Citation Codes

Equivalent Citations

citation codes

Case Number

S.J.Cs Nos. 13 and 14 of 1978

Judges

R.N Misra, C.J
R.C Patnaik, J.

Acts

Income-tax Officer:9. Section 254(2) of the I.T Act of 1961, corresponds to s. 35 of the Indian I.T Act of 1922.
court.8. Section 254(2) of the I.T Act
s. 256(2) of the I.T Act of 1961,
section 35 of the Indian Act
s. 254(2) of the I.T Act.

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Smart Summary

Structured Summary of the Opinion (R.N. Misra, C.J.)

Factual and Procedural Background

The Revenue, under s. 256(2) of the Income-tax Act, 1961, obtained a statement of case from the Cuttack Bench of the Income-tax Appellate Tribunal referring two questions to this Court. The assessee was a partnership firm trading in tobacco and tobacco products. For assessment years 1971-72 and 1972-73 the assessee returned incomes of Rs. 12,736 and Rs. 9,925 respectively. The ITO rejected the returns and assessed incomes of Rs. 50,810 and Rs. 38,790. On second appeal the Tribunal determined incomes of Rs. 35,420 and Rs. 26,520, which included sums of Rs. 12,000 and Rs. 5,000 as income from undisclosed sources.

The ITO initiated penalty proceedings under s. 271(1)(c) and referred them to the IAC under s. 274(2). Before the IAC the assessee contended that the cash credits (Rs. 12,000 and Rs. 5,000) had been surrendered for taxation and so penalty proceedings were inappropriate, relying on Gumani Ram Siri Ram v. CIT. The IAC imposed penalties on the footing that the assessee failed to discharge the onus under s. 271(1)(c); the Tribunal initially upheld the penalties.

Subsequently the assessee filed a miscellaneous application purporting to be under s. 254(2) seeking rectification on the basis that the Tribunal had not considered the decision in Commissioner of Income-Tax, Orissa v. Dhadi Sahu. The Tribunal accepted that Dhadi Sahu's ratio applied and concluded a mistake had been made; it held that the IAC had no jurisdiction to impose the penalty and set aside the penalty in view of that legal infirmity.

Notice from this Court was served on the assessee, but the assessee did not appear. The standing counsel for the Revenue contested the Tribunal's action and advanced submissions (described below). The Court considered the scope of s. 254(2) and several precedents and answered only the second referred question.

Legal Issues Presented

Whether on the facts and circumstances of the case, at the point of time when penalty was imposed there was lack of jurisdiction in the authority imposing penalty?
Whether on the facts and circumstances of the case, the Tribunal was legally competent to reverse its final decision in exercise of powers under section 254(2) of the Income-tax Act?

Arguments of the Parties

Assessee's Arguments

The cash credits of Rs. 12,000 and Rs. 5,000 in the two assessment years had been surrendered by the assessee for being taxed; therefore penalty proceedings under s. 271(1)(c) should not have been initiated.
Relied on the decision in Gumani Ram Siri Ram v. CIT ([1972] 85 ITR 67) in support of the assessee's contention that there was no scope for penalty.
Applied, by way of a later miscellaneous application under s. 254(2), the principle in Commissioner Of Income-Tax, Orissa v. Dhadi Sahu ([1976] 105 ITR 56) to seek rectification of the Tribunal's earlier decision.

Assessing/Adjudicatory Authority's and Tribunal's Position

The IAC imposed penalties on the view that the assessee failed to discharge the onus under s. 271(1)(c) of the Act.
On initial appeal the Tribunal upheld the IAC's imposition of penalty.
On the subsequent application (purporting to be under s. 254(2)), the Tribunal held that Dhadi Sahu's ratio applied, that a mistake had been committed, and that the IAC therefore had no jurisdiction to impose the penalty — resulting in the setting aside of the penalty.

Revenue / Standing Counsel's Arguments

The correctness of Dhadi Sahu's decision had been challenged before the Supreme Court and therefore its correctness was not to be re-examined by this Court.
Cited a subsequent decision of this Court, Pawan Kumar More v. ITO ([1979] 118 ITR 1012), in which the Tribunal had refused rectification under section 154 and this Court did not interfere.
Noted that another High Court (Kerala) had taken a different view from Dhadi Sahu on the legal aspect.
Contended that s. 254 had no application to the facts of the case and that the Tribunal went beyond its jurisdiction in purportedly allowing relief under s. 254(2).

