Patna High Court
Bihar State Road Transport Corporation vs Commissioner Of Income-Tax on 8 April, 1986
Equivalent citations: [1986]162ITR114(PATNA)
JUDGMENT Nazir Ahmad, J.
1. A consolidated statement of the case has been submitted by the Income-tax Appellate Tribunal, Patna Bench "A", Patna (hereinafter referred to as "the Tribunal"), under Section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), referring the following common question of law for the assessment years 1960-61 and 1961-62 at the instance of the assessee for the opinion of this court:
"Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the Income-tax Officer could rectify under Section 154 the orders of assessment for the assessment years 1960-61 and 1961-62 by redetermining the written down value of the various assets ? "
2. The Tribunal has also referred the following questions of law for the assessment years 1960-61 and 1961-62 at the instance of the Commissioner of Income-tax, Bihar, Patna, for the opinion of this court:
"(1) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in cancelling the Income-tax Officer's order under Section 154 passed on November 14, 1969, for the assessment year 1960-61 on the ground that it was barred by limitation ?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that penal interest under Section 217 of the Income-tax Act, 1961, could not be charged for the assessment years 1960-61 and 1961-62 in proceedings under Section 154 ?"
3. Before we proceed with the facts of the case, it is necessary to point out that Taxation Cases Nos. 127 and 128 of 1975 have been registered on the basis of the question suggested at the instance of the assessee, Bihar State Road Transport Corporation, Patna, whereas Taxation Cases Nos. 129 to 131 of 1975 have been registered on the basis of the questions suggested by the Commissioner of Income-tax, Bihar, Patna.
4. The relevant facts of the case can be culled from the statement of the case. Bihar State Road Transport Corporation, Patna (hereinafter referred to as the assessee), is a State-owned Corporation which took over the transport undertaking run by the State Government departmentally earlier. The take-over was on the basis of the balance-sheet of the undertaking. For the assessment year 1960-61, the assessment order was passed under Section 143(3) of the Act on February 15, 1965, and in this assessment order, some loss was determined and depreciation was carried forward. Similarly, the assessment for the assessment year 1961-62, was completed on November 16, 1965, by the Income-tax Officer (hereinafter referred to as the Income-tax Officer), and while completing the assessment, a huge amount of depreciation had been claimed on the fleet of buses owned by the assessee and the claim of depreciation was allowed. The Income-tax Officer discovered certain mistakes in the assessment order for 1960-61 and he passed an order under Section 154 on August 17, 1966, rectifying the order of assessment. A similar order was passed in respect of the assessment year 1961-62. In these rectification orders, the Income-tax Officer changed the status of the assessee from that of an association of persons to that of an individual. Besides this, the Income-tax Officer made certain changes in the depreciation allowance and, whereas in the original order the depreciation had been allowed for a full year on the additions made by the Income-tax Officer, he now allowed the depreciation (only) for the period of actual user of these buses. Later on, the Income-tax Officer found that there were certain mistakes in the allowance of depreciation and, according to him, depreciation had been allowed in excess of what was actually allowable to the assessee. The mistake found by the Income-tax Officer was that the written down value of the buses taken over by the assessee from the Government had been taken in the earlier order on a wrong figure in so far as the depreciation reserve which had been created in the balance-sheet had not been taken into consideration in determining the written down value of those buses. Cost of the buses, as taken by the Income-tax Officer, was Rs. 1,51,65,473 and this was the figure which appeared in the balance-sheet for the accounting year ending on March 31, 1960. The Income-tax Officer found that in the same balance-sheet, there was a depreciation reserve of Rs. 1,12,69,253. This reserve had been created from year to year and was kept in a separate account. The cost of the buses was not reduced by this figure of depreciation in the balance-sheet. The Income-tax Officer was of the view that on the basis of this balance-sheet, the actual cost of acquisition should be taken after deducting the amount of depreciation reserve. This, according to the Income-tax Officer, was the consideration for the buses taken over by the assessee. Thus, the Income-tax Officer worked out the cost of acquisition of buses at Rs. 38,98,220. According to the Income-tax Officer, this was a mistake apparent from the record and he, therefore, rectified this figure and allowed lesser depreciation to the assessee. This order under Section 154 of the Act was passed on November 14, 1969. As a result of this order, the depreciation allowed to the assessee was reduced from Rs. 37,91,368 to Rs. 9,56,734. The orders of the Income-tax Officer passed under Section 154 of the Act for the assessment years 1960-61 and 1961-62 have been annexed and marked as annexures "A" and "A-1" forming part of the statement of the case.
