DCIT CIR. - 3(3), MUMBAI V. M/s. STAR CHEMICALS (BOM) P. LTD., MUMBAI

ITA 4655/MUM/2006

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 1235 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 10 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-06-2010
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 22-03-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 17-08-2006
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S S RANA
• Keywords: Business income; Depreciation; Rectification of order; Opportunity of being heard; Cost of acquisition; Revised return
• Section: 143(3); 80HHC; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, B, MUMBAI BEFORE SHRI P.M.JAGTAP, ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO, JUDICIAL MEMBER ITA NO. 4655/MUM/2006 AND ITA NO. 1593/MUM/2009 (ASSESSMENT YEAR: 2003-04) DCIT CIR 3(3), ROOM NO.609 6 TH FL, AAYAKAR BHAVAN M K ROAD, MUMBAI-400020 .APPELLANT V/S STAR CHEMICALS (BOM) P LTD, 55/56, JOLLI MAKER CHAMBERS NO.2 NARIMAN POINT, MUMBAI-400021 RESPONDENT REVENUE BY : SHRI S S RANA ASSESSEE BY : SHRI DEEPAK TRALSHAWA LA O R D E R PER VIJAY PAL RAO,JM THESE APPEALS BY THE REVENUE ARE DIRECTED AGAINST THE TWO SEPARATE ORDERS OF CIT(A)-XXXII DATED 18.5.200 6 ARISING FROM ASSESSMENT ORDER PASSED UNDER SECTION 143(3) AND ORDER DATED 17.10.2008 ARISING FROM THE ORDER PASSE D U/S 154 OF THE ACT FOR THE ASSESSMENT YEAR 2003-04. SINCE THESE APPEALS PERTAIN TO THE SAME ASSESSEE, FOR THE SAKE OF CONVENIENCE, THESE APPEALS WERE HEARD TOGETHER AND ARE BEING DECIDED BY THIS CONSOLIDATED ORDER. ITA NO. 4655/MUM/2006 ITA NO. 4655/MUM/2006 AND ITA NO. 1593/MUM/2009 2 2. THE REVENUE HAS RAISED FOLLOWING EFFECTIVE GROUN DS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THECAE AND IN LAW, THE LEARNED CIT(A) ERRED IN DIRECTING THE AO TO EXCLUDE EXCISE DUTY COLLECTED AMOUNTING TO RS.2,39,92,301/- FROM THE TOTAL TURNOVER FOR THE PURPOSES OF DEDUCTION U/S 80HHC OF THE IT ACT, 1961 RELYING ON THE DECISION IN BOMBAY HIGH COURTS DECISION IN THE CASE OF SUDARSHAN CHEMICALS AND INDUSTRIES LTD 245 ITR 769; 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THECAE AND IN LAW, THE LEARNED CIT(A) ERRED IN DIRECTING THE AO NOT TO TAKE INTO CONSIDERATION OR REDUCE THESE RECEIPTS SUCH AS 90% OF SALES TAX REFUND, INSURANCE, MISC.RECEIPTS AND AMOUNTS WRITTE N OFF RECEIVED WHILE COMPUTING THE PROFIT OF THE ASSESSEE COMPANY FOR THE PURPOSE OF COMPUTING DEDUCTION U/S 80HHC AND LEARNED CIT(A) FAILED TO APPRECIATE PROVISIONS OF CLAUSE (BAA) OF EXPLANATI ON TO SECTION 80HHC OF THE IT ACT, 1961 SUPPORTED BY THE DECISION IN THE CASE OF GANGHADHARAN NAIR V/S ITO (54 ITD 15) 