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Gumani Ram Siri Ram v. CIT, [1972] 85 ITR 67 (P & H)	Relied on by the assessee to support the proposition that surrendered amounts taxed should preclude penalty proceedings.	Recorded as the assessee's principal authority in resisting penalty; used to explain why the assessee contended there was no scope for penalty proceedings.
Commissioner Of Income-Tax, Orissa v. Dhadi Sahu, [1976] 105 ITR 56 (Orissa)	Held by this Court to be a binding Orissa High Court decision on the relevant legal proposition (that, on its ratio, the imposition of penalty was without jurisdiction).	The Tribunal relied on this decision to conclude a mistake had been made and to set aside the imposition of penalty. This Court treated Dhadi Sahu as binding on it until the Supreme Court decides the appeal against Dhadi Sahu.
Pawan Kumar More v. ITO, [1979] 118 ITR 1012 (Orissa)	Illustrates a case where the Tribunal refused rectification under the corresponding statutory provision and this Court did not interfere.	Placed before this Court by standing counsel to show a later instance where rectification was declined; cited in support of the proposition that the Tribunal should not act beyond the scope of rectification.
CIT v. Sevugan, [1948] 16 ITR 59 (Mad)	Section 35 (corresponding to s.254(2)) has limited application: rectification is limited to mistakes apparent on the record and does not permit reversal by revision or review.	Quoted to establish the limited scope of the rectification provision and to show that rectification cannot be used as a vehicle for review or revision of an order.
Sidhramappa Andannappa Manvi v. CIT, [1952] 21 ITR 333 (Bom)	Affirmed that section 35's application is limited to correcting errors apparent on the face of the record, not to enable reversal, revision or review.	Relied upon as supporting authority for the limited scope of rectification and reinforcing the principle that rectification is not review.
K. Parameswaran Pillai v. Addl. ITO, [1955] 28 ITR 885 (Trav.-Cochin)	Reiterated that rectification jurisdiction is limited to errors apparent on the face of the record and does not permit reversal by revision or review.	Used to underscore the established line of authority limiting rectification to obvious, manifest errors on the record.
N.V.N Nagappa Chettiar v. ITO, [1958] 34 ITR 583 (Mad)	Held that a mistake must be obvious and manifest; errors requiring elaborate or controversial reasoning, or errors in law or procedure, are not mistakes apparent on the record.	Quoted to explain that a mistake "apparent from the record" must be demonstrably obvious and not the subject of detailed argument or investigation; framed the boundary of rectification power.
CIT v. Sheolal Ramlal, [1958] 33 ITR 47 (MP)	Rectification requires an error that is apparent on the face of the record and demonstrable without additional evidence or detailed arguments.	Applied to establish that rectification cannot be used where resolution would require further evidence or extensive argument.
CIT v. J. Sundaram, [1964] 52 ITR 474 (Mad)	The Tribunal has no jurisdiction to pass an order under rectification when there is no error apparent from the record; an existing finding that penalties were rightly levied cannot be converted into reduction simply because the assessee cooperated.	Relied on to show that the Tribunal cannot, under rectification powers, alter findings where no apparent error exists on the record.
Shew Paper Exchange v. ITO, [1974] 93 ITR 186 (Cal)	Consistent view that rectification is limited to errors apparent on the face of the record.	Referred to as another authority aligning with the limited conception of rectification jurisdiction.

Court's Reasoning and Analysis

The Court began by setting out s. 254(2) of the Income-tax Act, 1961, which permits the Appellate Tribunal, within four years, to amend any order to rectify any mistake apparent from the record. The Court observed that s.254(2) corresponds to s.35 of the Indian I.T. Act, 1922, and drew on a series of precedents interpreting that provision.

The Court summarized the consistent line of authority across multiple High Courts (Madras, Bombay, Travancore-Cochin, Madhya Pradesh, Calcutta) to the effect that the rectification jurisdiction is limited: it permits correction only of mistakes that are obvious and apparent on the face of the record, demonstrable without recourse to additional evidence or detailed argument. Errors of law, errors of procedure, or matters requiring elaborate or controversial reasoning are outside the scope of rectification.