5. Before the Appellate Assistant Commissioner, it was claimed by the assessee that the order of rectification under Section 154 of the Act in respect of the assessment year 1960-61 was barred by limitation. According to the assessee, this order dated November 14, 1969, was seeking to rectify the original assessment order passed by the Income-tax Officer on February 15, 1965, and it did not seek to rectify any later order of rectification passed by the Income-tax Officer. The Appellate Assistant Commissioner rejected this plea of the assessee and also held that the provisions of Section 154 of the Act had been correctly applied. Regarding the quantum of rectification the Appellate Assistant Commissioner accepted the working by the Income-tax Officer though he granted some relief in working out the terminal allowance. The consolidated order of Appellate Assistant Commissioner for the two assessment years has been annexed and marked as annexure B forming part of the statement of the case.
6. Before the Tribunal the assessee pleaded that the order of the Income-tax Officer passed on November 14, 1969, was barred by limitation as the mistake, if any, in the determination of the written down value of the old buses was there in the original order and it was merely repeated when the rectification order was passed by the Income-tax Officer on August 17, 1966. He submitted that the order of the Income-tax Officer could not be a rectification of the order passed on August 17, 1966, as the mistake, which was sought to be rectified, had been committed in the original order. The assessee further claimed that the provisions of Section 154 of the Act did not apply to the facts of the present case as the mistakes sought to be corrected could not be considered as mistakes apparent from the record. The second ground raised before the Tribunal was that the Income-tax Officer could not charge interest under Section 217 of the Act in an order of rectification. It was pointed out that in the original assessment no interest had been charged as there was no positive income as a result of the assessment. When that income was turned into a positive income as a result of rectification, the Income-tax Officer has proceeded to charge interest also. For the assessment year 1961-62, similar arguments were repeated except the argument regarding the time-bar as it was accepted that the rectification order was within four years of the original assessment order.
7. According to the departmental representative, the rectification by the Income-tax Officer, was a rectification of the order dated August 17, 1966, passed in 1966 as in that order the original assessment order had merged. It was further argued that the mistake committed by the Income-tax Officer was apparent from the record and could be found out by having a look at the balance-sheet. The Tribunal considered these submissions and disposed of the points raised by the assessee by order dated July 19, 1973. Later on, the assessee moved a miscellaneous petition pointing out that the grounds regarding charge of interest under Section 217 of the Act had not been specifically disposed of in the order of the Tribunal. The Tribunal considered those arguments in separate miscellaneous orders dated May 17, 1974, and thus the Tribunal considered the matters raised before it.
8. The Tribunal held that, on the facts of the present case, the provisions of Section 154 of the Act would apply and the mistake sought to be rectified was a mistake apparent from the record. According to the Tribunal as the cost of the buses was shown at Rs. 1,53,72,599 in the balance-sheet at the time of the taking over of the undertaking by the assessee and in the same balance-sheet the depreciation reserve for those very assets was shown at Rs. 1,12,69,253, the actual cost to the assessee was to be the amount which would come after reducing the actual cost by the amount shown in the depreciation reserve. According to the Tribunal, redeterraination of the written down value after looking into the earlier years' records came within the purview of Section 154 of the Act. For this purpose, the Tribunal relied on the decision reported in Maharana Mills Private Ltd. v. ITO [1959] 36 ITR 350 (SC). According to the Tribunal, the creation of depreciation reserve in the balance-sheet was another way of reducing the cost of the assets and this position was apparent on the face of the balance-sheet. According to the Tribunal, there could not be any valid controversy about the actual cost of those assets as they had to be determined on the basis of the balance-sheet as a whole and not on the basis of merely one entry at one side of the balance-sheet.
9. On the basis of the aforesaid reasons, the Tribunal held that the order passed by the Income-tax Officer was within the scope of the provisions of Section 154 of the Act and the mistake could be rectified under that section.
10. The Tribunal also considered the assessee's plea that the order of the Income-tax Officer for the assessment year 1960-61 was time-barred. The Tribunal observed that the mistake in calculating the written down value of the capital cost of the assets had taken place in the original assessment order and that that very mistake got repeated when the rectification order was passed by the Income-tax Officer on August 17, 1966. According to the Tribunal, merely because the rectification order was passed, it could not mean that the Income-tax Officer could again rectify the original assessment order by taking the date of rectification from the order of rectification passed in 1966. The Tribunal, therefore, held that in both the years, the original orders were rectified and, as in the assessment year 1960-61 the rectification order had been passed more than four years after the date of the assessment order, the Income-tax Officer had no jurisdiction to pass the rectification order. The Tribunal also held that there was no such time-bar so far as the assessment year 1961-62 was concerned where the original assessment order was passed on November 16, 1965. The Tribunal further found that no reason had been submitted to show that the working by the Income-tax Officer suffered from any error, and so the actual working of the written down value and the depreciation was also upheld by the Tribunal.