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THECAE AND IN LAW, THE LEARNED CIT(A) ERRED IN DIRECTING THE AO TO COMPUTE THE CAPITAL GAIN IN T HE HAND OF THE ASSESSEE IN THE CURRENT YEAR ON THE BASIS OF THE COST OF ACQUISITION OF THE ASSETS IN RESPECT OF WASTE HEAT RECOVERY EQUIPMENT HIRE PURCHASED AS PER AGREEMENT WITH THE ITC CLASSIC AND ON WHICH DEPRECIATION WAS REJECTED AS TR4ANSACTION WAS HELD AS MERE FINANCE TRANSACTION 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THECAE AND IN LAW, THE LEARNED CIT(A) ERRED IN ADMITTING THE ADDITIONAL GROUND OF APPEAL RAISED BY THE ASSESSEE VIDE LETTER DATED 24.2.2006 IN CONTRAVENTION OF RULE 46A ITA NO. 4655/MUM/2006 AND ITA NO. 1593/MUM/2009 3 3. GROUND NO.1 REGARDING EXCLUSION OF EXCISE DUTY F ROM THE TOTAL TURNOVER FOR THE PURPOSE OF DEDUCTION U/S 80 HHC. 3.1 WE HAVE HEARD THE LEARNED DR AS WELL AS LEARNED AR AND CONSIDERED THE RELEVANT RECORD. AT THE OUTSET , WE NOTE THAT THIS ISSUE IS COVERED BY THE DECISION OF THE H ONBLE SUPREME COURT IN THE CASE OF CIT V/S LAKSHMI MACHI NE WORKS REPORTED IN (2007) 290 ITR 667 (SC), IN WHICH THE HON'BLE SUPREME COURT HAS HELD THAT THE EXCISE DUTY AND SAL ES TAX CANNOT FORM PART OF THE TOTAL TURNOVER WHILE COMPUT ING THE DEDUCTION U/S 80HHC(3) OF THE ACT. IN VIEW OF THE S AID DECISION OF THE SUPREME COURT, WE DECIDE THIS ISSUE AGAINST THE REVENUE AND IN FAVOUR OF THE ASSESSEE. THE ORDER OF THE CIT(A) ON THIS ISSUE IS UPHELD. 4. GROUND NO.2 REGARDING SALES TAX REFUND, INSURAN CE, MISC. RECEIPTS AND AMOUNTS WRITTEN OFF WHILE COMPUT ING THE PROFIT OF THE ASSESSEE COMPANY FOR THE PURPOSE OF D EDUCTION U/S 80HHC. 5. THE AO EXCLUDED 90% OF THE SALES TAX REFUND SET OFF, MISC.RECEIPTS, INSURANCE AND OTHER AMOUNTS WHICH AR E AS UNDER : HEAD AMOUNT RS. INTEREST 3,04,424 SALES TAX ROUND SET OFF 16,26,804 MISC.RECEIPTS 7,546 INSURANCE 33,508 AMOUNTS WRITTEN OFF RECEIVED 2,57,343 REFUND FROM THE MSEB 3,16,429 LEASE RENTAL 19,47,00 ITA NO. 4655/MUM/2006 AND ITA NO. 1593/MUM/2009 4 6. ON APPEAL, THE LEARNED CIT(A) HAS DIRECTED THE AO TO COMPUTE THE PROFIT OF BUSINESS OF THE ASSESSEE ON T HE BASIS OF WITHOUT EXCLUDING 90% OF THE TOTAL TURNOVER EXCEPT THE INTEREST RECEIPT AND LEASE RENT. 7. WE HAVE HEARD THE LEARNED DR AS WELL AS THE LEAR NED AR OF THE ASSESSEE AND CONSIDERED THE RELEVANT RECORD. THE CIT(A) HAS ALLOWED THE CLAIM OF THE ASSESSEE WITH R ESPECT TO THE SALES TAX REFUND, INSURANCE, MISC.RECEIPT AND A MOUNT WRITTEN OFF RECEIVED AS RECEIPT OF THE ASSESSEE IN THE COURSE OF CARRYING OUT OF THE BUSINESS. THE LEARNED DR HAS CONTENDED THAT THE SALES TAX REFUND CANNOT BE INCLUDED IN THE TURNOVER OF THE EXPORT BUSINESS AND