1998 (3) TMI 120 - HC - Income Tax

Invalid Rectification Orders; Errors Not Apparent; Deductions Upheld

Nirmal Udyog Versus Commissioner Of Income-Tax And Another

Nirmal Udyog Versus Commissioner Of Income-Tax And Another - [1998] 232 ITR 493, 148 CTR 636, 102 TAXMANN 666 Issues Involved:1. Validity of rectification orders under Section 154 of the Income-tax Act.2. Applicability of deductions under Sections 80HH, 80J, and 32A of the Income-tax Act.3. Whether the errors identified were apparent on the face of the record.Issue-wise Detailed Analysis:1. Validity of Rectification Orders under Section 154 of the Income-tax Act:The petitioner challenged the rectification orders issued by the Income-tax Officer (ITO) for the assessment years 1978-79, 1979-80, and 1980-81. The ITO issued these orders based on the assumption that the petitioner had nothing to say in response to the notice under Section 154, as no reply was filed. The petitioner contended that the orders were not served properly, especially for the years 1978-79 and 1980-81, and thus, appeals could not be preferred. The appellate authority quashed the rectification order for 1979-80, which attained finality. The petitioner argued that the rectification orders were issued without proper cause and were illegal under the law.2. Applicability of Deductions under Sections 80HH, 80J, and 32A of the Income-tax Act:The petitioner, a partnership firm engaged in manufacturing, claimed deductions under Sections 80HH, 80J, and 32A, which were initially allowed by the ITO for the assessment years 1978-79, 1979-80, and 1980-81. The relevant sections provide deductions for investment allowance, profits from industrial undertakings in backward areas, and capital employed in certain businesses. The petitioner argued that these deductions were rightly allowed initially and that the ITO's later rectification under Section 154 was unwarranted.3. Whether the Errors Identified were Apparent on the Face of the Record:The central question was whether the errors identified by the ITO were apparent on the face of the record, warranting action under Section 154. The petitioner argued that a mistake must be glaring and obvious to be rectified under Section 154 and that debatable points of law do not qualify. The court examined the scope of Section 154, noting that it allows rectification of mistakes apparent from the record but not debatable issues. The court referred to the Supreme Court's judgment in CIT v. Hero Cycles Pvt. Ltd., emphasizing that rectification is not possible if the question is debatable and that the mistake must be glaring and obvious.Conclusion:The court found that the ITO was not justified in invoking Section 154 to rectify the orders, as the mistakes were not apparent from the record but rather debatable points of law. The revisional authority's order affirming the ITO's decision was also deemed erroneous, bad, and illegal. Consequently, the court quashed the impugned orders (annexures D, E, F, and I) and maintained the earlier orders passed by the ITO for the relevant assessment years. The petition was allowed, and the parties were directed to bear their own costs.