Section 154 Notice can be challenged under Article 226 of Constitution of India

Mastek Limited Vs ACIT (Gujarat High Court)

Gujarat High Court held that Challenge to notice issued under section 154 of the Income Tax Act is maintainable under Article 226 of the Constitution of India.

Facts- The petitioner is a public limited company and a Global Information Technology Service Provider offering a wide range of software development and related services. A return of income was filed for A.Y. 2008-2009 after claiming a deduction u/s. 10A of the Income Tax Act, 1961. The case was selected for scrutiny and notices u/s. 142(1) and 143(2) were issued. During the assessment proceedings, the respondent specifically inquired into the computation of deduction u/s. 10A of the Act and called for evidence and justification in respect of the same which was duly submitted by the petitioner.

In March, 2018, the respondent issued the impugned notice u/s. 154 of the Act to rectify the OGE dated 30.01.2015. According to the respondent, a mistake of law and facts was committed while passing OGE allowing the loss (negative profit) of eligible 10A unit namely SDF VI and SDF VII amounting to Rs.4,46,67,531/- against income from House Property. According to the respondent, the loss (negative profit) will not be allowed to be set off against any other income. This according to respondent was a mistake, hence a notice.

Conclusion- Held that the notice under Section 154 of the Act is barred by limitation, that it was a debatable issue not therefore within the parameters of Section 154 of the Act, the notices under Section 154 of the Income Tax Act are bad. Even on the parameters of interpretation, notice under Section 263 in one of the petitions must also fail. Challenge to such a notice is maintainable under Article 226 of the Constitution of India.

FULL TEXT OF THE JUDGMENT/ORDER OF GUJARAT HIGH COURT

1. All these petitions raise a common issue and were heard together and are therefore decided by this common judgement.

2. Heard learned Senior Advocate Mr. S. N. Soparkar with Mr. B. S. Soparkar learned advocate for the petitioners and Mr.Varun Patel learned Senior Standing Counsel with Mr.Dev D. Patel learned advocate for the respondent.

3. With consent of the parties, the matters are taken up for final hearing.

4. RULE returnable forthwith. Mr.Varun Patel waives service of Rule on behalf of the respondent.

5. Challenge in all these petitions, except in Special Civil Application No.3981 of 2019, are to the notices issued by the respondent under Section 154 of the Income Tax Act, 1961. Special Civil Application No.3981 of 2019 is challenging a notice under Section 263 of Income Tax Act.

6. Special Civil Applications No.3971 of 2019, 3973 of 2019, 3972 of 2019, 3977 of 2019 and 3981 of 2019 pertain to Assessment Years 2008-2009, 2009-2010, 2011-2012, 2012-2013 and 2013­2014 respectively. The only other distinction in the other two petitions namely Special Civil Application Nos.3973 and 3977 of 2019 is that there were no orders giving effect.

7. FACTS OF SCA NO.3971 OF 2019

7.1 The petitioner is a public limited company and a Global Information Technology Service Provider offering a wide range of software development and related services. A return of income was filed for A.Y. 2008-2009 on 30.09.2008 declaring a total income of Rs.1,76,66,295/- after claiming a deduction under Section 10A of the Income Tax Act, 1961 (‘the Act for short). The case was selected for scrutiny and notices under Section 142(1) and 143(2) were issued. During the assessment proceedings, the respondent specifically inquired into the computation of deduction under Section 10A of the Act and called for evidence and justification in respect of the same which was duly submitted by the petitioner.

7.2 The respondent passed an order dated 02.02.2012 assessing total income at Rs.26,28,28,351/- making certain additions. Deductions under Section 10A was not disputed as the same was allowed in the assessment order. No appeal on the ground of Section 10A was filed. On other grounds raised in an appeal before the CIT(A), the CIT(A) by an order dated 27.08.2014 granted relief to the petitioner.

7.3 In November 2014, the respondent initiated reassessment proceedings for Assessment Year 2008-2009 by issuing a notice under Section 148 on 18.11.2014 to recompute deduction under Section 10A of the Act.

7.4 In January 2015, pursuant to the reliefs granted by CIT(A), Order Giving Effect (‘OGE’) dated 30.01.2015 was passed. The notice under Section 148 was quashed by the High Court vide order dated 11.01.2016.

7.5 In March 2018, the respondent issued the impugned notice dated 20.03.2018 and 24.04.2018 under Section 154 of the Act to rectify the OGE dated 30.01.2015. According to the respondent, a mistake of law and facts was committed while passing OGE allowing the loss (negative profit) of eligible 10A unit namely SDF VI and SDF VII amounting to Rs.4,46,67,531/-against income from House Property. Based on the interpretation of the decision of the Supreme Court in the case of CIT v. Yokogawa India Ltd. rendered in Civil Appeal No.8498 of 2013, the respondent was of the view that profits of eligible undertakings will be excluded from computation of total income. Thus, the loss (negative profit/will not be allowed to be set off against any other income. This according to respondent was a mistake, hence a notice.

8. Mr. S. N. Soparkar learned Senior Advocate for the petitioner would make the following submissions:

8.1 The ground for rectifying OGE under Section 154 is completely misconceived and baseless. The respondent sought to rectify the OGE on the following grounds:

a) The Respondent has stated in notice u/s 154 that in the assessment order dated 02.02.2012 passed for the said year, deduction u/s 10A has been allowed only after clubbing the business profits and losses of all the units.

b) However, CIT(A) has directed that benefit of 10A deduction should be given on the basis of individual eligible unit and not after clubbing the business profits and losses of all the units.

c) While passing the OGE, the Respondent has committed a mistake in allowing set-off of losses against the income from House Property and Other income.

d) The Respondent has referred the decision of Honorable Supreme Court in case of CIT v. Yokogawa India Ltd. (supra) as mentioned in para 2.10 and based on his interpretation of the decision, the profits of eligible undertaking shall be excluded from the computation of total income and thereby intended to rectify the mistake u/s 154 of the Act by not allowing set off of loss (negative profit) of the eligible unit amounting to Rs.4,46,67,531/- against any other income.

8.2 The issuance of notice under Section 154 is illegal and without jurisdiction.

8.3 That the issue of deduction under Section 10A was not a subject matter of appeal before the CIT(A) for the said year and therefore there was no question of making any mistake while passing the OGE.

8.4 Mr. Soparkar would submit that the jurisdiction and power of the Assessing Officer while giving effect to the Appellate Authority’s order are confined only to the issue and aspect involved in the appellate order. The Assessing Officer cannot go beyond the issue and aspect which he was directed to reconsider. The Assessing Officer cannot travel beyond the jurisdiction and limits of the directions of the Appellate Authority.

8.5 Mr. Soparkar would submit that the time for passing of the rectification order has expired. The assessment order for the said year was passed on 02.02.2012. The limitation prescribed is four years from the end of the financial year in which the order sought to be amended was passed. The time has expired in March 2016. Order therefore is barred by limitation.

8.6 The interpretation of the decision of the Supreme Court in case of CIT v. Yokogawa India Ltd.  (supra) is incorrect. In the impugned notice u/s 154, the Respondent, based on his interpretation of the Honorable Supreme Court decision in the case of CIT v. Yokogawa India Ltd. (supra), in civil Appeal No 8498 of 2013, is of the view that profits of eligible undertaking will be excluded from the computation of total income. Thus, the loss (negative profit) determined for eligible unit amounting to Rs 4,46,67,531 will not be allowed to be set-off against any other income. Therefore, being a mistake apparent on record, the respondent has issued notice u/s 154 to rectify the OGE dated 30.01.2015. The aforesaid decision of Honorable Supreme Court is a landmark decision on deduction u/s 10A/10B/10AA of the Act, wherein the Honorable Supreme Court has actually settled the controversy on a long drawn litigation on whether the provisions of sections 10A/10B/10AA are deduction provisions or exemption provisions and the stage at which deduction is to be claimed. The Respondent has interpreted the said decision incorrectly and contrary to the principle laid down by Honorable Supreme Court that profit/loss (which is negative profit) incurred in 10A unit is to be excluded from the computation of total income and thereby loss (negative profit) shall not be allowed to be set off against any other income. The Petitioner respectfully submits that deduction u/s 10A has been correctly allowed by the Respondent in the assessment order as well as in the OGE passed for the A.Y 2008-09 i.e undertaking specific and allowed from “Total Business income”, which is as per the principle laid down by Honorable Supreme Court. Hence, notice issued by Respondent is bad in law.

8.7 Mr.Soparkar would further submit that the issues raised by the respondent due to incorrect interpretation of the decision of the Hon’ble Supreme Court is a legal and debatable issue and such issue cannot be considered as mistake apparent from the record to become a subject matter of rectification under Section 154 of the Act. The notice under Section 154 is therefore void ab initio.