11. The Tribunal also considered the ground regarding the charge of interest under Section 217 of the Act in its miscellaneous order dated May 17, 1974. The Tribunal upheld the argument on behalf of the assessee that the interest under Section 217 of the Act could be charged only on making regular assessment and not in a rectification proceeding under Section 154 of the Act. The Tribunal referred to its earlier order in I. T. A. No. 628 (Pat) of 1971-72 dated August 30, 1973, in the case of the assessee for the assessment year 1962-63. The Tribunal held in that order that the Income-tax Officer could not charge interest under Section 217 of the Act, if as a result of an order under Section 154 of the Act, there was a positive income which made calculation of interest possible and for this purpose reliance was placed on the decision in Gates Foam and Rubber Co. v. CIT [1973] 90 ITR 422 (Ker). The Tribunal, following its earlier order, held that the charge of interest in both the years was not valid. A copy of the order of the Tribunal has been annexed and marked as annexure-C forming part of the statement of the case. The miscellaneous order passed by the Tribunal has been annexed and marked as annexure-D forming part of the statement of the case. The order of the Tribunal for the assessment year 1962-63 which was followed by the Tribunal has also been annexed and marked as annexure-E forming part of the statement of the case.
12. On the aforesaid facts, the aforesaid questions of law, as raised by both parties, have been referred to this court by the Tribunal for the opinion of this court.
13. Now, let us first consider the question referred to this court at the instance of the assessee. The question raised is whether the Income-tax Officer could rectify under Section 154 of the Act the orders of assessment for the assessment years 1960-61 and 1961-62 by re-determining the written down value of the various assets. The facts are not disputed. The assessee took over transport undertaking run by the State of Government departmentally earlier and the take-over was on the basis of the balance-sheet of the undertaking. For the assessment year 1960-61, the assessment order was passed under Section 143(3)of the Act on February 15, 1965, and in this assessment order some loss was determined and depreciation was carried forward. Similarly, the assessment for the assessment year 1961-62 was completed on November 16, 1965, by the Income-tax Officer and 'while completing the assessment, a huge amount of depreciation had been claimed on the fleet of buses owned by the assessee and the claim of depreciation was allowed. The Income-tax Officer discovered certain mistakes in the assessment order for 1960-61 and he passed an order under Section 154 of the Act on August 17, 1966, rectifying the order of assessment. A similar order was passed in respect of the assessment year 1961-62. In these rectification orders, the Income-tax Officer changed the status of the assessee from that of an association of persons to that of an individual. Besides this, the Income-tax Officer made certain changes in the depreciation allowance and whereas in the original order the depreciation had been allowed for the full year on the additions made, the Income-tax Officer now allowed the depreciation only for the period of actual user of the buses. Later, the Income-tax Officer found that there were certain mistakes in the allowance of depreciation and, according to him, depreciation had been allowed in excess of what was actually allowable to the assessee. The mistake found by the Income-tax Officer was that the written down value of the buses taken over by the assessee from the Government had been taken in the earlier order on a wrong figure in so far as the depreciation reserve which had been created in the balance-sheet had not been taken into consideration in determining the written down value of those buses. Cost of the buses, as taken by the Income-tax Officer was Rs. 1,51,65,473 and this was the figure which appeared in the balance-sheet for the accounting year ending on March 31, 1960. The Income-tax Officer found that in the same balance-sheet, there was a depreciation reserve of Rs. 1,12,69,253. This reserve had been created from year to year and was kept in a separate account. The cost of the buses was not reduced by this figure of depreciation (reserve) in the balance-sheet. The Income-tax Officer was of the view that on the basis of this balance-sheet, the actual cost of acquisition should be taken after deducting the amount of depreciation reserve. This, according to the Income-tax Officer, was the consideration for the buses taken over by the assessee. Thus, the Income-tax Officer worked out the cost of acquisition of buses at Rs. 38,98,220. According to the Income-tax Officer, this was a mistake apparent from the record and he, therefore, rectified this figure and allowed smaller depreciation to the assessee. This order under Section 154 of the Act was passed on November 14, 1969. As a result of this order, the depreciation allowed to the assessee was reduced from Rs. 37,91,368 to Rs. 9,56,734. The Income-tax Officer passed these orders under Section 154 of the Act for the assessment years 1960-61 and 1961-62, These rectification orders were upheld by the Appellate Assistant Commissioner as well as by the Tribunal. The Tribunal has clearly pointed out that the actual cost to the assessee has to be the amount which would come after reducing the actual cost by the amount shown in the depreciation reserve. According to the Tribunal, re-determination of the written down value after looking into the earlier records, came within the purview of Section 154 of the Act. According to the Tribunal, the creation of depreciation reserve in the balance-sheet was another way of reducing the cost of the assets and this position was apparent on the face of the balance-sheet. According to the Tribunal, there cannot be any valid controversy about the actual cost of those assets as they had to be determined on the basis of the balance-sheet as a whole and not on the basis of merely one entry on one side of the balance-sheet and so the Tribunal held that the Income-tax Officer was justified in rectifying the mistake under Section 154 of the Act.
