IHSAN COTTON PRODUCTS (PVT.). LIMITED VS COMMISSIONER OF INCOME-TAX (APPEAL) ZONE-V 17, 2000 PTD-MADRAS-HIGH-COURT-INDIA 842 (1997)

(a) Income-tax---

----Reassessment---Assessee cannot claim deduction neither claimed nor allowed in original assessment---Total income computed in reassessment cannot be less than income determined in original assessment---Indian Income Tax Act, 1961, Ss. 147 & 148.

(b) Income-tax---

----Rectification of mistakes---Condition precedent---Mistake must be apparent from record--Mistakes---Meaning of record---"Record" is not confined to order of assessment ---CIT(A) finding in appeal from order of reassessment that assessee was entitled to depreciation at a higher rate-- Mistake apparent from record--Tribunal had to direct Assessing Officer to grant depreciation at a higher rate--Indian Income Tax Act, 1961, S.154.

(c) Income-tax---

----Reassessment---Rectification . of mistakes---Sections 147 & 154 are mutually exclusive-- -Action taken under S.147 would not bar recourse to S.154---Indian Income Tax Act, -1961, Ss. 147 & 154.

Reassessment proceedings are initiated for the benefit of the Revenue, and it is not open to the assessee to claim certain deductions which were neither claimed nor allowed in the original assessment, and it is impermissible to the assessee to claim certain deductions in the reassessment proceedings so as to reduce the total income that may be computed in the reassessment proceedings to a figure lower than what was determined in the order of original assessment.

CIT v. Sun Engineering Works (P.) Ltd. (1992) 198 ITR 297 (SC) fol.

The record contemplated by section 154 of the Income Tax Act, 1961, does not mean only the order of the assessment, but it comprises all proceedings on which the assessment order is passed and the Income-tax Officer is entitled for the purpose of exercising his jurisdiction under section 154 of the Act, to look into the whole evidence and the law applicable to ascertain whether there was an error. Sections 147 and 154 of the Act are mutually exclusive in their operation and in a given case, where the statutory requirements are satisfied, the Income-tax Officer can have recourse to either of the two provisions and it cannot be said that they are overlapping and either of the sections at the choice of the assessing authority would not bar the officer to have recourse to the other provision of law.

The original assessments for the assessment years 1975-76 and 1976-77 were completed under section 143(3) on February 28, 1978, and September 13, 1978, respectively. The Income-tax Officer issued notices to reopen the assessment under section 148 of the Act on the score that he had information which led him to believe that income had escaped assessment. The assessee did not file any return for the assessment year 1975-76 in response to the notice issued under section 148 of the Act. The assessee, however, wrote a letter, dated October 20, 1980, stating that the assessee would be entitled to further relief and, therefore, the proceedings initiated under section 147(b) may be dropped. For the assessment year 1976-77, the assessee filed a return claiming higher depreciation in respect of factory buildings, roads and a machine. The Income-tax Officer, in the reassessment under section 147(b), withdrew extra shift allowance and depreciation to the extent of Rs.45,211 for the assessment year 1975-76. Similarly, for the assessment year 1976-77, the Income-tax Officer made reassessment under section 143(3) read with section 147(b) by withdrawing excess depreciation and extra shift allowance allowed in the original assessment to the extent of Rs.36,131. The assessee preferred appeals before the Commissioner of Income-tax (Appeals) against these reassessments under section 147(b). The Commissioner (Appeals) went into the merits of the case in both the appeals and found that the assessee was entitled. to higher depreciation and extra shift allowance in respect of certain items of machinery. However, on the view that in the reassessment proceedings initiated under section147(b), the Income-tax Officer had no power to make an assessment at a lower figure than what was originally computed in the original assessment made under section 143(3), the Commissioner (Appeals) deleted the entire addition made by the Income-tax Officer to the reassessment completed under .section 147(b) of the Act, i.e., Rs.45,211 for the, assessment year 1975-76 and Rs.36,131 for the assessment year 1976-77 . Aggrieved by these orders of the Commissioner of Income-tax (Appeals), the assessee preferred further appeals to the Tribunal. The assessee had filed a rectification application under section 154 on October 29, 1980, for the assessment year 1974-75 claiming depreciation at higher rates. It had filed a similar rectification application under section 154 for the. assessment yeas 1976-77. The Income tax Officer rejected both the petitions filed, by the assessee under section 154 of the Act claiming enhanced depreciation in respect of factory buildings, roads and certain machinery, on the ground that there was no mistake apparent on the records. The assessee preferred appeals to the Commissioner of Income-tax (Appeals) against these orders of rejection passed by the Income-tax Officer. These appeals were dismissed by the Commissioner of Income-tax (Appeals) on the ground that there was no mistake apparent from the record. The assessee preferred further appeals to the Appellate Tribunal objecting to these orders of the Commissioner of Income-tax (Appeals) also. All the four appeals were heard together and disposed of by the Appellate Tribunal by a common order. In the appeals against the reassessment for the assessment years 19,75-76 and 1976-77 Under section 147(b), the Appellate Tribunal held, agreeing with the Commissioner of Income-tax (Appeals), that it was not open to the assessee to claim in the reassessment proceedings, a deduction which was not claimed in the original assessment proceedings and it was impermissible to reduce the total income to a figure lower than the figure that was determined in the original order of assessment. Accordingly, the Appellate Tribunal dismissed the assessee's appeals. In the appeals arising out of the assessee's applications for rectification of the assessments under section 154 for the assessment years 1974-75 and 1976-77, the Appellate Tribunal held that there were no mistakes apparent on the records in the original orders of assessment, which could be rectified under section 154. On a-reference.

