Income Tax Appellate Tribunal - Madras
First Income-Tax Officer vs D.C. Bhansali on 12 June, 1987
Equivalent citations: [1987]22ITD45(MAD)
ORDER
George Cheriyan, Vice President (WZ), Accountant Member
1.This appeal is by the revenue. Appeal relates to the assessment year 1977-78. In the present case the assessment was made on 29-8-1978 under the provisions of Section 143(1) of the Income-tax Act, 1961 ('the Act'). In making the assessment share incomes from various firms were brought to tax as also income under the head 'Income from other sources'. Statutory deductions were also allowed. Subsequently on 26-8-1982 the ITO passed an order under Section 154. He stated as under:
The assessee had claimed interest payment to the extent of Rs. 24,047 as detailed below and this was allowed in the order dated 29-8-1978 :
Rs.Interest paid to Kesaria & Co. (E) 689
Interest paid to Kesaria & Co. (G) 6,460
Interest paid to Kesaria Nilgiri Hills Tea Plantations 16,898
24,047
It was however found from the copy of the assessee's accounts in the firms that the drawings from the firms had been made only for personal purposes such as payment of Life Insurance Premium, purchase of furniture, purchase of air tickets, etc, As the withdrawals from these firms were for non-business purposes allowance of interest on such withdrawals was mistake apparent from the record. Further the withdrawals were utilised neither for making any investments nor for earning any income. A notice under Section 154 was, therefore, issued to the assessee on 17-10-1981 calling for his objection, if any, for the revision of assessment disallowing the interest claim of Rs. 24,047.
There has however been no response till date. The interest on borrowals is allowable, either if the borrowals are for business purposes or if these are for payment of income-tax. If the borrowals are for personal purposes this cannot be allowed under the statute. In the circumstances I modify the assessment as under Section 154 withdrawing the interest of Rs. 24,047 originally allowed. . .
2. The assessee appealed and submitted before the AAC that the rectification under Section 154 should not have been made. The AAC referred to the copies of accounts which were produced before him and referred to the argument that many of the drawings have been utilised for the payment of taxes and further that this was a case where more than two opinions were possible and, therefore in no sense was there a mistake apparent from the records. He, therefore, cancelled the order under Section 154.
3. The revenue is in appeal before us and the specific grounds urged in the grounds of appeal are as under :
2. Even as per the findings of the AAC, if not wholly, at least a substantial portion of the funds were used towards personal purposes. The AAC could have at least apportioned it and given his finding as to how much is disallowable.
3. The learned AAC's decision that to the facts of the case, ITO's jurisdiction under Section 154 does not apply is erroneous.
4. The learned counsel for the assessee submitted that the ITO exceeded his jurisdiction in invoking the provisions of Section 154 and in particular made the submission that the records of a firm could never constitute records of the assessee and there was no mistake apparent from the records. The learned departmental representative submitted that as long as there were drawings for personal purposes, interest attributable to the same had necessarily to be disallowed and, therefore, there was to that extent clearly a mistake apparent from the records and the rectification order under Section 154 was passed with jurisdiction and the AAC erred in quashing the same and at best he should have only modified the addition.
5. We have considered the rival submissions. The present assessment has been made under Section 143(1). The provision as it stood at the material time read as under:
143. Assessment.--(1)(a) Where a return has been made under Section 139 the ITO may, without requiring the presence of the assessee or the production by himself any evidence in support of the return, make an assessment of the total income or loss of the assessee after making such adjustments to the income or loss declared in the return as are required to be made under Clause (b), with reference to the return and the accounts and documents, if any, accompanying it, and for the purposes of the adjustments referred to in Sub-clause (iv) of Clause (b), also with reference to the record of the assessments, if any, of past years, and determine the sum payable by the assessee or refundable to him on the basis of such assessment.