14. Thus, it is evident that in the balance-sheet, on one side, the cost of the buses was shown at Rs. 1,51,65,473 and the Income-tax Officer allowed depreciation in the assessment order on the basis of this cost alone and his attention was not drawn to the balance-sheet which showed a depreciation reserve of Rs. 1,12,69,253. It cannot be doubted that if the Income-tax Officer had looked into the balance-sheet relating to the depreciation reserve, he would have taken the actual cost of acquisition of the buses at Rs. 38,98,220 after reducing the depreciation reserve of Rs. 1,12,69,253 from the cost shown at Rs. 1,51,65,473. There appears to be some difference in the figures. From the rectification orders for the assessment years 1960-61 and 1961-62 it appears that the original cost of the buses was shown at Rs. 1,53,72,599 and the depreciation reserve was shown at Rs. 1,12,69,253 and thus the actual cost was calculated at Rs. 41,03,346. However, it is for the Income-tax Officer to look into the figures.
15. The only argument before us on behalf of the assessee is that the Income-tax Officer was not justified in rectifying the order under Section 154 of the Act as depreciation reserve can be taken as a capital asset of the assessee. However, it cannot be doubted that when the cost of the buses was shown on one side and the depreciation reserve was shown on the other side in the balance-sheet, then the actual cost to the assessee will be the actual cost shown in the balance-sheet minus the depreciation reserve.
16. Mr. K. N. Jain has submitted that this is a debatable issue as to whether the depreciation reserve can be deducted from the original cost as shown in the balance-sheet and for this purpose he has relied on the case of T. S. Balaram, ITO v. Volkart Brothers [1971] 82 ITR 50 (SC), which is a decision of the Supreme Court, where their Lordships have held that a mistake apparent on the record must be an obvious and patent mistake and not something which can be established by a long drawn process of reasoning on points on which there may be conceivably two opinions and that a decision on a debatable point of law is not a mistake apparent from the record. The facts in this case were quite different from the facts of the case before us. A similar view has been taken in the case of Jiyajeerao Cotton Mills Ltd. v. ITO [1977] 107 ITR 253 (Cal), where it has been held by the Calcutta High Court that a consideration of the contentions urged for the petitioner and the Revenue certainly indicated that two views were possible about the set-off and that if that was the position, then the jurisdiction under Section 154 of the Act could not be attracted and the notice under Section 154 had to be quashed. The facts in that case were also different from the facts of the case before us.
17. The present case is fully covered by the decision of the Supreme Court in the case of Maharana Mills (Private) Ltd. v. ITO [1959] 36 ITR 350 (SC). In this case, their Lordships of the Supreme Court have held that the power under Section 35 of the Indian Income-tax Act, 1922 (hereinafter referred to as "the old Act"), is limited to the rectification of mistakes which are apparent from the record and the mistake contemplated by the section is not one which is to be discovered as a result of an argument but it is open to the Income-tax Officer to examine the record including the evidence and if he discovers any mistake, he is entitled to rectify the error provided that if the result is enhancement of assessment or reducing the refund, then notice has to be given to the assessee and he should be allowed a reasonable opportunity of being heard. It has also been held in this decision that "the record" contemplated by Section 35 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 35 to look into the whole evidence and the law applicable to ascertain whether there was an error, and if he doubts the written down value of the previous year it is open to him to check up the previous calculations and if he finds any mistake, it is open to him to make fresh calculations in accordance with the law applicable including the rules made thereunder. It has also been held in this decision that if the Income-tax Officer finds that in an earlier assessment year there was an apparent arithmetical mistake in the account of the written down value of the properties of the assessee which resulted in a corresponding mistake in the assessment of the relevant assessment year he can take the corrected figure for the purposes of the assessment and it cannot be said that the mistake was not apparent from the record. It has also been held in this decision that a fortiori if he discovers that the very basis of the different earlier assessment was erroneous because of an initial mistake in determining the written down value, it cannot be said that this mistake would not be a mistake apparent from 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 that is not rectifying a mistake apparent from the record but is dehors it. It has also been held in this decision that the limit to which the Income-tax Officer can go back does not stop at the written down value of the previous year but extends up to the figure of the original cost and the method enjoined by Section 10(5)(b) of the Income-tax Act is not that the Income-tax Officer should merely scale down the written down value of the previous year, but that he should take into consideration the actual cost, determining it for himself, if necessary, take also into consideration the allowance granted in the past, and then make his own computation as to the written down value for the assessment year with which he is concerned. It has also been held in this decision that it cannot be said that merely because under Section 35 some written down value and the depreciation amount have been determined, they are a final determination binding for all time to come ; nor does the determination operate as estoppel or res judicata for the following years. In view of this decision, it has to be held that when the Income-tax Officer found mistakes in the allowance of depreciation as the actual cost was bound to be determined on the balance-sheet itself which showed depreciation reserve as well as actual cost and so it cannot be doubted that by merely looking into the balance-sheet it could be found out that the depreciation on actual cost was wrongly allowed.