THEREFORE CANNOT BE INCLUDE D IN THE BUSINESS OF THE ASSESSEE FOR THE PURPOSE OF COMPUTA TION OF DEDUCTION U/S 80HHC. AS REGARD, THE MISC.RECEIPT AND INSURANCE THE LEARNED DR CONTENDED THAT THESE ARE N OT DIRECTLY RELATED TO THE EXPORT INCOME. THEREFORE, T HE SAME ARE ALSO NOT ELIGIBLE FOR DEDUCTION U/S 80HHC. THE A MOUNT WRITTEN OFF RECEIVED AND REFUND FROM THE MSEB ARE ALSO NOT CONNECTED WITH THE BUSINESS INCOME FROM THE EXPORT. THEREFORE, THE SAME ARE NOT INCLUDIBLE FOR THE PURP OSE OF COMPUTATION OF DEDUCTION U/S 80HHC. HE HAS RELIED U PON THE DECISION OF THE HON.SUPREME COURT IN THE CASE OF RAVINDRANADH NAIR V/S CIT REPORTED IN 295 ITR 228. THE ITA NO. 4655/MUM/2006 AND ITA NO. 1593/MUM/2009 5 LEARNED DR HAS ALSO RELIED UPON THE DECISION OF T HE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V/S M /S ASIAN STAR CO.LTD IN INCOME TAX APPEAL NO. 200 OF 2009, ORDER DATED 18/19,2010 AND SUBMITTED THAT THE HON. JURISDICTIO NAL HIGH COURT HAS DECIDED THE ISSUE OF EXCLUSION OF 90% REC EIPT RELATED TO THE EXPORT TURNOVER BY FOLLOWING THE DEC ISION OF HON. SUPREME COURT IN THE CASE OF RAVINDRANADH NAIR V/S CIT (SUPRA). 8. ON THE OTHER HAND, THE LEARNED AR OF THE ASSESSE E HAS SUBMITTED THAT ALL THESE RECEIPTS ARE INCIDENTAL T O THE BUSINESS OF THE ASSESSEE AND ARE PART OF THE BUSINESS INCOME OF THE ASSESSEE, THEREFORE, THESE CANNOT BE EXCLUDED WHILE COMPUTING THE DEDUCTION U/S 80HHC BY APPLYING CLAUS E (BAA). 9. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND REL EVANT RECORD. AS REGARD THE SALES TAX REFUND SET OFF IS CONCERNED, THE SALES TAX ITSELF IS NOT A PART OF TOTAL TURNOVE R, WHILE COMPUTING THE DEDUCTION U/S 80HHC. THEREFORE, THE SALES TAX REFUND CANNOT BE TREATED AS INCOME FROM THE EXPORT ACTIVITIES OF THE ASSESSEE. ACCORDINGLY, WE ARE OF THE VIEW T HAT THE CIT(A) HAS NOT TAKEN CORRECT VIEW ON THE ISSUE. TH E ORDER OF THE CIT(A) QUA THIS ISSUE IS SET ASIDE AND THE ORDE R OF THE AO IS RESTORED. ITA NO. 4655/MUM/2006 AND ITA NO. 1593/MUM/2009 6 10. AS REGARD THE MISC.RECEIPT AND REFUND FROM MSE B ARE CONCERNED, THE SAME ARE ALSO NOT A PART OF THE EXPO RT TURNOVER AND THEREFORE, AS PER THE PROVISIONS OF CLAUSE (BA A), 90% OF THE SAME ARE TO BE EXCLUDED WHILE COMPUTING THE DED UCTION U/S 80HHC. THE INSURANCE CLAIM RECEIVED BY THE AS SESSEE IS ALSO NOT CONNECTED WITH THE EXPORT BUSINESS OF THE ASSESSEE BUT IT IS REGARDING RECEIPT FROM THE INSURANCE COMP ANY FOR STOCK DAMAGED DURING THE COURSE OF BUSINESS. THERE FORE, THE SAME IS ALSO NOT FORMING THE PART OF THE EXPORT TU RNOVER AND ACCORDINGLY, 90% OF THE SAME IS EXCLUDED FROM THE PROFITS OF BUSINESS OF THE ASSESSEE WHILE COMPUTING THE DEDUCT