I.T.A. No.3757/Mum/2010

Shri Vijay Pal Rao, JM And Shri D. Karunakara Rao, AM,JJ.

Shri Dinesh Vyas For the Appellant :
Shri A. P. Singh For the Respondent :

ORDER

This appeal by the assessee is directed against the order dated 11.2.2010 of the Commissioner of Income Tax(Appeals) arising from the order passed u/s 154 dated 28.7.2008 for the Assessment Year 1997-98.

2. The assessee has raised the following grounds in this appeal.

1. On the facts and circumstances of the case and in law, the CIT(A) has erred in rejecting the plea of the Appellant that the rectification order dated July 28, 2008 passed by the learned Assessing Officer is barred by limitation of time under section 154(7) and is thus without jurisdiction, invalid and bad in law.

2. On the facts and circumstances of the case and in law, the CIT(A) has erred in rejecting the plea of the Appellant that the learned Assessing Officer erred in assuming the jurisdiction under section 154 in respect of a debatable issue.

3. On the facts and circumstances of the case and in law, the CIT(A) has erred in not directing the learned Assessing Officer to grant interest u/s 244A on 'refund' due, in accordance with the law.

4. On the facts and circumstances of the case and in law, the CIT(A) has erred in not accepting the plea of the Appellant that the additional interest of Rs 1.14 crores levied under section 220(2) is unlawful and/or excessive since the same is computed after excluding the interest granted u/s 244A.
3. The brief facts leading to controversy are that the assessment order u/s 143(3) was passed on 27th March 2000 whereby the Assessing Officer raised a demand of Rs. 368.28 crores. The assessee challenged the assessment order dated 27.3.2000 before the Commissioner of Income Tax(Appeals). In the meantime the Assessing Officer adjusted the refund due to the assessee for the Assessment Year 2000-01 of Rs. 91.96 crores in Dec 2000 and for the Assessment Year 1995-96 of Rs. 191.35 crores in Jan 2001. The appeal of the assessee was decided by the Commissioner of Income Tax (Appeals) vide order dated 7.3.2003. The Assessing Officer passed the order giving effect to the Commissioner of Income Tax(Appeals) order on 3.4.2003, according to which the tax liability of the assessee with interest was determined at Rs. 35.29 crores. Since the Assessing Officer has already adjusted the refund for the Assessment Year 2000-01 of Rs. 91.96 crores; therefore, there was an excess adjustment to the extent of Rs. 56.67 crores retained by the department, which was retained and refunded at the time of passing the order giving effect to the Commissioner of Income Tax(Appeals) order in April 2003. The Assessing Officer has also granted interest of Rs. 12.16 crores u/s 244A(1)(b) of the I T Act to the assessee.

3.1 Apart from this, the Assessing Officer has also granted refund of Rs. 191.35 crores adjusted in Jan 2001 along with the interest of Rs. 38.91 crores u/s 244A(1)(b) of the Act, though there is no dispute in respect of the said refund and interest.

3.2 The tax liability of Rs. 35.29 crores determined by the Assessing Officer while passing the order giving effect to the Commissioner of Income Tax(Appeals) order after charging the additional tax of Rs..31 lacs. The assessee filed a rectification petition u/s 154 on which the Assessing Officer passed an order dated 2.7.2007 and accepted the claim of the assessee that the additional tax was not chargeable. Accordingly, the demand was reduced to Rs. 34.43 crores. Consequently, the interest payable u/s 244A(1)(b) was revised to Rs. 12.27 crores from Rs. 12.16 crores.

3.3 In the month of Jan 2008, the audit party raised an audit objection regarding the grand and calculation of interest u/s 244A(1)(b) on the refund amount of Rs. 57,53,10,029/-, which includes interest of Rs. 9,52,06,230/-. The audit party thus raised the objection that while calculating the interest for the period from 1.4.1997 to 31.3.1998, the Assessing Officer considered the tax refund as well as interest whereas the interest was to be worked out only on the refund of tax. In pursuant to the audit objection, the Assessing Officer proposed to modify the order u/s 154 by issuing an notice dated 10.3.2008 whereby the entitlement of the interest due to the assessee was proposed to reduced to Rs. 9.99 crores instead of Rs.. 12.27 crores. The assessee objected to the show cause notice vide letter dated 11.3.2008. The Assessing Officer passed the impugned order u/s 154 whereby the interest granted u/s 244A(1)(b) was revised and thereby the amount of Rs. 2,03,10,663/- was held as granted in excess to the assessee.