(b) In making an assessment of the total income or loss of the assessee under Clause (a), the ITO shall make the following adjustments to the income or loss declared in the return, that is to say, he shall, --
(i) rectify any arithmetical errors in the return, accounts and documents referred to in Clause (a) ;
(ii) allow any deduction, allowance or relief which, on the basis of the information available in such return, accounts and documents, is, prima facie, admissible, but is not claimed in the return;
(iii) disallow any deduction, allowance or relief claimed in the return which, on the basis of the information available in such return, accounts and documents, is, prima facie, inadmissible ;
(iv) give due effect to the allowance referred to in Sub-section (2) of Section 32, the deduction referred to in Clause (ii) of Sub-section (3) of Section 32A or Clause (ii) of Sub-section (2) of Section 33 or Clause (ii) of Sub-section (2) of Section 33A or Clause (i) of subsection (2) of Section 35 or Sub-section (1) of Section 35A or subsection (1) of Section 35D or Sub-section (1) of Section 35B or the first proviso to Clause (ix) of Sub-section (1) of Section 36, any loss carried forward under Sub-section (1) of Section 72 or Sub-section (2) of Section 73 or Sub-section (1) of Section 74 or Sub-section (3) of Section 74A and the deficiency referred to in Sub-section (3) of Section 80J, as computed, in each case, in the regular assessment, if any, for the earlier assessment year or years.
6. There is the further provision of Section 143(2), which states as under:
(2) Where a return has been made under Section 139, and--
(a) an assessment having been made under Sub-section (1), the assessee makes within one month from the date of service of the notice of demand issued in consequence of such assessment, an application to the ITO objecting to the assessment, or
(b) whether or not an assessment has been made under Sub-section (1), the ITO considers it necessary or expedient to verify the correctness and completeness of the return by requiring the presence of the assessee or the production of evidence in this behalf, the ITO shall serve on the assessee a notice requiring him, on a date to be therein specified, either to attend at the ITO's office or to produce, or to cause to be there produced, any evidence on which the assessee may rely in support of the return :
Provided that, in a case where an assessment has been made under Sub-section (1), the notice under this Sub-section [except where such notice is in pursuance of an application by the assessee under Clause (a)] shall not be issued by the ITO unless the previous approval of the IAC has been obtained to the issue of such notice :
Provided further that in a case where the assessment made under Sub-section (1) is objected to by the assessee by an application under Clause (a), the assessee shall not be deemed to be in default in respect of the whole or any part of the amount of the tax demanded in pursuance of the assessment under that Sub-section, which is disputed by the assessee, in so far as such amount does not relate to any adjustment referred to in Sub-clause (i) of Clause (b) of Sub-section (1), and further no interest shall be chargeable under Sub-section (2) of Section 220 in respect of such disputed amount.
7. Finally there are the provisions of Section 143(3) which state :
(3) On the day specified in the notice issued under Sub-section (2), or as soon afterwards as may be, after hearing such evidence as the assessee may produce and such other evidence as the ITO may require on specified points, and after taking into account all relevant material which he has gathered,--
(a) in a case where no assessment has been made under Sub-section (1), the ITO shall, by an order in writing, make an assessment of the total income or loss of the assessee, and determine the sum payable by him or refundable to him on the basis of such assessment ;
(b) in a case where an assessment has been made under subsection (1), if either such assessment has been objected to by the assessee by an application under Clause (a) of Sub-section (2) or the ITO is of opinion that such assessment is incorrect, inadequate or incomplete in any material respect, the ITO shall by an order in writing make a fresh assessment of the total income or loss of the assessee, and determine the sum payable by him or refundable to him on the basis of such assessment.
Explanation : For the purposes of this section,--
(1) an assessment under Sub-section (1) shall be deemed to be incorrect, inadequate or incomplete in a material respect, if--
(a) the amount of the total income as determined under subsection (1) is greater or smaller than the amount of the total income on which the assessee is properly chargeable under this Act to tax ; or
(b) the amount of the tax payable as determined under subsection (1) is greater or smaller than the amount of the tax properly payable under this Act by the assessee ; or
(c) the amount of any loss as determined under Sub-section (1) is greater or smaller than the amount of the loss, if any, determinable under this Act on a proper computation ; or
(d) the amount of any depreciation allowance, development rebate or any other allowance or deduction as determined under subsection (1) is greater or smaller than the amount of the depreciation allowance, development rebate or, as the case may be, other allowance or deduction properly allowable under this Act ; or
(e) the amount of the refund as determined under Sub-section (1) is greater or smaller than the amount of the refund, if any, due under this Act on a proper computation ; or
(f) the status in which the assessee has been assessed under Sub- Section (1) is different from the status in which the assessee is properly assessable under this Act.
