Vildirect: IncomeTax-caselaws-1995-VIL-206-ITAT-AHM

1995-VIL-206-ITAT-AHM

Equivalent Citation: ITD 053, 033, TTJ 052, 294, [1995] 214 ITR (A. T.) 64

Income Tax Appellate Tribunal AHMEDABAD

I.T.A. No 187/Ahd/1993

Date: 25.01.1995

MONARCH FOODS (P.) LTD.

ASSISTANT COMMISSIONER OF INCOME-TAX

BENCH

Member(s) : M. A. A. KHAN., JORDAN KACHCHAP., ABDUL RAZACK., B. M. KOTHARI., R. N. SINGHAL.

JUDGMENT

Per Shri Abdul Razack, Judicial Member --- The assessee has taken 13 effective grounds challenging the order dated 20-11-1992 of the Appellate Commissioner (AC). The sole dispute in this appeal is regarding the benefit u/s 80HHC being denied to the assessee through order passed u/s 154 of the Act.

2. Briefly stated the facts are as under :

2.1 In this case, income was originally assessed at Rs. nil as per assessment order dated 30-3-1989. The assessee claimed a sum of Rs. 6,03,156 as allowable deduction u/s 80HHC in respect of export sales. The Assessing Officer (AO) restricted the deduction/allowance to the extent of Rs. 5,64,973 and after setting off of business losses for the asst. years 1984-85 to 1986-87 computed the income at Rs. nil. Subsequently, it was noticed by the Assessing Officer on verification of the assessment records that the assessee-company had not furnished audit report u/s 44AB for which the relevant Form was 10CCAC along with return nor had created any reserve as required in terms of the proviso to sec. 80HHC. It was also observed that the assessee was allowed relief u/s 80HHC amounting to Rs. 5,64,973 before the set-off of business losses, whereas the deduction u/s 80HHC is to be allowed only after the set-off of business losses of earlier years from the income determined in the year under reference. So, according to the AO, the relief/deduction u/s 80HHC was wrongly allowed in the original assessment order made on 30th March, 1989. He. therefore, resorted to the provisions of sec. 154 and called for objections from the assessee in this regard namely, to withdraw allowance of Rs. 5,64,973 u/s 80HHC. The assessee resisted this proposed action of the AO u/s 154 of the Act stating that the audit report u/s 44AB was enclosed, that since there were losses, no reserve was required to be created and the losses of earlier years have to be deducted after giving allowance u/s 80HHC. It was contended by the assessee before the AO that all the issues were highly contentious issues and there can be two opinions in regard thereto and the matter was, therefore, outside the purview of sec. 154 of the Act. The AO did not concede any of the arguments and passed an order on 30th March, 1992 u/s 154 of the Act withdrawing the allowance u/s 80HHC which was originally allowed in the assessment order dated 30th March, 1989 and computed the taxable income in the said order of 30th March. 1992 in a sum of Rs. 1,72,120. The assessee was unsuccessful before the AC in the first appeal because the AC did not agree with any of the contentions of the assessee. Being aggrieved the order passed by the AC on 20- 11- 1992, the present appeal has been flied before us.

3. The assessee's counsel Shri J.P. Shah has filed a paper-book containing 44 pages and has also filed subsequently written submissions inclusive of copies of certain orders of various Benches of the Tribunal in regard to the controversy involved in the appeal. The assessee's paper-book contains copies of audit report u/s 44AB of the Act. A copy of the report of the Chartered Accountants u/s 80HHC(4) in Form No. 10CCAB has also been enclosed. Copy of export profit reserve account, which is at page 44 of the paper-book, has also been enclosed. The assessee's counsel at the threshold submitted that the order passed by the AO on 30th March, 1992 u/s 154 was not maintainable as the issues involved therein namely, filing of report u/s 80HHC(4), creation of export profit reserve and allowance of claim u/s 80HHC after the set-off of business losses were highly contentious, debatable and conceivably having two opinions and, therefore, the same was outside the scope of sec. 154 and the AC ought to have cancelled the order passed by the AO. Making further submissions, the assessee's counsel submitted that the provisions of sec. 80HHC were not mandatory but directory though the word used has been "shall". In order to support this submission, the assessee's counsel relied on the following decisions :

(i) Sudha Sharma v. ITO [1993] 46 TTJ 276 (Delhi).

(ii) Hamsons Industries v. ITO [1987] 23 ITD 364 (Hyd.).

(iii) J.B. Industrial Corpn. v. ITO [1986] 57 CTR (T) 6 (Chd.).

(iv) CIT v. Gujarat Oil & Allied Industries [1993] 201 ITR 325 (Guj.).

(v) Khandsari Udyog v. Khandsari Inspector [1992] Suppl. (2) SCC 473.