ION U/S 80HHC 11. AS REGARD THE AMOUNT WRITTEN OFF RECEIPT IS CON CERNED, THOUGH THE CIT(A) HAS RECORDED IN THE ORDER THAT T HE SAID AMOUNT WRITTEN OFF EARLIER WAS IN RESPECT OF SALE O F THE ASSESSEES PRODUCT AND LATER ON RECEIVED IN THE YEA R UNDER CONSIDERATION BUT THERE IS NO FINDINGS OF THE FACT WHETHER THIS AMOUNT WAS REGARDING EXPORT SALES OF THE PRODUCT OR DOMESTIC SALES OF THE PRODUCT. THE ASSESSEE HAS NOT CLAIME D EARLIER THAT THE AMOUNT WAS REGARDING THE EXPORT SALES WHIC H WAS WRITTEN OFF AND RECEIVED IN THE YEAR UNDER CONSIDER ATION. THEREFORE, UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ITA NO. 4655/MUM/2006 AND ITA NO. 1593/MUM/2009 7 SAME IS ALSO NOT FORMING THE PART OF THE EXPORT TUR NOVER AND 90% OF THE SAME HAS TO BE EXCLUDED FROM THE PROFITS OF THE BUSINESS OF THE ASSESSEE BY APPLYING THE CLAUSE (BA A) TO THE EXPLANATION OF SECTION 80HHC FOR THE PURPOSE OF CO MPUTATION OF DEDUCTION U/S 80HHC. THEREFORE, IN VIEW OF THE DECISION OF THE SUPREME COURT RAVINDRANADH NAIR V/S CIT (SUPRA) AS WELL AS THE DECISION OF THE HON. JURISDICTIONAL HIGH COU RT IN THE CASE OF CIT V/S M/S ASIAN STAR CO.LTD IN INCOME TA X APPEAL NO. 200 OF 2009, THE OTHER INCOME ARE TO BE EXCLUDE D AS PER CLAUSE (BAA) OF EXPLANATION TO SECTION 80HHC FROM THE PROFIT OF THE BUSINESS OF THE ASSESSEE FOR COMPUTATION OF DEDUCTION U/S 80HHC . THEREFORE, WE SET ASIDE THE ORDER OF THE CIT(A) ON THIS ISSUE AND RESTORE THE ORDER OF THE AO . 12. AS REGARD THE CAPITAL GAIN OF RS.88,50,000/-, T HE FACTS OF THE CASE ARE THAT THE ASSESSEE PURCHASED UNDER HIR E PURCHASE AGREEMENT THE ASSET LIKE ECONOMIZERS, RECU PEOTORS AND AIR HEATERS (POLLUTION CONTROL EQUIPMENTS) FROM RSEB AND LEASED BACK THE SAME TO RSEB. THESE ASSETS ARE 100 % DEPRECIABLE ASSETS BUT THE ASSESSEE CLAIMED ONLY 50% DEPRECIATION FOR THE ASSESSMENT YEAR 1995-96 BECAU SE THE ASSETS WERE STATED TO HAVE BEEN PUT TO USE FOR L ESS THAN 180 DAYS. THE AO REJECTED THE CLAIM OF THE ASSESS EE OF DEPRECIATION ON THESE ASSETS IN THE ASSESSMENT YEA R 1995-96 AND 1996-97. ITA NO. 4655/MUM/2006 AND ITA NO. 1593/MUM/2009 8 13. ON APPEAL, THE CIT(A) CONFIRMED THE ORDER OF T HE AO FOR BOTH THE ASSESSMENT YEARS. THE ASSESSEE FILED AN A PPEAL BEFORE THIS TRIBUNAL FOR THE ASSESSMENT YEARS 1995- 96 AND 1996-97. THE TRIBUNAL RESTORED THIS MATTER TO THE R ECORD OF THE AO FOR RE-EXAMINATION AS PER THE TERMS AND DIRECTI ONS OF THIS TRIBUNAL. 14. IN THE CURRENT YEAR THE ASSESSEE HAS SOLD THE A BOVE MENTIONED ASSETS FOR A SUM OF RS.88,50,000/- AND TH E ASSESSEE HAS SHOWN THE PROFIT UNDER THE HEAD CAPIT AL GAIN IN THE RETURN OF INCOME FURNISHED BY THE ASSESSEE F OR THE CURRENT YEAR. THE AO REJECTED THE CLAIM OF THE ASS ESSEE. 