Held, (i) that the Tribunal had come to the correct conclusion that the assessee was not entitled to deduction which was not claimed in the original assessment in the reassessment proceedings and the income for the purposes of reassessment could not be reduced beyond the income originally assessed;

(ii) that the second question referred related only to two assessment years 1974-75 and 1976-77. The Commissioner of Income-tax (Appeals) while disposing of the appeals against the' reassessments for 1975-76 and 1976-77, had found that on the merits of the case, the assessee was entitled to claim higher rate of depreciation on the machinery- employed by the assessee as well as on the roads, and the view of the Commissioner (Appeals) which had become final, would show, that there were certain mistakes apparent on the face of the records which called for rectification. Though, at the time when the Income-tax Officer passed the order of rectification, he did not have the benefit of the order of the Commissioner (Appeals), when the Tribunal heard the matter, it had before it the order of the Commissioner (Appeals) which established clearly that the assessee was entitled to a higher rate of depreciation on some machinery as well as on roads which was not granted at the time of the original assessment. Therefore, the Tribunal, when it heard the appeals, should have considered the orders of the Commissioner (Appeals) on the merits of the case, in considering the question whether there was no mistake apparent from the record. Hence, the order passed by the Tribunal without considering the order of the Commissioner (Appeals) on the merits of the case was not legally sustainable in law. The Tribunal, sitting in appeal over the order of the Assessing Officer and having the privilege of looking into both orders before it, should have directed the Assessing Officer to rectify the mistake. After the order of the Commissioner (Appeals), the assessee could not have gone before the Assessing Officer with a request to rectify the original order of the assessment because of the finding of the Commissioner (Appeals). Hence, the only course left open to it was to approach the Tribunal by way of appeal to direct the officer to rectify the mistakes. The assessee had precisely done the same, and a duty was cast upon the Tribunal to find out whether the views of the Assessing Officer and the Commissioner (Appeals) were correct. Though the appeals before the Tribunal were independent appeals, the decision on one appeal was interdependent upon the finding in the other appeal. The view of the Tribunal that there was no mistake apparent on the face of the records was not sustainable in law. The Tribunal should go into the question as to what was the correct and proper rate applicable to the plant and machinery in question and direct the officer to rectify the mistake under section 154.

Anchor Pressings (P.) Ltd. v. CIT (1986) 16: ITR 159 (SC); CIT (Addl.) v. Palaniappa Nadar & Sons (P.V,S.K.) (1980) 125 ITR 357 (Mad.); Hirday Narain (L.) v. ITO (;970) 78 ITR 26 (SC); Maharana Mills (Pvt.) Ltd. v. ITO (1959) 36 ITR 350 (SC) and Salem Provident Fund Society Ltd. v. CIT (1961) 42 ITR 547 (Mad.) ref.

