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Bata India Ltd. v. Iac & Ors.
Structured Summary of the Opinion
Factual and Procedural Background
The writ petitioner challenged a notice dated 10-8-1988 issued under sections 154/155 of the Income Tax Act, 1961. The notice purported to amend an assessment order dated 20-6-1984 (under section 143(2)) for the assessment year 1982-83 on the ground of a mistake apparent from the records. The stated object of the notice was to enhance the assessment by disallowing a sum of Rs. 12,69,760 paid to the Bata Workmen Sickness Benefit Society, which had earlier been allowed as a deduction in the assessment. The petitioner filed the writ petition seeking to set aside that notice.
Legal Issues Presented
- Whether a notice under sections 154/155 (rectification of mistakes apparent from record) can be validly issued where the proposed amendment requires re-opening or re‑examination of the correctness of an assessment (i.e., where the question is debatable rather than a patent mistake on the face of the record).
- Whether, on the facts and evidence produced (including a certified standing order and prior assessments/tribunal decision), the amount paid to Bata Workmen Sickness Benefit Society was lawfully deductible so as to render the impugned notice unjustified on merits.
Arguments of the Parties
Appellant / Petitioner (Mr. Bajoria)
- Contended that a notice under sections 154/155 is confined to rectifying a mistake apparent on the face of the record and cannot be used to re-open an assessment or re-examine the correctness of allowance of a deduction.
- Argued that if rectification requires further enquiry or reconsideration of materials, section 154/155 is inapplicable; the officer's function is confined to the order itself and not to re-deciding issues.
- Relied on case law (Coates of India Ltd. v. Dy. CIT & Ors. (1995) 214 ITR 504 (Cal), Income Tax Officer & Anr. v. India Foils Ltd. (1973) 91 ITR 72 (Cal), and T.S. Balaram ITO v. Volkart Bros. (1971) 82 ITR 50 (SC)) to support the restricted scope of sections 154/155.
- On merits, submitted that deduction was allowable under section 40A(9) read with section 36 of the Income Tax Act because a certified standing order under the Industrial Employment (Standing Orders) Act provided for the payment of medical benefits; previous assessments and a tribunal decision had allowed the deduction.
Respondent (Mr. Ram Chandra Prasad)
- Contended that the court should examine whether the section (154) is to be applied substantially and not just by a literal reading; relied on the Full Bench decision in CIT v. Sheo Kumari Debi (1986) 157 ITR 13 (Pat) (FB).
- Argued that principles developed under the British regime need not be applied rigidly in independent India and that the Act should be interpreted to serve the revenue; used this to contend for a broader application of rectification powers.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Coates of India Ltd. v. Dy. CIT & Ors. (1995) 214 ITR 504 (Cal) | Supports the view that where an issue is debatable, a notice cannot be issued under section 154 and the assessing officer cannot decide the point afresh under section 143. | The court noted that the learned Single Judge adopted the same view and treated this decision as supporting the restricted scope of section 154 in the present matter. |
| Income Tax Officer & Anr. v. India Foils Ltd. (1973) 91 ITR 72 (Cal) | Holds that the mistake referred to in section 154 must be apparent on the face of the records — obvious, clear and patent, not requiring long or elaborate reasoning. | The court relied on this Division Bench judgment to reinforce that rectification under section 154 is limited to patent mistakes apparent on the record. |
| T.S. Balaram ITO v. Volkart Bros. (1971) 82 ITR 50 (SC) | Established that (i) an Income Tax Officer cannot go into the true scope of substantive provisions under section 154, (ii) a mistake apparent on the record must be obvious and patent and not one established by long-drawn reasoning or debatable points, and (iii) the power under section 154 is not greater than the High Court's power to entertain a writ on error apparent on the record. | The court treated this Supreme Court decision as controlling and applied its principles to hold that the impugned notice improperly sought to re-open a debatable assessment issue rather than correct a patent mistake. |