8.8 That the petition is maintainable. Alternative remedy is not a bar when the notice is ex-facie without jurisdiction.

8.9 In support of his submissions, Shri Soparkar would rely on the following decisions:

I. Calcutta Discount Co. Ltd v. Income Tax Officer; [1961] 41 ITR 191 (SC)

II. Jeans Knit (P.) Ltd v. Deputy Commissioner of Income-tax, Banglore; [2017] 390 ITR 10 (SC))

III. JMC Projects (India) Ltd v. Principal Commissioner of Income-tax (Central); [2016] 67 com 258 (Gujarat)

IV. Engineering Professional Co. (P.) Ltd; [2020] 115 taxmann.com 288 (Gujarat)

V. Coates of India Ltd. v. Deputy Commissioner of Income-tax; [1995] 214 ITR 498 (Calcutta)

VI. Karsandas Bhagwandas Patel v. Income-tax Officer; [1975] 98 ITR 255 (Gujarat)

VII. Ahmedabad Sarangpur Mills Co. Ltd v. A. S. Manohar, Income-tax Officer; [1976] 102 ITR 712

VIII. Poonjabhai Vanmalidas v. Wealth- tax Officer; [1978] 114 ITR 38 (GUJ.)

IX. Mettur Chemical & Industrial Corpn. Ltd. v. Commissioner of Income-tax; [1977] 110 ITR 822 (Madras)

X. Standard Chemical Co. (P). Ltd v. Income-tax Officer; [1977] 110 ITR 832 (Allahabad)

XI. Shree Naw Durga Bansal Cold Storage & Ice Factory v. Commissioner of Income-tax, Faizabad; [2017] 397 ITR 626 (Allahabad)

XII. T.S. Balaram, Income-tax Officer v. Volkart Brothers; [1971] 82 ITR 50 (SC)

XIII. Commissioner of Income-tax v. Hero Cycles (P.) Ltd; [1997] 228 ITR 463 (SC)

XIV. Commissioner of Income-tax v. C.D.R. Laxmidevi; [1995] 211 ITR 858 (Gujarat)

XV. Income-tax Officer v. India Foils Ltd.; [1973] 91 ITR 72 (Calcutta)

XVI. Padmavati Jaykrishna v. Commissioner of Wealth-tax; [1976] 105 ITR 115 (Gujarat)

XVII. Commissioner of Income-tax v. Smt. Pushpavati Kantilal; [1981] 129 ITR 582 (Gujarat)

XVIII. Mepco Industries Ltd. v. Commissioner of Income-tax; [2009] 319 ITR 208 (SC)

XIX. Pr. Commissioner of Income Tax Vadodara-1 v. Gulbrandsen Technologies (India) Pvt. Ltd. rendered in Tax Appeal No.278 of 2018 (original and recalled)

XX. Cosmo Films Limited v. Central Board of Direct Taxes; W.P.(C) 3598/2019 Delhi HC

XXI. Pr. Commissioner of Income Tax-1, Pune v. Aesseal India Pvt. Ltd. (Bom) rendered in Income Tax Appeal No.1368 of 2017

XXII. The Commissioner of Income-tax v. M/s. Hical Technologies Pvt. Ltd (Kar) rendered in Income Tax Appeal No.184 of 2012

XXIII. The Principal Commissioner of Income-tax-2 v. M/s. Indus Business System Ltd (Andhra) rendered in Income Tax Appeal No.409 of 2017

XXIV. Karle International (P) Ltd. v. Assistant Commissioner of Income Tax, Circle-6(1), Bangalore; [2020] 120 com 264 (Karnataka)

9. The only difference in Special Civil Application No.3981 of 2019 is that the impugned notice dated 23.02.2018 is a notice under Section 263 of the Act based on the incorrect interpretation of the decision in the case of Yokogawa India Ltd. (supra).

10.Mr.Varun Patel learned Senior Standing Counsel for the Revenue would support the notice. He would submit that only a notice under Section 154 of the Act is issued. In an order passed under Section 154 of the Act appeal could lie to the CIT(A) and therefore in view of the alternative remedy, the petition is not maintainable.

10.1 Making further submissions, Shri Patel would submit as under.

10.2 Subject notices u/s 154 of the Act were issued to rectify the order giving effect of the CIT(A)’s order. Further, it is also noticed from the order of the CIT(A) for A.Y. 2006-07 and A.Y. 2009-10 in the appellant’s case that the CIT(A) has directed to give benefit of section 10A to the assessee, on the basis of individual eligible unit and not after clubbing the income. Hence the CIT(A) clearly directed to give the benefit of the section 10A of the Act on individual unit basis and not after clubbing the income in the preceding years as well as succeeding years. The A.O. made an apparent mistake while passing the order of appeal effect by allowing the setoff of losses from 10A eligible against the non eligible income. Therefore, the notices u/s 154 of the Act was issued to rectify the apparent mistake.

10.3 The CIT(A) in earlier year as well as subsequent year has directed that the benefit of Section 10A of the Act should be given on the individual eligible unit basis. The A.O. while giving the effect of CIT(A)’s order made an apparent mistake by allowing the losses (negative profit) of eligible 10A unit namely SDF VI and VII amounting to Rs. 4,46,67,531/- to be set off against the income from house property and other income. Hence, it is clear that the A.O. rightly issued the notice u/s 154 of the Act to rectify the apparent mistake from record.

10.4 The notice u/s 154 of the Act is issued within the time limit as provided by the section 154(7) of the Act.

10.5 In this case, order u/s 143(3) r.w.s. 144C was passed on 02.02.2012. After that the assessee preferred an appeal before CIT (A). The Ld. CIT (A) passed an order on 27.08.2014. After that the A.O. passed the order giving appeal effect on 30.01.2015. In this case notice u/s 154 of the Act was issued to the petitioner on 20.03.2018 which is under the time limit provided u/s 154(7) of the Act.

10.6 In light of the above observation of the Hon’ble Supreme Court, it is clear that the profit of eligible undertaking will be excluded from the computation of income. In view of the above discussion and in light of the decision of the Hon’ble Apex Court, it is clear that the assessee wrongly set off losses from 10A eligible unit against the income from house property and other income and Assessing Officer erred in allowing the same while giving the appeal effect to the order of the CIT(A).

10.7 The A.O. rightly interpreted the order of the Hon’ble Apex Court in the case of M/s Yokogawa India Ltd. (supra). Further, it is submitted that the issue under consideration is not debatable. From observation of the Hon’ble Supreme Court it is clear that the profit of the eligible undertaking will be excluded from the computation of Income.

10.8 The mistake which can be rectified u/s 154 is not confined to clerical or arithmetical mistakes. The Supreme Court in the case of T.S. Balaram, ITO v. Volkart Brothers and ors. [1971] 82 ITR 50 (SC), had held that a mistake apparent from the record must be an obvious and patent mistake. In view of the above discussion the contention of the assessee is not acceptable.

11. Having considered the submissions made by the learned counsel, we take up the discussion thereon.

11.1 The rectification of mistakes is empowered by virtue of the provisions of Section 154 of the Income Tax Act, 1961. Section 154 of the Act, reads as under:

Rectification of mistake.

154. [(1) With a view to rectifying any mistake apparent from the record an income-tax authority referred to in section 116 may,—

(a) amend any order passed by it under the provisions of this Act ;

(b) amend any intimation or deemed intimation under sub-section (1) of section 143;]]

(c) amend any intimation under sub-section (1) of section 200A.]

(d) amend any intimation under sub­section (1) of section 206CB.

[(1A) Where any matter has been considered and decided in any proceeding by way of appeal or revision relating to an order referred to in sub-section (1), the authority passing such order may, notwithstanding anything contained in any law for the time being in force, amend the order under that sub-section in relation to any matter other than the matter which has been so considered and decided.]

(2) Subject to the other provisions of this section, the authority concerned—

(a) may make an amendment under sub­section (1) of its own motion, and

(b) shall make such amendment for rectifying any such mistake which has been brought to its notice by the assessee [or by the deductor or by the Collector], and where the authority concerned is the [the Joint Commissioner (Appeals) or [Commissioner (Appeals)], by the [Assessing] Officer also.

[* * *]

(3) An amendment, which has the effect of enhancing an assessment or reducing a refund or otherwise increasing the liability of the assessee [or the deductor or the Collector], shall not be made under this section unless the authority concerned has given notice to the assessee [or the deductor or the Collector] of its intention so to do and has allowed the assessee [or the deductor or the Collector] a reasonable opportunity of being heard.

(4) Where an amendment is made under this section, an order shall be passed in writing by the income-tax authority concerned.

[(5) Where any such amendment has the effect of reducing the assessment or otherwise reducing the liability of the assessee or the deductor or the Collector, the Assessing Officer shall make any refund which may be due to such assessee or the deductor or the Collector.]

(6) Where any such amendment has the effect of enhancing the assessment or reducing a refund [already made or otherwise increasing the liability of the assessee or the deductor or the Collector, the Assessing Officer shall serve on the assessee or the deductor or the Collector, as the case may be] a notice of demand in the prescribed form specifying the sum payable, and such notice of demand shall be deemed to be issued under section 156 and the provisions of this Act shall apply accordingly.

(7) Save as otherwise provided in section 155 or sub-section (4) of section 186 no amendment under this section shall be made after the expiry of four years [from the end of the financial year in which the order sought to be amended was passed.]