4. Regarding creation of export profit reserve in terms of proviso to sec. 80HHC, the assessee's counsel submitted that this is not also a mandatory requirement but only a directory and non-creation of this reserve was not so fatal so as to disentitle the assessee from making its claim u/s 80HHC. In accordance with the accounting principles and commercial practices, a reserve can be created only when there are profits and not when there are losses. In the instant case, the assessee has accumulated losses in respect of past years and if they are to be taken into account, creation of reserve in respect of export sales was not necessary at all. To rely on the submission, the assessee's counsel has relied upon the Board's Circular issued in relation to the claim for development rebate reserve. Our attention was also drawn to the memorandum explaining the provisions in the Finance Bill, 1990 which was brought in after the landmark judgment of the Supreme Court in the case of Shree Subhalaxmi Mills Ltd. v. Addl. CIT [1989] 177 ITR 193 making the retrospective amendment to sec. 32A regarding creation of reserve. However, the assessee's counsel submitted that in order to make sufficient compliance of the proviso to sec. 80HHC, the assessee created a reserve as is evident from page 44 of the assessee's paper-book.

4.1 Regarding the allowance of claim u/s 80HHC after the set-off of accumulated carry forward losses of earlier years, the assessee's counsel submitted that this view was erroneous and the deduction available u/s 80HHC or any deduction in Chapter VI-A can be given even prior to set-off of business losses. Yet assuming for a while, submitted further the assessee's counsel, whether deductions under Chapter VI-A have to be given prior to set-off of carried forward of losses or after set-off of carried forward accumulated losses is highly contentious and debatable issue making the matter wholly outside the scope of sec. 154 of the Act. To support this contention, the assessee's counsel has relied on the following given decisions :

(i) ITO v. Shalina Trading Co. P. Ltd. [1993] Bombay Chartered Accountants Journal 1062 (Short Note)

(ii) Expo Machinery Ltd. v. IAC [1989] 31 ITD 41 (Delhi)

Making further submissions, the assessee's counsel submitted that as per Board's Circular No. 14 (XL-35) of 1955 dated 11-4-1955, the Officers have been instructed not to take advantage of ignorance of assessees regarding their rights and that it shall be one of their duties to assist a taxpayer in every reasonable way, particularly in the matter of claiming and securing reliefs under the provisions of the Income-tax Act. According to the assessee's counsel, the Board was very considerate and liberal in regard to the reliefs and deductions which are available to any tax payer and, therefore, issued the Circular as far as back in 1955. The AO has wholly ignored the instructions contained in the said Circular dated 11-4-1955. Finally, it was contended that since all these issues involved in the present appeal were highly debatable and contentious having conceivably two opinions. the matter clearly got out of the clutches of sec. 154 and the AC ought to have allowed the appeal of the assessee by cancelling the order passed by the AO on 30th March, 1992. The D. R., on the other hand. relied on the orders of the lower authorities.

5. We find much force in the arguments of the assessee's counsel which were supported by necessary details and case laws which we have extracted above. Whether or not an audit report as required u/s 80HHC(4) has to be submitted along with return, whether an export profit reserve has to be created when there are no profits, either there being loss or due to carry forward of unabsorbed losses are of highly contentious and debatable issues and there can be conceivably two opinions in regard to them as can be seen from the various decisions of the Courts as well as of the Tribunal reliance on which has been placed by the assessee's counsel. The Hon'ble Supreme Court in the case of T.S. Balaram, ITO v. Volkart Bros. [1971] 82 ITR 50 have held "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 be conceivably two opinions. A decision on a debatable point of law is not a mistake apparent from the record". This has been elaborated by various High Courts as well as different Benches of the Tribunal in several cases. A mistake which requires to be rectified u/s 154 should be a very glaring and apparent mistake on record and not a mistake which can be found out and rectified through a long drawn process of debate and arguments which may also result in conceivably two opinions based on decision of Courts. As stated by us above, the issues involved are highly debatable and contentious and by no stretch of argument or imagination can they be called as mistakes apparent on record requiring any rectification in terms of the provisions of sec. 154 of the Act. We are, therefore, of the view that the AO has grossly erred in invoking his powers u/s 154 of the Act withdrawing the allowance granted to the assessee u/s 80HHC of the Act.

We, therefore, vacate the orders of both the lower authorities and allow the assessee's appeal.

Per Shri R.N. Singhal, Accountant Member--- I have had the benefit of reading the order proposed by my learned Brother - the Judicial Member - and then discussing the same with him. I regret my inability to agree with his views on one of the material aspects. I, therefore, proceed to write this separate order.