18. In view of the aforesaid decision of the Supreme Court, I hold that the Tribunal was correct in holding that the Income-tax Officer could rectify under Section 154 of the Act the orders of assessment for the assessment years 1960-61 and 1961-62 by re-determining the written down value of the various assets. This question has to be answered against the assessee and in favour of the Revenue.
19. Now let us take up question No. 1 as referred at the instance of the Commissioner of Income-tax. Question No. 1 is to the effect as to whether the Tribunal was correct in cancelling the order of the Income-tax Officer passed under Section 154 of the Act on November 14, 1969, for the assessment year 1960-61 on the ground that it was barred by limitation. Thus, this question relates to the point of limitation relating to the assessment year 1960-61. The point of limitation was raised before the Appellate Assistant Commissioner but he did not accept the contention of the assessee.
20. When the matter went before the Tribunal, Mr. K. N. Jain on behalf of the assessee argued that the order of rectification passed by the Income-tax Officer on November 14, 1969, was barred by limitation as the Income-tax Officer had not actually rectified the order under Section 154 passed on August 17, 1966, but had rectified the original assessment order passed on February 15, 1965. It was also submitted on behalf of the assessee that the mistake, if any, in the determination of the written down value of the old buses was there in the original order and it was merely repeated when the rectification order was passed by the Income-tax Officer on August 17, 1966, and so the Income-tax Officer was wrong in saying that he was rectifying the order dated August 17, 1966, as there was no mistake in the order and the mistake was only in the order dated February 15, 1965. He, therefore, submitted that the order of rectification was barred by limitation as it was passed more than four years after February 15, 1965. The Tribunal took the view that the original assessment order was passed on February 15, 1965, and that the first rectification order was passed on August 17, 1966, but the second rectification order was passed on November 14, 1969, but as the second rectification order was passed beyond four years, so the rectification was barred by limitation and so the Tribunal held that the rectification order was barred by limitation.
21. Under the aforesaid facts, it has to be seen as to whether the rectification order dated November 14, 1969, is barred by limitation. The first rectification order dated August 17, 1966, is on the file. This rectification order shows that the status was wrongly taken as an association of persons in the original order and so it was changed to the status of individual. It also shows that the original cost of the buses, according to the balance-sheet, was Rs. 1,51,65,473 in the assessment year 1960-61 and certain additions were made during various quarters and the cost of addition was added to the original cost which came to Rs. 2,12,43,323 and some additions were made in the 2nd quarter, some in the 3rd quarter and some in the 4th quarter. The depreciation was allowed for six months, three months and two months respectively during the user of the buses. Thus, the depreciation was allowed during the period the bases were actually used when the additions were made. Thus, it cannot be doubted that the rectification related to depreciation, but even in this rectification order, mistakes were there and so a fresh rectification order was passed on November 14, 1969, calculating the depreciation on the basis of the difference between the actual cost and the depreciation reserve. If it is held that rectification has to be made within four years from the date of the assessment order for the assessment year 1960-61 which is dated February 15, 1965, then the rectification order dated November 14, 1969, will be barred by limitation. However, if the first order of rectification dated August 17, 1966, is taken into consideration, then the second rectification order, dated November 14, 1969, will be within time and not barred by limitation.
22. In the case of Jiyajeerao Cotton Mills Ltd. v. ITO [1977] 107 ITR 253 (Cal), the Calcutta High Court has held that the contention of the petitioner that as the assessment order was made on April 29, 1967, the notice for rectification was barred by limitation, was not correct and that the reassessment order dated March 25, 1969, was an order of assessment which was sought to be rectified and the same was within the period of limitation. It cannot be doubted that a rectification can be made within four years from the date of the reassessment order but in the present case, it is not a case of a reassessment order and so this decision is not helpful to either of the parties.
23. Mr. K. N. Jain has relied on the case reported in Ganpat Rai Hiralal v. Aggarwal Chamber of Commerce Ltd., AIR 1952 SC 409, which is equivalent to [1952] 15 SCJ 564, where it has been held that where an application for amendment of a decree was made on February 2, 1960, it cannot be said that the amendment is a continuation of the suit or proceeding therein and that it is the nature of an independent proceeding, though connected with the order of which amendment is sought. This decision under the Civil Procedure Code is not at all applicable to a rectification under Section 154 of the Act, and so no reliance can be placed on this decision for deciding the present dispute before us.
