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Bata India Ltd. v. Inspecting Assistant Commissioner Of Income-Tax And Others

Calcutta High Court

Dec 8, 2000

Judgment

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Factual and Procedural Background

This writ petition, before Kalyan Jyoti Sengupta, J., challenges a notice dated 10 August 1988 issued under sections 154/155 of the Income-Tax Act, 1961. The notice sought to amend an assessment order dated 20 June 1984 (passed under section 143(3)) for the assessment year 1982–83 by enhancing the assessment and increasing tax liability. The stated “mistake” to be rectified was that a sum of Rs. 12,69,760 paid to the Bata Workmen Sickness Benefit Society had been wrongly allowed as a deduction.

The petitioner contended that the notice was not maintainable because section 154/155 permits correction only of mistakes apparent on the face of the record, and that the deduction had been allowable under the Income-Tax Act (section 40A(9) read with section 36) and sanctioned by a certified standing order under the Industrial Employment (Standing Orders) Act, 1946. The Tribunal had earlier accepted the petitioner’s contention that the deduction was allowable. The respondents justified issuance of the notice by reference to authorities they considered supportive.

After hearing argument from both sides and examining the statutory provision and precedents cited, the court concluded that the notice was not a valid exercise of power under section 154/155 and set the notice aside. The court ordered no costs and directed provision of xerox copies of the judgment to the parties under the usual undertaking.

Legal Issues Presented

Whether a notice under sections 154/155 of the Income-Tax Act can be issued to amend an assessment order so as to revisit and reconsider a deduction that is, in the view of the department, wrongly allowed — i.e., whether the officer may reassess the correctness of an assessment under the guise of rectifying a "mistake apparent from the record".
Whether a disputed or debatable question of law or fact (including the correctness of allowance of a deduction under section 40A(9) read with section 36 and based on a certified standing order) can be treated as a "mistake apparent on the record" for the purposes of section 154/155.
Whether, on the merits, the particular deduction of Rs. 12,69,760 paid to the Bata Workmen Sickness Benefit Society was lawfully allowable on the basis of the certified standing order and prior acceptance in earlier assessments and by the Tribunal.

Arguments of the Parties

Petitioner's Arguments (Mr. Bajoria)

Section 154/155 has a limited scope and permits correction only of mistakes that are apparent on the face of the record; it cannot be used to reopen or reconsider the assessment where further enquiry or reconsideration of materials is necessary.
The officer invoking section 154/155 must look only at the order itself; if the issue requires further reasoning or can support more than one opinion, it is not a "mistake apparent on the face of the record".
Reliance on judicial authority: Coates of India Ltd. v. Dy. CIT (No. 2) (1995) 214 ITR 504 and Division Bench decision ITO v. India Foils Ltd. (1973) 91 ITR 72 to support narrow construction of section 154/155, and on the Supreme Court decision T.S. Balaram, ITO v. Volkart Brothers (1971) 82 ITR 50 for the principle that debatable points of law are not "mistakes apparent from the record".
On the merits, the deduction is 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, 1946) authorized a provision for medical benefits paid to a body other than the employer.
The Tribunal had accepted the petitioner's contention and earlier assessments had allowed deduction of the same head without departmental objection; there was no intervening development to justify departure from that position.

Respondents' Arguments (Mr. Ram Chandra Prasad)

