Commissioner Of Income-Tax, Tamil Nadu-Iv, Madras v. Sundaram Textiles Limited.

The Judgment of the Court was delivered by

Ramanujam, J.:— At the instance of the Revenue, the following common question of law has been referred to this court for its opinion with reference to six assessment orders:

“Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the order passed under section 154 of the I.T Act withdrawing the extra-shift allowance allowed is not sustainable in law?”

2. The assessee is a limited company carrying on the business of manufacture of cotton yarn. The assessee commenced production on February 1, 1963. Prior to this date for a period of about 14 months, the construction of the mill buildings and the installation of the machinery were being done. The expenditure on that account was incurred to the tune of about a lakh and a half rupees. Since only a portion of the aforesaid amount represented direct expenses connected with the acquisition of certain fixed assets, the balance which could not be related to specific items, was allocated among all the assets in proportion to their direct cost and depreciation and development rebate claimed and allowed originally on the basis of the cost determined in the above manner for the assessment years 1963-64, 1964-65 and 1965-66. Later, however, the ITO felt that expenses aggregating to Rs. 1,01,654 could not be viewed as constitutive elements of the actual cost of the depreciable assets. He, therefore, initiated reassessment proceedings for the said assessment years to recompute the allowance by way of depreciation and development rebate.

3. The ITO calculated the allowance on the basis of the figures of actual cost, from which the portions added on account of indirect expenditure were eliminated. The assessments for the years, namely, 1963-64 to 1968-69, were taken on appeal by the assessee before the AAC. In those appeals, the common contention put forward by the assessee related to the non-capitalisation of Rs. 1,01,654 and the consequent disallowance of depreciation and development rebate. The assessee also objected to the legality of the reassessment proceedings under s. 147 of the Act for the assessment years 1963-64 to 1965-66. The AAC by a common order dated November 29, 1969, rejected the contention of the assessee regarding the validity of the proceedings under s. 147 of the Act for the assessment years 1963-64 to 1965-66. As regards the propriety of excluding the indirect charges from the actual cost of the fixed assets, the AAC held that the bulk of the amount was rightly capitalised by the assessee-company. He, therefore, directed the ITO to recompute the allowances by way of depreciation and development rebate due to the company for the said years distributing the sum of Rs. 96,136 after excluding the sums of Rs. 2,000 and Rs. 3,518 among the fixed assets. The AAC also went into the other contentions raised before him regarding the non-allowance of development rebate under s. 80J of the Act. Finally, he directed the ITO to redetermine the allowance due to the company by way of depreciation and development rebate for all the six years in appeal before him in accordance with his findings. Consequently, the ITO passed orders on March 12, 1970, giving effect to the said order of the AAC for the assessment years 1964-65 to 1968-69 in and by which he allowed extra-shift allowance on electrical machinery as claimed by the assessee. Later, the succeeding ITO by his orders dated October 26, 1971, purporting to exercise jurisdiction under s. 154 of the I.T Act, revised the assessment for the years 1964-65 to 1968-69 on the ground that there was a mistake apparent from the record, that the earlier ITO had granted relief by way of extra-shift allowance on electrical machinery, about which the order of the AAC was silent, and, therefore, the consequential orders passed by the earlier ITO on March 12, 1970, granting extra-shift allowance, had to be withdrawn. As against the said orders of the ITO dated October 26, 1971, passed under s. 154 of the I.T Act, appeals were filed before the AAC but without success. Thereafter, the assessee filed appeals before the Income-tax Appellate Tribunal, contending that the order passed by the ITO, consequent to the orders passed by the AAC, cannot be the subject-matter of the revocation under s. 154, that the only remedy open to the Revenue is to file an appeal, if it is aggrieved by the order of the AAC, and in any event the question whether the assessee is entitled to get extra-shift allowance on electrical machinery is a debatable point and in such cases, the revocation under s. 154 of the I.T Act cannot be resorted to. The Tribunal has chosen to accept the said contention of the assessee and has held that though the order of the AAC is silent on the relief claimed by the assessee for extra-shift allowance, the order of the AAC having been understood by the ITO, as granting such relief, the only remedy open to the Revenue is to go on appeal before the Tribunal. The Tribunal has also proceeded on the basis that at the time of the hearing of the appeals before the AAC against the reassessment orders passed under s. 147 of the Act, the ITO, in the light of the arguments put forward before the AAC, might have conceded that the extra-shift allowance has to be granted in respect of electrical machinery, and, therefore, the order of the ITO granting relief by way of extra-shift allowance cannot be taken to be a mistake. The Tribunal, however, has not gone into the question as to whether the extra-shift allowance is available to the assessee in respect of the electrical machinery as claimed by him and whether the revocation order could be sustained on merits. Thus, without going into the merits of the claim put forward by the assessee for the extra-shift allowance in respect of the electrical machinery, the Tribunal has proceeded to hold that on the facts and in the circumstances of the case, the revocation under s. 154 of the Act cannot be resorted to.

4. From the facts set out above, it will be clear that though the assessee sought relief by way of extra-shift allowance along with his other claims, before the AAC, the order of the AAC did not deal with the tenability of the assessee's claim for extra-shift allowance. The only point considered by the AAC in the appeals before him and in the earlier occasion was as to whether part of the pre-production expenses should be capitalised or not. The AAC held that the pre-production expenses, which was the subject-matter of the appeal, should be capitalised and the consequential relief by way of depreciation allowance and development rebate should be given. It is on this basis, the AAC had directed the ITO to capitalise the pre-production expenses and redetermine the depreciation allowance and development rebate, which the assessee will be entitled to on such capitalisation of the pre-production expenses. The order nowhere deals with the assessee's claim for the extra-shift allowance and the direction given by the AAC does not relate to the grant of extra-shift allowance. Thus, the order of the AAC cannot be taken to have granted the relief of extra-shift allowance to the assessee, the appellant before him. However, while passing the consequential orders, the ITO, after capitalising the pre-production expenses, as directed by the AAC, proceeded to give relief to the assessee for not only the depreciation and development rebate but also the extra-shift allowance, on which the AAC has not expressed any opinion or given any direction. Therefore, the consequential order of the ITO dated March 12, 1970, in so far as it related to the grant of extra-shift allowance is to be taken to be independent of the order of the AAC. This is how the Tribunal has also understood while dealing with the nature of the consequential order passed by the ITO. The Tribunal has also further observed that while passing the orders consequent to the order of the AAC, it is open to the ITO to reconsider the claim under another head and allow the same if it is entitled to in law. So long as the grant of extra-shift allowance by the ITO on March 12, 1970, is independent of the order of the AAC, there is no question of excluding the scope of s. 154. It is only in cases where a particular item is dealt with by the AAC in an appeal, the ITO cannot deal with that item by invoking s. 154 of the I.T Act. In this case we have to proceed on the basis that the ITO proceeded to grant relief by way of extra-shift allowance to the assessee independent of the order of the AAC. If that be so, the further question is whether the order of the ITO dated March 12, 1970, could be rectified under s. 154 of the I.T Act. According to the learned counsel for the assessee, the consequential orders dated March 12, 1970, passed by the ITO, on the face of them, indicate that the extra-shift allowance has in fact been given and it is only by looking into the earlier orders and the working sheets prepared by the ITO, it will be known that the extra-shift allowance has been given as part of the order passed by the ITO. Based on this fact, the contention put forward by the learned counsel for the assessee is that the mistake is not apparent in the consequential order passed by the ITO and, therefore, s. 154 cannot be invoked. We are not in a position to accept this contention because as the mistake is not apparent from the consequential order of the ITO and that the mistake will be obvious only if the earlier orders or the working sheets and annexures prepared by the earlier ITO are looked into, and, therefore, the mistake is not apparent from the order. Therefore, we are of the view that even if the consequential order on the face of it does not indicate the mistake or the mistake is not apparent, a perusal of the entire files relating to the assessment, which has led to the consequential orders, indicates that there has been a mistake in granting the relief to which the assessee is not entitled, and that mistake is clearly rectifiable under s. 154 of the I.T Act. Though the learned counsel for the assessee contends that the mistake is not apparent from the consequential orders dated March 12, 1970, he does not dispute that the relief of extra-shift allowance has been given to the assessee as a result of the said orders. Therefore, the grant of relief of extra-shift allowance being in pursuance of the consequential orders, the mistake should be taken to be apparent from the consequential orders. We are, therefore, of the view that s. 154 of the I.T Act is validly invoked in this case. The common question is whether the grant of extra-shift allowance is a mistake.

5. The rules relating to “extra-shift depreciation allowance” as contained in Appendix I of the I.T Rules, are as follows (Vide page 553 of Kanga and Palkhivala's Law & Practice of Income-tax— seventh edition— volume II):

“An extra allowance up to a maximum of an amount equal to one-half of the normal allowance shall be allowed where a concern claims such allowance on account of double shift working and establishes that it has worked double shift. An extra allowance up to a maximum of an amount equal to the normal allowance, instead of one-half of the normal allowance, shall be allowed where a concern claims such allowance on account of triple shift working and establishes that it has worked triple shift.

The calculations of the extra allowance or double shift working and for triple shift working shall be made separately in the proportion which the number of days for which the concern worked double shift or triple shift, as the case may be, bears to the normal number of working days during the previous year. For this purpose, the normal number of working days during the previous year shall be deemed to be—

(a) in the case of a seasonal factory or concern, the number of days on which the factory or concern actually worked during the previous year or 180 days, whichever is greater;

(b) in any other case, the number of days on which the factory or concern actually worked during the previous year or 240 days, whichever is greater………

The extra-shift allowance shall not be allowed in respect of any item of machinery or plant which has been specifically excepted by inscription of the letters ‘N.E.S.A’ (meaning ‘No Extra Shift Allowance’) against it in sub-item (ii) above and also in respect of the following items of machinery and plant to which the general rate of depreciation of 10 percent, applies.”

6. Thus in respect of electrical machinery, such as switchgear and instruments, transformers, and other stationary plant and wiring and fittings of electric light and fan installations, no extra-shift allowance can be claimed as per the provisions of the annexure. It cannot be disputed that in this case, the extra-shift allowance has been claimed by the assessee on items like switchgear, transformers and other stationary plant and wiring and fittings of electric light and fan installations. That allowance has been given by the ITO without reference to the statutory prohibition referred to above. The question is whether the grant of relief not contemplated by the statute or against the statutory provisions can be said to be a mistake which could be rectified under s. 154 of the I.T Act. If the statute does not provide for a particular allowance, then the question whether that item is entitled to be claimed as an allowance is not a debatable question. As already stated, in this case, the statutory rule is specific that electrical machinery is not one on which the assessee could claim extra-shift allowance. We are not inclined to accept the contention of the learned counsel for the assessee that the question whether the assessee is entitled to extra-shift allowance is a debatable one and, therefore, in such a contingency, s. 154 of the Act cannot be applied. When the statute makes a specific provision in respect of allowability or otherwise of the extra-shift allowance in respect of certain items, then it is not possible to say that it is a debatable question.

7. In Addl. CIT v. P.V.S.K Palaniappa Nadar and Sons, [1980] 125 ITR 357 (Mad), a somewhat similar question came up for consideration. In that case the assessee was manufacturing aerated water and he claimed depreciation on the machinery used for the manufacture at 9 per cent, and that was allowed under the original order of assessment. Thereafter the said order was sought to be rectified under s. 154 of the Act on the ground that the machinery was only entitled to a lower rate of depreciation of 7 per cent. When the order of the AAC that there was ho mistake apparent from the record and, therefore, s. 154 would not apply, was challenged, the Tribunal held that the order of rectification was not valid as it required a fresh determination of the allowance to which the assessee will be entitled and from the order itself there was no mistake apparent so as to call for the application of s. 154 of the Act. This court, disagreeing with the view taken by the Tribunal, held that what was necessary to be examined was whether the assessee would be entitled to depreciation at 7% under the general rate or at 9% as relating to the aerated gas factories or at 10% relating to electrical machinery. For determining the rate of depreciation, the nature of the machinery would have to be examined to determine the category in which the machinery fell and there was no debatable issue and the admitted fact is that the assessee produced aerated water and not aerated gas and, therefore, he was entitled to depreciation only at 7% and not at 9% and the matter was not one which was likely to involve any debate at all as the relevant details of the machinery would be on record.

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