8. In the present case the assessment was made under Section 143(1). Under Section 143(1) there were only certain adjustments which were statutorily permitted to be made by the ITO. To put it conversely, adjustments other than those specified under Section 143(1) were prohibited to be made by the ITO. If the ITO were to make adjustments other than those permitted under Section 143(1), he would be acting beyond his jurisdiction in making the assessment under Section 143(1). Section 143(1)(iii) is the only relevant provision in the present case. That permitted the ITO to disallow any deduction, allowance or relief claimed in the return, which on the basis of the information available in such returns, accounts and documents is prima facie inadmissible. On the ITO's own showing in the order under Section 154 it was found only from the copy of the assessee's accounts in the firms of which he was a partner that the drawings had been for personal purposes. Therefore, this was not information available in such returns', accounts or documents, because the accounts and documents referred to are accounts and documents, if any, which accompanied the return. Therefore, while making the assessment under Section 143(1) the ITO could not have made adjustments which he purported to make under Section 154. If he did so since he would have exceeded his jurisdiction his order under Section 143(1) would have suffered from a mistake apparent from the records since it would have been contrary to law.
9. On reading the provisions of Section 143(2)(b) it is clear that before the ITO made the assessment under Section 143(1), he had the option to adopt regular procedure under Section 143(2) and thereafter finalise the assessment under Section 143(3) and even after the assessment is made under Section 143(1) he could still adopt the procedure prescribed under Section 143(2) and then eventually make a fresh assessment under Section 143(3). In the present case the ITO has not taken recourse to either of such procedures.
10. We now come to the provisions of Section 154. Section 154(1) vests powers in the ITO to pass an order with a view to rectifying "any mistake apparent from the records". Where the ITO had an option of choosing to make the assessment under Section 143(1) or under Section 143(3) and he chose to make an assessment under Section 143(1), then his jurisdiction in making the adjustments was confined to such adjustments as were permitted under the provisions of Section 143(1). Section 154(1) as it stood at the material time stated that "with a view to rectifying any mistake apparent from the record, the ITO may amend any order of assessment or of refund or any other order passed by him". Where the assessment was made under Section 143(1), and the statute precluded the ITO under such powers to make a particular adjustment even if it was known to him at the time the assessment was made, then he cannot have recourse to the provisions of Section 154(1) for amending that order of assessment, to make such adjustments as were not permissible originally for there would have been no mistake apparent from the records. Assuming at the time the ITO made the assessment under Section 143(1) there was the return of income in the assessee's own case and the statements accompanying the return did not disclose payment of an interest on any drawings for personal purposes and simultaneously the records of the firm were also available to the ITO which contained such information, if the ITO chose the procedure under Section 143(1), then, since the deduction claimed would not fall within the permissible adjustment under Section 143(1)(a)(iii) because the information was not available in such returns, accounts and documents, that is, those which accompanied the return, the adjustment could not have been made. When at the time of making the assessment such adjustments could not have been made, where he proceeded under Section 143(1), there was no mistake apparent from the records, though the information may have existed separately in the firm's return. The ITO cannot extend the jurisdiction under Section 143(1) while having recourse to the power vested under Section 154. The rectification under Section 154 cannot vest additional jurisdiction with the ITO. If the ITO wanted to make adjustment according to his discretion, he should have taken recourse to the provisions of Sub-section (2) and (3) of Section 143 when he would have untrammelled vista ; but not having chosen to do so, he was shut out from making the rectification in the present case under Section 154. Had the assessment been made under Section 143(3), the position would have been different but by giving up that option, the powers of rectification under Section 154 also become circumscribed with such powers alone that could be exercised within the jurisdiction conferred under Section 143(1). In the present case, such jurisdiction in making the assessment under Section 143(1) has clearly been transgressed by making the impugned adjustment under Section 154. The order under Section 154 was accordingly rightly annulled by the AAC though we have come to this conclusion by different reasons than those stated by the AAC.