3.4 On appeal, the Commissioner of Income Tax(Appeals) held that neither the interest charged u/s 234B of the Act nor granting of interest u/s 244A have been correctly done by the Assessing Officer. Accordingly, the Assessing Officer was directed to adopt the principles as enumerated and suggested by the Commissioner of Income Tax(Appeals) for calculating the interest.

4. First we take up the ground no.2 regarding jurisdiction of the Assessing Officer u/s 154 of the Act in respect of the debatable issue. Shri Dinesh Vyas, the ld Sr counsel for the assessee has contended that rectification u/s 154 can be only for an obvious and patent mistake and not something which can be established by a long drawn process of reasoning or/on points on which there may be conceivably be two opinions. The ld Sr counsel has submitted that grant of interest on the composite amount of refund plus interest on particular date is an allowable claim in view of various decisions of the Hon'ble Supreme Court as well as the High Courts. He has relied upon the following decisions:-

i) ACIT vs Tata Power Co Ltd (ITA No. 6863/M/2011(Mum)(Trib)
ii) CIT vs HEG Ltd - 324 ITR 331 (SC)(LB)
iii) CIT vs Narendra Doshi - 254 ITR 606 (SC)
iv) Sandvik Asia Ltd vs CIT &Ors - 280 ITR 643 (SC)
v) Lohia Starlinger Ltd vs CIT - 209 Taxman 484 (All)
vi) Eternit Everest Ltd vs DCIT - 12 SOT 40 (Mum)
vii) Abu Dhabi Comml Bank Ltd v ADIT(Int) Taxn) - 78 DTR 234 (Mum)
viii) CIT vs Goodyear India Ltd - 249 ITR 527 (Del)

4.1 Thus, the ld Sr counsel for the assessee has contended that when the interest on interest is permitted and allowable claim in view of series of decisions, then the said issue cannot be decided u/s 154 of the Act. Since this point involves interpretation of law as well as a debatable issue which cannot be a subject matter of rectification u/s 154 of the Act.

4.2 He has forcefully argued that section 154 mainly enables the rectification of the mistakes which are absolute objective in nature and in which there are no two view possible. The point of grant of interest on interest u/s 244A(1)(b) is a highly debatable and controversial issue and has been decided in favour of the assessee by the Hon'ble Supreme Court in various decisions. Thus, the ld Sr counsel has submitted that the Assessing Officer has gone beyond his jurisdiction u/s 154 while passing the impugned order whereby the interest granted u/s 244A (1)(b) has been withdrawn on the basis of audit objection.

4.3 On the other hand, the ld DR has relied upon the orders of the authorities below and submitted that the Assessing Officer did not apply his mind at the time of granting the interest u/s 244A(1)(b) and when the audit party has pointed out a mistake in the calculation of the working of interest, the Assessing Officer accordingly, rectified the said mistake. Thus, the rectification of the mistake in the calculation of the interest is very much an error apparent within a subject matter of sec. 154.