2. As lucidly brought out in the learned Judicial Member's order, the AO had allowed deduction u/s 80HHC in the original assessment order and in a subsequently passed order u/s 154, be withdrew the same. Merits apart, the main dispute was whether it was a case fit for invoking the provisions of sec. 154 which are limited to the rectification of mistakes apparent from record. I agree with my learned Brother - the Judicial Member - that on the aspects of non-submission of report u/s 80HHC (4) in Form No. 10CCAB and omission to create reserve cannot be covered by the provisions of sec. 154. This, however, leaves the aspect of sequence in which deduction u/s 80HHC should be allowed in the computation of total income. In the original assessment order u/s 143(3) dated 30-3-1989, the AO arrived at a figure of Rs. 9,33,069 and from there onwards the computation was as follows vide page 4 of the assessment order :---

"b/f. Rs. 9,33,069

Less : 80HHC claim as per para 9 Rs. 5,64,973

---------------------

Rs. 3,68,096

Less : Set of business loss :

1984-85 Rs. 2,82,528

1985-86 Rs. 67,110

1986-87 Rs. 18,458 Rs. 3,68,096

--------------------- ---------------------

Total Income Rs. Nil"

3. In the order u/s 154 dated 30th March, 1992, the corresponding computation after the said figure of Rs. 9,33,069 was as follows :---

"b/f. Rs. 9,33,069

Less : Set-off

1 . Business loss Rs. 3,76,081

2. Unabsorbed deprn. Rs. 3,83,677

3. Inv. allow. Rs. 1,187 Rs. 7,60,945

-------------------------------------------

Taxable Income Rs. 1,72,124 i.e. Rs. 1,72,120"

Thus, in the original assessment deduction u/s 80HHC in a sum of Rs. 5,64,973 was allowed first and from the resultant figure brought forward deficiencies of business loss, etc., were deducted. On the other hand, in the subsequently passed order u/s 154 brought forward deficiencies were deducted and the resultant figure was arrived at Rs. 1,72,120 in that order u/s 154. Since deduction u/s 80HHC was not at all allowed, the taxable income was determined at Rs. 1,72,124. However, it is important to note that if brought forward deficiencies of business loss and unabsorbed depreciation, etc., are to be deducted first then on the basis of figures extracted above, deduction u/s 80HHC will have to be restricted to a sum of Rs. 1,72,120 which is the gross total income arrived at in order u/s 154 against the corresponding figure of Rs. 5,64,973 adopted and deducted u /s 80HHC in the original assessment order dated 30th March, 1989. Thus, this aspect is quite material and involves quite a bit of tax effect. Next question of law is whether from the income for the relevant previous year (before deduction u/s 80HHC) brought forward deficiencies of business loss and unabsorbed depreciation, etc., should be deducted first and deduction u/s 80HHC should be restricted to the resultant figure or the sequence should be the other way round namely the deduction u/s 80HHC should be allowed first and the set-off of brought forward deficiencies of business loss and unabsorbed depreciation, etc., should be restricted to the resultant figure. It may be mentioned that in the first alternative the balance of deduction computed u/s 80HHC would lapse while in the second the whole or part of business deficiencies left out would be carried forward to subsequent year (s).

4. For resolving this issue, let us first have a look on the statutory provisions. It may be noted that sec. 80HHC comes under Chapter VI-A of the IT Act which bears the following heading :

"Deductions to be made in computing total income". It starts with sec. 80A. Sub-secs. (1) and (2) of that sec. are relevant and may be extracted as below:

"(1) In computing the total income of an assessee, there shall be allowed from his gross total income, in accordance with and subject to the provisions of this Chapter, the deductions specified in secs. 80C to [80U].

(2) The aggregate amount of the deductions under this Chapter shall not, in any case, exceed the gross total income of the assessee."

5. Next sec. in Chapter VI-A is 80B which gives definitions. Sub-sec. (5) of that sec. is relevant for us. It is as follows :---

"80B(5): 'gross total income' means the total income computed in accordance with the provisions of this Act, before making any deduction under this Chapter...."

6. Thus, sub-sec. (1) of sec. 80A says that deductions shall be allowed from the gross total income. Then sub-sec. (2) of sec. 80A says that the deductions of Chapter VI-A shall not exceed the gross total income of the assessee. Then sec. 80B(5) defines gross total Income. As the total income computed in accordance with the provisions of the IT Act but before making any deduction under Chapter VI-A. A combined reading of these three specific dictates of the statute should clearly mean that gross total income is to be computed after setting off of brought forward deficiencies of business loss and unabsorbed depreciation, etc. After such a set-off from the income of the previous year, if there is any positive figure left then deductions under Chapter VI-A should be allowed to that extent only even if the said deductions are otherwise computed at a higher figure. In the instant case, on the basis of figures extracted above, it is obvious that deduction u/s 80HHC which was computed at a figure of Rs. 5,64,973 has to be restricted to the resultant figure of gross total income of Rs. 1,72,120. A plain reading of the relevant statutory provisions makes this clear. Therefore, Assessing Officer's action of allowing (from the income of the relevant previous year) deduction u/s 80HHC first in the original assessment order was clearly a mistake apparent from record namely a mistake of law.