| CIT v. Sheo Kumari Debi (1986) 157 ITR 13 (Pat) (Full Bench) | Cited by respondent to argue that the court should apply section 154 substantially (i.e., examine applicability broadly) rather than adhere strictly to earlier colonial-era principles. | The court recorded that respondent relied on this Full Bench decision, but in light of the Supreme Court authority it found such contentions unpersuasive for the purpose of permitting the impugned notice to proceed. |
| CIT v. E. Sefton & Co. (P) Ltd. (1989) 179 ITR 435 (Cal) | A later Division Bench decision dealing with the scope of section 154 (cited by respondent). | The court observed that this later Division Bench decision was passed without considering the Supreme Court decision (T.S. Balaram) and, being contrary to Supreme Court authority, was no longer good law and could be ignored. |
Court's Reasoning and Analysis
The court began with a plain reading of section 154 of the Income Tax Act (including sub-section (1A)), emphasizing that the section permits rectification only of a "mistake apparent from the record." The court observed that the impugned notice did not specify any patent or apparent mistake on the face of the assessment order; rather, it stated that the deduction in question was "wrongly allowed," which implied that the officer intended to re-examine the correctness of the allowance.
The court applied the Supreme Court's ruling in T.S. Balaram ITO v. Volkart Bros., which the bench summarized as holding (i) that an Income Tax Officer may not go into the true scope of substantive provisions under section 154, (ii) that a mistake apparent from record must be obvious and patent (not a point requiring long-drawn reasoning or one on which two opinions are possible), and (iii) that the power under section 154 is no greater than the High Court's power to entertain a writ on error apparent on the face of the record.
Relying on T.S. Balaram and consistent Division Bench and Single Judge authorities (India Foils Ltd. and Coates of India Ltd.), the court concluded that the impugned notice sought to re-open or revisit a debatable issue of correctness of assessment rather than correct an obvious patent error. The court held that such re‑examination is not permissible under section 154 and that the notice therefore ought not to have been issued.
Separately, on the merits, the court examined the unchallenged documentary material produced by the petitioner: a certified standing order, evidence that the sum had been paid to another body for employee medical benefit, and the fact that earlier assessments had allowed the same deduction (with a tribunal decision also accepting the petitioner's contention). The court found these materials to be unimpeachable and concluded that the deduction had been lawfully granted; there was no subsequent development or new foundation for departing from the prior position.
Taking both the legal limitation on section 154 and the evidential merits together, the court held that the notice was "non est" (without legal effect) and had been illegally issued.
Holding and Implications
Holding: The impugned notice dated 10-8-1988 issued under sections 154/155 of the Income Tax Act is set aside as being invalid and illegally issued.
Implications:
- The direct effect on the parties: the notice seeking to amend the assessment order dated 20-6-1984 (AY 1982-83) to disallow the Rs. 12,69,760 paid to Bata Workmen Sickness Benefit Society is quashed; the deduction as allowed in the assessment stands (the notice cannot be pursued under section 154 as framed).
- The court found no reason to alter the prior treatment of the deduction on the facts and evidence produced (certified standing order, prior assessments and tribunal acceptance), and therefore refused the respondent's attempt to re-open the matter by invoking section 154/155.
- No order as to costs was made.
- The opinion does not purport to set a broader new precedent beyond applying and following binding Supreme Court authority (T.S. Balaram) and earlier relevant High Court decisions; the court observed that a later Division Bench decision inconsistent with the Supreme Court was not good law and could be ignored.
This summary has been prepared strictly from the contents of the provided opinion. No factual assertions or legal conclusions beyond those appearing in the opinion have been added.