11. Appeal of the revenue is accordingly dismissed.
D.S. Meenakshisundaram, Judicial Member
1. I have had the advantage of perusing the order of my learned brother, Shri George Cheriyan. With great respect to him, I find myself unable to agree with him. Since all the facts and the relevant provisions of law have been fully set out in the order of my learned brother, I would confine myself by stating the reasons in support of my conclusion.
2. It is an undisputed fact that an assessment has been made on 29-8-1978 by the Income-tax Officer under Section 143(1) of the Income-tax Act, 1961 in the present case. Merely because the Income-tax Officer acted under Section 143(1) of the Act to complete the said assessment, it does not cease to be an order of assessment contemplated under the law. In fact, the provisions of Section 143(1)(a) quoted in paragraph 5 of the order of my learned brother calls it an assessment only. It is further reiterated by the provisions contained in Section 143(1)(b) also. If this is the correct position in law, then this assessment order under Section 143(1) would squarely fall within the provisions of Section 154(1) of the Act which provides for rectification of any mistake apparent from the record, which includes "any order of assessment" also. There is nothing in the provisions of Section 143(1)(a) or (b) of the Act, which excludes the operation and applicability of Section 154 of the Act to assessments made under Section 143(1) of the Act. In my view, there is no scope or justification for restricting the jurisdiction and powers of the Income-tax Officer under Section 154 of the Act so as to exclude assessment orders passed by him under Section 143(1) of the Act out of the purview of Section 154 of the Act.
3. The provisions of Section 143(1)(b) of the Act referred to by my learned brother only enables the Income-tax Officer to make certain adjustments as specified under the four Sub-clauses (i) to (iv). This provision has nothing to do with the assessment order passed under section 143(1)(a) of the Act. It would be noticed that Section 143(1)(b)(i) enables the Income-tax Officer to rectify any arithmetical errors in the return, accounts and documents filed by the assessee and referred to in Clause (a). Thus, the error of rectification specified in this Sub-clause is with reference to the return filed by the assessee and not with reference to the assessment order to be passed by the Income-tax Officer under Section 143(1)(a) of the Act. In fact, the Explanation to Section 143 itself contemplates an incorrect, inadequate or incomplete assessment under Section 143(1) which the Income-tax Officer is empowered to recall and make a fresh assessment under Section 143(3)(b) of the Act. In cases where the Income-tax Officer does not act under Section 143(3)(b), it is open to him to rectify any mistake apparent from the record by invoking his powers under Section 154 of the Act. I find nothing in the provisions of Section 143(1) of the Act which puts a constraint on the jurisdiction and powers of the Income-tax Officer under Section 154 of the Act so as to take all orders passed by an Income-tax Officer under Section 143(1) of the Act out of the purview of Section 154 of the Act. Such a conclusion does not follow either on the express provisions contained in Section 143(1) read with Section 154 of the Act or by implication.
4. In CIT v. Shahzada Nand & Sons [1966] 60 ITR 392 at 400, their Lordships of the Supreme Court quoted with approval the following rules of construction :
The classic statement of Rowlatt J. in Cape Brandy Syndicate v. Inland Revenue Commissioners still holds the field. It reads :
...In a taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used.
To this may be added a rider : in a case of reasonable doubt, the construction most beneficial to the subject is to be adopted. But even so, the fundamental rule of construction is the same for all statutes, whether fiscal or otherwise. The underlying principle is that the meaning and intention of a statute must be collected from the plain and unambiguous expression used therein rather than from any notions which may be entertained by the court as to what is just or expedient. The expressed intention must guide the court.
