COMMISSIONER OF INCOME-TAX VS M. R. M. PLANTATIONS (P.) LTD,
2001 P T D 2658
[240 I T R 660]
[Madras High Court (India)]
Before R. Jayasinaha Babu and N. V. Balasubranranian, JJ
COMMISSIONER OF INCOME‑TAX
versus
M.R.M. PLANTATIONS (P.) LTD,
Tax Cases Nos. 868 to 870 of 1982 (References Nos. 1127, 1128 and 1039 of 1979), decided on 09/06/1998.
(a) Income‑tax‑‑‑
‑‑‑‑Rectification of mistake‑‑‑Mistake should be apparent from record‑‑ Meaning of "record "‑‑‑Record refers to record available to Authority at the time of initiation of rectification proceedings and not merely record of original proceedings sought to be rectified‑‑‑Order of assessment for immediately preceding year which was rectified could form the basis of rectification proceedings‑‑‑Indian Income Tax Act, 1961, S.154.
Section 154 of the Income Tax Act, 1961, opens with the orders "with a view to rectifying any mistake apparent from the record... "The term "record" is not defined in the section or in the definition section of the Act. For‑determining the true scope of this provision and the meaning to be properly assigned to the term "record" it is necessary to keep‑in view the object of the provision and the nature of the power conferred on the authorities under that provision. The absence of definition cannot have the consequence of limiting its meaning to a very narrow and limited sphere of the record of the original proceedings alone. The object with which power is conferred by section 154 is as stated in the marginal heading "rectification of mistake". The principal condition for exercising the power under section 154 is the existence of a mistake in the record. The mistake is not to be a mistake which requires in‑depth probing to discover but is a mistake which is "apparent" from the record. The power conferred by this provision is only to enable the authorities to rectify the "apparent" mistakes in the record. The record referred to is the record which the authorities are required to examine 'for the purpose of rectifying mistakes in the orders mentioned in sub- clauses (a), (b) and (c) of section 154(1). The section does not either expressly or implicitly require that the authorities exercising power under this provision should limit their attention only to the order sought to be rectified. The requirement that the mistakes in the record be "apparent" does not imply that no other relevant document should be looked into. If in the light of other legally valid orders it‑ is found that the original order contains mistakes which are apparent, the rectification of such mistakes is not barred under section 154. 1 is neither necessary nor possible to set out exhaustively all the material that can possibly be regarded as forming part of the "record" for the purpose of examination under section 154(1).
(b) Income‑tax‑‑‑
----Rectification of mistake‑‑‑Reassessment‑‑‑Fact that reassessment could be made would not prevent AO from initiating rectification proceedings‑‑‑Indian Income Tax Act, 1961, Ss. 147 & 154.
In the instant case, the order of assessment for the immediately preceding year which was rectified was undoubtedly a part of the record which was available for examination by the Income‑tax Officer for the purpose of deciding as to whether there was a mistake apparent on the face of the record in the order of assessment for the immediately succeeding year, namely, the assessment year 1974‑75. Moreso, as the figures of unabsorbed depreciation considered in the assessment for the assessment year 1974‑75 were the figures which the officers were required to obtain from the assessment order of the previous year and the two assessment orders to that extent were interlinked. After the rectification of the assessment order of the assessment year 1973‑74, no amount towards unabsorbed depreciation was available for being adjusted in the assessment year 1974‑75. The set‑off allowed in the original assessment order for that year was art apparent mistake which was rectifiable under section 154. The revision of the order under section 104 in accordance with section 155(7) was also justified.
Anglo Dutch Paint, Colour and Varnish Works (P.) Ltd. v. CIT (1986) 157 ITR 614 (Delhi); CIT v. Shree Manjunathesware Packing Products and Camphor Works (1998) 231 ITR 53 (SC); CIT v. Virmani Industries (P.) Ltd. (1995)216 ITR 607 (SC); Indra Singh & Sons (P.) Ltd. v. Union of India (1967) 64 ITR 501 (Cal.); Salem Provident Fund Society Ltd. v. CIT (1961) 42 ITR 547 (Mad.) and Seshasayee Paper and Boards Ltd. v. IAC of LT (1986) 157 ITR‑342 (Mad.) ref.
C.V. Rajan for the Commissioner.
Mrs. Maya Nichani for the Assessee.
JUDGMENT
R. JAYASIMHA BABU, J.‑‑‑The principal question that arises in these references is as to the scope of the "record" occurring in section;`154 of the Income Tax Act, 1961. That section reads as under:
"154. Rectification of mistake.‑‑‑(1) With a view to rectifying any mistake apparent from the record‑‑‑
(a) the Income‑tax Officer may amend any order of assessment or of refund or any other order passed by him;
(b) the Appellate Assistant Commissioner may amend any order passed by him under section 250 or section 271;
(c) the Commissioner may amend any order passed by him in revision under section 263 or section 264.