:
In this writ petition the petitioner has challenged a notice dated 10-8-1988, issued under sections 154/155 of the Income Tax Act, 1961, whereby assessment order dated 20-6-1984, under section 143(2) for the assessment year 1982-83 sought to be amended as there is a mistake apparent from the records within the meaning of sections 154/155 of the Income Tax Act, 1961. Object behind notice is to enhance the assessment for increasing liability. The nature of the mistake proposed to be rectified has been given that a sum of Rs. 12,69,760 being the amount paid to Bata Workmen Sickness Benefit Society was wrongly allowed.
2. Mr. Bajoria, learned senior counsel appearing for the writ petitioner, contends that notice under the aforesaid section is bad in law as the assessment order in the name of rectification of the mistake cannot be reopened. The scope and purview of sections 154/155 is very limited and this can only be exercised where the mistake is apparent on the face of the records upon plain reading of the assessment order. If there is any scope for further enquiry and reconsideration of any materials then the aforesaid section is of no help. In substance, he contends while applying the aforesaid section 154/155, the officer concern is to look into the order only and nothing else. In this context he relies on a decision of learned Single Judge of this court delivered in case of Coates of India Ltd. v. Dy. CIT & Ors. (1995) 214 ITR 504 (Cal). He also refers to a Division Bench judgment of this court while examining the scope and purview of sections 154/155 of the Income Tax Act, rendered in the case of Income Tax Officer & Anr. v. India Foils Ltd. (1973) 91 ITR 72 (Cal). He has drawn my attention to the Supreme Court judgment on the aforesaid section in the case of T.S. Balaram, I TO v. Volkart Bros. (1971) 82 ITR 50 (SC).
He contends that on previous occasion and even on occasion subsequent to this assessment order the department concerned did not question the allowance of deduction of the aforesaid expenditure incurred for paying Bata Workmen Sick Benefit Society. He has drawn my attention to the learned Tribunals judgment which has accepted the contention of the writ petitioner that the aforesaid deduction is allowable.
3. Mr. Bajoria also contends on merit that under section 40A, sub-section (9), read with section 36 of the Income Tax Act, the petitioner is entitled to deduction, as aforesaid as under the Industrial Employment (Standing Orders) Act, 19 a standing order has certified for making a provision for payment of aforesaid amount on account of the medical benefit to the workmen.
If this being the position then the petitioner, as a matter of right, under section 40a sub-section (9) is entitled to get such deduction and so the deduction has been allowed for the relevant assessment order. Therefore, there is no scope for any error being committed on the face of the record. It is not a patent error. As such there was no jurisdiction vested upon the authority concerned to issue any notice unless there had been a patent error on the assessment order. Therefore, on merit, he contends this notice is liable to be set aside since there is no foundation at all.
4. Mr. Ram Chandra Prasad, learned counsel appearing for the respondents in his usual eloquence contends otherwise and says citing a Full Bench decision of the Patna High Court, CIT v. Sheo Kumari Debi (1986) 157 ITR 13 (Pat) (FB) that the court should not look into the provisions of law as it is. The court should go into the details as to whether the section is to be made applicable substantially or not. He has laid emphasis on the last paragraph of this judgment saying that principle followed by the courts during British regime should not be followed by this court after independence. The Income Tax Act was framed during British period in order to subserve the interest of British imperialism and this fiscal statute in free India should be given for the benefit of the revenue as the revenue will go to the public exchequer.
5. Having heard the learned counsels and considering the materials placed before me, a question arises here as to whether the respondent concerned is justified in issuing this notice dated 10-8-1988, purporting to remove alleged mistake in the assessment order being passed for the assessment year 1982-83 allowing deduction of the amount paid to Bata Workmen Sickness Benefit Society.
6. Before I examine this, it is appropriate to quote section 154 of the said Act.
"With a view to rectifying any mistake apparent from the record an Income Tax authority referred to in section 116 may,
(a) amend any order passed by it under the provision of this Act ;
(b) amend any intimation sent by it under sub-section (1) of section 143, or enhance or reduce the amount of refund granted by it under that sub-section.
(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 sub-section (1), the authority passing such order may, notwithstanding anything contained in any law for the time being in force, amend the order under that sub-section in relation to any matter other than the matter which has been so considered and decided.