Uttam Reddy for the Assessee

C. V. Rajan for the Commissioner.

JUDGMENT

N. V. BALASUBAMANIAN, J.---The assessee is a company. The original assessment for the assessment year 1974-75 was completed on March 9, 1977. The Income-tax Officer, in the original assessment made, accepted the claim of the assessee for depreciation and extra shift allowance on certain items of machinery including tools. The assessee subsequently filed an application on October 29, 1980, under section 154 of the Income tax Act, 1961, (hereinafter referred to as "the Act"), before the Income-tax Officer claimed depreciation at a higher rate than what was originally claiming by the assessee and allowed by the Income-tax Officer in the original assessment. The Income-tax Officer, however, refused to entertain the application on the ground that there was no apparent mistake in the order of the original assessment made on March 9, 1977, and there was no scope for rectification in terms of section 154 of the Act. The assessee's appeal before the Commissioner of Income-tax (Appeals) also failed on the ground that there was no mistake apparent on the records. The Appellate Tribunal, on the assessee's appeal, also came to the conclusion that there was no patent or apparent mistake in the original order of the assessment of the Income-tax Officer which required rectification under section 154 of the Act.

The facts leading to the assessment for the years 1975-76 and 1976-77 are as under:--The original assessment for the assessment years 1975-76 and 1976-77 were completed under section 143(3) of the Act on February 28, 1978 and September 13, 1978, respectively. The Income-tax Officer issued notices to reopen the assessment under section 148 of the Act on the score that be had information which led to him to believe that the income had escaped assessment. The assessee did not file any return for the assessment years 1975-76 in response to the notice issued under section 148 of the -Act. The assessee, however, wrote a letter, dated October 20, 1980, stating that the assessee would be entitled to further relief and, therefore, the proceedings initiated under section 147(b) of the Act may be dropped. For the assessment year 1976-77, the assessee filed a return claiming higher depreciation in respect of factory buildings, roads and a machine called, Maxi Press. The Income-tax Officer, in the reassessment under section 147(b) of the Act, withdrew extra shift allowance and depreciation to the extent of Rs.45,211. Similarly, for the assessment year 1976-77, the Income-tax Officer made reassessment under section 143(3) read with section 147(b) of the Act by withdrawing excess depreciation, and extra shift allowance allowed in the original assessment to the extent of Rs.36,131. The assessee preferred appeals before the Commissioner of Income-tax (Appeals). The Commissioner (Appeals) went into the merits of the case and found that the assessee was entitled to higher depreciation and extra shift allowance in respect of certain items of machinery. The Commissioner (Appeals), on the view that in the reassessment proceedings initiated under section 147(b) of the Act, the Income-tax Officer had no power to make an assessment at a lower figure than what was originally computed in the original assessment made under section 143(3) of the Act; deleted the entire addition made by the Income-tax Officer in the reassessment completed under section 147(b) of the Act.,: i.e., Rs.45,211 for the assessment year 1975-76 and Rs.36,131 for the assessment year 1976-77.

In so far the assessment year 1976-77 is concerned, the assessee apart from filing a revised return in response to the notice under section 148 of the Act, filed a separate application under section 154 of the Act on October 31, 1980 requesting the Income-tax Officer to rectify the assessment after allowing the depreciation and extra shift allowance than what was allowed in the assessment originally completed under section 143(3) of the Act. The Income-tax Officer for the reason stated in the order refusing to rectify the mistake for the assessment year 1974-75 held that there was no mistake apparent on the records which could be rectified in terms of section 154 of the Act. The Commissioner (Appeals) also agreed with the view of the Income-tax Officer that there was no mistake apparent in the records and, hence the Income-tax Officer was justified in not entertaining the assessee's application under section 154 of the Act. The Appellate Tribunal, in the assessee's appeal, in so far as the refusal to rectify the mistake for 1976-77 is concerned, held that there was no apparent mistake in the original order of assessment of the Income-tax Officer which required rectification in terms of section 154 of the Act, and therefore, the assessee's appeal for rectification of mistakes under section 154 of the Act was rejected. In so far as the claim of the assessee that once the assessment is reopened, the entire assessment is set aside and the assessee can make a claim for the deduction which was neither claimed nor allowed in the original order of assessment is concerned, the Appellate Tribunal held that the Commissioner (Appeals) was justified in his view that the assessee was not entitled to claim, in the reassessment proceedings, higher depreciation and extra shift allowance so as to reduce the total income in the reassessment than what was determined in the original order of assessment computed under section 143 of the Act. The net result of the order of the Appellate Tribunal is that for the assessment years 1975-76 and 1976-77, the Appellate Tribunal held that it was not open to the assessee to claim in the reassessment proceedings, a deduction which was not claimed in the original assessment proceedings and it is impermissible to reduce the total income to a figure lower than the figure that was determined in the original order of assessment. In so far as the assessment years 1974-75 and 1976-77 are concerned, the Appellate Tribunal did not agree with the view of the assessee that there were certain mistakes apparent in the records in the original order of assessment which could be rectified under section 154 of the Act. The combined order of the Tribunal is the subject-matter of the tax case reference and at the instance of the assessee, the Appellate Tribunal has referred the following questions of law for our consideration:

"(1) Whether, on the facts and in the circumstances of the case, the higher rate of depreciation to which the assessee was entitled and not allowed in the original assessment proceedings could yet be granted in the reassessment proceedings even if it would lead to determination of the total income at a figure less than that determined in the original assessment?

(2) Whether the assessee is entitled to the same relief under section 154 in respect of the assessment years 1974-75 to 1976-77?"

Though in the second question referred by the Appellate Tribunal, it is stated that the second question is for the assessment years 1974-75 to 1976-77, the order of the Appellate Tribunal shows that the Tribunal considered the appeals of the assessee for the two assessment years, viz., 1974-75 and 1976-77. Hence, the reference to the assessment year 1975-76 in the second question is apparently a mistake and the question is confined to two assess e t years, viz., 1974-75 and 1976-77.

In for as the first question is concerned, the question involved is whether it is open to the assessee to claim deduction in the reassessment proceedings which was neither claimed nor allowed in the original assessment and against which the assessee did not file any appeal? In other words, is it permissible for the Income-tax Officer to make an assessment de novo in the reassessment to reduce the income lower than what was determined in the original order of assessment? The answer to the above question is self-evident that the reassessment proceedings are initiated for the benefit of the Revenue, and it is not open to the assessee to claim certain deductions which were neither claimed nor allowed in the assessment, and it is impermissible to the assessee to claim certain deductions in the reassessment proceedings which would reduce the total income that may be computed in the reassessment proceedings to a figure lower than what was determined in the order of original assessment. The position is well settled by a decision of the Supreme Court in the case of CIT v. Sun Engineering Works (P.) Ltd. (1992) 198 ITR 297, wherein the Supreme Court held that in reassessment proceedings, it was not open to the assessee to seek a review of concluded items unconnected with the escapement of income for the purpose of computation of the income escaping assessment. Following the said decision of the Supreme Court; we are of the view that the Tribunal has come to the correct conclusion that the assessee is not entitled to deduction which was not claimed in the original assessment in the reassessment proceedings and the income for purposes of reassessment cannot be reduced beyond the income originally assessed. Accordingly, we answer the first question of law referred to us in the affirmative and against the assessee.

In so far as the second question is concerned, as already seen, it relates to the assessment years 1974-75 and 1976-77. We have already set out the facts leading to the rectification proceedings in detail. However, it is necessary to notice certain facts for answering the question whether there was any mistake apparent from the record.