24. Mr. B. P. Rajgarhia has relied on the case of Hiralal Sutwala v. CIT [1965] 56 ITR 339 (All), where it has been held that the rectification of an apparent mistake under Section 35(1) of the old Act does not prevent subsequent rectification of another apparent mistake under the same provision.
25. Mr. B. P. Rajgarhia has relied on the case of Addl, CIT v. Kanta Behan [1983] 140 ITR S87 (Delhi). However, in this case, the rectification was made, of a reassessment order and the rectification was within time from the (date of) reassessment order. This decision cannot be of any help to the Revenue. However, Mr. B. P. Rajgarhia has relied on the case of S. Sankappa v. ITO [1968] 68 ITR 760 (SC), which is a decision of their Lordships of the Supreme Court. In this case, their Lordships of the Supreme Court have clearly held that the proceedings taken for rectification of assessment to tax, either under Section 35(1) or under Section 35(5) of the old Act, were proceedings for assessment and the orders passed by the Income-tax Officer under Section 35(1) rectifying the firm's assessment were all orders altering the assessment orders made in the proceedings for assessment of the firm, and under the notices, the Income-tax Officer was proposing to rectify orders made for computation of income and imposition of tax under the charging section in the case of individual partners. It has also been held in this decision that the orders passed by the Income tax Officer on December 30, 1968, whereby he redetermined the tax payable by the firms, directed refund and apportioned the income of the firms between various partners, were clearly orders in proceedings for assessment and it was in order to give effect to these orders in the individual assessments of the partners that the notices were issued and the provisions of Section 35(5) were, therefore, attracted. Thus, it is evident that the rectification order under Section 154 is also a proceeding in the assessment and so it has to be held that the rectification order dated August 17, 1968, is also a proceeding in the assessment, and so the limitation for fresh rectification order has to be counted from August 17, 1966, and so the second rectification order dated November 14, 1969, will be within four years from August 17, 1966, and so it will not be barred by limitation.
26. Mr. B. P. Rajgarhia has also relied on the case of International Cotton Corporation (P.) Ltd. v. CTO [1975] 35 STC 1 (SC), which is a decision of their Lordships of the Supreme Court. At page 17, the relevant portion of Rule 38 of the State Rules has been quoted which is as follows :
" (1). An assessing, appellate or revising authority or the Appellate Tribunal may, at any time within five years from the date of any order passed by it, rectify any mistake apparent on the record......"
27. Page 12 in this decision shows that their Lordships of the Supreme Court held that the other attack that the rectification order is beyond the point of time provided in Rule 38 of the Mysore Sales Tax Rules is also without substance and that what was sought to be rectified was the assessment order rectified as a consequence of Supreme Court's decision in Yaddalam's case [1965] 16 STC 231 (SC), and that after such rectification, the original assessment order was no longer in force and that was not the order sought to be rectified. Their Lordships also mentioned that it is admitted that all the rectification orders would be within time calculated from the original rectification order. It was also held that Rule 38 itself speaks of "any order" and there is no doubt that the rectified order is also "any order" which can be rectified under Rule 38. In the judgment to the Supreme Court, the appendix is the decision of the Mysore High Court. The Mysore High Court has pointed out at pages 22 and 23 of the decision that the next question relates to the plea of limitation. It was argued in that case that every order of rectification made under Rule 38 gets merged or relates back to the earlier order of assessment and, in that view, any subsequent rectification under Rule 38 would also be a rectification of the assessment order which stood rectified once earlier. It was, therefore, contended that the period of limitation mentioned under that rule will have to be satisfied even with regard to subsequent rectification. It was also argued that in Section 38(2)(f) of the State Act, only rectification of mistakes apparent from the record of any assessment can be made and not rectification of "any order". Their Lordships of the Mysore High Court did not agree with the submission and held that Rule 38 clearly refers to rectification of mistakes apparent on the record in any order passed by an assessing, appellate or revising authority or Appellate Tribunal and that the words "any order" occurring in the rule are wide enough to take within their ambit any order made in the course of the assessment proceedings, and their effect need not be confined to an assessment order as contended for by the counsel for the appellant. The Mysore High Court also held that the rule enjoins a rectification of a mistake apparent on the record and since the earlier rectification made at the instance of the assessee was a mistake, it can be rectified by a fresh proceeding under Rule 38 of the State Rules, and it, therefore, followed that the period of limitation under this rule should be computed commencing from the time when the mistake sought to be rectified crept into the record, and it was also held by the Mysore High Court that in this view, the rectification in question is within time from the date of the earlier rectification.