15. BEFORE THE CIT(A), THE ASSESSEE HAS RAISED THE GROUND THAT THE CLAIM OF THE ASSESSEE REGARDING ACQUIRING THE ASSETS AND GIVING ON LEASE AND CLAIMING THE DEPRECIATION O N THE SAME HAS NOT BEEN ACCEPTED BY THE DEPARTMENT IN THE YEAR IN WHICH THE ASSETS WERE ACQUIRED. THEREFORE, IN THE CURREN T YEAR THE CAPITAL GAIN ON SALE OF THESE ASSETS HAS TO BE WORK ED OUT ON THE BASIS OF COST OF ACQUISITION OF ASSETS AND NOT ON THE BASIS OF WRITTEN DOWN VALUE AT NIL AS THE ASSESSEE WAS NO T ALLOWED DEPRECIATION ON THESE ASSETS. THE ASSESSEE HAS ALS O RAISED AN ADDITIONAL GROUND THAT THE DEPRECIATION ON THESE ASSETS FOR THE ASSESSMENT YEARS 1995-96 AND 1996-97 ARE TO BE ITA NO. 4655/MUM/2006 AND ITA NO. 1593/MUM/2009 9 DEDUCTED WHILE COMPUTING THE TOTAL INCOME FOR THE S AID ASSESSMENT YEARS, IN THE EVENT, IF THE CLAIM OF T HE DEPRECATION IS NOT ALLOWED IN THE ASSESSMENT YEARS 1995-96 AND 1996-97 THEN LEASE RENT FROM RSEB INCLUDED I N THE TOTAL INCOME FOR THE ASSESSMENT YEAR 2003-04 ARE NOT TO B E INCLUDED IN THE TOTAL INCOME. THE CIT(A) DIRECTED THE AO TO COMPUTE THE CAPITAL GAIN IN THE HANDS OF THE ASSES SEE IN THE CURRENT YEAR ON THE BASIS OF THE COST OF ACQUISITIO N OF THE ASSETS AND ALLOW TO THE ASSESSEE NECESSARY RELIEF O R IF THE CLAIM OF THE ASSESSEE REGARDING THE DEPRECIATION ON THESE ASSETS IS ACCEPTED AT ANY STAGE BY THE APPELLATE AU THORITY THEN THE CAPITAL GAIN IN THE CURRENT YEAR WILL BE COMPUT ED ON THE BASIS OF OPENING WDV OF THE ASSETS FOR THE CURRENT YEAR. 16. AS REGARDS THE ADDITIONAL GROUND, THE CIT(A) H AS DIRECTED THE AO NOT TO TREAT THE CAPITAL COMPONENT EMBEDDED IN THE LEASE RENTAL AS THE INCOME OF THE ASSESSEE F OR THE CURRENT YEAR. 17. WE HAVE HEARD THE LEARNED DR AS WELL AS THE LE ARNED AR OF THE ASSESSEE AND CONSIDERED THE RELEVANT RECO RD. AS REGARDS THE COMPUTATION OF CAPITAL GAIN IS CONCERNE D, WE NOTE THAT THE ASSESSEE ITSELF HAS WORKED OUT AND SHOWN T HE CAPITAL GAIN FOR SALE OF THESE ASSETS. EVEN THE LONG TERM C APITAL LOSS AND SHORT TERM CAPITAL LOSS WERE ALSO ADJUSTED BEIN G SET OFF OF LOSSES AGAINST THE SHORT TERM CAPITAL GAIN AND LONG TERM ITA NO. 4655/MUM/2006 AND ITA NO. 1593/MUM/2009 10 CAPITAL GAIN. THE ASSESSEE HAS NOT FILED REVISED RETURN FOR COMPUTATION OF CAPITAL GAIN ON THE BASIS OF COST OF ACQUISITION OF THE ASSETS. THEREFORE, THE AO HAD NO OCCASION TO WORK OUT THE CAPITAL GAIN ON THE BASIS OF COST OF ACQUISITIO N OF ASSETS. THE AO ACCEPTED THE CAPITAL GAIN WORKED OUT BY THE ASSESSEE. AND THUS THIS ISSUE DOES NOT EMANATE FR OM THE ASSESSMENT ORDER. SIMILARLY, THE ADDITIONAL ISSUE RAISED BY THE ASSESSEE DOES NOT ARISE FROM THE