The Income-tax Officer, as already seen, in so far as the assessment years 1974-75 and 1976-77 are concerned, rejected the petition filed by the assessee under section 154 of the Act claiming enhanced depreciation in respect of factory buildings, roads and certain machinery on the ground that there was no mistake apparent on the records. The Commissioner of Income-tax (Appeals) as well as the Appellate Tribunal has also taken the same view on the ground that there was no mistake apparent from the records and the relief under section 154 of the Act cannot be granted as one has to look afresh, as to the nature of each machine and plant used by the assessee. It is, however, relevant to notice, that when the Commissioner (Appeals) considered the appeal preferred against the order of reassessment under section 147(b) of the Act, he held that for the assessment year 1974-75, the assessee's claim for higher rate, of depreciation end extra shift allowance is not a mistake apparent from the records. But, the Commissioner (Appeals) also found that the assessee claimed depreciation on the roads at 15 percent. and the depreciation on the roads was not originally granted and in so far as other machinery, viz., Maxi Press, is concerned, there was no discussion on the merits of the case. For the assessment year 1975-76, in the appeal preferred against the reassessment, the Commissioner of Income-tax (Appeals) went into the matter in detail and he found that the view of the Income-tax Officer that the assessee was entitled to 10 percent. depreciation was erroneous. Similarly, for the assessment year 1976-77, he found that the view of the Income-tax Officer on the merits of the case was not correct and the assessee was entitled to higher depreciation at the enhanced rate. however, as already seen, he restricted the relief in the appeal preferred against the order under section 147(b) of the Act to the addition made in the reassessment. The finding of the Commissioner of Income-tax (Appeals) is that the assessee was entitled to higher depreciation. After the order of the Commissioner (Appeals), on the merits of the case, which has become final, there is certainly a mistake in the order of the Income-tax Officer which is apparent from the records. The finding of the Commissioner (Appeals) has become final. Therefore, when the Appellate Tribunal took up the matter on appeal, it was apparent that there were mistakes in the original order of assessment which called for rectification under section 154 of the Act. The assessee has challenged the finding of the Commissioner (Appeals) to the effect that there was no mistake apparent from the records. But, when the records disclosed the same, the Appellate Tribunal should have directed the Assessing Officer to rectify the mistakes.

The Supreme Court in Maharana Mills (Pvt.) Ltd. v. ITO (1959) 36 ITR 350, held that the record contemplated by section 154 of the Act does not mean only the order of assessment but it comprises all proceedings on which the assessment order is based and the Income-tax Officer is, entitled for the purpose of exercising his jurisdiction under section 154 of the Act to look into the whole evidence and the law applicable to ascertain whether there was an error. The Supreme Court also held that if the Income-tax Officer discovers that the very basis of the different earlier assessment years is erroneous because of the initial mistake in determining the written down value, it cannot be said that it should not constitute a mistake apparent on the record, and if in order to determine the correct written down value, the Income-tax Officer makes correct calculations, it cannot be said that he is to rectifying the mistake apparent from the records but is de hors it.

In Salem Provident Fund Society Ltd. v. CIT (1961) 42 ITR 547, this Court has held that both sections 147 and 154 of the Act are mutually exclusive in their operation and in a given case, where statutory requirements are satisfied, the Income-tax Officer can have recourse to either of the two provisions and it cannot be said that they are overlapping and either of the sections at the choice of the assessing authority would not bar the Officer to take recourse to the other provisions of law. They are separate and distinct powers conferred on the authority. Therefore, when the Commissioner (Appeals) found in the appeal against the reassessment order that there were mistakes in the order of assessment, the mistakes noticed by the Commissioner (Appeals) become apparent from the records.

The Supreme Court in L. Hirday Narain v. ITO (1970) 78 ITR 26 held that the Income-tax Officer is concerned with the assessment and collection of revenue and he has been conferred with a power to rectify the mistake in the order of assessment to ensure that injustice to the assessee or to the Revenue is avoided and the power conferred on him should be exercised when a mistake apparent from the record is brought to the notice of the Income-tax Officer by a person concerned with or interested in the proceedings. Applying the principles of law laid down by the Supreme Court, it is clear, the Commissioner of Income-tax (Appeals) is the person concerned in the proceeding of assessment and when he found that on the merits of the case, the assessee was entitled to claim higher rate of depreciation on the machinery employed by the assessee as well as on the roads, the view of the Commissioner (Appeals) would show that there were certain mistakes apparent on the face of the records which called for rectification of such mistakes. Though, at the time when the Income-tax Officer passed the order of rectification, he did not have the benefit of the order of the Commissioner (Appeals), when the Appellate Tribunal heard the matter, it had before it the order of the Commissioner (Appeals) which established clearly that the assessee was entitled to higher rate of depreciation on some machinery as well as on roads which was not granted at the time of original, assessment. Therefore, the Appellate Tribunal when it heard the appeal, should have considered the order of the Commissioner (Appeals) on the merits of the case, in considering the question whether there was a mistake apparent from the records or not. Hence, we hold that the order passed by the Appellate Tribunal without considering the order of the Commissioner (Appeals) on the merits of the case is not legally sustainable in law.