5. When we examine the provisions of Section 143(1) and Section 154(1)(a) of the Act as it stood at the relevant time, I find no warrant or justification for placing any restraint or constraint on the jurisdiction of the Income-tax Officer under Section 154 of the Act to rectify an assessment under Section 143(1) of the Act. I may point out that the jurisdiction of the authorities under Section 154 of the Act is not only for the interests of the revenue, but also in the interests of the assessees as well. In fact, it is an easy, cheap and expeditious remedy for assessees to get relief where it is lawfully due to them when there is an apparent mistake committed by the Income-tax Officer. I would therefore not like to read any constraint or fetter being placed by the provisions of Section 143(1) of the Act on the jurisdiction and powers of the ITO to rectify any order of assessment or of refund or any other order passed by him.
6. I would, therefore, hold that the Appellate Asstt. Commissioner was wrong in holding that the Income-tax Officer had no jurisdiction to rectify the assessment order passed by him under Section 143(1)(a) of the Act in the present case by invoking his powers under Section 154 of the Act.
7. According to ground No. 2 of the grounds of appeal filed by the revenue and which has been quoted in paragraph 3 of my learned brother's order, the grievance of the department is that on the findings of the AAC at least a substantial portion of the funds were used towards personal purposes of the assessee and that therefore a portion of the interest claimed by the assessee as a deduction would be disallowable. It is seen from the order of rectification passed by the Income-tax Officer that in spite of the show cause notice issued to the assessee on 17-10-1981 calling for his objections, the assessee did not state his objections to the proposed rectification till the Income-tax Officer passed the order of rectification under Section 154 on 26-8-1982. It is for the first time before the AAC the assessee's representative seems to have produced copies of accounts in support of his contention that most of the drawings had been utilised for payment of taxes and that therefore the Income-tax Officer's view was not correct. If the AAC considered that this contention of the assessee was right, in fairness he should have given an opportunity to the Income-tax Officer to examine these copies of accounts and offer his comments before he accepted the same. Since the ITO had no opportunity to examine the copies of accounts produced by the assessee to substantiate his claim and since the AAC also did not give any opportunity to the ITO, I consider it just, fair and reasonable to set aside the order of the AAC and restore the matter to his file for fresh disposal in accordance with law after giving an opportunity both to the assessee and the Income-tax Officer to substantiate their contentions. For statistical purposes, I would treat the appeal filed by the department as partly allowed.
ORDER UNDER SECTION 255(4) OF THE INCOME-TAX ACT, 1961 George Cheriyan, Vice President (WZ)
1. The appeal in the present case relates to the assessment year 1977-78. The assessment for this year was completed under the provisions of Section 143(1) of the Income-tax Act, 1961 on 29-8-1978. Subsequently, on 26-8-1982 the Income-tax Officer passed an order under Section 154. In the aforesaid order he made certain adjustments and additions to the income and modified the assessment as originally made. The specific details have been set out in the order of the Accountant Member. The assessee appealed and the Appellate Asstt. Commissioner quashed the order under Section 154 on the ground that more than two opinions were possible and the mistake could not be treated as one apparent from the records.
2. The Revenue appealed to the Tribunal. The Accountant Member has taken the view that the specific adjustments etc. made by the Income-tax Officer under Section 154 of the Act could not have been made by him, having regard to the nature of adjustments, etc., which alone were permissible under the statute in making an assessment under Section 143(1) of the Act.
3. The Judicial Member has taken the view that the adjustment in question did not fall outside the purview of the provisions of Section 154, even though the assessment in the present case had been made under the provisions of Section 143(1).
4. In the view taken by him the Accountant Member has dismissed the appeal of the Revenue. The Judicial Member while holding that the provisions of Section 154 were applicable to the case, has restored the appeal to the Appellate Asstt. Commissioner to go into certain further facts.
5. On the aforesaid facts, we formulate the point of difference as under :--
Whether, on the facts and in the circumstances of the case, the assessment having been made under Section 143(1) of the Income-tax Act, 1961, the specific adjustments as made by the Income-tax Officer in the order under Section 154 of the Act were valid and within his jurisdiction ?
6. We direct that the case now be placed before the President of the Income-tax Appellate Tribunal in terms of Section 255(4) of the Income-tax Act, 1961.