Cited the Full Bench decision CIT v. Sheo Kumari Debi (1986) 157 ITR 13 (Patna) and argued that the court should apply the section "substantially" and consider whether the provision should be made applicable to benefit the Revenue; suggested a purposive approach rather than strict adherence to earlier principles developed under British rule.
Emphasized the reasoning in the last paragraph of that Full Bench decision to support a broader application of the provision in favour of Revenue collection.
Relied on a later Division Bench decision CIT v. E. Sefton and Co. (P.) Ltd. (1989) 179 ITR 435 (Cal), which the court later observed was passed without considering the Supreme Court decision in T.S. Balaram.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
T.S. Balaram, ITO v. Volkart Brothers, [1971] 82 ITR 50 (Supreme Court)	Section 154 cannot be used to go into the true scope of provisions; a "mistake apparent from the record" must be an obvious, patent mistake and not a debatable point of law; the power under s.154 is no greater than the High Court's power to entertain a writ on an error apparent on the face of the record.	The court applied this Supreme Court authority as the principal rule governing the limited scope of s.154 and relied on it to hold that the notice was not a proper rectification notice because it sought to revisit a debatable issue.
Coates of India Ltd. v. Dy. CIT (No. 2), [1995] 214 ITR 504 (Cal)	When the issue is debatable, a notice cannot be issued under section 154 and the Assessing Officer cannot decide it under section 143.	The court cited this learned single-judge decision (Justice Ruma Pal) as consistent with the Supreme Court principle and supportive of the view that the impugned notice was improper because the issue was debatable.
ITO v. India Foils Ltd., [1973] 91 ITR 72 (Cal, Division Bench)	The "mistake" must be apparent on the face of the records — obvious, clear and patent; matters requiring long and elaborate reasoning or supporting more than one opinion are not mistakes apparent from records.	The court relied on this Division Bench authority as consistent with the narrow construction of s.154 and applied it to conclude that the notice would reopen a debatable issue and thus should not have been issued.
CIT v. Sheo Kumari Debi, [1986] 157 ITR 13 (Patna Full Bench)	Advanced, as cited by respondents, the idea that the court should apply the section substantially and not be bound by principles developed under the British regime; emphasis (per respondent) on a broader approach in favour of Revenue.	The court considered this Full Bench decision advanced by the respondents but found it unhelpful in view of the Supreme Court authority (T.S. Balaram) which controls; the court did not adopt the broader approach urged from this authority.
CIT v. E. Sefton and Co. (P.) Ltd., [1989] 179 ITR 435 (Cal, Division Bench)	A later Division Bench decision relied upon by respondents; argued to support respondent's position.	The court observed this later Division Bench judgment had been passed without considering the Supreme Court decision in T.S. Balaram and held that, being contrary to the Supreme Court decision, it was no longer good law and did not bind the court.

Court's Reasoning and Analysis

The court began with a plain reading of section 154 (quoted in the opinion) and reiterated that the statutory power is confined to rectifying "any mistake apparent from the record." The court analysed the impugned notice and observed that:

The notice did not specify any patent or obvious mistake on the face of the assessment order; instead it sought to contend that the deduction allowed for payment to the Bata Workmen Sickness Benefit Society was wrongly allowed.
The practical effect of the notice would be for the assessing officer to sit in judgment upon the correctness of the assessment order — that is, to reopen and reconsider the allowance of the deduction rather than to correct a clear clerical or manifest error in the order itself.
Relying on the Supreme Court decision in T.S. Balaram, the court emphasised that a "mistake apparent on the record" must be a patent and obvious error and not a debatable question of law or fact which would require lengthy analysis or could support more than one opinion.
The court found Coates of India Ltd. and ITO v. India Foils Ltd. to be consistent with this narrow view and applied those authorities to the facts: allowing the notice to proceed would amount to reopening the assessment and engaging in adjudication of a debatable issue, which is not permissible under section 154.
The court rejected the respondents' reliance on CIT v. Sheo Kumari Debi and on the later Division Bench decision CIT v. E. Sefton and Co. (P.) Ltd., holding that the latter had not considered the Supreme Court decision and that a Division Bench decision contrary to a prior Supreme Court decision was not binding.
On the merits, after considering the documentary material (a certified standing order) and the history of earlier assessments where the deduction had been allowed, the court concluded that the petitioner had been lawfully granted the deduction and that the materials produced were undisputed and unimpeachable.

For these reasons — both legal (narrow scope of section 154/155) and factual (documentary proof and prior acceptance of the deduction) — the court concluded that the notice was not a valid exercise of power under section 154/155 and was therefore liable to be set aside.

Holding and Implications

Holding: The court SET ASIDE the notice dated 10 August 1988 issued under sections 154/155 of the Income-Tax Act, 1961, as being invalid for attempting to reopen and reconsider the assessment under the guise of rectifying a "mistake apparent from the record."

Implications:

Direct effect on the parties: The impugned notice is quashed and the assessment order dated 20 June 1984 (for AY 1982–83) stands as it was; the petitioner’s deduction of Rs. 12,69,760 in respect of payments to the Bata Workmen Sickness Benefit Society remains accepted in that assessment. There is no order as to costs.
On legal principle: The court applied the Supreme Court's restrictive interpretation of section 154 (as in T.S. Balaram) and followed allied decisions (including Coates of India Ltd. and ITO v. India Foils Ltd.) to reaffirm that section 154 cannot be used to entertain debatable questions of law or fact and cannot be a tool to reopen assessments except to correct obvious, patent errors apparent on the face of the record. The court held that contrary Division Bench authority which did not consider the Supreme Court decision was not binding in this respect.