5 We have considered the rival submissions and carefully perused the relevant material on record. As we have discussed above while narrating the facts leading to the controversy, the issue in the order passed u/s 154, is regarding the grant of interest u/s 244A(1)(b). The audit party has raised the objection in respect of grant of excess interest is as under:-

"On going through the tax calculation, it is sent hat the interest u/s 244A(1)(b) is calculated on interest u/s 244A of Rs.. 9,52,06,230/- 9,52,06,230/- calculated for the period 1.4.1997 to 31.3.1998 which is explained as under:-

5.1 It is evident from the objection raised by the audit party that originally the Assessing Officer calculated the interest u/s 244A(1)(b) on a sum of Rs. 57,53,10,029/ which includes a sum of Rs. 9,52,06,230/- as interest component. The audit part was of the view that interest for the period 1.4..1997 to 31.3.1998 should have been calculated only on the refunded tax amount exclusive of interest and there after excluding a sum of Rs. 9,52,06,230/-, the interest should have been granted on Rs. 48,01,03,799.-. Therefore, the audit party arrived at to the conclusion that there is a revenue loss of Rs. 2,03,10,663/-. The Assessing Officer issued show cause notice u/s 154 for rectifying the mistake in relation to excess grant of interest u/s 244A(1)(b) amounting to Rs.2,03,10,663/- and passed the impugned order u/s 154 as under:-

"ORDER UNDER SECTION 154 OF THE I T ACT, 1961
In this case, an order u/s 154 was passed on 2.7.2007 whereby a refund of Rs. 97,50,733/- was determined. Thereafter, an audit objection was raised vide Audit Memo no.11/2007-08 dtd 9.1.2008, stating that interest u/s 244A(1)(b) amounting to Rs. 2,03,10,663/- was granted in excess to the assessee.

On verification of records, the objection raised was found to be correct and the same is now being settled vide this rectification.
Total income remains the same at Rs. 75,23,56,887/-

Issue revised DB./Challan
Sd/-
PREMANAND. J
Asst Commissioner of Income tax 1(3)
Mumbai "

5.2 The assessee has raised the objection vide its letter dated 11.3.2008 against the proposed revision of grant of interest u/s 244A(1)(b) by invoking the provisions of sec 154 of the Act. The assessee has raised the issue of jurisdiction of the Assessing Officer on the ground that this point is highly debatable and involved interpretation of law. Therefore, it was contended that the Assessing Officer has exceeded his jurisdiction u/s 154 to deicide such a debatable issue involving interpretation of law and further when the issue of interest on interest has been decided by the Hon'ble Supreme Court as well as various High Courts in favour of the assessee. In support of his contention, the decisions as relied before us were also referred and relied in the said letter dated 11.3.2008.

6. It is settled proposition of law that a mistake apparent from the record must be an obvious and patent mistake and not something which can be established by long drawn process of reasoning can be rectified u/s 154. Decision on a debatable point of law is not a mistake apparent from the record. Merely overlooking of certain facts or mandatory provisions of law which does not allow any discretion to the taxing authorities is a mistake apparent from the record. But a decision on a debatable point of law or when the law confers on the taxing authority a discretion, then such discretion cannot be corrected under the provisions of sec. 154 of the Act. Thus, a mistake cannot be rectified u/s 154 of the Act when there is a debatable point of fact or law.

7 In the case of HEG Ltd, (supra), the Hon'ble Supreme Court has held that interest component in the refund will partake the character of 'amount due' u/s 244A, it became an integral part of the refund amount which is not paid after the said amount become due and payable.

7.1 Similarly, in the case of Sandvik Asia Ltd (supra), the Hon'ble Supreme Court has held that once the interest became due it takes the same colour as the excess amount of tax which is refundable on regular assessment.

8. In view of the series of decisions of the Hon'ble Supreme Courts as well as Hon'ble High Courts, the issue of grant of interest on interest is a highly debatable and rather allowable claim in favour of the assessee. Therefore, a decision on such a debatable issue cannot be passed under the provisions of sec. 154 of the Act. Accordingly, we set aside the impugned order passed u/s 154 being beyond jurisdiction of the Assessing Officer in the peculiar facts and circumstances of the case.
9 Since the order passed u/s 154 has been set aside; therefore, the other issues raised by the assessee have become otiose and academic in nature.

10 Even otherwise, the ld Sr counsel for the assessee has stated that if the issue of jurisdiction is decided in favour of the assessee, then in that case, the assessee would not press the other grounds. Accordingly, the other grounds of appeal of the assessee are dismissed as become otiose.

11 In the result, the appeal of the assessee is allowed.