Dinosaur Steels Ltd. v. Jt. CIT (2012) 349 ITR 360 (SC)
The assessee, an industrial undertaking engaged in the manufacturing of steel products, filed its return of income for assessment year 1999-98 disclosing an income of Rs.3,31,188 as under:
Gross Total Income Rs. 34,92,097
Less: Deduction u/s. 80IA @ 30% Rs. 10,47,629
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Rs. 24,44,468
Less: Brought forward losses
of earlier assessment year Rs. 21,13,280
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Total Income Rs. 3,31,188
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The return was processed u/s. 143(1)(a).
Subsequently, the Assessing Officer issued a notice u/s. 154 of the Act, calling for objections on the ground that there was a mistake in the assessment order, namely, the claim of deduction u/s. 80-IA had been allowed inadvertently before setting off the earlier years’ losses from the profits and gains of the industrial undertaking. The assessee objected to the proposal of restricting its claim u/s. 80-IA, by placing reliance on the judgment of the Madhya Pradesh High Court in the case of CIT v. K. N. Oil Industries reported in [1997] 226 ITR 547 (MP), in which the High Court held that losses of earlier years were not deductible from the total income for purposes of computation of special deduction u/s. 80HH and 80-I (predecessors of section 80-I). Further, according to the assessee, in any event, section 154 of the Act was not applicable as there was no patent error in the order passed by the Department u/s. 143(1)(a). In this connection, reliance was placed by the assessee on the judgment of this case of T.S. Balaram, ITO v. Volkart Brothers reported in (1971) 82 ITR 50 (SC). These contentions were rejected by the Assessing Officer. Aggrieved by the order passed by the Assessing Officer u/s. 154, the assessee filed an appeal to the Commissioner of Incometax (Appeals). The Commissioner of Income-tax (Appeals) dismissed the appeal by following the judgment of the Supreme Court in the case of CIT v. Kotagiri Industrial Co-operative Tea Factory Ltd. reported in (1997) 224 ITR 604(SC). Aggrieved by the said order, the assessee filed an appeal to the Income-tax Appellate Tribunal which was also dismissed, saying that deduction u/s. 80-IA can be allowed only after setting off the carry forward losses of the earlier years in accordance with section 72 of the Act, particularly when the only source of income of the assessee during the previous year relevant to the initial assessment year and to every subsequent assessment year was only from the industrial undertaking. According to the Tribunal, this was the law which was well settled by the judgment of the Supreme Court in the case of Kotagiri Industrial Co-operative Tea Factory Ltd. (supra). Therefore, according to the Tribunal, there was a patent mistake in the assessment order passed u/s. 143(1)(a) and consequently the Assessing Officer was right in invoking section 154 of the Act. This decision of the Tribunal has been upheld by the Court.
On an appeal by the assessee to the Supreme Court, the Supreme Court observed that the provisions of Chapter VI-A, particularly those dealing with quantification of deduction have been amended at least eleven times. Moreover, even section 80-IA, was earlier preceded by section 80HH and 80-I, which resulted in a plethora of cases. The Supreme Court noted that some of the amendments have been enacted even after the judgment of the Supreme Court in the case of Kotagiri Industrial Co-operative Tea Factory Ltd. (supra) delivered on 5th March, 1997. In the circumstances, the Supreme Court was of the view that one cannot say that this was a case of a patent mistake. The assessee had followed the judgment of the Madhya Pradesh High Court in K.N. Oil Industries (supra). Hence, the assessee was right in submitting that the issue involved a moot question of law, particularly at the relevant time (assessment year 1997-98).
For the above reasons, the Supreme Court held that section 154 of the Act was not applicable.