ORDER Ch. G. Krishnamurthy, President
1. This appeal has come before me as Third Member to resolve the dispute that arose between my learned brothers who heard this appeal originally.
2. The assessee in this appeal is an individual deriving income from various firms and dividends. I am concerned in this appeal with three of these firms, viz., M/s. Kesaria & Co. (E), M/s. Kesaria & Co. (G) and M/s. Kesaria Nilgiri Hills Tea Plantations. From the first two firms, the assessee had shown nil income and from the third firm, a share income of Rs. 21,929 was determined. The assessee also paid interest to these three firms of the following sums :--
Rs.(i) Kesaria & Co. (E) 689
(ii) Kesaria & Co. (G) 6,460
(iii) Kesaria Nilgiri Hills Tea Plantations 16,898
Total . . . 24,047
3. For the assessment year under appeal, the assessee filed the return claiming the deduction of interest paid to these firms. In the statement of total income that was filed along with the return of income, under the head 'Other Sources', the assessee has shown dividends and interest income received from the aggregate of which the interest of Rs. 24,047 was deducted and the resultant loss of Rs. 16,397 was shown.
4. The Income-tax Officer completed the assessment under Section 143(1) adopting the share income from the two firms provisionally at nil and adopting Rs. 21,929 from the third firm as determined in the assessment of that firm.
5. Subsequently, it appears that the ITO came to note from the copies of the assessee's accounts in the abovesaid three firms that the drawings made from those firms were used only for the purposes of payment of life insurance premium, purchase of furniture, purchase of air tickets etc. As the withdrawals from those firms were for non-business purposes, he came to the view that the allowance of interest on such withdrawals as a deduction in computing the income was a mistake apparent from the record. On the view that this mistake could be rectified under Section 154 of the Act, a notice under Section 154 was given to the assessee but the assessee did not file any reply. The ITO, therefore, modified the assessment with the following observations :--
The interest on borrowals is allowable either if the borrowals are for business purposes or if these are for payment of income-tax. If the borrowals are for personal purposes this cannot be allowed under the statute. In the circumstances I modify the assessment as under Section 154 withdrawing the interest of Rs. 24,047 originally allowed.
6. Aggrieved by this order, the assessee filed an appeal before the AAC, Coimbatore Range, Coimbatore. It was contended before him that (a) the ITO had no jurisdiction to rectify the assessment because the mistake sought to be rectified was not a mistake apparent from record and that it was only a change of opinion, and (b) the copies of the accounts of the assessee in the said three firms showed that most of the drawings were utilised for the payment of taxes and, therefore, the view taken by the ITO that the withdrawals were used for non-business purposes like payment of insurance premium, purchase of furniture and purchase of air tickets, was incorrect.
7. The AAC allowed the assessee's claim with the following observations : --
After going through the facts of the case and the learned representative's argument, I hold that the ITO has no jurisdiction to rectify the assessment under Section. 154 as on this issue more than two opinions are possible, and in no sense the mistake sought to be rectified here can be termed as a mistake apparent from records, Aggrieved by this order, the Department has come up in further appeal before the Tribunal.
8. After hearing the arguments advanced both for and against the assessee, the learned Judicial Member took the view that the adjustment made by the ITO under Section 154 fell very much within the purview of the provisions of Section 154 even though the assessment, in the present case, was made under the provisions of Section 143(1). But, the learned Accountant Member took the view that the assessment having been made under Section 143(1), it is perhaps not open to the Department to modify the assessment under Section 154 unless the parameters stipulated for making an assessment under Section 143(1) were complied with. The learned Accountant Member pointed out that to enable the ITO to rectify an assessment under Section 154, there must be a mistake apparent from the record and this mistake which the ITO had now sought to rectify was not such a mistake apparent from record because none of those documents accompanied the return. Even if the ITO collected this information from the records of the firm, still that could not be said to be an information available with the ITO at the time of making the assessment under Section 143(1) and, therefore, that information which he states he had collated from the firms' records, could not be regarded as information available with the ITO while making the assessment.