Section 154(2) Subject to the other provisions of this section, the authority concerned ..................................................................................................................."
7. On a plain reading of the aforesaid section it will appear that the said section can be invoked only for the purpose of rectifying any mistake apparent from the records. In the notice itself nowhere it has been mentioned what is the apparent and patent mistake occurring in the order of assessment. The impugned notice stipulates that the deduction allowed in favour of the assessee-writ petitioner on account of Sickness Benefit Society is wrongly allowed. So, the intention of the officer is to decide whether deduction was allowed wrongly or rightly. Logical conclusion on reading of the aforesaid notice is that the concerned officer will sit upon the judgment of the assessment order. In my view, this officer cannot do so in the garb of rectification of mistake. This cannot be termed and construed to be a patent mistake. Supreme Court decision on this point has laid down in the case of T.S. Balaram I TO v. Volkart Bros. (supra) amongst others that, (i) it was not open to the Income Tax Officer to go into the true scope of the relevant provisions of the Act in proceedings under section 154 of the Act, (ii) a mistake apparent on the record must be obvious and patent mistake and not something which can be established by a long drawn process of reasoning on points on which there may conceivably be two opinions. A decision on a debatable point of law is not a mistake apparent from the record, and (iii) the power of the officer mentioned in section 154 of the Act to correct any mistake apparent from the record is undoubtedly not more than that of the High Court to entertain a writ petition on the basis of an error apparent on the face of the record.
8. The aforesaid judgment is applicable very much to decide this case. I have observed that the alleged mistake given pertains to reopening and/or correctness and incorrectness of the assessment order. The learned Single Judge of this court has adopted the same view in the aforesaid case of Coates India Ltd. (supra) wherein justice Ruma Pal held (0.61) that when the issue was a debatable the notice could not be issued under section 154 and the assessing officer could not decide under section 143. Division Bench of this court in (1973) 91 ITR 72 (Cal) (supra) has examined the scope of section 154. It is held amongst others that mistake defined in the aforesaid section must be apparent on the face of the records. It must be obvious, clear and patent mistake. One which is not apparent and requires long and elaborate reason then remains points on which there may conceivably be two things which could not be mistake apparent from records. In this case, I am afraid, if this notice is allowed to be proceeded with and the so-called patent mistake is allowed to be rectified pursuant to the notice then, there will be an occasion to reopening of this assessment order resulting inevitably in debatable issue. Therefore, I hold on the facts and circumstances of this case the impugned notice ought not to have been issued.
9. Mr. Prasads contention citing the judgment of the Division Bench of this court on this point is of no help in view of the Supreme Court decision, as above and so also the earlier Division Bench judgment. The Division Bench judgment cited by Mr. Prasad was passed without considering the aforesaid Supreme Court decision. In view of the previous Supreme Court decision on the same subject, contrary Division Bench judgment albeit later, is no longer a good law and the same cannot bind me. So, I can safely ignore the later Division Bench judgment CIT v. E. Sefton & Co. (P) Ltd. (1989) 179 ITR 435 (Cal).
10. Besides, on merit, the materials which are unimpeachable in character produced before me, I am satisfied that the petitioner has been given deduction lawfully and on a justified ground. The certified standing order has been produced before me and in terms of the certified standing order the assesee-writ petitioner has paid the aforesaid fund for the medical benefit of the employee to an nother body. In the previous assessment years, deduction of the same head has been allowed. There was no question about it. There is neither any subsequent development nor any occasion to depart from the stand taken by the department on earlier occasion.
In such circumstances, contention of Mr. Prasad is not acceptable to me either in law or on fact. I decide this question on fact in as much as the documents produced before me are undisputed and unimpeachable in character. So I hold the notice is non est and this has been illegally issued and the same is liable to be and is hereby set aside.
There shall, however, be no order as to costs.
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