ASSESSMENT ORD ER BECAUSE NO SUCH CLAIM WAS MADE BY THE ASSESSEE IN T HE RETURN OF INCOME OR IN REVISED RETURN OF INCOME. TH E ASSESSEE HAS CLAIMED BEFORE THE CIT(A) THAT WHEN THE CLAIM OF DEPRECIATION OF ASSETS HAS NOT BEEN ALLOWED BY TREA TING THE TRANSACTIONS AS FINANCE TRANSACTION THEN GROSS LEAS E RENTAL CANNOT BE TREATED AS INCOME IN THE HANDS OF THE ASS ESSEE. WE ARE OF THE VIEW THAT EVEN IF THE TRANSACTION WA S TREATED AS FINANCE TRANSACTIONS, THE NOMENCLATURE OF THE INCO ME OFFERED BY THE ASSESSEE DOES NOT AFFECT THE CHARGEABILITY O F TAX WHEN THE UNDISPUTED FACTS ARE THAT THE ASSESSEE WAS RECE IVING THE CHARGES FROM THE OTHER PARTY WHICH MAY BE IN THE NA TURE OF LEASE RENTAL OR FINANCE CHARGES. THE QUESTION OF CAPITAL COMPONENT IN THE SHAPE OF REFUND OF PRINCIPLE IF AN Y DEPENDS UPON THE OUT COME OF THE DISPUTE FOR THE ASSESSMENT YEARS 1995-96 AND 1996-97. THEREFORE, IN THE ABSENCE OF SETTLEMENT OF THE ISSUE OF NATURE OF TRANSACTION NO HYPOTHETICAL ITA NO. 4655/MUM/2006 AND ITA NO. 1593/MUM/2009 11 ISSUE CAN BE DECIDED. THUS, THE CIT(A) HAS ADJUDIC ATED BOTH THE ISSUES AT THE APPELLATE STAGE WITHOUT GIVING A NY OPPORTUNITY OF BEING HEARD TO THE AO WHICH IS A CLE AR VIOLATION OF RULE 46A OF THE INCOME TAX RULES, 1962. AS FAR AS THE COMPUTATION OF CAPITAL GAIN ON THE BASIS OF COST OF ACQUISITION OF ASSETS IS CONCERNED WHEN THE TRANSACTION ITSELF WAS TREATED BY THE AO AS FINANCE TRANSACTION IN THE ASSESSMENT YEARS 1995-96 AND 1996-97 AND THIS ISSUE WAS NOT AT ALL I NVOLVED IN THE ASSESSMENT YEAR UNDER CONSIDERATION THEN THE QU ESTION OF COST OF ACQUISITION OR WDV DOES NOT ARISE. SINCE, THE ASSESSEE ITSELF HAS DISCLOSED AND ADMITTED THE CAPI TAL GAIN THEN IN OUR VIEW, THE CIT(A) HAS EXCEEDED HIS JURIS DICTION TO CONSIDER AND ADJUDICATE UPON THIS ISSUE IN FAVOUR O F THE ASSESSEE. SIMILARLY, THE ADDITIONAL ISSUE RAISED B Y THE ASSESSEE BEFORE THE CIT(A) ALSO NEEDS NO CONSIDERA TION BECAUSE THE RECEIPT OF AMOUNT IS NOT DISPUTED BY TH E ASSESSEE. ONLY BECAUSE THE ASSESSEE HAS ADMITTED TH E AMOUNT UNDER THE HEAD LEASE RENTAL AND THE REVENU E HAS TREATED THE TRANSACTION AS FINANCE CANNOT CHANGE TH E CHARACTER OF RECEIPT FROM INCOME TO NON INCOME. EVEN OTHERWIS E, THIS ISSUE DEPENDS OUT COME OF THE ISSUE OF NATURE OF TR ANSACTION INVOLVED IN THE ASSESSMENT YEARS 1995-96 AND 1996- 97. THEREFORE, THE CIT(A) HAS TAKEN AN INCORRECT VIEW IN DIRECTING ITA NO. 4655/MUM/2006 AND ITA NO. 1593/MUM/2009 12 THE AO TO ALLOW THE CLAIM OF THE ASSESSEE. ACCORD INGLY, WE SET ASIDE THE ORDER OF THE CIT(A) QUA THIS ISSUE. . ITA NO. 1593/MUM/2009 18. THE REVENUE HAS RAISED SOLITARY GROUND AS UNDE R : ON THE FACT AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN DIRECTING T HE AO TO RECTIFY THE ASSESSMENT U/S 154 OF THE IT ACT, 1961 ON THE BASIS OF TIME BARRED RECTIFICATION APPLICATION FILED BY THE ASSESSEE 19. THE RELEVANT FACTS HAVE ALREADY BEEN DISCUSSED BY US WHILE ADJUDICATING THE APPEAL OF THE REVENUE BEAR ING NO.4655/MUM/2006, THEREFORE, THE SAME ARE NOT REPEA TED HEREIN FOR THE SAKE OF BREVITY. 