[(8) Without prejudice to the provisions of sub-section (7), where an application for amendment under this section is made by the assessee [or by the deductor or the Collector] on or after the 1st day of June, 2001 to an income-tax authority referred to in sub-section (1), the authority shall pass an order, within a period of six months from the end of the month in which the application is received by it,—

(a) making the amendment; or

(b) refusing to allow the claim.]”

11.2 Sub-section (7) of Section 154 provides that no rectification is permissible under the Section after expiry of four years from the end of the financial year in which the order sought to be amended was passed. In the facts on hand, the order of assessment is dated 02.02.2012. In terms of Section 154(7) of the Act, time to rectify the error expired on 31.03.2016. The rectification is sought in 2018. According to the Revenue, the period of four years has not expired as after the order of assessment was passed on 02.02.2012, the assessee preferred an appeal before the CIT(A). The CIT(A) passed an order on 27.08.2014. The Assessing Officer thereafter passed an order giving effect on 30.01.2015. Notice issued under Section 154 was dated 20.03.2018 and hence was within a period of four years as provided under Section 154(7).

11.3 In the case of Poonjabhai Vanmalidas (supra), the assessment order passed under the Wealth Tax was dated 23.02.1971. The assessee went in appeal before the Appellate Assistant Commissioner who by his order dated 23.06.1971 reduced the net wealth of the petitioner. Consequential orders in light of the appellate orders was passed on 30.03.1974. The revenue issued rectification notices on 15.01.1976. The principal contention of the assessee was that they were time barred after expiry of four years from the date of the orders i.e. 22.02.1971. Considering the issue and disposing of the matter before it, only on the ground of limitation, the Division Bench of this Court held that even after an appeal from an order of assessment is decided, a mistake in that part of the order of assessment which was not the subject matter of review by the Appellate Authority and was left untouched can be rectified, however, that part of the order which is sought to be rectified is the untouched part of the original order. Applying it to the facts of the case, what is evident is that the assessment order was dated 02.02.2012. In an appeal to the CIT(A) there was no dispute regarding Section 10A. The relief was granted in appeal on 27.08.2014. There too there was no dispute regarding Section 10A provision. The order giving effect was date 31.03.2015. Here also since benefit of 10A was ‘as per assessment order’, as held in the case of Poonjabhai Vanmalidas (supra) in relation to issues not appealable, the order of the appellate authority does not subsume the original order and the time for correcting the mistake in the original order has to relate back to passing of the original order and not the appellate order. The argument of revenue therefore that the exercise was within the time frame is misconceived. Relevant observations in the case of Poonjabhai Vanmalidas (supra) read as under:

“In Karsandas Bhagwandas Patel v. G.V. Shah, Income-tax Officer [1975] 98 ITR 255 (Guj), the Division Bench consisting of Bhagwati C.J. and one of us (P.D. Desai J.) dealt with the provisions of rectification proceedings under section 35(1) of the Indian Income-tax Act, 1922, and the question was, what part of the Appellate Assistant Commissioner’s order could be said to be the final order and what part of the original order of Income-tax Officer could be said to be the final order. At page 259, Bhagwati C.J., speaking for the Division Bench, observed:

“It is clear on a plain reading of the language of section 35, sub-section (1), that the power to rectify a mistake in an order is conferred only on the authority which passed the order. The Income-tax Officer can rectify a mistake only if it is a mistake in the order of assessment made by him and similarly the Appellate Assistant Commissioner can rectify a mistake only if it is in the order passed by him in appeal.”

Under section 35(1) of the Wealth-tax Act also the same scheme is preserved because under section 35(1)(a) the Wealth-tax Officer may amend any order of assessment or of refund or any other order passed by him. Proceeding further with the quotation from Karsandas Bhagwandas Patel’s case [1975] 98 ITR 255 at 259-60 (Guj):

“It would, therefore, seem that if the order of assessment made by the Income-tax Officer has ceased to exist by reason of having merged wholly in the order of the Appellate Assistant Commissioner, the Income tax Officer cannot rectify a mistake in the order of assessment; the . mistake, if any, which vitiated the order of assessment would then be a mistake in the order of the Appellate Assistant Commissioner who alone would be entitled to rectify it. The question is whether this hypothesis is correct. Does the doctrine of merger apply in all its fulness so that an order of assessment made by the Income-tax Officer could be said to merge in the order of the Appellate Assistant Commissioner wholly, not only in respect of items considered and decided by the Appellate Assistant Commissioner but also in respect of items not considered and decided by him?”

The Division Bench in Karsandas Bhagwandas Patel’s case [1975] 98 ITR 255 (Guj) held that, having regard to principles as well as authority, it was not possible to say that the doctrine of merger does not apply at all to income-tax proceedings. At page 261 it was pointed out:

“So also where an appeal is preferred by an assessee against an order of assessment in respect of all the items considered and decided by the Income-tax Officer so that the whole of the order of assessment made by the Income-tax Officer is for consideration by the Appellate Assistant Commissioner, the effect of the decision of the Appellate Assistant Commissioner would be to substitute his determination for that of he Income-tax Officer in respect of all items considered and decided by the Income-tax Officer and the order of the Income-tax Officer would be merged wholly in the order of the Appellate Assistant Commissioner. But, what would be the position when an appeal is preferred against an order of assessment in respect of some only out of several items considered and decided by the Income-tax Officer?”

At page 262, it was observed:

“If the Appellate Assistant Commissioner were under an obligation to examine the correctness of every decision recorded by the Income-tax Officer in the process of assessment, it might be possible to contend that when the Appellate Assistant Commissioner does not say anything about a particular decision recorded by the Income-tax Officer, he may be pre­sumed to have assented to it and an inference of implied affirmance ay be raised, but it cannot be disputed that, though the Appellate Assistant Commissioner has undoubted power to revise any decision of the Income-tax Officer suo motu, there is no obligation on him to do so and in the absence of such obligation, there can be no scope for the application of the doctrine of implied decision.”

Then the Division Bench ([1975] 98 ITR 255 , 263 (Guj)) approved the following passage from the decision of this court in Commissioner of Income-tax v. Karamchand Premchand P. Ltd. [1969] 74 ITR 254 , 264 (Guj):

“But it is apparent, and this indeed was not disputed on behalf of the assessee, that the Appellate Assistant Commissioner was under no obligation to examine the correctness of every decision recorded by the Income-tax Officer in the course of the assessment. The entire assessment was of course before him and he had the power, if he so chose, to examine any particular decision of the Income-tax Officer and to correct it if the found it wrong but there being no obligation on him to do so, no inference can be drawn from his omission to reverse the decision of the Income-tax Officer on any particular matter.”

The Division Bench then proceeded to observe ([1975] 98 ITR 255 , 263 (Guj)):

“There being no decision of the Appellate Assistant Commissioner, express or implied, in regard to the particular item, we have to turn to the order of assessment made by the Income-tax Officer in order to see what is the decision in regard to that matter in the process of assessment. The ultimate assessment in such a case consists partly of decisions of the Appellate Assistant Commissioner and partly of decisions of the Income-tax Officer. The collective effect of these decisions results in the computation of total income and determination of tax. The order of assessment made by the Income-tax Officer thus does not merge wholly in the order made by the Appellate Assistant Commissioner. It is only that part of the order of assessment which consists of decisions reviewed by the Appellate Assistant Commissioner—and when we use the word ‘reviewed’, we mean, considered and examined irrespective of whether ultimately affirmed, modified or reversed—that is superseded by the order of the Appellate Assistant Commissioner.”

The legal position was thus summarized by the Division Bench at page 265:

“The legal position may, therefore, be summarized by stating that even after an appeal from an order of assessment is decided by the Appellate Assistant Commissioner, a mistake in that part of the order of assessment which was not the subject-matter of review by the Appellate Assistant Commissioner and was left untouched by him can be rectified by the Income-tax Office.”

In the light of these principles with which we are in entire agreement, we have to consider as to what was the actual decision of the Appellate Assistant Commissioner because, if that part of the order which is sought to be rectified was untouched by the Appellate Assistant Commissioner, then what is sought to be rectified under section 35 is the order of the Wealth-tax Officer as originally passed and not the consequential order passed in the light of the decision of the Appellate Assistant Commissioner. In the order of the Appellate Assistant Commissioner, which is annexure “F” to the petition, it has been pointed out:

“The appellant’s status is that of an HUF consisting of one female member. As per the decision of the Supreme Court in the case of Arundhati Balkrishna [1970] 77 ITR 505 and subsequent decisions of Tribunals, value of jewellery is exempt not only as articles of personal use, but also as articles of household use. In this view of the matter, since the female member made use of the ornaments as and when required, the value of ornaments have to be exempted under section 5(1) (viii) as articles of household use. The appellant, therefore, gets reduction of Rs. 15,000 “