7. In spite of the clear-cut statutory provisions, some authorities - up to Tribunal's stage had in past held otherwise. Then came the High Court decisions. There are many of them. However, it is important to note that all of them are unanimous, i.e., upholding the proposition propounded in the immediately preceding para. Suffice it to note specifically five of those decisions in a chronological order (as regards reporting in the ITR) in a tabular form as follows :---

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S. No. Name of the case Citation Date A. Y. R.A. No. etc.

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1 2 3 4 5 6

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1. CIT v. Madras Motors (P.) Ltd. [1984] 150 ITR 150 (Mad.) 19-8 1983 1970-71 39 of 1977

2. CIT v. Mercantile Bank Ltd. [1988] 169 ITR 44 (Bom.) 17-3-1987 1969-70 399 of 1975 to 1370-71

3. CIT v. Rambal (P.) Ltd. [1988] 169 ITR 50 (Mad.) 19-10-1983 1970-71 1555 and 1556 of 1979

4. Murugappa & Sons v. CIT [1989] 178 ITR 410 (Mad.) 14-2-89 1972-73 285 of 1979

5. Kesoram Industries & Cotton Mills Ltd. v. CIT [1991] 191 ITR 518 (Cal.) 28-6-1989 1972-73 332 of 1979

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8. From a detailed analysis of the above-mentioned information in respect of these five decisions, the following aspects emerge :

(1) As already mentioned there is unanimity and actually not a single decision to the contrary of any High Court has been brought to our notice by the learned Advocate for the assessee Shri J.P. Shah and none is known to us otherwise also.

(2) The above-mentioned reported decisions are of Madras, Bombay and Calcutta High Courts in whose Jurisdiction many Income-tax matters arise for decision.

(3) Vide Column-6 above, the references were made in Seventies (i.e., 1975, 1977 & 1979 etc.).

(4) Broadly speaking : Earlier in point of time references were sought by the department and later on assessees had to seek references.

(5) Decisions were rendered vide column No. 4 in eighties (i.e., 1983, 1987 & 1989).

Note : There is a recently reported decision of the Hon'ble Calcutta High Court in CIT v. Bhoruaka Investment P. Ltd. [1992] 198 ITR 734 which on this point is in line with the other decisions cited above, but for the analysis recorded in para-8 it has been kept out. The reason is that in this decision main point was with regard to the quantum of dividend income whose 60 per cent should be taken for computing deduction u/s 80M rather than the point of sequence of deductions/adjustments which we are considering.

9. On the basis of analysis noted above, it is reasonably clear that up to 1975 or 1977, department had to seek references because Tribunal had taken a view against the department. Thereafter, in 1979 onwards assessees had to seek references because the Tribunal took a view against the assessees. At any rate, by late eighties (i.e., 1989) the position of law on the specific point became reasonably settled; i.e., against the assessee. So, when the AO in this case passed order u/s 154 did. 30th March, 1992, the position of law was settled. A view taken to the contrary in the original assessment order dated 30th March, 1989, in this view of the matter, constituted a mistake of law apparent from record.

10. I may now refer to the two decisions on this point cited by the learned Advocate for the assessee. They are as follows :---

(i) Shalina Trading Co. P. Ltd.'s case

(ii) Expo Machinery Ltd.'s case

In respect of case at (i) above, the learned Advocate has furnished a typed copy of the Bombay Chartered Accountants Journal, March 1993, pages 1062-63 which gives the gist (and not the text) of the decision, i.e., the decision of the Tribunal rendered on 11-4-1991 and on this point the only thing stated therein is as follows :

"For the assessment year 1985-86, the Tribunal noted that the question was already decided by certain earlier Tribunal decisions, and, accordingly, the Tribunal, following those earlier decisions and also keeping in view the CBDT circular on the point. upheld the order of the CIT(A) on this point also."

Thus, the full reasoning of the Tribunal's decision in that case is not available and the only information available is that the Tribunal therein relied on some earlier decisions of the Tribunal. Obviously, the five unanimous decisions of three different High Courts taking a contrary view had been reported in the I.T.R. from 1984 to 1989, but none of them was perhaps brought to the notice of the Tribunal Bench which decided the case otherwise on 11-4-1991. Existence of that decision of the Tribunal cannot be regarded as unsettling a law point which stood settled (as inferred in para-9 above) by 1989.

11. The learned Advocate's reliance on the decision at S. No. (ii) above, in Expo Machinery Ltd.'s case is totally misplaced. That decision was in regard to the quantification of relief u/s 80HHC rather than the aspect of sequence of deductions/adjustments to be allowed.

12. I am, therefore, of the opinion that by the year 1989 also the law point stood settled against the assessee. Therefore, there was a mistake apparent from record in the original assessment order of the AO on this point of sequence for deductions/adjustments to be made and to this limited extent he had jurisdiction to rectify u/s 154 the original order dated 30th March, 1989. In this view of the matter and on the basis of facts and figures extracted in paras-2 & 3 of my order (on pages 8 & 9) relief u/s 80HHC should be restricted to Rs. 1,72,120. However, I should hasten to add that this figure of Rs.1,72,120 is indicated hereinabove primarily to identify the figure rather than give it as a final figure. Obviously, if there have been certain other adjustments in the meantime for some other reasons the figure would stand modified appropriately, but the principle would be the same.

