Section 154 – Denial of deduction u/s 80HHC on sale proceeds of DEPB license, which was contrary to the subsequent decision of the Supreme Court, can be termed as a ‘mistake’ apparent from record and can be rectified u/s 154

4. Anandkumar
Jain vs. ITO (Mum.) Members: G.S.
Pannu (V.P.) and Ravish Sood (J.M.) ITA No.:
4192/Mum/2012 A.Y.: 2003-04 Date of order:
20^th August, 2019

Counsel for
Assessee / Revenue: Jitendra Sanghavi and Amit Khatiwala / Rajesh Kumar Yadav

Section 154 –
Denial of deduction u/s 80HHC on sale proceeds of DEPB license, which was
contrary to the subsequent decision of the Supreme Court, can be termed as a
‘mistake’ apparent from record and can be rectified u/s 154

FACTS

The assessee is
an individual engaged in the business of manufacturing and export of garments.
In his return of income for assessment year 2003-04 he had claimed deduction
u/s 80HHC. During the course of the assessment, the AO, amongst other
adjustments made, re-computed the deduction u/s 80HHC by reducing 90% of the
duty drawback, excise duty refund and sale proceeds of DEPB license from the
profits of the business of the assessee. On further appeals, both the CIT(A) as
well as the Tribunal upheld the order of the AO.

Thereafter, the
Special Bench of the Tribunal in the case of Topman Exports vs. ITO (OSD)
(33 SOT 337 dated 11^th August, 2009) decided a similar issue
in favour of the appellant. In view thereof, the assessee filed a rectification
application u/s 154. The AO rejected the application holding that the issue was
debatable and the Department was in appeal against the order in the Topman
Exports case. According to the CIT(A) this cannot be termed as a
mistake apparent from record and hence the same cannot be rectified u/s 154. He
also agreed with the AO that the issue was debatable. On merits, the CIT(A)
held that the issue of allowance of deduction u/s 80HHC had been decided
against the assessee by the Bombay High Court in the case of Kalpataru
Colours, 192 taxman 435. Accordingly, the CIT(A) dismissed the appeal
of the assessee vide order dated 24^th January, 2011. The assessee
did not prefer further appeal against the order of the CIT(A).

Subsequently,
the Supreme Court in the case of Topman Exports vs. CIT (342 ITR 49)
reversed the decision of the Bombay High Court in the Kalpataru Colours
case vide its order dated 8^th February, 2012. Thereafter, the
assessee filed the instant appeal before the Tribunal against the order of the
CIT(A) on 15^th June, 2012 which was after a delay of 420 days, with
a request for condonation of delay.

Before the
Tribunal, the Revenue objected to the assessee’s application for condonation of
delay and relied upon the decision in the case of Kunal Surana vs. ITO in
ITA No. 3297/Mum/2012 wherein the application filed by the assessee for
condonation of delay of four months was rejected. Further, it was contended
that since the issue was debatable at the relevant point of time, it cannot be
said to be a mistake apparent from record and hence cannot be rectified u/s
154.

HELD

The Tribunal
noted that the delay in filing the appeal was solely on the ground that the
CIT(A) had decided the issue against the assessee following the decision of the
jurisdictional High Court in the case of Kalpataru Colours; and,
as such, based on the advice of the consultant, the assessee did not prefer
further appeal before the Tribunal. Subsequently, when the Supreme Court passed
a favourable order in the case of Topman Exports, based on the
advice from his consultant the assessee filed the present appeal which was
after a delay of 420 days. According to the Tribunal, the assessee had a valid
reason for the delay and hence, relying on the decisions in the cases of Magnum
Exports vs. ACIT (ITA No. 1111/Kol/2012) and Pahilajal Jaikishan
vs. JCIT (ITA No. 1392/Mum/2012), it condoned the delay.

As regards the
issue whether it was a ‘mistake’ apparent from record in terms of section 154,
the Tribunal referred to the decision of the Supreme Court in the case of ACIT
vs. Saurashtra Kutch Stock Exchange Ltd. (173 Taxman 322) relied on by
the assessee. As per the said decision, according to the Tribunal, the Hon’ble
Courts do not make any new law when the order is pronounced; the Courts only
clarify the legal position, which was not correctly understood. Therefore, the
legal position so clarified by the Courts has an effect which is retrospective
in nature. Therefore, the Tribunal observed, any order passed in contravention
of such legal position would be considered as a mistake apparent from record
which can be rectified u/s 154. Accordingly, the contention of the assessee was
accepted and it held that the order passed by the AO and CIT(A) can be
rectified u/s 154.

On merit, the Tribunal relied on the Supreme
Court decision in the case of Topman Exports (Supra) and directed
the AO to re-compute the deduction u/s 80HHC on the sale proceeds of the DEPB
license in light of the said decision of the Supreme Court and allowed the
appeal filed by the assessee.