For the assessment year 1965-66 annexure “E” is the order of the Appellate Assistant Commissioner whereas annexure “F” is in respect of assessment years 1966-67 and 1967-68. In annexure “E” in connection with assessment year 1965-66, there was an additional point on the ground that, admittedly, the tax liability of Rs. 94,023 was claimed as a deduction from the total wealth of the appellant and that claim was rejected by the Appellate Assistant Commissioner. It was held by him that since the liability was disputed, this could not be a “debt owed” as per the provisions of the Act and the second point was regarding the deduction of Rs. 15,000 because of the ornaments of the female member of the family. Beyond these two points no other point was touched by the Appellate Assistant Commissioner and, therefore, there was no reversal, express or implied, or no review in the sense of affirmed, modified or reversed nor was it considered and re­examined irrespective of whether it was ultimately affirmed, modified or reversed. Under these circumstances it is obvious that the question as to whether the additional amount mentioned in clause (c) of Paragraph A of Part I of the Schedule to the Wealth-tax Act should or should not be included was never dealt with nor touched upon by the Appellate Assistant Commissioner. It is, therefore, clear that the omission in the original order passed on February 22, 1971, was sought to be rectified by the Wealth-tax Officer when he initiated proceedings under section 35(1) of the Act and he wanted to rectify it by removing that error from the order of assessment for each of the three years under consideration. It is obvious that what he was seeking to do was not in consequence of the order passed by the Appellate Assistant Commissioner nor was it in consequence of what the Appellate Assistant Commissioner had done in respect of each of the three years under consideration but was a matter which should have been dealt with initially by the Wealth-tax Officer himself and was not dealt with by him at that stage when he passed the orders on February 22, 1971. Therefore, for the purpose of limitation under section 35, sub-section (7)(b), of the Wealth-tax Act, the period of four years has to be calculated from the date of the orders passed by the Wealth-tax Officer himself, namely, February 22, 1971; this point was not dealt with by the Appellate Assistant Commissioner and, therefore, it could not be the basis of the consequential orders passed by the Wealth-tax Officer in 1976. The notice calling upon the petitioner to show cause was issued on January 15, 1976, and the ultimate order was passed on February 10, 1976. Even at the stage when the show cause notice regarding rectification was issued, the period of four years had expired and, therefore, the action of the Wealth-tax Officer was clearly time-barred and, hence, wholly without jurisdiction. It is, therefore, merely a purported exercise of power under section 35 by the Wealth-tax Officer but not under that Act. Under these circumstances, this special civil application is allowed and the orders of rectification for each of the three years and the consequential notices of demand are quashed and set aside. The rule is made absolute accordingly. The respondent will pay the costs, of this special civil application to the petitioner.”

11.4 In the case of Mettur Chemical & Industrial Corpn. Ltd. (supra), the Madras High Court has held that where proceedings are initiated under Section 147, period of limitation for rectification of mistake has to commence and computed from the date of original assessment and not from the date of reassessment order. The relevant observations are as under:

“One of the contentions put forward before the Tribunal was that there was no mistake apparent from the records which could be rectified by the Income-tax Officer under section 154. Another objection raised was that the proceedings under section 154 were barred by limitation. The Tribunal rejected these contentions and dismissed the appeals. It is thereafter, at the instance of the assessee, the above two questions have been referred to this hon’ble court for its opinion. As far as the first question is concerned, we are clearly of the opinion that the answer to the said question must be in the affirmative. Section 154 of the Act enables the Income-tax Officer to rectify any mistake apparent from the record. In this case, as we already pointed out, the Income-tax Officer had deducted the wealth-tax paid by the assessee from the business income for computing the assessable income from the business. The decision of this court referred to above, viz., Kumbakonam Electric Supply Corporation Ltd. v. Commissioner of Income-tax [1963] 50 ITR 809 (Mad) held that wealth-tax paid by a company under the provisions of the Wealth-tax Act, on the net wealth of the company is not an allowable expenditure in computing the taxable income of the company, either under section 10(2)(xv)or under section 10(1) of the Indian Income-tax Act, 1922. This decision of this court is an authoritative pronouncement as to the scope of section 10(2) (xv) and section 10(1) as far as the Income-tax Officer was concerned. Consequently, this decision made it clear that the Income-tax Officer has committed an error in deducting the wealth-tax paid by the assessee from the income from the business and that error was apparent from the record. Consequently, the Income-tax Officer acted well within his jurisdiction in proceeding under section 154 of the Income-tax Act, 1961, in order to rectify a mistake apparent from the record by adding back the wealth-tax which he had originally deducted. We are not referring to the subsequent decisions on this question and the retrospective amendment of the law in this behalf because at the time when the Income-tax Officer took proceedings under section 154 this was the only binding decision in existence and, therefore, it was not merely the right but the duty of the Income-tax Officer to give effect to the law as declared by this court in the decision referred to above by correcting the mistake which he had already committed. Consequently, our answer to the first question referred to above is in the affirmative and against the assessee.

This takes us to the second question and that question is confined to the assessment for 1959-60. As we already pointed out, the assessment for this year was originally completed on May 27, 1960, and the notice under section 154 was issued for the first time only on February 16, 1965. Consequently, the notice was issued beyond the period of four years prescribed under section 154(7) for the purpose of enabling the Income-tax Officer to exercise his jurisdiction under that section. Therefore, if the mistake was with reference to the order dated May 27, 1960, the proceedings initiated on February 16, 1965, are obviously beyond the period of limitation and, consequently, the Income-tax Officer was not entitled to proceed under that section. However, the learned counsel for the department contended that the period of limitation should be computed not from the date of the original order of assessment, namely, May 27, 1960, but from the date of the subsequent order by which the assessment was reopened under section 147(b) of the Income-tax Act. That order was dated November 23, 1962, and if the contention of the learned counsel for the revenue is correct on this point, certainly the notice under section 154 dated February 16, 1965, will be well within the period of four years from the date of November 23, 1962. On the other hand, the argument advanced on behalf of the assessee is that the error had crept into the order dated May 27, 1960, itself, and notwithstanding the subsequent reopening of the assessment, that error remained untouched and, therefore, that error cannot be said to have crept into the order dated November 23, 1962, so as to enable the Income-tax Officer to compute the period of limitation from that date and that the period of limitation should be computed only from the date of the original order, viz., May 21, 1960. This was sought to be countered by the learned counsel for the revenue by putting forward the argument that once the Income-tax Officer took proceedings under section 147 and passed a fresh order of reassessment the original order has ceased to have an independent existence and it had merged in the subsequent order or it has become non-existent.

We are of the opinion that the contention of the learned counsel for the revenue is not correct. Before giving our reasons in this behalf we may refer to the only decision which is directly in point rendered by the Allahabad High Court. That decision is in Standard Chemical Co. Pvt. Ltd. v. Income-tax Officer (See Appendix page 832 infra). In that case the assessee was a limited company. For the assessment year 1966-67 in computing ‘the total income the assessee was granted development rebate in respect of some machinery which had been installed by it in the calendar year 1964. The assessee had also claimed depreciation on certain assets including land. However, the Supreme Court in Commissioner of Income-tax v. Alps Theatre [1967] 65 ITR 377 (SC) had held that the depreciation was allowable only on the value of buildings and not on the value of land. Consequently, the Income-tax Officer relying on the decision of the Supreme Court took proceedings under section 147 of the Income-tax Act, 1961, and passed a supplemental assessment order on October 16, 1969, withdrawing the depreciation on the value of the land. Subsequently, the Income-tax Officer felt that the development rebate had also been wrongly allowed to the assessee inasmuch as the assessee had not created a reserve for the same during the year the machinery was installed. Therefore, he issued a notice under section 154 of the Act on April 14, 1971, treating it as a case of rectification of mistake. He finally passed an order under that section on September 10, 1971, withdrawing the development rebate which has been allowed to the assessee in the original assessment order after overruling the assessee’s objection that the proceedings were time-barred. Thereafter, the assessee approached the Allahabad High Court by. a petition under article 226 of the Constitution of India to quash the order of the Income-tax Officer passed under section 154 of the Act. We may point out in this context that since the original order of assessment was dated 9th February, 1967, the notice issued under section 154 on April 14, 1971, was beyond the period of four years just as in the present case. However, the contention of the department was that since the original order of assessment was reopened under section 147 of the Income-tax Act, 1961, and a fresh order was passed on October 16, 1969, the four year period prescribed under section 154(7) has to be computed from October 16, 1969, and if it is so done the notice dated April 14, 1971, was within four years. The reasoning advanced on behalf of the revenue in that case was that the original assessment order had merged in the order passed under section 148 by the Income tax Officer, and, therefore, the limitation should be counted from the date of the later order. The Bench of the Allahabad High Court rejected this contention. The Bench said:

“An order under section 148 is a separate order dealing with an item of income which had escaped assessment. The original assessment order does not merge into an order passed under section 148. Where reassessment is made under section 148 (corresponding to section 34 of the Indian Income-tax Act, 1922) the Income-tax Officer’s jurisdiction is confined to the income which had escaped assessment and does not extend to revising, reopening and reconsidering the whole assessment. See Kashi Nath Bagla v. Commissioner of Income-tax [1950] 4 ITC 472 (All) and Kevaldas Ranchhodas v. Commissioner of Income-tax [1968] 68 ITR 842 (Bom). Likewise, in proceedings under section 34 the assessee cannot reagitate questions which have been decided in the original assessment. So the original assessment cannot be challenged in appeal against an assessment order under section 34. See Commissioner of Income-tax v. A.D. Shroff [1957] 31 ITR 284 (Bom). It is thus clear that the question of development rebate had become final when the original assessment order was passed. It was not the subject-matter of dispute in subsequent proceedings under section 148 ; so the original assessment order cannot be said to have merged in the order under section 148, which was restricted only to depreciation.”