Applying this legal standard, the Court found that the Tribunal did not have the power of review under s. 254(2). The Tribunal's allowance of the assessee's later application (which applied the principle in Dhadi Sahu) was, in substance, a review of its earlier appellate decision because Dhadi Sahu's decision had not been before the Tribunal at the appellate stage. The Court therefore characterized the Tribunal's action as review rather than rectification.

The Court also addressed the binding character of Dhadi Sahu on the Orissa High Court: although the standing counsel pointed out that Dhadi Sahu's correctness was under challenge in the Supreme Court and that other High Courts had taken a different view, this Court treated Dhadi Sahu as binding on it until the Supreme Court decides the appeal. Nevertheless, that binding nature did not convert the Tribunal's post-decisional review into a permissible rectification under s. 254(2).

The Court relied on the line of authorities to conclude that allowing a Piecemeal re-examination of a concluded appellate order by invoking s. 254(2) when no error was apparent on the face of the record was beyond the Tribunal's jurisdiction.

Holding and Implications

Holding: On the facts and in the circumstances of the case, the Tribunal was not legally competent to reverse its final decision in exercise of powers under s. 254(2) of the Income-tax Act.

Implications and direct effects:

The Court concluded that the Tribunal exceeded its jurisdiction by reviewing and reversing its earlier appellate decision by invoking s. 254(2) (a provision limited to rectification of mistakes apparent on the record).
The Court limited its answer to the second referred question only and did not make a determination resolving both referred questions; it expressly noted that it would be sufficient to answer the second question.
No costs were ordered because the assessee was not represented before the Court.
The decision reaffirmed existing jurisprudence that rectification under the statutory provision is confined to obvious errors apparent on the face of the record and is not a vehicle for review or re-opening matters that require fresh argument or evidence. The Court did not purport to set a new precedent beyond applying and reaffirming that established principle.

This summary is confined to the information explicitly stated in the provided opinion. No additional facts or outcomes have been inferred beyond the text.

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Commissioner Of Income-Tax v. Jagabandhu Roul.

R.N Misra, C.J:— On the application of the Revenue made under s. 256(2) of the I.T Act of 1961, this court directed the Cuttack Bench of the Income-tax Appellate Tribunal to state a case and refer the following two questions for the opinion of the court:

“(1) Whether on the facts and circumstances of the case, at the point of time when penalty was imposed there was lack of jurisdiction in the authority imposing penalty?

(2) Whether on the facts and circumstances of the case, the Tribunal was legally competent to reverse its final decision in exercise of powers under section 254(2) of the Act?”

2. Pursuant to our direction, the Tribunal has stated the case and referred the questions. The assessee is a partnership firm engaged in the trade of tobacco and tobacco products. The relevant assessment years are 1971-72 and 1972-73. The assessee returned incomes of Rs. 12,736 and Rs. 9,925 respectively for the two years. The ITO rejected the return and assessed income of Rs. 50,810 and Rs. 38,790, respectively, for the years in question. The Tribunal, in second appeal, determined income of Rs. 35,420 and Rs. 26,520, respectively. These included sums of Rs. 12,000 and Rs. 5,000, respectively, as income from undisclosed sources.

3. The ITO thereupon started proceedings under s. 271(1)(c) of the Act and referred the proceedings to the IAC under s. 274(2) of the Act for disposal. Before the IAC, the assessee contended that the cash credits of Rs. 12,000 and Rs. 5,000, respectively, in the two assessment years were surrendered by the assessee for being taxed and, therefore, there was no scope for initiating penalty proceedings. Reliance in support of this proposition was placed on the decision in the case of Gumani Ram Siri Ram v. CIT, [1972] 85 ITR 67 (P & H). The IAC did not accept the stand and on the footing that the assessee had failed to discharge the onus which lay on him under s. 271(1)(c) of the Act, he imposed penalties of Rs. 12,000 and Rs. 5,000, respectively, for the two years. On appeal, the Tribunal upheld the action of the IAC by holding that s. 271(1)(c) applied to the assessee and he had failed to discharge the onus that lay on him. Accordingly, the appeals were dismissed and the imposition of penalty was sustained.