28. In view of the aforesaid two decisions, the question of merger does not apply in the present case before us. Mr. K. N. Jain has relied on the case of Puthuthotam Estates (1943) Ltd. v. State of Tamil Nadu [1980] 125 ITR 41 (Mad), which only lays down that the doctrine of merger would operate only on matters which have been decided by the Tribunal and has no application to matters which have not been touched by the Tribunal and where a particular matter has not been placed before the Tribunal for its decision, the matter would be at large so as to be subject to the exercise of the powers of revision. This case related to the power of revision of the Commissioner and so this decision is not helpful to the assessee.
29. Mr. K. N. Jain also relied on the case of CIT v. City Palayacot, Co. [1980] 122 ITR 430 (Mad), where also the question of exercise of power by the Commissioner under Section 263 of the Act was involved and in that connection it was observed that the doctrine of merger will have to be taken into account in the light of what was in controversy before the appellate authority or what could have been considered by the appellate authority. Thus, it is evident that the doctrine of merger is not applicable in this case and the case has to be decided on the basis of the Supreme Court decision which I have already discussed above.
30. It is thus evident that the first rectification order was passed on August 17, 1966, and so the second rectification order passed on November 14, 1969, will be within time from August 17, 1966. Thus following the Supreme Court decision, it has to be held that the rectification order dated August 17, 1966, clearly goes to show that besides rectification of status, it was found that there was a mistake in the computation of depreciation allowance in the original assessment order and so the rectification was made relating to the depreciation allowance by order dated August 17, 1966, and again when a mistake was further detected in the depreciation allowance, the second rectification order dated November 14, 1969, was passed. Thus, the first rectification order dated August 17, 1966, also related to the rectification of depreciation allowance and the second rectification also related to the depreciation allowance.
31. Thus, in view of the Supreme Court decision, it has to be held that the limitation has to be counted relating to the rectification order dated November 14, 1969, from August 17, 1966, as Section 154 of the Act also shows that the rectification can be of an order of assessment as well as of any other order passed by the Income-tax Officer. It cannot be doubted that the rectification order dated August 17, 1966, is also an order; besides it is a proceeding in the assessment.
32. In view of my discussions above, I hold that the rectification order dated November 14, 1969, relating to the assessment year 1960-61, is not barred by limitation. Hence I hold that the Tribunal was not correct in cancelling the order of the Income-tax Officer under Section 154 of the Act passed on November 14, 1969, for the assessment year 1960-61, on the ground that it was barred by limitation.
33. Now let us take up question No. 2 which relates to the charge of interest under Section 217 of the Act relating to the assessment years 1960-61 and 1961-62, in proceedings under Section 154 of the Act. I have already held above, in view of the Supreme Court decision, that the rectification orders are part of the proceedings for assessment. The Income-tax Officer in the rectification orders dated November 14, 1969, relating to the assessment years 1960-61 and 1961-62 has pointed out that the decision in S. A. L. Narayan Row v. Ishwarlal Bhagwandas [1965] 57 ITR 149 (SC) is not applicable to this case. He has also pointed out that the present case is not covered by any of the circumstances mentioned in rule 40 of the Income-tax Rules, 1962, and so the Income-tax Officer ordered charge of interest under Section 217 of the Act. A similar order was passed for both the assessment years by a rectification order.
34. In the order of the Appellate Assistant Commissioner there is no mention relating to the interest. The Tribunal in the original order did not pass any order relating to interest. However, subsequently on the petition of the assessee, a miscellaneous order was passed relating to the charge of. interest under Section 217 of the Act. The Tribunal relied on the decision in Gates Foam and Rubber Co. v. CIT [1973] 90 ITR 422 (Ker) and held that when a rectification is made under Section 154 of the Act, then it is not a regular assessment and so interest cannot be charged under Section 217 of the Act. This will be evident from annexure-10 which is the miscellaneous order passed by the Tribunal. The Tribunal in this miscellaneous order relied on the earlier order of the Tribunal relating to I.T.A. No. 528 of 1971-72. This order is annexure-E in the brief and this order shows that the order under Section 154 of the Act is not a regular assessment within the meaning of Section 2(40) of the Act which lays down that "regular assessment" means the assessment made under Section 143 or Section 144, and on this basis, the Tribunal held that the rectification under Section 154 of the Act is not a regular assessment and so interest cannot be charged in a rectification order under Section 154 of the Act. For this purpose, reliance was placed again on the decision in Gates Foam and Rubber Co. v. CIT [1973] 90 ITR 422 (Ker). Section 217(1) of the Act, as it existed in the assessment years 1960-61 and 1961-62, was as follows:
"(1) Where on making the regular assessment, the Income-tax Officer finds that any such person as is referred to in Sub-section (3) of Section 212 has not sent the estimate referred to therein, simple interest at the rate of nine per cent. per annum from the 1st day of April next following the financial year in which the advance tax was payable in accordance with the said provisions up to the date of the regular assessment shall be payable by the assessee upon the amount equal to the seventy-five per cent. referred to in Sub-section (1) of Section 215."