9. Hence the difference of opinion between the learned Members and the following point of difference was referred by the learned Members to the President who nominated me as Third Member :
Whether, on the facts and circumstances of the case, the assessment having been made under Section 143(1) of the Income-tax Act, 1961, the specific adjustments as made by the Income-tax Officer in the order under Section 154 of the Act were valid and within his jurisdiction ?
10. I have heard at length both the learned Departmental Representative Shri K.L. Tilakchand and the learned representative for the assessee, Shri K.R. Ramamani. The first objection that the learned Departmental Representative raised was that once an assessment was made under Section 143 of the Income-tax Act either under Sub-section (1) accepting the return by making such adjustments as are permitted without calling from the assessee any further production of evidence, or under Sub-section (3) by calling for such evidence as the ITO might need or under Section 144 when there was failure on the part of the assessee to comply with the notices issued by the Department, yet all the three were valid assessments fixing upon the assessee the statutory liability to pay income-tax and if any mistake occurred in those orders, they could all be rectified under Section 154 and it is wrong to say that an order passed under Section 143(1) is not amenable to rectification under Section 154, since any mistake that crept into an assessment order can be rectified. If this extreme view is taken, he argued, if there is a simple arithmetical mistake in addition or subtraction or in the calculation of tax, there will be no remedy left to rectify those mistakes except resorting to the long-drawn process of seeking the intervention of the CIT. This is not the object of Section 154. By relying upon the wordings of Section 154, he submitted that 'any order' passed by an ITO used in that Section, referred to any assessment order passed by the ITO irrespective of whether they are under Section 143(1) or 143(3) or 144. Therefore, the ITO is entitled to apply the provisions of Section 154 if he found that there was a mistake. When he made an assessment without making statutory enquiries as he was bound to do under Section 143(1) and makes an allowance which is prima facie disallowable, that becomes a mistake apparent from record which he can rectify under Section 154. In this case, the assessee's withdrawals from the firms were discovered to have been made only for personal purposes and not for business purposes. The allowance of interest by the ITO while making the original assessment on the view that these withdrawals were made for business purposes, was found to be erroneous that gave the vital jurisdiction to the ITO to modify the assessment under Section 154. The learned Accountant Member was, therefore, wrong in coming to the contrary conclusion. He then argued that it has now been settled law that record for the purpose of assessment of an individual assessee does not necessarily mean the individual record of an assessee but also the record of the firms in which he happens to be a partner. By relying upon several decisions of the High Courts and Supreme Court on this issue, he submitted that the records of the firm also constituted records of the assessee and if the total record discloses a position where interest was wrongly allowed or was not to be allowed at all, that becomes a mistake apparent from record rectifiable under Section 154. The learned Accountant Member was, therefore, not right in saying that the records of the firm do not constitute records of the assessee and should be totally eschewed. He commended for acceptance the view taken by the learned Judicial Member.
11. On the other hand, Shri Ramamani for the assessee, relying upon again the Supreme Court decisions in ITO v. S.K. Habibullah [1962], 44 ITR 809, Second Addl. ITO v. Atmala Nagaraj [1962] 46 ITR 609, of the Delhi High Court decision in Swaran Yash v. CIT [1982] 138 ITR 734 and lastly the Madras High Court decision in EM. Muthappa Chettiar v. CIT [1964] 53 ITR 642, submitted that record means the record of the assessee and not the firm's record and this was the view expressed with reference to the provisions of Section 35(5) of the 1922 Act. Therefore, the firm's record is not to be seen for the purpose of finding out whether there is any mistake in the assessment made by the ITO. He submitted that the matter must be looked at in three ways--one is whether Section 143(1) excludes the application of Section 154 and secondly, whether Section 154, if applies, whether the firm's records are to be looked into and thirdly, whether there was any mistake at all. He particularly criticised the observation made by the learned Judicial Member at the end of his order whereby he directed the ITO to look into the matter afresh urging that in an appeal filed against an order passed under Section 154, such a direction to make further enquiry was not called for.
