Telangana High Court
M/S Pioneer Builders, Hyderabad. vs The Asst.Commissioner Of Income Tax, … on 24 April, 2025
Author: P.Sam Koshy
Bench: P.Sam Koshy
THE HON'BLE SRI JUSTICE P.SAM KOSHY
AND
THE HON'BLE SRI JUSTICE NARSING RAO NANDIKONDA
INCOME TAX TRIBUNAL APPEAL No.208 of 2008;
INCOME TAX TRIBUNAL APPEAL No.151 of 2010;
AND
INCOME TAX TRIBUNAL APPEAL No.152 of 2010
COMMON JUDGMENT:
(per the Hon’ble Sri Justice P.Sam Koshy)
Since the issue involved in these three appeals and the question
of law raised also being the same, they are decided by this common
judgment.
2. Heard Mr. A.V.A. Siva Kartikeya, learned counsel, representing
Mr. A.V. Krishna Koundinya, learned counsel for the appellants/
assessee, and Ms. K. Mamata, learned Standing Counsel for Income
Tax Department, representing Mr. B. Narasimha Sarma, learned
counsel for respondent.
3. I.T.T.A.No.208 of 2008 is filed under Section 260A of the Income
Tax Act, 1961 (for short, ‘the Act’) assailing the order dated
19.12.2007 in ITA.No.1107/Hyd/2007 passed by the Income Tax
Appellate Tribunal (for short, the ‘ITAT’) for the assessment year 2000-
01. I.T.TA.No.151 of 2010 and I.T.T.A.No.152 of 2010 are also filed
under Section 260A of the Act assailing the orders dated 08.08.2008 in
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ITA.No726/Hyd/2006 & ITA.No.59/Hyd/2008 passed by the ITAT for
the assessment years 2003-04 and 2004-05 respectively.
4. For convenience, the facts in I.T.T.A.No.208 of 2008 are
discussed herein.
5. The substantial question of law raised by the appellant is
“whether the order of the Assessing Officer which has been confirmed
by the Commissioner of Income Tax (Appeals)-I, Hyderabad, as also
by that of ITAT to the effect of refusing to deduct financial charges to
the tune of Rs.15,01,600/- from the estimated income was proper,
legal and justified?”
6. The brief facts of the case are that the Assessing Officer
completed the assessment in respect of the appellant for the
assessment year 2000-01 determining the total income including
income from contracts. The income from contracts was estimated at
12% after invoking Section 145 of the Act subject to allowing
depreciation and other statutory allowances as agreed to by the
authorized representative at the time of hearing before the Assessing
Officer itself. During the course of proceedings, the Assessing Officer
allowed the depreciation claim of the appellant while computing the
income. After the Assessing Officer completed the assessment
proceedings and passed the assessment order, the appellant filed an
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application under Section 154 of the Act seeking for rectification of the
assessment order so for as deduction of financial charges to the tune
of Rs.15,01,600/- from the estimated income. The said application
filed under Section 154 of the Act was rejected by the Assessing
Officer. The matter was thereafter taken to the Commissioner of
Income Tax (Appeals), who in turn, confirmed the order of the
Assessing Officer. Aggrieved, the appellant challenged the same before
the ITAT. The ITAT also affirmed the orders passed by the
Commissioner of Income Tax (Appeals) as also by the Assessing
Officer, leading to filing of the present appeals.
7. Learned counsel for the appellants contended that the appellant
is otherwise entitled for deductions those which are reflected under
Section 30 to 38 of the Act. According to the learned counsel, the ITAT
has erred in holding that the appellant is not entitled for the relief on
the reliance of the past assessments having being done on the very
same issue against the appellant, and the appellant has in fact not
questioned the stand of the Department in respect of those
assessments made in the past.
8. Learned counsel for the appellants relied upon the provisions of
Section 154 of the Act and contended that once when an application
under Section 154 of the Act for rectification is filed, the authority
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concerned ought to have taken up a more pragmatic and practical
approach while granting deductions and there is no principle of res
judicata applicable in tax laws and, therefore, each year’s assessment
has to be taken up as a separate cause of action which the authority
concerned has not properly considered, leading to the rectification
application being filed under Section 154 of the Act.
9. It was also the contention of the learned counsel for the
appellants that the ITAT erred inasmuch as observing that no
jurisdiction stood vested upon the ITAT under Section 154 of the Act to
rectify the assessment order on the grounds those were raised therein.
10. Learned counsel for the appellant in support of the aforesaid
contentions placed reliance on the decisions of Commissioner of
Income-Tax vs. Y. Ramachandra Reddy 1 and Commissioner of
Income-Tax vs. Inter Continental Constructions 2.