20. THE ASSESSEE FILED AN APPLICATION DATED 21.05.2 008 FOR RECTIFICATION OF THE ASSESSMENT ORDER U/S 154. THE ASSESSEE IN THE RECTIFICATION APPLICATION CLAIMED THAT WHEN THE DEPRECIATION WAS DISALLOWED, THE LEASE RENTAL INCOME NET OF HIR E PURCHASE RENTAL CHARGES WAS SUBJECTED TO TAX, IN RESPECT OF THE SAID LEASED ASSETS. THEREFORE, THE TAX ON LEASE RENTA L AMOUNTS TO DOUBLE TAXATION. THE AO REJECTED THE RECTIFICATION APPLICATION VIDE ORDER DATED 21.07.2008 ON THE GROUND THAT THI S ISSUE IS A DEBATABLE ONE AND CANNOT BE RECTIFIED U/S 154. ITA NO. 4655/MUM/2006 AND ITA NO. 1593/MUM/2009 13 21. ON APPEAL, THE CIT(A) HAS DIRECTED THE AO TO R ECTIFY THE ASSESSMENT U/S 154 BY DELETING THE SAID LEASE RENTA L AS CLAIMED BY THE ASSESSEE. 22. WE HAVE HEARD THE LEARNED DR AS WELL AS THE LEA RNED AR OF THE ASSESSEE AND CONSIDERED THE RELEVANT RECORD . THE ASSESSEE HAS FILED RETURN OF INCOME ADMITTING THE L EASE RENTAL AS INCOME AND THE SAME WAS ACCEPTED BY THE AO. T HE ASSESSEE FILED REVISED COMPUTATION OF INCOME EXCL UDING THE LEASE RENTAL AS INCOME OF THE ASSESSEE IN THE PETIT ION U/S 154. THE ASSESSEE MADE HIS CLAIM ON THE PREMISES THAT WH EN THE TRANSACTIONS WERE TREATED BY THE REVENUE AS FINANCE AND NOT AS LEASE RENTAL SUBJECTED TO TAX AMOUNT TO DOUBLE T AXATION. THE MAIN CONTENTION OF THE ASSESSEE IS THAT THE AO HAS DISALLOWED THE DEPRECIATION ON THE LEASED ASSETS AND TREATED IT AS INCOME AS FINANCE TRANSACTION IN THE ASSESSME NT YEARS 1995-96 AND 1996-97, THE AO AGAIN TREATED THE SAME TRANSACTION AS LEASE RENTALS AND TREATED THE ASSESS EES INCOME FROM LEASE RENTALS IN THE SAID YEARS AND IN THE SUBSEQUENT YEARS. AS WE HAVE DISCUSSED ABOVE, THE AO HAS NOT MADE ANY ADDITION WHILE FRAMING THE ASSESSMENT ON THIS ISSUE BUT THE AO HAS ACCEPTED THE INCOME OFFERED B Y THE ASSESSEE. EVEN IF THE TRANSACTIONS WAS TREATED BY THE REVENUE AS FINANCE TRANSACTIONS , THE INCOME RECEIVED BY TH E ASSESSEE WOULD BE TAXED EITHER AS FINANCE CHARGES OR LEASE R ENTALS. ITA NO. 4655/MUM/2006 AND ITA NO. 1593/MUM/2009 14 WHEN THE ASSESSEE ITSELF HAS OFFERED THE RECEIPTS AS LEASE RENTAL AND THE SAME WAS ACCEPTED BY THE AO THEN THE SAME CANNOT BE TREATED AS NON TAXABLE BY RECTIFYING THE ORDER U/S 154. IT IS UNDISPUTED FACT THAT THE ASSESSEE HAS R