(1A) Where any matter has been considered and decided in any proceeding by way of appeal or revision relating to an order referred to in subsection (1), the authority passing such order may, notwithstanding anything contained in any law for the time being in force, amend the order under that subsection in relation to any matter other 'than the matter which has been so considered and decided.
(2) Subject to the other provisions of this section, the authority concerned‑‑‑‑
(a) may make an amendment under subsection (1) of its own motion, and.
(b) shall make such amendment for rectifying any such mistake which has been brought to its notice by the assessee, and where the authority concerned is the Appellate Assistant Commissioner, by the Income‑tax Officer also.
(3) An amendment, which has the effect of enhancing an assessment or reducing a refund or otherwise increasing the liability of the assessee, shall not be made under this section unless the authority concerned has given notice to the assessee of its intention so to do and has allowed the assessee a reasonable opportunity of being heard.
(4) Where an amendment is made under this section, an order shall be passed in. writing by the income‑tax authority concerned.
(5) Subject to the provisions of section 241, where any such amendment has the effect of reducing the assessment, the Income‑tax Officer shall make any refund which may be due to such assessee.
(6) Where any such amendment has the effect of enhancing the assessment or reducing a refund already made, the Income‑tax Officer shall serve on the assessee a notice of demand in the prescribed form specifying the sum payable, and such notice of demand shall be deemed to be issued under section 156 and the provisions of this Act shall apply accordingly.
(7) Save as otherwise provided in section 155 or subsection (4) of section 186 no amendment under this section shall be made after the expiry of four years from the date of the order sought to be amended. "
The word "record" is not defined in section 154 or in the definition section. While the assessee contends that the word "record" as it is used in section 154(1) means only the record available to the Assessing Officer at the time the order sought to be rectified was passed, it is the case of the Revenue that the "record' referred to in section 154(1) is the record available to the officer exercising the power under that section at the time the proceedings for' rectification are properly initiated within the period of limitation provided in section 154(7).
The assessee owns a rubber estate and for the assessment year 1973‑74 it had a business loss, unabsorbed depreciation and also long‑term capital gains. While the business loss was set‑off against the long‑term capital gains, the unabsorbed depreciation was not at all set‑off. The ‑amount which was not set off was Rs.54,156, being the amount. of aggregate unabsorbed depreciation for the assessment year 1971‑72 and 1972‑73. The assessment for the assessment year 1973‑74, was completed by allowing the ‑unabsorbed depreciation to be carried forward while taxing the capital gains of that year. In the succeeding assessment year 1974‑75, the unabsorbed depreciation for the assessment years 1971‑72 and 1972‑73 was deducted from the total income of the assessee and as the assessee was liable to pay tax under section 104(1) of the Act, on account of the failure to comply with its requirements, an order was passed against the assessee under that provision.
Thereafter, the assessment order for the assessment year 1973‑74 was sought to be rectified for .the purpose of setting off the unabsorbed depreciation for the assessment years 1971‑72 and 1972‑73 against the capital gain. After hearing the assessee and overruling the assessee's objections, the set‑off was given effect to as a consequence of which the taxable income got reduced and the assessee was given a refund of Rs.24,367. The assessee is aggrieved by the order of the Tribunal upholding the order made by the Assessing Officer and the question as to 'whether the adjustment so effected is a mistake apparent from the record within the meaning of section 154 of the Income‑tax Act" has been referred to us for our opinion, at the instance of the assessee.
Consequent to the adjustment of the unabsorbed depreciation against the capital gains for the assessment year 1973‑74 in terms of that rectification order, the Assessing Officer proceeded to rectify the assessment order for the succeeding year as well. After hearing the assessee and overruling the assessee's objections, the assessment order for the assessment year 1974‑75 was rectified resulting in aft additional demand for Rs.36,964: The order made against the assessee under section 104‑of the Act also came to be revised under section 155(7) of the Act resulting in an additional demand of Rs.45,282.