11. Per contra, the learned Standing Counsel appearing for the
respondent opposing the appeal contended that the instant appeal is
only one where the challenge is to the order passed under Section 154
of the Act and the scope of interference to a proceeding under Section
154 is too minimal. According to the learned Standing Counsel, the
appellant herein has not questioned the original order of the Assessing
1
[2015] 372 ITR 77 (T & AP)
2
[2015] 372 ITR 372 (T & AP)
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Officer passed under Section 143(3) of the Act, and that in the
absence of this, the question of consideration by this Court gets
confined to the extent of “whether there was any error committed by
the authority concerned while deciding the application filed by the
appellant under Section 154 of the Act?”
12. Learned Standing Counsel drew the attention of this Court to the
contents of the order passed by the Assessing Officer on the
application under Section 154 and brought it to the notice of the Court
that the Assessing Officer has threadbare considered the contentions of
the appellant and found that the finding arrived at by the Assessing
Officer while passing the order under Section 143(3) on 31.03.2003
was perfectly justified and ample reasons have been provided for
reaching to the said conclusion.
13. Learned Standing Counsel further took the Court to the order
passed by the Commissioner of Income Tax (Appeals), as also that by
the ITAT, where the challenge was to the order passed on the
application under Section 154 and contended that once when there is a
concurrent finding of fact arrived at by the appellate authority as also
by the appellate tribunal, there is hardly any scope of interference left
to an order passed on the application for rectification under Section
154 of the Act.
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14. Lastly, the learned Standing Counsel contended that even the
plain reading of the order passed by the authority concerned under
Section 154 of the Act would go to reveal that the authority concerned
have heavily taken into consideration, the fact that the assessment so
arrived at by the Assessing Officer and the findings so given by the
appellate authority and by the appellate tribunal in so far as not
allowing deduction of financial charges was basing on the previous
years’ assessment wherein also such deductions of financial charges
were not allowed and the assessee had neither objected, nor
challenged the same. Therefore, the learned Standing Counsel prayed
for dismissal of the appeal.
15. Having heard the contentions put forth on either side and on
perusal of records, the point for consideration is,whether the
Commissioner of Income Tax (Appeals) as also the ITAT were justified
in rejecting the two appeals filed by the appellant?
16. Admittedly, the original order of assessment was one which was
passed on 31.03.2003. The appellant filed a rectification application
under Section 154 before the Assessing Officer so far as not allowing of
the deduction of financial charges and also not deducting depreciation
and interest. The Assessing Officer having considered the contentions
and submissions put forth by the appellant, reached to the conclusion
Page 7 of 12that the assessment order has been passed strictly following the past
history and that there was no deviation brought by him from the yester
years so far as the assessment made in respect of the appellant.
17. It would be relevant at this juncture to refer to thefindings
arrived at by the Commissioner of Income Tax (Appeals), which for
ready reference is reproduced hereunder:
“6. I have carefully considered the submissions
made by the Counsel and have also gone through the relevant
papers placed on record. The appellant firm derives income from
execution of contracts and transport business. As per the P & L
account, the gross contract receipts have been shown at
Rs.25,26,55,229 out of which sub-contracts worth Rs. 5,04,59,034
given to othershave been deducted. The appellant also derives
income from transport business. The freight charges from transport
business have been shown at Rs.2,99,72,241 and after claiming
various expenses, gross profit from transport business has been
shown at Rs. 56,91,176 which has been transferred to the head
office account. During the course of assessment proceedings, the
appellant agreed for the estimation of income from contract
business on the ground that some of the expenses are not verifiable
and are not fully supported by vouchers. While estimating the
income from contract business, the assessing officer has deducted
from the gross contract receipts, recoveries made by Govt. of
Rs.49,90,455 and sub-contract amount of Rs.6,04,59,034. The
Assessing Officer has arrived at net contract receipts amounting to
Rs.18,72,05,740 as against gross receipts of Rs. 19,21,96,195
shown in the Profit & Loss account. While estimating the income at
12% on net contract receipts, the Assessing Officer has clearly
mentioned that this will be subjectto grant of depreciation and other
Page 8 of 12statutory allowances to which the appellant agreed. In the earlier
two years, the income from contract business was estimated by
applying rate of 12.5% and 12% before allowing depreciation only.
This position was accepted by the appellant as neither rectification
petition nor appeal was filed for asst. year 1998-99 and 1999-2000.
