SECTION 154 OF THE ACT A ND THE LEARNED COMMISSIONER OF INCOME TAX (A) HAS RIGHTLY HELD THAT THERE WAS NO MISTAKE APPARENT FROM THE RECORD AND T HEREBY DELETED THE ADDITION MADE BY THE AO. THE ORDER PA SSED BY THE LEARNED COMMISSIONER OF INCOME TAX (A) DOES NOT CALL FOR ANY INTERFERENCE. THE GROUNDS TAKEN BY THE REVENUE ARE, THEREFORE, REJECTED. ITA NO.4541/MUM/2010(AY: 2002-03) 14. AT THE TIME OF HEARING, BOTH THE PARTIES HAVE AGREED THAT THE FACTS AND GROUNDS TAKEN BY THE REVENUE IN THIS APPEAL ARE IDENTICAL TO THE GROUNDS TAKEN IN THE AP PEAL FOR THE ASSESSMENT YEAR 2001-02, THEREFORE, THE PLEA TA KEN BY THEM IN THE SAID APPEAL MAY BE CONSIDERED WHILE DE CIDING THE APPEAL FOR THE ASSESSMENT YEAR 2002-03. 15. THAT BEING SO AND IN THE ABSENCE OF ANY DISTIN GUISHING FEATURE BROUGHT ON RECORD BY THE REVENUE, WE KEEPI NG IN VIEW OF OUR FINDINGS RECORDED IN REVENUES APPEAL FOR THE ASSESSMENT YEAR 2001-02 HOLD THAT IN THIS CASE TWO VIEWS ARE POSSIBLE, THEREFORE, THE AO WAS NOT JUSTIFIED IN INVOKING THE PROVISIONS OF SECTION 154 OF THE ACT AND ACCORDING LY, WE ARE ITA NO.4540 AND 4541/MUM/2010 (AYS:2001-02 AND 2002-03) 15 INCLINED TO UPHOLD THE FINDINGS OF THE LEARNED COM MISSIONER OF INCOME TAX (A) IN HOLDING THAT THERE WAS NO MIS TAKE APPARENT FROM THE RECORD AND IN DELETING THE ADDITI ON MADE BY THE AO. THE GROUNDS TAKEN BY THE REVENUE ARE, THEREFORE, REJECTED. 16. IN THE RESULT, REVENUES APPEALS STAND DISMISSE D. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH JULY, 2011. SD SD (R.K.PANDA) (D.K.AGARWAL) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 29 TH JULY, 2011 SRL: COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT CONCERNED 4. CIT(A) CONCERNED 5. DR CONCERNED BENCH 6. GUARD FILE. TRUE COPY BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI