W. P. No. 11383 of 2001

L. Narasimha Reddy And Challa Kodanda Ram, JJ.

Sri Y. Ratnakar For the Appellant :
Sri J. V. Prasad For the Respondent :

JUDGMENT

The judgment of the court was delivered by

This writ petition is filed with a prayer to quash the order dated 26.05.1999 passed by the 2nd respondent in exercise of power under Section 154 of the Income Tax Act (for short the Act) as well as the order, dated 21.08.2000 passed by the 1st respondent in a revision filed under Section 264 of the Act. The brief facts are as under:

The petitioner is an assessee under the Act. For the assessment year 1996-97, it filed returns furnishing the necessary particulars of income, expenditure, deductions etc. The assessing officer, 2nd respondent herein gave an intimation dated 11.03.1997 under Section 143(1)(a) of the Act declaring the income of Rs. 3,18,81,420/-, making provisional adjustments. The petitioner realised that instead of claiming depreciation of about Rs. 10,38,90,681/-, it claimed the depreciation of only Rs. 5,83,52,311/-. Therefore, it filed an application under Section 154 of the Act, before the 2nd respondent for rectification. The application was entertained and after verification, the 2nd respondent allowed the depreciation to the extent of Rs. 10,38,90,681/-. Since that resulted in the refund of Rs. 1,98,93,254/-, the same was directed. A sum of Rs. 58,90,495/- was directed to be paid as interest under Section 244-A of the Act. This was followed by an order of assessment, dated 15.03.1999 by the 2nd respondent. Two months thereafter, the 2nd respondent passed the impugned order in exercise of power under Section 154 of the Act, taking the view that the interest under Section 244-A was wrongly allowed from 1996, though it was payable only from the date on which an application for rectification was filed under Section 154. He accordingly recomputed the refundable amount and it was shown at Rs. 1,69,99,893/-. Aggrieved by this order, the petitioner filed a revision under Section 264 of the Act before the 1st respondent. The revision was rejected through order, dated 21.08.2000.

Sri Y.Ratnakar, learned counsel for the petitioner submits that the 2nd respondent was entitled to invoke his jurisdiction under the provisions of the Act, if only there existed any error apparent on the face of the record and that it was not even alleged that such an error exists in any orders passed by him earlier. He further submits that through the impugned order, the 2nd respondent sought to rectify the order, dated 15.03.1999 passed by him and the crucial proceedings viz., assessment order passed under Section 143(3) of the Act remained untouched. He contends that the impugned order was passed without furnishing any notice much less conducting any enquiry. It is also pleaded that in the revision filed under Section 264 of the Act, the 1st respondent did not address procedural lapses, but has chosen to decide the matter on merits.

Sri J.V.Prasad, learned Standing Counsel for the Income Tax Department, on the other hand submits that the first order of rectification in exercise of power under Section 154 of the Act was passed on 15.03.1999 at the instance of the petitioner and an error crept into it in the context of awarding interest. He submits that the component of interest is referable to the allowing of depreciation to the extent of about Rs. 4,55,00,000/- and since that claim was made for the first time on 29.04.1998, interest was payable only from that date. He contends that the order of assessment passed under Section 143(3) of the Act was entirely based upon the order, dated 15.03.1999 passed in exercise of power under Section 154 of the Act and once the latter was found to be defective, the effect thereof must naturally be reflected in the order. He pleaded that no defect has crept into the orders and the writ petition is liable to be dismissed.

In its declaration, the petitioner claimed depreciation of Rs. 5,83,52,311/-. That, as well as some other claims were allowed by the 2nd respondent through the intimation dated 11.03.1997 under Section 143(1)(a) of the Act. It is thereafter, that the petitioner realised that depreciation of about Rs. 4,55,00,000/- ought to have been claimed. Stating the reasons resulted in such a lapse, it filed an application before the 2nd respondent for rectification under Section 154 of the Act. The claim was found to be acceptable and an order was passed on 15.03.1999. One of the amounts that was held to be refundable to the petitioner, is Rs. 58,90,495/-, towards interest. That figure represented the interest calculated from 1996. In the order of assessment passed under Section 143(3) of the Act, extensive reference was made to the order, dated 15.03.1999. It is two months thereafter that the 2nd respondent took the view that the interest was payable to the petitioner only from 29.04.1998, when he claimed depreciation of a further sum of Rs. 4,55,00,000/-.

A perusal of the order dated 26.05.1999 discloses that the 2nd respondent did not put the petitioner on notice before taking such a view. Another aspect is that he rectified the order, dated 15.03.1999 in exercise of power under Section 154 of the Act. He did not make any attempt to undertake the corresponding rectification in the order of assessment, dated 15.03.1999. The 2nd respondent seems to have felt that once the order dated 15.03.1999 is rectified, the effect thereof would automatically fall upon the order of assessment. The 1st respondent dismissed the revision before him. The ultimate controversy is as to whether the petitioner is entitled to be paid interest under Section 244-A of the Act vis-a-vis the amount of Rs. 4,55,38,370/- from the date on which the application in respect of that amount was made or any date anterior to that.

Admittedly, the figure Rs. 58,90,495/- was arrived at, by calculating the interest from the relevant date in the assessment year, which is referable to 1996. Once the 2nd respondent allowed the interest from that date, valuable rights accrued to the petitioner. In case, the 2nd respondent wanted to take any different view, in exercise of power under Section 154 of the Act, he ought to have issued a notice to the petitioner. Admittedly, no such notice was issued. Though this ground was not specifically pleaded, we cannot ignore such a serious lapse, which crept into the proceedings. We are of the view that the exercise can be redone by the 2nd respondent after issuing notice, only on the limited aspect of the interest, payable under Section 244-A of the Act.

Hence, we allow the writ petition and set aside the order, dated 26.05.1999 passed by the 2nd respondent as affirmed by the 1st respondent in his order, dated 21.08.2000. It is left open to the 2nd respondent to pass fresh order, after issuing notice to the petitioner. The assessment proceedings for the year 1996-97 shall remain intact in all respects, except that the payment of interest under Section 244-A of the Act. This exercise shall be completed within a period of three months from the date of receipt of a copy of this order.