4. Subsequently, the assessee moved a miscellaneous application purporting to be under s. 254(2) of the Act praying for rectification of the mistake by contending that the decision of this court in the case of Commissioner Of Income-Tax, Orissa v. Dhadi Sahu., [1976] 105 ITR 56 (Orissa), had not been referred to by the Tribunal while disposing of the appeals. The Tribunal took the view that the ratio of the decision applied and a mistake had been committed which required rectification. It, therefore, held that the IAC had no jurisdiction to impose the penalty and in view of the legal infirmity, the imposition of penalty was liable to be set aside.

5. Though notice from this court was given and was duly served on the assessee, no appearance has been effected on its behalf before us.

6. Learned standing counsel contends that the correctness of the decision in Dadhi Sahu's case, [1976] 105 ITR 56 (Orissa), has been challenged in appeal before the Supreme Court. He has placed before us a subsequent decision of this court in the case of Pawan Kumar More v. ITO, [1979] 118 ITR 1012 (Orissa), where, when the Tribunal refused to rectify the mistake on the basis of Dhadi Sahu's decision in an application made under section 154 of the Act, this court did not interfere. He has also contended that the Kerala High Court has taken a view different from our own in Dhadi Sahu's case so far as the legal aspect is concerned. According to learned standing counsel s. 254 had no application at all to the facts of the case and the Tribunal went beyond its jurisdiction in allowing the relief to the assessee in purported exercise of jurisdiction to rectify a mistake.

7. The decision in Dhadi Sahu's case, [1976] 105 ITR 56 (Orissa), is binding on us and, merely because some other High Court has taken a different view, we do not propose to re-examine the correctness of the decision in Dhadi Sahu's case. The matter is already before the Supreme Court and as and when the result of the appeal would be known, the legal position would be finally settled. Until then, Dhadi Saint's case must be taken to be binding on this court.

8. Section 254(2) of the I.T Act provides:

“The Appellate Tribunal may, at any time within four years from the date of the order, with a view to rectifying any mistake apparent from the record, amend any order passed by it under sub-section (1), and shall make such amendment if the mistake is brought to its notice by the assessee or the Income-tax Officer:…………”

9. Section 254(2) of the I.T Act of 1961, corresponds to s. 35 of the Indian I.T Act of 1922. In the case of CIT v. Sevugan, [1948] 16 ITR 59 (Mad), Gentle C.J spoke for the Madras High Court thus (p. 66):

“Section 35 has limited application. It enables rectification to be made of any mistake, apparent from the record, either on his own motion by the Commissioner or the Appellate Assistant Commissioner or by the Appellate Tribunal on their own motion, or when such a mistake is brought to their notice by an assessee. Clearly that section does not enable an order to be reversed by revision or by review but permits only some error, which is apparent on the face of the record, to be corrected.”

10. A Bench of the Bombay High Court in Sidhramappa Andannappa Manvi v. CIT, [1952] 21 ITR 333 (Bom), observed (p. 341):

“In that case (16 ITR 59), the Madras High Court was not considering at all what was the effect of the order under section 35. It is true that they did say that section 35 had a limited application and it does not enable and order to be reversed, revised, or reviewed, but permits only such error which is on the face of the record to be corrected. With respect that position in law is undisputable.”

11. In K. Parameswaran Pillai v. Addl. ITO, [1955] 28 ITR 885 (Trav.-Cochin), the Travancore-Cochin High Court took the same view by saying (p. 889):

“Again, the jurisdiction to correct by way of rectification under section 35 of the Indian Act is limited. It deals only with errors apparent on the face of the record which can be corrected at any stage. As observed by Gentle C.J, that section does not enable an order to be reversed by revision or by review, but permits only some error which is apparent on the record to be corrected.”