This decision of the Allahabad High Court is on all fours with the facts of the present case and, therefore, on the basis of this decision it must be held that the proceedings initiated by the Income-tax Officer in the present case under section 154 was barred by limitation.”

11.5Before the Madras High Court, the order of assessment was dated 27.05.1960 and notice for the first time under Section 154 was issued on 16.02.1965. In these circumstances, the Court held in the revenue’s case that the order of assessment was reopened and the four year period has to be computed from the date such order was negatived.

11.6 So also in the case of Standard Chemical Co. (P). Ltd (supra) after the original assessment was done in 1964, a notice for reassessment was issued under Section 148 on 15.11.1968 and an order was passed on 16.12.1969. A notice for rectification was issued on 14.04.1971 and an order was passed on 10.09.1971. The contention of the Standing Counsel for the Revenue that the limitation should count from the date the order passed under Section 148 was not accepted. The Court held as under:

“The petitioner, which is a private limited company, was assessed to income-tax for the aseessment year 1966- 67. In computing the total income the assessee was granted development rebate in respect of some machinery which had been installed by it in the calendar year 1964. The assessee had also claimed depreciation on certain assets including land. Later on, the Supreme Court in a case, Commissioner of Income-tax v. Alps Theatre [1967] 65 ITR 377 (SC) held that depreciation was allowable only on the value of buildings and not on the value of land. The Income-tax Officer, accordingly, realised that depreciation on land had wrongly been allowed to the assessee and to that extent a part of the assessee’s income had escaped assessment. He, accordingly, issued a notice under section 148 of the Income-tax Act on November 15, 1968, and passed a supplementary assessment order on October 16, 1969, withdrawing the depreciation on the value of land. Thereafter, the Income-tax Officer felt that the development rebate had also wrongly been allowed to the assessee inasmuch as the assessee had not created a reserve for the same during the year the machinery was installed. He issued a notice under section 154 of the Act on April 14, 1971, treating it as a case of rectification of mistake. He finally passed an order under that section on September 10, 1971, withdrawing the development rebate which had been allowed to the assessee in the original assessment order after overruling the assessee’s contention that the order was time-barred. The present petition is directed against that order. The original assessment order under which the development rebate was allowed to the assessee was passed on 9th February, 1967. This order could be rectified under section 154 within four years. The rectification order passed on September 10, 1971, was, therefore, clearly barred by time. The standing counsel for the income-tax department says that the limitation should be counted from the order passed under section 148 and not from the original assessment order. His plea is that the original assessment order had merged in the order passed under section 148 by the Income-tax Officer and, therefore, the limitation should be counted from the latter order. We find absolutely no merit in this contention. An order under section 148 is a separate order dealing with an item of income which had escaped assessment. The original assessment order does not merge into an order passed under section 148. Where reassessment is made under section 148 (corresponding to section 34 of the Indian Income-tax Act, 1922), the Income-tax Officer’s jurisdiction is confined to the income which had escaped assessment and does not extend to revising, reopening and reconsidering the whole assessment. See Kashi Nath Bagla v. Commissioner of Income-tax [1930] 4 ITC 472 ; AIR 1932 All 1 and Kevaldas Ranchhodas v. Commissioner of Income-tax [1968] 68 ITR 842 (Bom). Likewise, in proceedings under section 34, the assessee cannot re-agitate questions which have been decided in the original assessment. So the original assessment cannot be challenged in appeal against an assessment order under section 34: See Commissioner of Income-tax v. A. D. Shroff [1957] 31 ITR 284 (Bom). It is thus clear that the question of development rebate had become final when the original assessment order was passed. It was not the subject-matter of dispute in subsequent proceedings under section 148; so the original assessment order cannot be said to have merged in the order under section 148 which was restricted only to depreciation. Moreover, an order can be said to have merged in another order only if the latter is passed by a superior authority. It does not merge into a subsequent order passed by the same authority. We, therefore, cannot accept the contention of the learned counsel that the original assessment order had merged into the order passed under section 148, and, therefore, it could be rectified under section 154 after the expiry of four years from the original assessment order. The impugned order is clearly barred by time and is liable to be quashed.”

11.7 Even in the case of Shree Naw Durga Bansal Cold Storage & Ice Factory (supra), the High Court of Allahabad has held that the period of limitation would commence from the date of the original order. Paras 23 to 28 read as under:

23. We also find that judgment relied by learned counsel for Assessee in Hind Wire Industries Ltd. (supra) also supports the aforesaid view expressed by us. Therein an assessment order was passed on 21.09.1979. On a rectification petition filed under Section 154, assessment order was rectified on 12.07.1982. Assessee again filed rectification on 04.07.1986 contending that he was entitled for depreciation allowance on the factory building at the rate of ten percent, while he was allowed depreciation only to five percent. This application was rejected by Assessing Officer being barred by time under Section 154 (7) and order was confirmed by Commissioner in appeal. Tribunal took the view that for the purpose of Section 154 (7), limitation would commence from rectified order 12.07.1982 but on a Reference, High Court reversed the view taken by Tribunal and held that period of four years could be calculated from initial order of assessment made on 21.09.1979 and not rectified assessment order dated 12.07.1982. Supreme Court while construing Section 154 observed that word ‘order’ has not been qualified in any way and does not necessarily means “original order”. It can be any order including the “amended” or “rectified order”. Assessee therein had sought rectification of order dated 12.07.1982 and Court held that word ‘order’ under Section 154 (7) would include even “rectified order”.

24. In Tony Electronics Ltd. (supra), Court has held that judgment in Hind Wire Industries Ltd. (supra) lays down that once an order is rectified, initial order ceases to operate and it is no more in existence. Relevant observation reads as under:—

“What follows from the aforesaid is that after the rectification order, the initial order of assessment ceases to operate. It is no more in existence and is substituted by the fresh assessment order passed. The court, thus, categorically held that the word “any’ in the expression “order sought to be amended” would mean even the rectified order.” (Emphasis added)

25. With respect to Delhi High Court judgment, the inference drawn from reading of judgment in Hind Wire Industries Ltd. (supra) is much more that what has actually been said therein. Supreme Court very clearly has said that:—

“word “order” has not been qualified in any way and it does not necessarily mean the original order. It can be any order, including the amended or rectified order.” (Emphasis added)

26. The aforesaid word “including” makes it very clear that an amended or rectified order would not result in nullifying original order and to say that the original order would cease to exist, the observations made in Delhi High Court judgment is more than what has been said. The judgment referred in Hind Wire Industries Ltd. (supra) related to the cases wherein Court found that effect of reopening and reassessment of assessment is to vacate the initial order of assessment and to substitute in its place the order made on reassessment. With this proposition there cannot be any quarrel and this aspect is already covered in Dy. CCT v.H.R. Sri Ramulu [1977] 39 STC 177 (SC), V. Jaganmohan Rao v Commissioner of Income-Tax and Excess Profits Tax [1970] 75 ITR 373 (SC) and CST v. H.M. Esufali H.M. Abdulahi [1973] 90 ITR 271 (SC).

27. In Hind Wire Industries Ltd. (supra) Supreme Court has used word “including” in the amended or rectified order would mean that word “order” as the case may be can be either “original order” or “amended order” or “rectified order” depending upon the fact as to in which order Assessee is seeking rectification. To read it as if, once rectified order is passed, original order would disappear, would result in nullifying the effect of word “including” in the observations made by Supreme Court, while reading meaning of word “order” in Section 54 (7) of Act 1961.

28. In our case there may exist more than one orders. As is evident from the fact that Section 154 (7) used expression “order sought to be amended” meaning thereby for the purpose of attracting Section 154 (7), such order which is sought to be amended, would determine period of limitation.”

11.8 Coming to the issue of the order being bad because when there is a legal or debatable issue such cannot be considered to be a mistake apparent from record and therefore cannot become a subject matter of rectification. The Supreme Court in the case of Volkart Brothers (supra) explaining such meaning, held as under:

“The first question that we have to decide is whether, on the facts and in the circumstances of the case, the Income-tax Officer was within his powers in making the impugned rectifications. He purported to make those rectifications under section 154 of the Income-tax Act, 1961. That section, to the extent material for our present purpose, reads :

“154. (1) With a view to rectifying any mistake apparent from the record—

(a) the Income-tax Officer may amend any order of assessment or of refund or any other order passed by him : ” The corresponding section in the Indian Income-tax Act, 1922, is section 35.