35. The assessment order for the assessment year 1960-61 is briefly that it is shown in the original assessment order that the unabsorbed depreciation of Rs. 34,43,366 was carried forward for set off in future and thus it was a loss. Even the rectification order dated August 17, 1966, for the assessment year 1960-61 shows that even after the rectification, unabsorbed depreciation of Rs. 20,16,593 was carried forward by rectification order dated August 17, 1966. The second rectification order for the assessment year 1960-61 was passed on November 14, 1969, and then it was found that the assessee had income. Similar was the position in the assessment year 1961-62. On this basis it has been submitted that the assessee had claimed loss according to the assessment order and that finally the income was assessed in both the assessment years after the rectification order was passed.
36. I have already pointed out above that their Lordships of the Supreme Court in the case of Sankappa v. ITO [1968] 68 ITR 760 have clearly held that rectification orders are part of the proceedings for assessment.
37. Mr. B. P. Rajgarhia has relied on the case of CIT v. Rajalakshmi Mills Ltd. [1980] 125 ITR 141 (Mad). In this case it was laid down that there is a specific provision made under Section 215(3) of the Act to cover cases of interest payable by the assessee where the payment of tax was less than seventy-five per cent. as a result of the rectification or other orders passed in his case. It has also been held in this decision that the rectification of the assessment has the effect of making the original assessment order the regular assessment order or correct assessment order. It has also been held by the Madras High Court that the "regular assessment" is made regular in truth and in fact as a result of the rectification. It has also been held in this decision that even in the absence of a specific provision like Section 215(3), the intendment of the legislature is to give the benefit of interest to the assessee up to the date of the regular assessment with reference to the amount of tax refunded to him either by rectification or by reason of the modification of the assessment on appeal. Thus, it is evident that the rectification of the assessment under Section 154 of the Act has the effect of making the original assessment order the regular assessment order or correct assessment order and that the original assessment order was made regular in truth and in fact as a result of the rectification.
38. Mr. B. P. Rajgarhia has also relied on the case of ITO v. Ashok Textiles Limited [1961] 41 ITR 732 (SC). In this case also the first rectification order under Section 35 of the old Act was passed and subsequently it was discovered that this rectification order was also erroneous and so a second rectification order was passed by which additional income-tax was charged at a higher rate and also interest was charged on income-tax which the company had failed to pay in advance under Section ISA of the old Act, and in those circumstances, their Lordships of the Supreme Court held that the orders of rectification passed by the Income-tax Officer were not without jurisdiction and that the Income-tax Officer has power under Section 35 to examine the record and if he discovered that he has made a mistake, he could rectify the error and the error which could be corrected might be an error of fact or of law. Thus, it is evident that interest can be charged by a rectification order under Section 154 of the Act.
39. The Tribunal relied on the case of Gates Foam & Rubber Co. v. CIT [1973] 90 ITR 422 (Ker). In this case it was held that the reassessments made after resort to the provisions in Section 147 of the Act are not assessments under Section 143 and so they are not "regular assessments"
because the definition of "regular assessment" in Section 2(40) specifically states that "regular assessments" are those made under Section 143 or Section 144, and so by the expression "regular assessment" in Section 273 is only meant assessment under Sections 143 and 144 and 273 (penalty proceedings cannot apply to reassessment under Section 147). This decision cannot be applicable to the charge of interest where there are specific decisions of the Supreme Court relating to the charge of interest after rectification under Section 154 of the Act.
40. Thus, in view of the decisions of their Lordships of the Supreme Court, I hold that after rectification under Section 154 of the Act, a positive income was determined on November 14, 1969, and so the Income-tax Officer was justified in ordering charge of interest under Section 217 of the Act and so the charge of interest by an order under Section 154 of the Act was justified in the present case.
41. In view of my discussions above, as regards the question referred at the instance of the assessee, I hold that the Tribunal was correct in holding that the Income-tax Officer could rectify under Section 154 of the Act the orders of assessment for the assessment years 1960-61 and 1961-62 by redetermining the written down value of the various assets and so the question is answered in favour of the Revenue and against the assessee. As regards questions Nos. 1 and 2 referred at the instance of the Commissioner of Income-tax, I hold that the Tribunal was not correct in cancelling the order of the Income-tax Officer under Section 154 of the Act, passed on November 14, 1969, for the assessment year 1960-61 on the ground that it was barred by limitation, and that the Tribunal was not correct in holding that penal interest under Section 217 of the Act could not be charged for the assessment years 1960-61 and 1961-62 in proceedings under Section 154 of the Act. Both the questions are, accordingly, answered in favour of the Revenue and against the assessee. Thus all the three questions are answered in favour of the Revenue and against the assessee. However, in view of the peculiar circumstances of the case, the parties will bear their own costs.
Uday Sinha, J.
42. I agree.