13. On this basis, in my opinion, assessee's appeal should be partly allowed.

Statement u/s 255(4) arising From ITA No. 187/AHD/1983 - Asst. Year 1988-89

A difference of opinion having emerged between the Accountant Member and the Judicial Member who originally heard the appeal ; we hereby state the points on which we differ and refer the matter to the President of the Income-tax Appellate Tribunal for further appropriate action at his end. The points involved are as follows :---

" 1. Whether there existed a mistake apparent from record in terms of sec. 154 of the I.T. Act in the original assessment order dated 30th March, 1989 wherein the AO deducted from the current year's income relief u/s 80HHC first and then against the balance adjusted the brought forward business loss ?

2. Whether, on the facts and in the circumstances of the case, order passed u/s 154 of the I.T. Act can be partially upheld, if there is a debate on two out of three counts on a single issue; namely assessee's claim u/s 80HHC which is the subject-matter of proceedings u/s 154 of the Act ?"

ORDER

Per Jordan Kachchap, Judicial Member --- In conformity with the opinion of the Third Member dated 25-1-1995 and in accordance with the majority view, the assessee's appeal is partly allowed.

OPINION OF THIRD MEMBER

Consequent upon the difference in opinion between the learned Members of the Bench on certain points In this appeal, the following questions have been referred u/s 255(4) of the Income-tax Act, 1961 ('the Act') by the President of the Tribunal to me for my opinion as the Third Member in the case:

"1. Whether there existed a mistake apparent from record in terms of sec. 154 of the IT Act in the original assessment order dated 30th March, 1989 wherein the AO deducted from the current year's income relief u/s 80HHC first and then against the balance adjusted the brought forward business loss ?

2. Facts leading to the reference may be briefly stated as under :---

The assessee is a closely held Indian Company engaged in the business of export out of India of processed fish and other fish products. It returned Its income at Nil for the year under consideration. While computing its total income at Nil figure by his order under section 143(3) of the Act dated 30-3-1989, the Assessing Officer (AO) allowed deduction u/s 80HHC of whole of assessee's income at Rs. 5,64,973 derived by it from the export of its goods at Rs. 1,39,04,190 in the following

manner :---

Net profit as per P & L A/c. Rs. 5,97,676

Add : Disallowables as per statement + Rs. 3,95,159

-------------------------------

Rs. 9,92,835

Add: Further disallowables + Rs. 3,12,545

-------------------------------

Rs. 13,05,380

Less : Depreciation - Rs. 3,72,311

-------------------------------

Rs. 9,33,069

Less : 80HHC claim - Rs. 5,64,973

-------------------------------

Rs. 3,68,096

Less : Set-off of business losses of A.Y. 1984-85 to A.Y. 1986-87 - Rs. 3,68,096

-------------------------------

Total Income ... Nil

-------------------------------

3. Subsequently the AO on verification of the facts noticed certain mistakes in his order necessitating rectification u/s 154 of the Act. He was of the view that deduction u/s 80HHC had wrongly been allowed to the assessee-company for the following reasons :---

(i) Non-furnishing of audit report in Form No. 10CCAC,

(ii) Non-creation of export reserve, and

(iii) allowance of deduction u/s 80HHC before making set-off of losses of earlier years.

4. The AO accordingly issued a notice u/s 154(3) to the assessee-company requiring it to show cause against the proposed action. The assessee-company appears to have opposed the proposed action of the AO on the grounds (i) that the audit report was filed in Form No. 3CD, which was applicable to the assessee, (ii) that non-creation of the export reserve in the year of loss would not disentitle it to deduction u/s 80HHC and (iii) that deduction u/s 80HHC was rightly allowed before setting off the losses of earlier years. The AO did not accept the explanation offered by the assessee-company and held that there existed a mistake apparent from record in his order dated 30-3-1989 and such mistake was rectifiable u/s 154 of the Act. Therefore, with a view to rectify such mistake he modified his order dated 30-3-1989 in the following manner vide his subsequent order dated 30-3-1992 :---