…

…

From what has been said above, it is clear that the question whether section 17(1) of the Indian Income-tax Act, 1922, was applicable to the case of the first respondent is not free from doubt. Therefore, the Income- tax Officer was not justified in thinking that on that question there can be no two opinions. It was not open to the Income-tax Officer to go into the true scope of the relevant provisions of the Act in a proceeding under section 154 of the Income-tax Act, 1961. 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. As seen earlier, the High Court of Bombay opined that the original assessments were in accordance with law though in our opinion the High Court was not justified in going into that question. In Satyanarayan Laxmi Narayan Hegde v. Mallikarjun Bhavanappa Tirumale [I960] 1 SCR 890, this court while spelling out the scope of the power of a High Court under article 226 of the Constitution ruled that an error which has to be established by a long drawn process of reasoning on points where there may conceivably be two opinions cannot be said to be an error apparent on the face of the record. A decision on a debatable point of law is not a mistake apparent from the record—see Sidhramappa Andannappa Manvi v. Commissioner of Income-tax [1952] 21 ITR 333 (Bom.). The power of the officers mentioned in section 154 of the Income-tax Act, 1961, to correct “any mistake apparent from the record” is undoubtedly not more than that of the High Court to entertain a writ petition on the basis of an “error apparent on the face of the record.” In this case it is not necessary for us to spell out the distinction between the expressions “error apparent on the face of the record” and “mistake apparent from the record”. But suffice it to say that the Income-tax Officer was wholly wrong in holding that there was a mistake apparent from the record of the assessments of the first respondent.

11.9 In facts of the present case, the issue was with regard to the interpretation of the decision in the case of Yokogawa India Ltd. (supra). In the case the Supreme Court has settled the controversy on whether the provisions of Sections 10A/10B/10AA are deduction provisions or exemption provisions. A question of interpretation therefore would not make it an issue of a mistake apparent from record.

11.10 Also in the case of Hero Cycles (P.) Ltd (supra), in para 3, the Apex Court has held as under:

“3. The ITO thereafter entertained assessee’s prayer for rectification of the order and allowed the assessee’s claim in respect of matters like Coloured Albums, Export Staff Travelling Expenses, Export Sales Commission, E.C.G.C, Foreign Dealers Visiting Expenses. Rectification under section 154 of the Act can only be made when glaring mistake of fact or law has been committed by the officer passing the order becomes apparent from the record. Rectification is not possible if the question is debatable. Moreover, the point which was not examined on fact or in law cannot be dealt as mistake apparent on the record. The dispute raised a mixed question of fact and law.”

11.11 Even otherwise as submitted by Shri S. N. Soparkar learned Senior Advocate for the petitioner in any case the interpretation of Yokogawa India Ltd. (supra) by the Assessing Officer is erroneous as the said decision in fact supports the case of the petitioner.

11.12 Before the Hon’ble Supreme Court in the case of Yokogawa India Ltd. (supra), the principal issue was the true and correct meaning of and effect of the provisions of Section 10A of the Income Tax Act, 1961. The broad questions before the Supreme Court were as under:

“3. The broad question indicated above may be conveniently dissected into the following specific questions arising in the cases under consideration.

(i) Whether Section 10A of the Act is beyond the purview of the computation mechanism of total income as defined under the Act. Consequently, is the income of a Section 10A unit required to be excluded before arriving at the gross total income of the assessee?

(ii) Whether the phrase “total income” in Section 10A of the Act is akin and pari materia with the said expression as appearing in Section 2(45) of the Act?

(iii) Whether even after the amendment made with effect from 1.04.2001, Section 10A of the Act continues to remain an exemption section and not a deduction section?

(iv) Whether losses of other 10A Units or non 10A Units can be set off against the profits of 10A Units before deductions under Section 10A are effected?

(v) Whether brought forward business losses and unabsorbed depreciation of 10A Units or non 10A Units can be set off against the profits of another 10A Units of the assessee.”

11.13 After a detailed analysis of the provisions, the Supreme Court after recording the contentions of the assessees in para 11 of the judgement, held that it has to be understood that the Section embodies a clear enumeration that its nature is one providing for deductions. The relevant paragraphs read as under:

“11. On the other hand, on behalf of the assessees, it is contended that though there may be some features of deduction brought in by the amendment to Section 10A, as for example, disallowance of profits in regard to domestic sales, the legislative intent in retaining Section 10A in Chapter III of the Act would clearly demonstrate the true nature of the said provision of the Act even after amendment thereof by the Finance Act of 2000. Deductions from the total income which is nowhere envisaged under the Act and the reference to the total income of the undertaking, referred to in several sub­sections of Section 10A, would indicate that the total income referred to in Section 2(45) has no application to the computation under Section 10A and the reference therein is only to the total income of the eligible unit/undertaking. The provisions of Section 10A(6), as amended by Finance Act of 2003 retrospectively with effect from 1.4.2001, has also been stressed upon to contend that with effect from the assessment year 2001­02 losses and unabsorbed depreciation of eligible units would be allowable for set off immediately on the expiry of the period of tax holiday i.e. 10 years. The provisions of Sections 32, 32A, 33, 35 and part of 36 do not separately apply to an eligible unit during the period of tax holiday. During the said period the deduction under the aforesaid sections of the Act are deemed to have been made. Similarly, under Section 10A(6)(ii) losses referred to in Section 72(1) or 74(1) and 74(3) are also eligible to be carried forward to the assessment year following the end of the holiday period commencing from the assessment year 2001-02. All these, according to the learned counsels for the assessees, suggest that, though heterogeneous elements exist in Section 10A, the provision is really an exemption provision. Alternatively, according to the learned counsels, even if Section 10A is understood to be providing for deductions, the stage of such deductions would be immediately after computation of profits and gains of business and before the aggregate of incomes under different heads of other loss making eligible units or non-eligible units of the assessee are taken into account. In other words, it is immediately after the computation of profits and gains of business of the undertaking that the deduction under Section 10A is required to be made. There is no question of such deductions being computed at the stage of application of provisions of Chapter VI of the Act.

12. We have considered the submissions advanced and the provisions of Section 10A as it stood prior to the amendment made by Finance Act, 2000 with effect from 1.4.2001; the amended Section 10A thereafter and also the amendment made by Finance Act, 2003 with retrospective effect from 1.4.2001.

13. The retention of Section 10A in Chapter III of the Act after the amendment made by the Finance Act, 2000 would be merely suggestive and not determinative of what is provided by the Section as amended, in contrast to what was provided by the un-amended Section. The true and correct purport and effect of the amended Section will have to be construed from the language used and not merely from the fact that it has been retained in Chapter III. The introduction of the word ‘deduction’ in Section 10A by the amendment, in the absence of any contrary material, and in view of the scope of the deductions contemplated by Section 10A as already discussed, it has to be understood that the Section embodies a clear enunciation of the legislative decision to alter its nature from one providing for exemption to one providing for deductions.

14. The difference between the two expressions ‘exemption’ and ‘deduction’, though broadly may appear to be the same i.e. immunity from taxation, the practical effect of it in the light of the specific provisions contained in different parts of the Act would be wholly different. The above implications cannot be more obvious than from the case of Civil Appeal Nos. 8563/2013, 8564/2013 and civil appeal arising out of SLP(C) No. 18157/2015, which have been filed by loss making eligible units and/or by non-eligible assessees seeking the benefit of adjustment of losses against profits made by eligible units.

15. Sub-section 4 of Section 10A which provides for pro rata exemption, necessarily involving deduction of the profits arising out of domestic sales, is one instance of deduction provided by the amendment. Profits of an eligible unit pertaining to domestic sales would have to enter into the computation under the head “profits and gains from business” in Chapter IV and denied the benefit of deduction. The provisions of Sub-section 6 of Section 10A, as amended by the Finance Act of 2003, granting the benefit of adjustment of losses and unabsorbed depreciation etc. commencing from the year 2001-02 on completion of the period of tax holiday also virtually works as a deduction which has to be worked out at a future point of time, namely, after the expiry of period of tax holiday. The absence of any reference to deduction under Section 10A in Chapter VI of the Act can be understand by acknowledging that any such reference or mention would have been a repetition of what has already been provided in Section 10A. The provisions of Sections 80HHC and 80HHE of the Act providing for somewhat similar deductions would be wholly irrelevant and redundant if deductions under Section 10A were to be made at the stage of operation of Chapter VI of the Act. The retention of the said provisions of the Act i.e. Section 80HHC and 80HHE, despite the amendment of Section 10A, in our view, indicates that some additional benefits to eligible Section 10A units, not contemplated by Sections 80HHC and 80HHE, was intended by the legislature. Such a benefit can only be understood by a legislative mandate to understand that the stages for working out the deductions under Section 10A and 80HHC and 80HHE are substantially different. This is the next aspect of the case which we would now like to turn to.

16. From a reading of the relevant provisions of Section 10A it is more than clear to us that the deductions contemplated therein is qua the eligible undertaking of an assessee standing on its own and without reference to the other eligible or non-eligible units or undertakings of the assessee. The benefit of deduction is given by the Act to the individual undertaking and resultantly flows to the assessee. This is also more than clear from the contemporaneous Circular No. 794 dated 9.8.2000 which states in paragraph 15.6 that, “The export turnover and the total turnover for the purposes of sections 10A and 10B shall be of the undertaking located in specified zones or 100% Export Oriented Undertakings, as the case may be, and this shall not have any material relationship with the other business of the assessee outside these zones or units for the purposes of this provision.”