The assessee having appealed to the Tribunal against those orders, for the assessment year 1974‑75, the Tribunal set aside the order made by the Assessing Officer on the ground that the record before the Assessing Officer in respect of the assessment of the assessee's income for the assessment year 1974‑75 at the time the original order of assessment was made, did not contain any error apparent from the record. The Tribunal has taken the view that the term "record" in section 154(1) of the Act is confined to the record that was before the Assessing Officer at the time the original order of assessment was made and, therefore, it was impermissible for the authority to look into any order, which came into existence subsequent to the date of the assessment order. The Tribunal has also taken the view that an order made by way of rectification, unlike an order passed in appeal does not relate back to the date of the original order. The view of the Tribunal that there was no mistake apparent from the record for the assessment year 1974‑75 and that neither the original assessment nor the order under section 104 of the Act could have been rectified or revised has been challenged by the Revenue at whose instance, the question as to 'whether the deduction of unabsorbed depreciation in the assessment for the year 1974‑75 is a mistake apparent from the record". has been referred to us for our opinion. The Revenue has also raised a question as to "whether the Tribunal has rightly cancelled the order made under section 155(7) revising the order under section 104 of the Act".
It is not disputed before us that if the order of rectification for the assessment year 1974-75 is found to be sustainable, the order under section 155(7) of the Act would be equally sustainable. Learned counsel for the Revenue has not disputed the Tribunal's finding that an order of rectification would not, have the effect of relating back to the time the original order was passed and that its effect is only prospective.
Before the Tribunal, it had been urged for the Revenue that the order made by the Assessing Officer in respect of the assessment year 1974‑75 rectifying the errors therein was an order made under, section 154 of the Act though the order itself did not mention the provisions. The Tribunal accepted the case so pleaded by the Revenue and had considered `the same, by regarding the order made against the assessee as an order of rectification under section 154 of the ‑Act in respect of the assessment year 1974‑75 as well.
Section 154 of the Act opens with the words "with a view to rectifying any mistake apparent from the record... "The term "record" as noticed earlier is not defined in the section or in the definition section of the Act. For determining the true scope of this provision and the meaning to be properly assigned to the teeth "record" it is necessary to keep in view the object of the provision and the nature of the power conferred on the. authorities under that provision. These are the criteria which the Supreme Court adopted while considering the scope and effect of section 263 of the Act and the meaning to be assigned to the word "record" used in' that provision, in the case of CIT v. Shree Majunathesware Packing‑Products and Camphor Works (1998).' 231 ' ITR 53: The' object with which power is conferred by section 154 is as stated in the marginal heading "rectification of mistake". The principal condition for exercising the power under section 154 of the Act is the existence of a mistake in the record. The mistake is not tote a mistake which requires in depth probing to discover; but is a mistake which is "apparent" from the record. The power conferred by this provision is only to enable the authorities to rectify the "apparent" mistakes in the record. The record referred to is the record which the authorities are required to examine for the .purpose of , rectifying the mistakes in the orders mentioned in clauses (a); (b) and (c) of section 154(1) of ‑the Act. The section does not either expressly or implicitly require, that the authorities exercising power tender this provision should limit their attention only to the order sought to be rectified.
The requirement that the mistake in the record be "apparent" does not imply that no other relevant document should be looked into. If in the light of other legally valid orders it is found that the original order contains mistakes which are apparent, the rectification of such mistakes is not barred tinder section 154. The object of the provision is the rectification of mistakes in the record and that object is ill‑served if the authorities are compelled to preserve such mistakes in the order by asking them to wear blinkers and not look into relevant unimpeachable material such as the rectified order of assessment for the period preceding the assessment year in. the light of which mistakes in the order sought to be rectified are apparent.
It is neither necessary nor possible to set out exhaustively all the material that can possibly be regarded as forming part of the "record" for the purpose of examination under section 154(1) of the Act. On the facts of this case, the order of assessment for the immediately proceeding year which was rectified was undoubtedly a part of the record which was available for examination by the Income‑tax Officer for the purpose of deciding as to whether there was a mistake apparent on the face of the record in the order of assessment for the immediately succeeding year, namely, the assessment year 1974‑75. More so, as the figures of unabsorbed depreciation considered in the assessment for the assessment year 1974‑75 were the figures which the officers were required to obtain from the assessment order of the previous year and the two assessment orders to that extent were interlinked. After the rectification of tire assessment order for the assessment year 1973‑74 no amount towards unabsorbed depreciation was available for being adjusted in the assessment year 1974‑75. The set-off allowed on the original assessment order for that year was an apparent mistake which was rectifiable under section154.
It is no doubt true as submitted by learned counsel for the assessee that even an erroneous order may be given effect to if it is not rectified with him the time allowed by law. However, such order, cannot be regarded as having become final until the expiry of the period available for such rectification.