Total income as per assessment order

dated 30-3-1989 after all disallowances Rs. 13,05,380

Less : Depreciation Rs. 3,72,311

--------------------------------

Rs. 9,33,069

Less Set-off

1. Business loss Rs. 3,76,081

2. Unabsorbed depreciation Rs. 3,83,677

3. Investment allowance Rs. 1,187 Rs. 7,60,945

---------------------------- -------------------------------

Taxable income Rs. 1,72,124

i.e., Rs. 1,72,120

----------------------------------

5. In appeal, the learned CIT (Appeals), Rajkot upheld the order of the AO on all the three points.

6. In second appeal the assessee-company filed before the Tribunal a paper book containing 44 pages which included inter alia audit report u/s 44AB, Chartered Accountant's report u/s 80HHC(4) in Form No. 10CCAB and copy of export profits reserve account at page 44. Placing reliance on certain decisions it was urged on behalf of the assessee-company that the provisions of sec. 80HHC were not mandatory but directory in so far as the non-furnishing of the audit report along with the return and omission to create the export profits reserve account were concerned. Regarding the sequence for deductions/adjustments to be made in the computation of the total income with reference to see. 80HHC it was submitted that the said matter was highly contentious and debatable and going outside the scope of sec. 154 of the Act. In this behalf reliance was placed on the following decisions, viz.

(i) Shalina Trading Co. P. Ltd.'s case

(ii) Expo Machinery Ltd.'s case

Reference to CBDT Circular No. 14 (XL 35) of 1955 dated 11-4-1955 instructing the officers of the Department not to take advantage of ignorance of the assessees regarding their rights to reliefs under the Act was also made.

7. On the facts placed and arguments advanced before the Tribunal the learned Judicial Member took the view that the issues involved in the case are highly debatable and contentious and by no stretch of arguments or imaginations can they be called as mistakes apparent from record requiring any rectification in terms of the provisions of sec. 154 of the Act and that the AO has grossly erred in invoking his powers u/s 154 and withdrawing the allowance granted to the assessee u/s 80HHC of the Act. In this behalf the learned Judicial Member relied upon the Supreme Court decision in the case of T. S. Balaram's case . He therefore, proposed to vacate the orders of the lower authorities and allow assessee's appeal

8. The learned Accountant Member agreed with the learned Judicial Member that the aspects of non-submission of report u/s 80HHC(4) in Form No. 10CCAB and omission to create export profits reserve account cannot be covered by the provisions of sec. 154. But in so far as the aspect of sequence, in which deduction u/s 80HHC should be allowed in the computation of the total income, was concerned the learned Accountant Member did not agree with the learned Judicial Member that the point involved therein was highly contentious or debatable. He examined the relevant provisions of sees. 80A, 80B(5) and 80HHC as also certain cases of Bombay, Calcutta and Madras High Courts and came to the conclusion that by the time the original assessment was made in this case the position was well-settled that the gross total income is to be computed after setting off of the brought forward deficiencies of business loss and unabsorbed depreciation etc. and after such set-off from the income of the previous year if there is any positive figure left then deduction under Chapter VI-A should be allowed to that extent only even if the said deductions are otherwise computed at a higher figure. He, therefore, held that in the instant case, deduction u/s 80HHC was wrongly granted at Rs. 5,64,973 in the original assessment order and the same was required to be restricted to Rs. 1,72,120 or any other final figure, if there had been certain other adjustments in the meantime for some other reasons. In arriving at his conclusion the learned Accountant Member critically examined the two cases, referred to by the learned Judicial Member in his proposed order, and held that not only that one of them did not furnish the required information regarding the reasoning adopted but also that the other was not at all on the issue involved in the present appeal. The learned Accountant Member thus proposed that the appeal of the assessee should be partly allowed.

9. I heard the learned counsels for the parties at sufficient length and perused the material on record and the law applicable thereto.

10. Mr. J.P. Shah, the learned counsel for the assessee-company vehemently urged that the question as to whether from the income for the relevant previous year (before deduction u/s 80HHC) brought forward deficiencies of business loss and unabsorbed depreciation, etc. should be restricted to the resultant figure or the sequence should be other way round namely the deduction u/s 80HHC should be allowed first and the set-off of brought forward deficiencies of business loss and unabsorbed depreciation, etc. should be restricted to the resultant figure, has all along been a highly debatable question and as such goes beyond the scope of sec. 154 of the Act. The learned counsel further submitted that the cases referred to by the learned Accountant Member in his proposed order were not directly on the issue of deduction u/s 80HHC and therefore, not much helpful in deciding the issue involved in this appeal. That apart Special Leave Petitions, urged the learned counsel, stand granted against majority of them. The learned counsel referred to the following decisions of the Tribunal to stress that at times the Tribunal had taken views favouring the assessee and the debate on the point is still going on :---

(i) Chettinad Agencies (P.) Ltd. v. ITO [1993] 44 ITD 243 (Mad.)

(ii) Prashant Khosla Pneumatics Ltd. v. ITO [1992] 44 TTJ (Delhi) 162.

(iii) Beta Naphthol P. Ltd. v. Dy. CIT [1994] 50 TTJ (Ind.) 375.

(iv) CIT v. Sea Hawk (I) (P.) Ltd. [1 994] 75 Taxman 381 (Cal.).