17. If the specific provisions of the Act provide [first proviso to Sections 10A(1); 10A (1A) and 10A (4)] that the unit that is contemplated for grant of benefit of deduction is the eligible undertaking and that is also how the contemporaneous Circular of the department (No.794 dated 09.08.2000) understood the situation, it is only logical and natural that the stage of deduction of the profits and gains of the business of an eligible undertaking has to be made independently and, therefore, immediately after the stage of determination of its profits and gains. At that stage the aggregate of the incomes under other heads and the provisions for set off and carry forward contained in Sections 70, 72 and 74 of the Act would be premature for application. The deductions under Section 10A therefore would be prior to the commencement of the exercise to be undertaken under Chapter VI of the Act for arriving at the total income of the assessee from the gross total income. The somewhat discordant use of the expression “total income of the assessee” in Section 10A has already been dealt with earlier and in the overall scenario unfolded by the provisions of Section 10A the aforesaid discord can be reconciled by understanding the expression “total income of the assessee” in Section 10A as ‘total income of the undertaking’.”

11.14 In the perception of the Revenue, the view is otherwise. If the interpretation of the Revenue is permitted to hold then such treatment would amount to treating Section 10A provision as an exemption provision and not a deduction provision.

11.15 In the decision of the Karnataka High Court in the case of Karle International (supra) in Tax Appeal, the Court was considering whether the Tribunal was right in law in allowing the claim of the assessee towards set off of losses. The Division Bench therein held as under:

“9. Admittedly, in the instant case, two units of the assessee namely unit No. II and unit No. III were export oriented units and were eligible for exemption. The assessee had sustained loss in respect of unit No. I and therefore, the assessee had claimed set off, as permissible under Section 70 of the Act and had offered the balance as income taxable under the head income from business of Rs.12,89,762/- which has been declared in the return. The provisions of Section 70 of the Act have to be given effect to. It is pertinent to mention here that Income Tax Appellate Tribunal had taken a similar view in MINDTREE CONSULTING (P) LTD., supra, which was upheld by a Division Bench of this Court in COMMISSIONER OF INCOME-TAX Vs. YOKOGAWA INDIA LTD., supra. Similar view has been taken by Bombay High Court in GALAXY SURFACTANTS LTD., supra. We respectfully agree with the view taken by the Division Bench of this Court as well as Bombay High Court.

It is pertinent to mention here that decision of the Supreme Court in YOKOGAWA, supra is not an authority for the proposition that an assessee cannot claim set off under Section 70 of the Act and therefore, the aforesaid decision has no application to the facts of the case. Since we have dealt with the issues involved in this appeal with reference to the return filed for the assessment year 2008-09 on 30.08.2009, therefore, it is not necessary for us to deal with the contention raised by the learned counsel for the revenue that the return had filed beyond prescribed period and therefore, has no legal sanctity.”

11.16 The interpretation therefore of the Revenue as elaborated in law is clearly not legally permissible.

11.17 Having held that the notice under Section 154 of the Act is barred by limitation, that it was a debatable issue not therefore within the parameters of Section 154 of the Act, the notices under Section 154 of the Act are bad. Even on the parameters of interpretation, notice under Section 263 in one of the petitions must also fail.

11.18 Challenge to such a notice is maintainable under Article 226 of the Constitution of India.

11.19 In the case of JMC Projects (India) Ltd (supra), the Court held as under:

“1. This petition is filed by the assessee challenging a notice dated 11.02.2015, as at Annexure-I to the petition, issued by the Commissioner of Income Tax initiating revisional proceedings under section 263 of the income-tax Act, 1961 (“the Act” for short) for assessment years 2008-09 to 2012-13. Brief facts are as under:

3. Despite resistance from the assessee, the assessing officer held that the expenses claimed by the assessee under profit & loss account to the tune of Rs.105.36 crore (rounded off), which represented the payments made to such vendors for sub­contracts, were not verifiable. The assessee had claimed such expenditure in the profit & loss account. The assessing officer, therefore, was not satisfied with the correctness of the accounts of the assessee and rejected the books of accounts of the assessee in terms of section 145 (3) of the Act. He thereafter proceeded to compare the gross profit ratio of various other agencies in the similar business and made additions on this score spread over all the assessment years, namely, assessment years 2008-09 to 2012-13.

5. The petitioner has challenged this notice on various grounds. Counsel for the petitioner vehemently contended that the Commissioner had no authority to take the orders of assessment under revision in exercise of powers under section 263 of the Act. He pointed out that the assessing officer had made additions on account of non-verifiability of the payments made to 176 vendors which additions totally came to Rs.123 crore (rounded off). Thus, as against the proposed addition of Rs.105.36 crore suggested by the Commissioner in his impugned notice, the assessing officer had already made much greater additions concerning the same expenditure. The order of the assessing officer, therefore, cannot be stated to be prejudicial to the interest of the revenue. On such premises, counsel for the petitioner raised the following contentions:

(i) That the orders of assessments were not prejudicial to the interest of revenue. The Commissioner, therefore, had no jurisdiction to issue the notice under section 263 of the Act;

(ii) Original assessments were made in consultation with higher authorities as required under the law. It was, therefore, not open for the Commissioner to revise such orders.

(iii) Assessee’s appeals were pending before the CIT (Appeals) and were being heard, where the main issue is the additions made by the assessing officer, which is also subject-matter of the notice for revision issued by the Commissioner. At that stage, therefore, it was not open for the Commissioner to exercise such revisional powers.

7. On the other hand, learned counsel Mr. M.R. Bhatt for the Revenue resisted the petition contending that, at this stage where the Commissioner has merely issued a notice, scrutiny by the Court would be extremely limited to finding out whether the exercise of jurisdictional power is justified or not. The Commissioner has in the notice itself pointed out that the additions made by the assessing officer were based on the rejection of books of accounts and on re­calculation of the G.P. Rate. In fact, the assessing officer should have disallowed the entire expenditure of Rs.105.36 crore which he failed to do. He, therefore, submitted that such addition should have been correctly made by the assessing officer so that the same can be sustained. Merely because the assessing officer has made certain additions by itself would not preclude the Commissioner from exercising the powers under section 263 of the Act, particularly when it is found that the assessing officer has not made additions on proper premises. Counsel for the revenue also submitted that in view of the statutory mechanism provided under the Act, the order of the Commissioner that may be passed on the basis of the impugned notice is appealable. This Court, therefore, in exercise of its extraordinary jurisdiction would not interfere at this stage. In this context, reliance was placed on the decision of the Supreme Court in case of CIT v. Chhabil Dass Agarwal [2013] 357 ITR 357/217 Taxman 143/36 taxmann.com 36.

9. The Commissioner does not dispute this aspect of the matter. Though in the impugned notice there is no such clear-cut admission to detailed assertion made by the petitioner in the petition backed by materials on record, there is no denial in the reply filed by the Commissioner. We would, therefore, proceed on the basis that against the proposed addition of Rs.105.36 crore suggested by the Commissioner in the imugned notice, the assessing officer under the same heads for the assessment years in question had made addition of Rs.123 crore to the income of the assessee. The crucial question, therefore, arises whether revisional powers under section 263 of the Act can be exercised. As held by the Supreme Court in the case of Malabar Industrial Co. Ltd. (supra), powers under section 263 of the Act would be available when an order of assessment is shown to be erroneous and prejudicial to the interests of the revenue. In other words, both the conditions, namely, that the order of assessment is erroneous and that is also prejudicial to the interests of the revenue must exist to give jurisdiction to the Commissioner to take an order of assessment in revision.

11. In the case of ITO v. D.G. Housing Projects Ltd. [2012] 343 ITR 329/20 taxmann.com 587/[2013] 212 Taxman 132 (Mag.) (Delhi), Division Bench of Delhi High Court held that, a finding that the order is erroneous is a condition or requirement which must be satisfied for exercise of jurisdiction under section 263 of the Act. The matter cannot be remanded for a fresh decision to the the assessing officer to conduct further inquiries without a finding that the order is erroneous.

12. In the result, in our opinion, the Commissioner lacked jurisdiction to issue the impugned notice. When the question is the very foundation of the notice and jurisdiction of the Commissioner to exercise such powers, the question of relegating the petitioner to alternative remedy or to permit the Commissioner to complete the proceedings and thereafter to direct the petitioner to take appeal route does not arise.”

11.20 Even in the case of Engineering Professional Co. (P.) Ltd; (supra), the Division Bench of this Court has held thus;

“13. Having regard to the basic infirmity in the impugned order passed by the Assessing Officer, we are of the view that we should not reject this writ application only the ground that the writ applicant has an alternative efficacious remedy of preferring an appeal before the CIT (Appeals). In this context, we may refer to a decision of the Supreme Court in the case of CIT v. Chhabil Dass Agarwal [2013] 36 taxmann.com 36/217 Taxman 143/357 ITR 357 (SC). We rely upon the observations made in paras 15 to 20. The same reads thus:

’15. Before discussing the fact proposition, we would notice the principle of law as laid down by this Court. It is settled law that non-entertainment of petitions under writ jurisdiction by the High Court when an efficacious alternative remedy is available is a rule of self-imposed limitation. It is essentially a rule of policy, convenience and discretion other than a rule of law. Undoubtedly, it is within the discretion of the High Court to grant relief under article 226 despite the existence of an alternative remedy. However, the High Court must not interfere if there is an adequate efficacious alternative remedy available to the petitioner and he has approached the High Court without availing the same unless he has made out an exceptional case warranting such interference or there exist sufficient grounds to invoke the extraordinary jurisdiction under article 226. (See: State of U.P. v. Mohammad Nooh, AIR 1958 SC 86; Titaghur Paper Mills Ltd. v. State of Orissa, (1983) 2 SCC 433; Harbanslal Sahnia v. Indian Oil Corpn. Ltd. (2003) 2 SCC 107; State of H.P. v. Gujarat Ambuja Cement Ltd., (2005) 6 SCC 499).