12. I have carefully considered these submissions and, in my opinion, the matter could be disposed of on facts without referring to the legal questions raised although I am of the opinion that it will be very difficult to say that to an assessment made under Section 143(1), the provisions of Section 154 would have no application. I would not like to dwell on this point much further. I would like to see whether the facts of this case present a view that the interest was wrongly allowed. The order passed by the ITO under Section 154 shows that it was only after seeing the firms' records that he came to know from the copies of accounts of the assessee in those firms that the withdrawals made were for personal purposes. It is not clear from the facts of this case whether the records of the firms were available to the ITO when he made the assessment under Section 143(1). If the records were available to the ITO at that time, then it could perhaps be said that the ITO made a mistake in allowing the assessee the interest. But, if the information came into his possession subsequent to the making of the assessment under Section 143(1), that information cannot constitute a mistake rectifiable under Section 154. This is exactly the view that is expressed by the learned Accountant Member in his order. Since it is now settled from the records that while making the assessment, the ITO only had before him the statement of account filed by the assessee wherein the claim for deduction of interest was made and no other information was available, it cannot be said that the ITO had that information before him and yet made this wrong allowance, assuming that the allowance was wrong. Since the information was not available to the ITO at that time, a subsequent discovery of this point from records which were not available with the ITO cannot perhaps be said to be a mistake apparent from record. The record must be the record available to the ITO while making the assessment in order that Section 154 may apply.
13. That apart, there is a categorical finding recorded in the order of the AAC that most of the withdrawals were utilised for payment of income-tax. This finding not having been rebutted by the Department by filing necessary evidence, it is very difficult to say whether the withdrawals which needed an interest payment of Rs. 24,047 (i.e., the capital must be very huge) were employed only for the purpose of paying insurance premium, purchase of furniture and purchase of air-tickets. On the other hand, I find from the assessment order that relief for payment of insurance premium was made only on Rs. 1,357. This shows that the ITO's averment that withdrawals were made for payment of life insurance premium was not totally correct. I have also gone through the copy of the account of the assessee in two firms which were produced before me at the time of hearing, namely, M/s. Kesaria & Co. (G) and M/s. Kesaria Nilgiri Hills Tea Plantations. In the first case, the interest payment was Rs. 6,460 and in the second case it was Rs. 16,897 and the copies of these accounts show that payments towards life insurance premium were only about Rs. 9,433 as against the total debit balance of Rs. 96,666. There is no debit for purchase of any furniture which is apparent on the face of the account. But, there are huge payments made towards income-tax debited to the account. From the state of affairs, it cannot be said that the withdrawals made were for personal purposes and, therefore, the interest paid was disallowable. In fact, the interest attributable to the withdrawals made for payment of income-tax and other matters other than insurance premium are allowable as a deduction even as per the admission of the ITO in the order passed under Section 154. Thus, the enquiry made by the ITO was half-baked and in such a situation, to propose to disallow the entire amount is certainly not called for. To that extent, the matter has become debatable. The position with regard to the other account is not dissimilar except that the amount paid towards life insurance is hardly Rs. 2,140 out of total withdrawal of Rs. 2,53,000. The conclusion drawn by the ITO that the withdrawals were utilised for payment of insurance premium, purchase of furniture and purchase of air-tickets is, therefore, factually incorrect and this is the aspect which was emphasised by the AAC in his order when he allowed the claim. Therefore, the observations made by the learned Accountant Member in his order that the record must mean the record available with the ITO while making the assessment and the enquiry must be with regard to this record, appears to be correct and if any mistake is not apparent from those records, the provisions of Section 154 were not available to rectify any other mistake which may be found to be existing after deep probe into the accounts and adopting a process of reasoning. In such a situation, perhaps it is more appropriate to call in aid the provisions of Section 147 or 263 rather than resort to Section 154.
14. For these reasons, I am inclined to agree with the view expressed by the learned Accountant Member and hold that the learned Accountant Member is right in holding that the ITO was not justified in seeking to make the specific adjustments in the assessment order by resorting to Section 154.
15. The matter will now go back to the regular Bench for disposal of the appeal in accordance with the view of the majority.