11. The learned counsel further submitted that the learned Accountant Member dealt with a point which was not involved in the appeal and while doing so the learned Member simply held that by late eightees (i.e., 1989) the position of law in the specific point became 'reasonably' settled against the assessee. It was submitted that in view of the fact that the learned Accountant Member had agreed with the learned Judicial Member on the character of the two aspects of the point relating to non-furnishing of auditor's report and omission to create export profits reserve as being quite debatable, the learned Accountant Member should have also held that the third aspect of the point relating to the sequence in which deduction u/s 80HHC should be allowed in the computation of total income was also highly contentious and debatable as was held by the learned Judicial Member.

12. The learned D.R., on the other hand, fully supported the proposed order of the learned Accountant Member and further submitted that the Assessing Officer, while making the assessment order on 30-3-1989 had totally misread the provisions contained in Chapter VI-A and his such misreading of the relevant provisions of law had left in his order mistakes apparent from record rectifiable u/s 154. He further submitted that as per scheme of Chapter VI-A deduction u/s 80HHC is required to be allowed after setting off of the brought forward deficiencies of business loss and unabsorbed depreciation, etc., as was rightly done by the AO in his order u/s 154 and his action was rightly approved by the learned Accountant Member. The learned D.R., in support of his contentions, relied upon the following cases :---

(i) M.K. Venkatachalam, ITO v. Bombay Dyeing & Mfg. Co. Ltd. [1958] 34 ITR 143 (SC).

(ii) Surat Textile Mills Ltd. v. CIT [1971] 80 ITR 1 (Guj.).

(iii) CIT v. Sundaram Textiles Ltd. [1984] 149 ITR 525 (Mad.).

(iv) CIT v. Bengal Assam Steamship Co. Ltd. [1985] 155 ITR 26 (Cal.).

(v) CIT v. Quilon Marine Produce Co. [1986] 157 ITR 448 (Ker.).

(vi) Warner Lambert Co. v. CIT [1994] 205 ITR 395 (Bom.).

13. After having given thoughtful consideration to the issue before me. I entertain no doubt that the order of the Assessing Officer, as passed on 30-3-1989 did suffer from such mistake, which was apparent from record and hence rectifiable u/s 154 of the Act.

14. It needs no stress that sec. 154 of the Act empowers an income-tax authority, referred to in sec. 116, to modify any order passed by such authority under the Act. But such modification is to be made with a view to rectifying any mistake which is apparent from record. As held by the apex Court in the case of T.S. Balaram it is not each and every mistake which may fall for rectification by recourse to action u/s 154. The mistake whether it be of law or of fact must be apparent from record. As observed by their Lordships "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. A decision on a point of law is not a mistake apparent from the record". A mistake which, in order to be established, requires a debate and such debate may lead to two possibly reasonable views, would not be rectifiable within the limited scope of sec. 154. If such mistake has resulted in under-assessment of the income of the assessee or is otherwise erroneous and prejudicial to the interest of Revenue it may form the subject-matter of reassessment u/s 147/148 or revision u/s 263, as the case may be, but not rectifiable u/s 154 of the Act.

15. In the instant case, the AO noticed the mistake of wrongful allowance of deduction u/s 80HHC. He viewed that mistake from three different aspects namely that (i) the audit report in Form No. 10CCAB was not furnished along with the return, (ii) export profit refer was not created and (iii) wrong sequence for grant of deduction u/s 80HHC had been employed in computation of the total income. In so far as the first two aspects of the said mistake were concerned. those were in fact of the nature of procedural defects removable by the assessee on opportunity being given to it and thus to be cared or to be ignored by the AO or the defect to be condoned by him. On those two aspects there could have been the possibility of two different opinions and therefore, not rectifiable or to say more correctly not necessitating rectification at a later stage by recourse to action u/s 154. On that nature of the two aspects of the said mistake, both the learned Members of the Bench have agreed and that point does not remain for any consideration by me.

16. In so far as the third, and in fact the main aspect of the mistake is concerned, the position of law on that was, in my opinion, well settled in favour of the Department, as has been opined by the learned Accountant Member. A study of the provisions of sees. 80A, 80B(5) and 80HHC, the relevant parts of which have been reproduced by the learned Accountant Member in his order and the cases referred to by him and I see no necessity to reproduce them once again, makes It quite clear that in computing the total income of an assessee deductions specified in sees. 80C to 80U shall be allowed from the "gross total income" and such deduction shall not exceed the gross total income. Gross total income, as defined in sec. 80B(5) would be as computed in accordance with the provisions of the Act, before making any deduction under Chapter VI-A of the Act. The mandate contained in secs. 80A and 80B(5) clearly requires that the gross total income is to be computed after setting off of the brought forward deficiencies of business loss and unabsorbed depreciation, etc. This is the first step to be taken in order to compute the "total income" for the purpose of allowing deductions specified in sees. 80C to 80U of Chapter VI-A. The second step would then be to allow deduction under Chapter VI-A from the resultant positive income of the previous year if any, which is left after setoff of the aforesaid deficiencies of business loss and unabsorbed depreciation, etc.