ECEIVED THE AMOUNT WHICH IS ACCOUNTED IN THE BOOKS OF ACCOUNT U NDER THE HEAD RENTALS THEN DELETING THE SAME ONLY ON THE G ROUND THAT THE TRANSACTION WAS TREATED BY THE REVENUE AS FINAN CE TRANSACTIONS THEN THE ISSUE OF TAXABILITY OF THE SA ME IN THE HANDS OF THE ASSESSEE IS NOT A SIMPLE AND UNDEBATAB LE ISSUE WHICH CAN BE ADJUDICATED UNDER THE PROVISIONS OF SE CTION 154. IT IS SETTLED PROPOSITION OF LAW THAT A MISTAKE AP PARENT FROM THE RECORD MUST BE AN OBVIOUS AND PATENT MISTAKE A ND NOT SOMETHING WHICH CAN BE ESTABLISHED BY LONG DRAWN P ROCESS OF REASONING CAN BE RECTIFIED U/S 154. DECISION ON A DEBATABLE POINT OF LAW IS NOT A MISTAKE APPARENT FROM THE RE CORD. MERELY OVERLOOKING OF CERTAIN FACTS OR MANDATORY PR OVISIONS OF LAW WHICH DOES NOT ALLOW ANY DISCRETION TO THE TAXI NG AUTHORITIES IS A MISTAKE APPARENT FROM THE RECORD. BUT A DECISION ON A DEBATABLE POINT OF LAW OR WHEN THE L AW CONFERS ON THE TAXING AUTHORITIES A DISCRETION SUCH DISCRE TION CANNOT BE CORRECT UNDER THE PROVISIONS OF SECTION 154 OF A CT. THUS, A MISTAKE CANNOT BE RECTIFIED U/S 154 OF THE ACT WHE N THERE IS A DEBATABLE POINT OF FACT OR LAW. IN THE CASE IN HA ND THE ASSESSEE CLAIMED RECTIFICATION OF MISTAKE U/S 154 A ND ITA NO. 4655/MUM/2006 AND ITA NO. 1593/MUM/2009 15 CIT(A) HAS DELETED THE INCOME WHICH WAS OFFERED BY THE ASSESSEE UNDER THE LEASE RENTALS ON THE GROUND THAT THE TRANSACTION WAS TREATED BY THE REVENUE AS FINANCE T RANSACTIONS AND THEN NO LEASE RENTALS CAN BE TAXED IN THE HANDS OF THE ASSESSEE. THIS IS NOT A PATENT AND APPARENT MISTAK E ON THE FACE OF RECORD WHICH CAN BE RECTIFIED UNDER THE PRO VISIONS OF SECTION 154. THIS IS AN ISSUE INVOLVING A COMPLEX POINT OF FACTS AS WELL AS LAW. IF THE CONTENTION OF THE ASS ESSEE IS ACCEPTED THEN NO INCOME WOULD ARISE OR TAXABLE EVE N IT IS RECEIVED BY THE ASSESSEE ON THE FINANCE TRANSACTION . THEREFORE, IN OUR VIEW THE IMPUGNED ORDER OF THE CI T(A) IS NOT SUSTAINABLE ON THE FACTS AS WELL AS ON LAW AND THE SAME IS SET ASIDE. 23. IN SUM AND SUBSTANCE, THE APPEAL NO.4655/MUM/20 06 IS PARTLY ALLOWED AND APPEAL BEARING NO.1593/MUM/2009 IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON 25.06.2010 SD SD (P.M.JAGTAP) (VIJAY PAL RAO) ACCOUNTANT MEMBER JUDICIAL MEMB ER MUMBAI, DATED 25 TH JUNE 2010 SRL:21610 ITA NO. 4655/MUM/2006 AND ITA NO. 1593/MUM/2009 16 COPY TO: 1. DCIT CIR 3(3), ROOM NO.609 6 TH FL, AAYAKAR BHAVAN M K ROAD, MUMBAI-400020 2.STAR CHEMICALS (BOM) P LTD, 55/56, JOLLI MAKER CHAMBERS NO.2 NARIMAN POINT, MUMBAI-400021 3.CCIT, MUMBAI 4 CCIT CITY-II, MUMBAI. 5.DCIT(3)(3), MUMBAI 5 CIT(A)-XXXII, MUMBAI. 6. DR B BENCH BY ORDER TRUE COPY ASSTT. REGISTRAR, ITAT, MUMBAI