The decision of Rajasthan High Court relied upon by the appellant
cannot be applied to the facts of the present case. In the case
before Rajasthan High Court, the Assessing Officer applied rate
subject to depreciation and interest to third parties for asst. years
1989-90 to 93-94. For asst. year 1994-95, 95-96 and 96-97, the
Assessing Officer deviated from the earlier position and allowed
depreciation only. On the basis of these facts, the Rajasthan High
Court held that the Tribunal, while accepting the basic net profit rate
on the basis of past history of the case found no reason for
deviating on estimating the income of the assessee. The High Court
held as under:
“Held, dismissing the appeal, that the Tribunal linked the
process of estimating income with the past practice followed
in the assessee’s case by the Revenue itself consistently for
five years prior to the relevant years in question. In this case
the very foundation of fixing the net profit rate had been the
average net profit rate as had been applied by the Revenue
in the past consistently since the assessment year 1989-90
and which had been followed in determining the taxable
income of the assessee year after year. In the net profit so
fixed the element of depreciation on the fixed asset and
interest on borrowings had not been taken into consideration
in determining the net profit rate. Consequently, the trading
result obtained by applying such net profit rate needed
further appropriation towards allowable depreciation and
interest on borrowings. The Tribunal was right in modifying
the order passed by the assessing authority by making the
net profit rate subject to adjustment towards depreciation
and interest on borrowings. This conclusion was a pure
finding of fact and would not give rise to a question of law
much less a substantial question of law”.
7. In the instant case, the Assessing Officer has not
deviated from the past history. For asst. years 1998-99 and 99-00,
the income was estimated before allowing depreciation which was
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accepted by the appellant firm.In this year also, the Assessing
Officer has done the same thing. Therefore, the decision of the
Rajasthan High Court cannot be applied to the facts of the
appellant’s case. In such circumstances, I am of the opinion that the
Assessing Officer was fully justified in rejecting the rectification
petition filed by the appellant.”
18. When this finding was challenged by the appellant before the
ITAT, the ITAT also affirmed the order passed by the Commissioner of
Income Tax (Appeals) and reached to the conclusion that while
exercising the power under Section 154, the Assessing Authority has to
scrutinize the order of assessment to the extent of finding whether
there is a mistake apparent from the record. The ITAT also reached to
the conclusion that the mistake being brought to the notice of the
Assessing Officer must be apparent from the record and should be
obvious and a patent mistake and not one which could be detected
after a long-drawn process of reasoning. It was also the finding of the
ITAT that the powers under Section 154 are not meant to reach to
another opinion which was also plausible when the finding arrived at
was one of the opinions which could be arrived at. According to the
ITAT, a debatable point of law cannot be said to be a mistake apparent
on the face of record so as to invoke Section 154 to rectify the order of
assessment, more particularly if the decision arrived at by the
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Assessing Officer is one which was based upon the past assessment
made in respect of the very same assessee.
19. Section 154 of the Act, for ready reference, is reproduced
hereunder:
“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 sub-section (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-
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(a)may make an amendment under sub-section (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 Joint Commissioner (Appeals) or] the
[Commissioner (Appeals), by the [Assessing] Officer also.”
20. It would also be relevant at this juncture to take note of the
observations made by the ITAT based upon judicial precedents that
which is reflected in paragraph Nos.6 and 7 of the ITAT’s order, which
reads thus:
“6…………….The power of rectification under sec. 154 of the Act can
be exercised only when the mistake which is sought to be rectified is
an obvious and patent mistake which is apparent from record and
not a mistake which requires to be established by argument and
long-drawn process of reasoning on points on which there may be
conceivably two opinions. Failure by the A.O. to consider the
argument advanced by the assessee for arriving at a conclusion is
not an error apparent on record although it may be an error or
judgment. In our view, the A.O. had no jurisdiction under sec. 154
to pass a second order.”
7. The C.I.T.(A) has considered the matter on merit and noted
that in earlier two years, income from contract business was
estimated by applying rate of 12.5% and 12% before allowing
depreciation only. This position was accepted by the assessee as
neither rectification petition nor appeal was filed by for assessment
years 1998-99 and 1999-2000………………………………………………………….
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……On the basis of these facts, the Rajasthan High Court held that
the Tribunal while accepting the basis net profit rate on the basis of
history of the case, found no reason to deviate from the past history
of estimating the income of the assessee. The C.I.T.(A) held that the
A.O. has not deviated from the past history. Therefore, the
judgment of the Rajasthan High Court in the case of C.I.T. Vs.
Bhawan Va Path Nirman (Bohra) and Co. (supra) is not applicable to
the facts of the case under consideration. The assessee has not
disputed the above facts recorded by the C.I.T.(A)………….”
21. Given the aforesaid facts and circumstances of the case, more
particularly taking into consideration the finding of facts which have
been narrated in the preceding paragraphs, this Bench finds it difficult
to hold that the findings arrived at by the Commissioner of Income Tax
(Appeals) as also by the ITAT in rejecting the appeal filed by the
appellant to be in any manner erroneous or bad in law.
22. The three appeals thus being devoid of merits, deserves to be
and are accordingly, dismissed.
23. As a sequel, miscellaneous applications pending if any, shall
stand closed.However, there shall be no order as to costs.
_____________
P.SAM KOSHY, J
_________________________
NARSING RAO NANDIKONDA, J
Date: 24.04.2025
GSD