17. In the instant case the AO had not adopted the sequence for allowing the deduction u/s 80HHC to the assessee-company. He had allowed deduction u/s 80HHC before deducting the brought forward losses of earlier years in the computation of the gross total income of the assessee-company for the previous year. Such working of the deduction, allowable u/s 80HHC, adopted by him in his order dated 30-3-1989, was clearly contrary to the express provisions of law and constituted an obvious mistake, apparent from record, in his order. Such mistake was certainly rectifiable u/s 154 of the Act.

18. Now, so far as the assessee's argument that the mistake in question was quite debatable and hence beyond rectification u/s 154 is concerned, I find no substance in it. It is true that the Tribunal appears to have taken a view, different from that expressed above, in a number of its decisions. But as observed by the learned Accountant Member, the various High Courts had unanimously held the view as expressed by me in the preceding paragraph. In the cases cited by the learned Accountant Member the unanimous view taken was that in arriving at the total income of the assessee for granting deductions under Chapter VI-A of the Act, the computation of gross total income was required to be made after making set-off of the losses of earlier years. It is of no significance that such cases did not involve the provisions of sec. 80HHC directly. What was material for the application of the ratio of such decisions was that they laid down the sequence for the working and allowability of the deductions contemplated by Chapter VI-A of the Act. And sec. 80HHC fell within the scope of the ratio decidendi of such decisions. It is noteworthy that no decision of any High Court wherein a view contrary to that taken in the cases cited by the learned Accountant Member, was brought to the notice of either the learned Members or of me. In that view of the matter the opinion held by various Benches of the Tribunal contrary to that of the unanimous view of several High Courts on that point cannot be claimed to be making a debatable issue.

19. In the case of CIT v. Smt. Godavari Devi Saraf [1978] 113 ITR 589, the Bombay High Court observed that an authority like Tribunal, acting anywhere in the country, has to respect the law laid down by the High Court in the country, though of different State, so long as there is no contrary decision of any other High Court on that question. On the same analogy the Gujarat High Court held in the case of CIT v. Sarabhai Sons Ltd. [1983] 143 ITR 473 that view held by other High Courts are required to be given due respect and followed in order to maintain a uniform policy in income-tax matters. The same High Court reiterated the same principle in a subsequent decision in the case of CIT v. Sarabhai Sons P. Ltd. [1993] 204 ITR 728 (Guj.) wherein it was observed that the Income-tax Act is an all India statute and it is desirable in the interest of uniformity that one High Court should follow the decision of another High Court. In fact in the administration of tax justify the institution of the Tribunal is subordinate to that of a High Court in the hierarchical set up of judicial institutions and therefore, it is all the more necessary that the Tribunal should follow the decisions of any High Court on a particular point, more so when there is no decision contrary to that required to be followed.

20. The above discussion leaves me in no doubt that since there was no view contrary to that of the three High Courts on the point, as pointed out by the learned Accountant Member, it was not open to the learned Judicial Member to hold that the issue involved in the rectification proceedings before the AO was highly contentious and debatable. The view, being the sole view on the point, was quite settled and a decision taken by the AO in his original assessment order was contrary to such view. There was thus obvious mistake apparent from record, in his said order and was required to be rectified by action u/s 154 which the AO rightly did. The only fact that the Special Leave Petitions against the relevant orders of the High Courts had been admitted for hearing in the Supreme Court does not mitigate against the settled position of law at the relevant time. The admission of the SLP itself does not justify the argument that another view of the matter was possible at that point of time and therefore the issue was debatable.

21. I am also not impressed with the argument that the issue regarding the sequence for allowability of deduction u/s 80HHC was not there before the learned Judicial Member and therefore the order of the learned Accountant Member was in respect of a non-issue. The issue was in fact the only issue before the two learned Members of the Bench and they decided the same in their own ways.

22. To sum up the discussion I hold that there existed a mistake, apparent from record, in the assessment order dated 30-3-1989 and the same was rectifiable u/s 154 of the Act and was rightly rectified by the AO by modifying his earlier order. This answers question No. 1 as referred to me.

23. On the second question, I am of the opinion that the two aspects of the mistake, as pointed out above, were quite Independent of and separate from the third one. They differed from each other in their nature and results. The first two were in fact of the character of curable defects likely to be Ignored or condoned by the AO without affecting the nature and effect of the third aspect. Even after holding that the two aspects relating to the non-furnishing of the audit report along with the return and omission to create export profit reserve did not make the subject of action u/s 154, it was open for the learned Accountant Member to hold that the third aspect regarding the sequence for computing the total income for the purpose of grant of deduction u/s 80HHC made a mistake apparent from record and hence rectifiable u/s 154 of the Act. This answers the second question.

24. Let the record of the case be put before the Bench, deciding the appeal, for further orders according to law.

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