The Supreme Court in Anchor Pressings (P.) Ltd. v. CIT (1986) 161 ITR 159 held that the jurisdiction of the Income-tax Officer under section 154 of the Act for rectifying a mistake is wider than what was provided under Order 47, rule 1, of the Code of Civil Procedure and where there are materials to support the claim of the assessee which are found in the records, the Income-tax Officer is duty bound to rectify the mistake. The Supreme Court in the above case, held that the obligation imposed on-the Income-tax Officer to grant relief is wider and the relief to the assessee cannot be refused merely because the assessee had omitted to claim the relief. But, where there are materials to show that the relief was available to the assessee, but the Income-tax Officer has failed to grant the relief, then the Court can compel the Officer to grant the relief. This decision also in a way supports the case of the assessee that when there are materials on the facts of the case to establish that there are mistakes apparent from the records, the assessee is entitled to the relief and once it is established that the assessee is entitled to the relief, the Appellate Tribunal should have directed the Income-tax Officer to rectify the mistakes.

This Court in Addl. CIT v. P. V. S. K. Palaniappa Nadar & Sons (1980) 125 ITR 357 was dealing with a case of grant of depreciation which the assessee was entitled to. In that case, this Court held that in each case, it has to be examined whether the assessee would be entitled to depreciation at the general rate or at the special rate and the nature of the machinery would determine the category into which the assessee's goods fall. This Court also held that where it is, a matter which is not likely to involve any debate and relevant details of the machinery were on record, the Tribunal should have looked into the records and found what is the correct rate of depreciation that is applicable to the assessee. This Court, therefore, held that by not determining the question, the Appellate Tribunal has acted erroneously and failed to exercise it jurisdiction. Similarly, on the facts of the case, it is seen that on the merits of the case, it is clearly found from the order of the Commissioner (Appeals) that the assessee is entitled to higher rate of depreciation and the Tribunal should have gone into the records and found whether the assessee is entitled to higher depreciation. Since the order of the Commissioner (Appeals) on the merits has become final, which showed that the assessee is entitled to higher depreciation, the Tribunal should have looked into the records and found whether the order requires any order of rectification. Since the Tribunal has not decided the, question, we are of the view that the Tribunal has acted erroneously and failed to exercise its jurisdiction conferred upon it. The case in hand is peculiar on the facts. After the order of the Commissioner (Appeals) on the merits of the case for the two assessment years, it has become established that here are certain mistakes apparent from the record in the original order of assessment. The Assessing Officer earlier held that there were no mistakes apparent from the record. When the Appellate Tribunal heard the matter against the orders of reassessment as well as against the order rejecting the request for rectification, it had before it both the orders, one holding that there are mistakes found in the original order of assessment, and the other holding that there are no mistakes apparent from the records, The Appellate Tribunal, as the ultimate appellate authority on facts, should have seen that the study of both the orders, juxtaposed to each other, would reveal that here are mistakes apparent in the original order of assessment. The assessee has kept the matter alive by bringing the matter before the Appellate Tribunal. We, therefore, hold that when the Appellant Tribunal, sitting in appeal over the order of the Assessing Officer and having the privilege of looking into both the orders before it, should have directed the Assessing Officer to rectify the, mistake, After the order of the Commissioner (Appeals), the assessee could not have gone before the Assessing Officer with a request to rectify the original order of assessment in the light of the findings of the appellate authority because of the finding of the Commissioner (Appeals). Hence, the only course left open to it was to approach the Appellate Tribunal by way of appeal to direct the Officer to rectify the mistakes. The assessee has precisely done the same, and a duty was cast upon the Tribunal to find out whether the views of the Assessing Officer and the Commissioner (Appeals) were correct. Though the appeals before the Tribunal are independent appeals, the decision on one appeal is interdependent upon the finding in the other appeal. Therefore, we are of the view that the view of the Tribunal that there was no mistake apparent on the face of the records is not sustainable in law. The Tribunal should also go into the question what is the correct and proper rate applicable to the plant and machinery in question and direct the Officer to rectify the mistake under section 154 of the Act. Accordingly, we answer the second question referred to us for the assessment years 1974-75 and 1976-7Z in the affirmative and in favour of the assessee.

In the result, we answer the first question in the negative and against the assessee. In so far as the second question is concerned, it relates to the assessment years 1974-75 and 1976-77, we answer the question in the affirmative and in favour of assessee. The assessee is entitled to the costs of Rs.500 one set.

M.B.A./3330/FCReference answered.