COMMISSIONER OF INCOME TAX Vs. SUNDARAM TEXTILES LIMITED

JUDGEMENT

(1.) AT the instance of the Revenue, the following common question of law has been referred to this court for its opinion with reference to six assessment orders :

(2.) THE assessee is a limited company carrying on the business of manufacture of cotton yarn. THE assessee commenced production on February 1, 1963. Prior to this date for a period of about 14 months, the construction of the mill buildings and the installation of the machinery were being done. THE expenditure on that account was incurred to the tune of about lakh and a half rupees. Since only a portion of the aforesaid amount represented direct expenses connected with the acquisition of certain fixed assets, the balance which could not be related to specific items, was allocated among all the assets in proportion to their direct cost and depreciation and development rebate claimed and allowed and originally on the basis of the cost determined in the above manner of assessment years 1963-64, 1964-65 and 1965-66. Later, however, the ITO felt that expenses aggregating to Rs. 1,01,654 could not be viewed as constitutive elements of the actual cost of the depreciable assets. He, therefore, initiated reassessment proceeding for the said assessment years to recompute the allowance by way of depreciation and development rebate. THE ITO calculated the allowance on the basis of the figure of actual cost, from which the portions added on account of indirect expenditure were eliminated. the assessment for the years, namely, 1963-64 to 1968-69, were taken on appeal by the assessee before the AAC, in those appeals, the common contention put forward by the assessee before the AAC. In those appeals, the common contention put forward by the assessee related to the non-capitalisation of Rs. 1,01,654 and the consequent disallowance of depreciation and development rebate. THE assessee also objected to the legality of the reassessment proceedings under s. 147 of the Act for the assessment years 1969, rejected the contention of the assessee regarding the validity of the proceeding under s. 147 of the Act for the assessment years 1963-64 to 1965-66. As regards the propriety of excluding the indirect charge from the actual cost of the fixed assets, the AAC held that the bulk of the amount was rightly capitalised by the assessee-company. He therefore, directed the ITO recompute the allowances by way of depreciation and development rebate due to the company for the said years distributing the sum of Rs. 96,136 after excluding the sums of Rs. 2,000 and Rs. 3,518 among the fixed assets. THE AAC also went into the other contentions raised before him regarding the non-allowance of development rebate under s. 80J of the Act. Finally, he directed the ITO to redetermine the allowance due to the company by way of depreciation and development a rebate for all the six years in appeal before him in accordance with his findings. Consequently, the ITO passed orders on March 12, 1970, giving effect to the said order of the AAC for the assessment years 1964-65 to 1968-69 in and by which he allowed extras-shift allowance on electrical machinery as claimed by the assessee. Later, the succeeding ITO by his orders dated October 26, 1971, purporting to exercise jurisdiction under s. 154 of the I.T. Act, revised the assessment for the years 1964-65 to 1968-89 on the ground that there was a mistake apparent from the record, that the earlier ITO had granted relief by way of extra-shift allowance on electrical machinery, about which the order of the AAC was silent and, therefore, the consequential orders passed by the earlier ITO on March 12, 1970, granting extra-shift allowance, had to be withdrawn. As against the said orders of the ITO dated October 26, 1971, passed under s. 154 of the I.T. Act, appeals were filed before the AAC but without success. THEreafter, the assessee filed appeals before the Income-tax Appellate Tribunal, contending that the order passed by the ITO, consequent to the order passed by the AAC, cannot be the subject-matter of the revocation under s. 154, that the only remedy open to the Revenue is to file an appeal, if it is aggrieved by the order of the AAC, and in any event the question whether the assessee is entitled to get extra-shift allowance on electrical machinery is a debatable point and in such case, the revocation under s. 154 of the I.T. Act cannot be resorted to. THE Tribunal has chosen to accept the said contention of the assessee and has held that thought the order of the AAC is silent on the relief claimed by the assessee for extra-shift allowance, the order of the AAC having been understood by the ITO, as granting such relief, the only remedy open to the Revenue is to go on appeal before the Tribunal. THE Tribunal has also proceeded on the basis that at the time of the hearing of the appeals before the AAC against the reassessment orders passed under s. 147 of the Act. the ITO, in the light of the arguments put forward before the AAC might have conceded that the extra-shift allowance has to be granted in respect of electrical machinery, and, therefore, the order of the ITO granting relief by way of extra-shift allowance cannot be taken to be a mistake. THE Tribunal, however, has not gone into the question as to whether the extra-shift allowance is available to the assessee in respect of the electrical machinery as claimed by him and whether the revocation order could be sustained on merits. Thus, without going into the merits of the claim put forward by the assessee for the extra-shift allowance in respect of the electrical machinery, the Tribunal has proceeded to hold that on the facts and in the circumstances of the case, the revocation under s. 154 of the Act cannot be resorted to.

(3.) THE principle laid down in that case clearly applies to the facts of this case. For, in this case, there is no dispute that the assessee has claimed depreciation on electrical machinery and there is no dispute on that aspect. THE only question is whether on such machinery the assessee is entitled to claim the (extra-shift) depreciation allowance. That question could can be solved by having a straight look into the relevant statutory provision. As already stated, Appendix I to the I.T. Rules clearly contains the provision that items like electrical machinery are not eligible for extra-shift allowance. THErefore, there is no debatable question at all involved. It is not the assessee's case that the applicability of Appendix I do the I.T. Rules was referred to and considered by the authority while granting the relief of extra-shift allowance. THE said allowance has been given by the ITO, overlooking the statutory provision, which prohibits the extra-shift allowance being given to electrical machinery specifically. In recent decision rendered by this court in T. Manickavasagam Chettiar v. CIT [1983] 143 ITR 269, it has been clearly laid down that the application of the same to the facts; of the case, which do not call for such application, will amount to a mistake apparent from the record. In that case relief has been given by the ITO under s. 80-T. THE succeeding ITO, on the basis that s. 80-J is not applicable at all to the facts of the case, proceeded to rectify the order by invoking s. 154 of the I.T. Act. When that order was challenged before this court, this court held, after referring to the relevant decisions on the point, that when an ITR erroneously applies a provision; of the statute to the facts of the case or if a provision of law which is incapable of application has been applied, it amounts to a mistake apparent form the record. In this case, while there is a specific provision under the I.T. Rules to; the effect that in respect of electrical machinery no extra-shift allowance could be allowed, the ITO has chosen to allow the grant of extra shift allowance contrary to the said provision. This is obviously a mistake apparent from the record. THErefore, the principle of the said decision is applicable to the facts of this case. In this view, of the matter, we have a answer the question in the negative and against the assessee. THE Revenue is entitled to get costs from the assessee. Counsel's fee Rs. 500. One set.