12. In N.V.N Nagappa Chettiar v. ITO, [1958] 34 ITR 583 (Mad), Balakrishna Ayyar J. spoke for the court thus (p. 585):

“Before an Income-tax Officer can exercise his powers under section 35 of the Act to rectify a mistake the mistake must be apparent from the record of the assessment. This ‘record of the assessment’ is only that part of the record which leads to the determination and ascertainment of the tax payable and no more. Again, before it can properly be said that a mistake is apparent from the record it must be something very obvious and manifest. A mistake to establish which a very elaborate process of reasoning, and controversial reasoning at that, is called for, cannot be said to be a mistake apparent from the record. An error in law or a wrong procedure adopted in the assessment proceedings would not be a mistake within the meaning of section 35:………. Mistakes to discover which complicated processes of investigation and argument are required are outside the scope of section 35 of the Act.”

(underlining* is ours).

13. In CIT v. Sheolal Ramlal, [1958] 33 ITR 47, the Madhya Pradesh High Court held (p. 54):

“Rectification within the meaning of section 35 means the correction of an error which is apparent on the face of the record. That error must be demonstrable without the taking out of any additional, evidence and without any detailed arguments pro and con.”

14. The Madras High Court again examined the question in CIT v. J. Sundaram, [1964] 52 ITR 474 (Mad) and concluded by saying (p. 477):

“The Tribunal has no jurisdiction to pass such an order when there is no error apparent from the record. The Tribunal having found that the Department was right in levying the penalties and that there were no mitigating circumstances calling for reduction of the penalties cannot say that, because the assessee co-operated with the Department, the penalties should be reduced.”

15. A learned single judge of the Calcutta High Court in Shew Paper Exchange v. ITO, [1974] 93 ITR 186 (Cal) has also taken the same view.

16. In our opinion, the Tribunal does not have a power of review. What has been given under s. 254(2) of the Act is one of rectification of mistakes. There can be no two opinions that the power of review has to be statutorily conferred. In the instant case, no reference has been made by the Tribunal while disposing of the appeal to Dhadi Sahu's case, [1976] 105 ITR 56 (Orissa), because the same had not been placed before it. When Dhadi Sahu's case was not before the Tribunal at the appellate stage for consideration, and the assessee applied to the Tribunal to review its decision by applying the principle in Dhadi Sahu's case, it was really not an application within the ambit of s. 254(2) of the Act, but was one for review. In the case of Pawan Kumar More, [1979] 118 ITR 1012, this court observed (pp. 1014, 1015):

“On the basis of the law indicated in the aforesaid decision ([1976] 105 ITR 56), the assessee made an application purporting to be under s. 154 of the Act to the Appellate Tribunal. The Tribunal took the view that there was no error apparent on the face of the record and, accordingly, declined to interfere. Assessee has, therefore, come with this writ application asking for quashing of the imposition of penalty on the ground that the statutory authority had no jurisdiction to exercise or alternatively to issue a direction to the Tribunal to rectify the mistake.

On the ratio of the decision of this court in Dhadi Sahu's case, [1976] 105 ITR 56 (Orissa), the imposition of penalty in the matter is admittedly without jurisdiction. Learned standing counsel has, however, contended that the penalty proceedings had become final several years back and it would not be appropriate to allow the concluded matter to be reopened at this point of time. He again submits that the matter had once come before this court and the reference application under s. 256(2) of the Act had also been rejected. Merely because the effect of the law which has been declared in Dhadi Sahu's case, [1976] 105 ITR 56 (Orissa), is against the Revenue, if would not mean that every matter where a different view had been taken and has become final should be permitted to be reopened. We find force in the objection of the learned standing counsel.”

17. We are inclined to agree with the learned standing counsel that the Tribunal exceeded its jurisdiction when it reviewed its earlier decision purporting to act under s. 254(2) of the Act and vacated the penalty the imposition of which it had upheld while disposing of the appeal. Learned standing counsel had stated to us at the time of hearing that it would be enough if the second question referred to us be answered. Our answer to the second question, therefore, shall be:

On the facts and in the circumstances of the case, the Tribunal was not legally competent to reverse its final decision in exercise of powers under s. 254(2) of the I.T Act. Since the assessee is not represented, we make no order for costs.

Patnaik, J.:— I agree.

Commissioner Of Income-Tax v. Jagabandhu Roul.

Structured Summary of the Opinion (R.N. Misra, C.J.)

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Assessee's Arguments

Assessing/Adjudicatory Authority's and Tribunal's Position

Revenue / Standing Counsel's Arguments

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Commissioner Of Income-Tax v. Jagabandhu Roul.

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