Learned counsel for the assessee submitted that‑unlike section 263, section 154 of the Act does not contain the definition of tile word "record". The absence of the definition, however, cannot have the consequence of limiting its meaning to a very narrow and limited sphere of the record of the original proceedings alone. The period of four years prescribed in the section for initiating rectification proceedings is meant to protect the assessee against unduly delayed proceedings for rectification, as also to enable the authorities to have sufficient time within which to give effect to the consequence of any orders which may be rectified or revised or modified when they have a direct bearing upon the assessment order sought to be rectified under section 154(1) of the Act. Such orders would form part of the record which is available for scrutiny by the officers exercising powers under section 154 of the Act. The record for the purpose of section 154(1) is the record available to the authorities at the time of initiation of proceedings for rectification and not merely the record of the original proceeding sought to be rectified.
The Supreme Court in the case of CIT v. Shree Majunathesware Packing Products and Camphor Works (1998) 231 ITR 53 has held that "record" in section 263 of the Act means the record before the Commissioner at the time of the exercise of the power of revision. For reaching that conclusion, the Court did not rely only on the definition of the word "record" which had been introduced in section 263 as is evident from the following observations of the Court (headnote):
"It cannot be said that the correct and settled legal position, with respect to the meaning of the word 'record' till June 1, 1988, is that it meant the record which was available to the Income‑tax Officer at the time of passing of the assessment order. Such a narrow interpretation of the word 'record' is not justified in view of the object of the provision and the nature and scope of the power conferred upon the Commissioner."
Those observations are equally applicable to the interpretation of the term "record" in section 154 of the Act.
Learned counsel for the assessee contended that the authority should have initiated proceedings under section 147(b) of the Act and not under section 154 of the Act. There are no words of limitation in section 154 to the effect that if the proceedings can be initiated under any other provision, section 154, cannot be resorted to. In the case' of Salem Provident Fund Society Ltd: v. CIT (1961) 42 ITR 547; it was held by this Court that proceedings can be held under section 34 or 35 and that the availability of the power vested with the Income‑tax Officer by section 35 did not `appear to bar the exercise of the jurisdiction vested in him by section 34 of the Act. In the case of Indra Singh and Sons (Pvt.) Ltd. v. Union of India (1967) 64 ITR 501, it was held by the Calcutta High Court that the Income‑tax Officer can proceed under section 35 of the 1922 Act, if he had jurisdiction to do so, even though he had jurisdiction to proceed under section 34 of, the said Act, also.
Learned counsel for the assessee referred to the case of Seshasayee Paper and Boards Ltd. v. IAC of I.T. (1986) 157 ITR 342 (Mad.), to support her submission that even a wrong order has a finality and unless that finality is disturbed by a process known to law or by a process authorised by law, the rights of the assessee and the Revenue will continue to be governed by the order. That proposition, however, does not assist the assessee as it cannot be disputed that the order of assessment for the year 1974‑75 could not have been regarded as having become final before the expiry of the period of four years that was available to the authorities for initiating rectification proceedings.
Counsel for the assessee also placed reliance on the decision of the Delhi High' Court in the case of Anglo Dutch Paint, Colour and Varnish Works (Pvt.) Ltd. v. CIT (1986) 157 ITR 614, wherein the Delhi High Court in a case arising under the Indian Income‑tax Act, 1922, held that section 35 of that Act did not apply to a case where in consequence of the reassessment for a particular assessment year some changes had to be made in the assessment orders for some other years. That decision also does not assist the assessee as section 154 of the Act is clearly attracted to the case of the assessee herein and it was permissible for the Income‑tax. Officer to rectify the mistakes apparent in the assessment order for the year 1974‑75 after the assessment order for the year 1973‑74 was rectified and as a consequence of ‑which there was no unabsorbed depreciation available for being adjusted ‑in the assessment year 1974‑75.
The question referred to us at the instance of the assessee for the assessment year 1973‑74 is, therefore, answered in the affirmative, in favour of the Revenue and against the assessee. The mistake in not allowing the unabsorbed depreciation as a deduction from the capital gains in the year 1973‑74, is clearly a mistake apparent from the record as under section 71(2) of the Act, that amount was required to be set‑off against the capital gain and that had not been done in the original assessment order. The original assessment order also did not conform to the law laid down by the Supreme Court in the case of CIT v. Virmani Industries (Pvt.) Ltd. (1995) 216 ITR 607.
The question referred to us at the instance of the Revenue for the assessment year 1974‑75 are required to be answered in the affirmative in so far as it relates to the rectification of the mistakes in the assessment order for the year 1974‑75 and in the negative in so far as the order made under section 155(7) of the Act is concerted. The questions are answered in favour of the Revenue and against the assessee. The order of rectification revising the assessment order for the year 1974‑75 is one which had been made in accordance with section 154 of the Act and the order revising the order made under section 104 of the Act is one which has been made in accordance with section 154(7) of the Act. The orders so made are lawful and binding on the assessee. The Revenue is entitled to costs in the sum of Rs.1,000.
M:B.A./362/FCOrder accordingly.