Order: The court directed that xerox copies of the judgment and order duly signed be made available to both parties on their usual undertaking to apply for and obtain certified copies on payment of the usual charges.

Show all summary ...

Kalyan Jyoti Sengupta, J.:— In this writ petition, the petitioner has challenged a notice dated August 10, 1988, issued under section 154/155 of the Income-Tax Act, 1961, whereby, assessment order dated June 20, 1984, under section 143(3) for the assessment year 1982–83 is sought to be amended as there is a mistake apparent from the records within the meaning of section 154/155 of the Income-Tax Act, 1961. The object behind the notice is to enhance the assessment for increasing the 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 the Bata Workmen Sickness Benefit Society was wrongly allowed.

2. Mr. Bajoria, learned senior counsel appearing for the writ petitioner, contends that the 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 section 154/155 is very limited and this can only be exercised where the mistake is apparent on the face of the record upon a 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 concerned is to look into the order only and nothing else. In this context, he relies on a decision of a learned single judge of this court delivered in the case of Coates of India Ltd. v. Dy. CIT (No. 2), [1995] 214 ITR 504. He also refers to a Division Bench judgment of this court while examining the scope and purview of section 154/155 of the Income-Tax Act, reported in ITO v. India Foils Ltd., [1973] 91 ITR 72 (Cal). He has drawn my attention to the Supreme Court judgment on the aforesaid section reported in T.S Balaram, ITO v. Volkart Brothers, [1971] 82 ITR 50. He contends that on previous occasions and even on occasions subsequent to this assessment order, the Department concerned did not question the allowance of deduction of the aforesaid expenditure incurred for paying the Bata Workmen Sickness Benefit Society. He has drawn my attention to the learned Tribunal's judgment which has accepted the contention of the writ petitioner that the aforesaid deduction is allowable.

3. Mr. Bajoria also contends on the merits that under section 40A, subsection (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, 1946, a standing order has certified for making a provision for payment of the aforesaid amount on account of the medical benefit to the workmen.

4. If this is 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 records. 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 the merits, he contends this notice is liable to be set aside since there is no foundation at all.

5. 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, reported in CIT v. Sheo Kumari Debi, [1986] 157 ITR 13 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 the principle followed by the courts during the British regime should not be followed by this court after Independence. The Income-Tax Act was framed during the 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.

6. Having heard learned counsel and considering the materials placed before me, a question arises here as to whether the respondent concerned is justified in issuing this notice dated August 10, 1988, purporting to remove an alleged mistake in the assessment order being passed for the assessment year 1982–83 allowing deduction of the amount paid to the Bata Workmen Sickness Benefit Society.

7. 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 provisions 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.

(2) Subject to the other provisions of this section, the authority concerned—…”

8. 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 record. In the notice itself nowhere has it 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. The logical conclusion on reading of the aforesaid notice is that the concerned officer will sit in judgment upon 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. The Supreme Court decision on this point has laid down in the case of T.S Balaram, ITO v. Volkart Brothers, [1971] 82 ITR 50 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 a proceeding under section 154 of the Act, (ii) 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 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 officers 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.

9. 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 reported in Coates of India Ltd. v. Dy. CIT (No. 2), [1995] 214 ITR 504 wherein Justice Ruma Pal held that when the issue was debatable notice could not be issued under section 154 and the Assessing Officer could not decide it under section 143. The Division Bench of this court in ITO v. India Foils Ltd., [1973] 91 ITR 72, has examined the scope of section 154. It is held amongst others that the mistake defined in the aforesaid section must be apparent on the face of the records. It must be an obvious, clear and patent mistake. One which is not apparent and requires long and elaborate reasoning and arguments on points on which there may conceivably be two opinions 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 a debatable issue. Therefore, I hold on the facts and circumstances of this case that the impugned notice ought not to have been issued.

10. Mr. Prasad's 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 prior 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 reported in CIT v. E. Sefton and Co. (P.) Ltd., [1989] 179 ITR 435 (Cal).

11. Besides, on the merits, 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 assessee-writ petitioner has paid the aforesaid fund for the medical benefit of the employee to an another 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 occasions.

12. In such circumstances, the contention of Mr. Prasad is not acceptable to me either in law or on fact. I decide this question on the facts inasmuch as the documents produced before me are undisputed and unimpeachable in character. So, I hold that 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.

13. Let xerox copies of this judgment and order duly signed by the Assistant Registrar of this court be made available to both the parties upon their usual undertaking to apply for and obtain certified copies thereof on payment of usual charges.