16. The Constitution Benches of this Court in K.S. Rashid and Sons v. Income Tax Investigation Commission, AIR 1954 SC 207; Sangram Singh v. Election Tribunal, Kotah, AIR 1955 SC 425; Union of India v. T.R. Varma, AIR 1957 SC 882; State of U.P. v Mohd. Nooh, AIR 1958 SC 86 and K.S. Venkataraman and Co. (P.) Ltd. v. State of Madras, AIR 1966 SC 1089 have held that though article 226 confers a very wide powers in the matter of issuing writs on the High Court, the remedy of writ absolutely discretionary in character. If the High Court is satisfied that the aggrieved party can have an adequate or suitable relief elsewhere, it can refuse to exercise its jurisdiction. The Court, in extraordinary circumstances, may exercise the power if it comes to the conclusion that there has been a breach of principles of natural justice or procedure required for decision has not been adopted.

17. In Nivedita Sharma v. Cellular Operators Assn. of India, (2011) 14 SCC 337, this Court has held that where hierarchy of appeals is provided by the statute, party must exhaust the statutory remedies before resorting to writ jurisdiction for relief and observed as follows:

“12. In Thansingh Nathmal v. Supdt. of Taxes, AIR 1964 SC 1419 this Court adverted to the rule of self-imposed restraint that the writ petition will not be entertained if an effective remedy is available to the aggrieved person and observed: (AIR p. 1423, para 7).

“7. … The High Court does not therefore act as a court of appeal against the decision of a court or tribunal, to correct errors of fact, and does not by assuming jurisdiction under article 226 trench upon an alternative remedy provided by statute for obtaining relief. Where it is open to the aggrieved petitioner to move another tribunal, or even itself in another jurisdiction for obtaining redress in the manner provided by a statute, the High Court normally will not permit by entertaining a petition under article 226 of the Constitution the machinery created under the statute to be bypassed, and will leave the party applying to it to seek resort to the machinery so set-up.”

9. In Titaghur Paper Mills Co. Ltd. v. State of Orissa, (1983) 2 SCC 433 this Court observed: (SCC pp. 440-41, para 11)

“11. … It is now well recognised that where a right or liability is created by a statute which gives a special remedy for enforcing it, the remedy provided by that statute only must be availed of. This rule was stated with great clarity by Willes, J. in Wolverhampton New Waterworks Co. v. Hawkesford, 141 ER 486 in the following passage: (ER p. 495) ‘… There are three classes of cases in which a liability may be established founded upon a statute. … But there is a third class viz. where a liability not existing at common law is created by a statute which at the same time gives a special and particular remedy for enforcing it. … The remedy provided by the statute must be followed, and it is not competent to the party to pursue the course applicable to cases of the second class. The form given by the statute must be adopted and adhered to.’ The rule laid down in this passage was approved by the House of Lords in Neville v. London Express Newspapers Ltd., 1919 AC 368 and has been reaffirmed by the Privy Council in Attorney General of Trinidad and Tobago v. Gordon Grant and Co. Ltd., 1935 AC 532 (PC) and Secy. of State v. Mask and Co., AIR 1940 PC 105. It has also been held to be equally applicable to enforcement of rights, and has been followed by this Court throughout. The High Court was therefore justified in dismissing the writ petitions in limine.” 14. In Mafatlal Industries Ltd. v. Union of India, (1997) 5 SCC 536 B.P. Jeevan Reddy, J. (speaking for the majority of the larger Bench) observed: (SCC p. 607, para 77) “77. … So far as the jurisdiction of the High Court under article 226—or for that matter, the jurisdiction of this Court under article 32—is concerned, it is obvious that the provisions of the Act cannot bar and curtail these remedies. It is, however, equally obvious that while exercising the power under article 226/article 32, the Court would certainly take note of the legislative intent manifested in the provisions of the Act and would exercise their jurisdiction consistent with the provisions of the enactment.”” (See: G. Veerappa Pillai v. Raman & Raman Ltd., AIR 1952 SC 192; CCE v. Dunlop India Ltd., (1985) 1 SCC 260; Ramendra Kishore Biswas v. State of Tripura, (1999) 1 SCC 472; Shivgonda Anna Patil v. State of Maharashtra, (1999) 3 SCC 5; C.A. Abraham v. ITO, (1961) 2 SCR 765; Titaghur Paper Mills Co. Ltd. v. State of Orissa, (1983) 2 SCC 433; H.B. Gandhi v. Gopi Nath and Sons, 1992 Supp. (2) SCC 312; Whirlpool Corpn. v. Registrar of Trade Marks, (1998) 8 SCC 1; Tin Plate Co. of India Ltd. v. State of Bihar, (1998) 8 SCC 272; Sheela Devi v. Jaspal Singh, (1999) 1 SCC 209 and Punjab National Bank v. O.C. Krishnan, (2001) 6 SCC 569)

18. In Union of India v. Guwahati Carbon Ltd., (2012) 11 SCC 651, this Court has reiterated the aforesaid principle and observed:

“8. Before we discuss the correctness of the impugned order, we intend to remind ourselves the observations made by this Court in Munshi Ram v. Municipal Committee, Chheharta, (1979) 3 SCC 83. In the said decision, this Court was pleased to observe that: (SCC p. 88, para 23).

“23. … when a revenue statute provides for a person aggrieved by an assessment thereunder, a particular remedy to be sought in a particular forum, in a particular way, it must be sought in that forum and in that manner, and all the other forums and modes of seeking [remedy] are excluded.””

19. Thus, while it can be said that this Court has recognised some exceptions to the rule of alternative remedy, i.e., where the statutory authority has not acted in accordance with the provisions of the enactment in question, or in defiance of the fundamental principles of judicial procedure, or has resorted to invoke the provisions which are repealed, or when an order has been passed in total violation of the principles of natural justice, the proposition laid down in Thansingh Nathmal case, Titaghur Paper Mills case and other similar judgments that the High Court will not entertain a petition under article 226 of the Constitution if an effective alternative remedy is available to the aggrieved person or the statute under which the action complained of has been taken itself contains a mechanism for redressal of grievance still holds the field. Therefore, when a statutory forum is created by law for redressal of grievances, a writ petition should not be entertained ignoring the statutory dispensation.

20. In the instant case, the Act provides complete machinery for the assessment/reassessment of tax, imposition of penalty and for obtaining relief in respect of any improper orders passed by the Revenue Authorities, and the assessee could not be permitted to abandon that machinery and to invoke the jurisdiction of the High Court under article 226 of the Constitution when he had adequate remedy open to him by an appeal to the Commissioner of Income Tax (Appeals). The remedy under the statute, however, must be effective and not a mere formality with no substantial relief. In Ram and Shyam Co. v. State of Haryana, (1985) 3 SCC 267 this Court has noticed that if an appeal is from “Caesar to Caesar’s wife” the existence of alternative remedy would be a mirage and an exercise in futility. In the instant case, neither has the assessee-writ petitioner described the available alternate remedy under the Act as ineffectual and non-efficacious while invoking the writ jurisdiction of the High Court nor has the High Court ascribed cogent and satisfactory reasons to have exercised its jurisdiction in the facts of instant case.’

14. Thus, the dictum of law, as laid in the aforesaid decision, is that although the Act provides complete machinery for the assessment/reassessment of tax, imposition of penalty and for obtaining relief in respect of any improper orders passed by the Revenue Authorities, yet the remedy under the statute, however, must be effective and not a mere formality with no substantial relief. It is true that when a statutory forum is created by law for redressal of grievance, a writ petition should not be entertained ignoring the statutory dispensation. But, such principles, in a given case, maybe given a go-bye, if the Court is convinced that on the face of it, the impugned order is not sustainable in law. We are of the view that we should look into the matter on merits while overruling the preliminary objection raised on behalf of the Revenue.”

12.For all the aforesaid reasons, the impugned notices dated 20.03.2018 and 24.04.2018 in Special Civil Application No.3971 of 2019, the impugned notices dated 19.03.2018 and 24.04.2018 in Special Civil Application No.3972 of 2019, the impugned notices dated 19.03.2018 and 24.04.2018 in Special Civil Application No.3973 of 2019, the impugned notices dated 20.03.2018 and 24.04.2018 in Special Civil Application No.3977 of 2019 and impugned notice dated 23.02.2018 in Special Civil Application No.3981 of 2019 are quashed and set aside.

13. Petitions are accordingly allowed. Rule is made absolute accordingly with no order as to costs.