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M/S. Ved Parkash Madan Lal, Jullundur v. The Commissioner Of Income-Tax, Patiala .
Legal Opinion Summary: Reference under section 256(1) of the Income-tax Act, 1961
Factual and Procedural Background
This is a reference under section 256(1) of the Income-tax Act, 1961 by the Income-tax Appellate Tribunal (Chandigarh Bench).
The assesses were Messrs Ved Parkash Madan Lal, an exercise contractor. For the assessment years 1960–1961 and 1961–1962 the Income-tax Officer (ITO) held that two hotels (dhabas) and two liquor shops belonged to the assessee firm and included the income from those hotels in the assessee's total income. The assessment for 1960–1961 was completed on 8 October 1963 and for 1961–1962 on 10 June 1964.
For the assessment year 1962–1963 the ITO followed his earlier orders for 1960–1961 and 1961–1962 and included the income from the hotels in the assessee's total income. The assessee did not appeal the 1962–1963 order but did appeal the earlier years' orders, contending that one hotel belonged to Behari Lal and the other to Om Parkash and therefore the income could not be included in the assessee's income.
The Appellate Assistant Commissioner (AAC) initially upheld the ITO's order. On second appeal the Tribunal set aside the AAC's order and remanded for fresh disposal allowing parties an opportunity to lead evidence. After remand, the AAC remanded the case to the ITO for further inquiry; subsequently the AAC found the two hotels did not belong to the assessee and excluded their income from the assessee's total income.
The assessee then filed an application under section 154 before the ITO seeking rectification of the 1962–1963 assessment to exclude the hotels' income. The ITO rejected that application on 19 October 1967 (Annexure A) on the ground that the matter did not fall within section 154. The assessee's appeal from that rejection was dismissed by the AAC on 23 October 1968 (Annexure B). A further appeal to the Tribunal failed (order dated 28 April 1970, Annexure C). The assessee then asked the Tribunal to refer a question of law to this Court, and the Tribunal did so.
Legal Issues Presented
- Whether, on the facts and in the circumstances of the case and in view of the assessment order for the year 1962–1963 which had become final, it was within the competence of the Income-tax Officer to rectify the assessment order under section 154 and exclude the income from the two hotels from the total income of the assessee.
Arguments of the Parties
Assessee's Arguments
- The assessee's principal contention on appeal (in relation to the earlier years) was that one hotel belonged to Behari Lal and the other to Om Parkash, and therefore the income from those hotels could not be included in the assessee's income.
- The assessee sought rectification of the 1962–1963 assessment under section 154 to exclude the hotels' income, invoking the effect of the AAC's later finding that the hotels did not belong to the assessee.
Income-tax Officer's / Revenue's Position
- The Income-tax Officer refused the assessee's section 154 application on the ground that the matter did not fall within the purview of section 154 of the Act (i.e., that there was no "mistake apparent from the record" warranting rectification).
- The AAC and subsequently the Tribunal rejected the assessee's appeals against that refusal (as reflected in the annexures and Tribunal order).
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Maharana Mills (Private) Ltd. v. Income-tax Officer, Porbander, 1969 16 ITR 350 | The proposition that the power under the relevant rectification provision is limited to mistakes apparent from the record but the tax officer may examine the record (including evidence) and, if a mistake is discovered, may rectify it; and that where rectification results in enhancement of assessment or reduction of refund, notice and an opportunity to be heard are required. | The Court stated that its view "finds full support" in this decision and relied on it to sanction the ITO's competence to rectify the 1962–1963 assessment where the mistake was apparent from the record. |
| Venkatachalam v. Bombay Dyeing and Manufacturing Co. Ltd., 1988 34 I.T.R 143 | Discussion of scope of "mistake apparent from the record," including that a glaring and obvious mistake of law apparent on the face of the record can be rectified under the rectification provision (as applied in the facts of that case). | The Court cited the decision for the principle that a glaring and obvious mistake of law (as opposed to only clerical/arithmetic mistakes) apparent from the record is rectifiable; the Court applied that principle to conclude the ITO could rectify the 1962–1963 order. |
| Commissioner of Income Tax v. Khemchand Ramdas, 1938 6 I.T.R 414 (Privy Council) | Authority referenced in support of the proposition that a mistake apparent from the record may encompass errors that become evident on examination of records, including prior years' records — used to rebut a distinction urged by counsel. | The Court referred to this decision to support the proposition that an apparent mistake may be discovered by looking at related records (including previous years) and that this does not preclude rectification under the relevant provision. |
Court's Reasoning and Analysis
The Court began by reproducing the operative portion of section 154, which permits the Income-tax Officer, with a view to rectifying any "mistake apparent from the record," to amend any order of assessment.
The Court explained the legal meaning of "mistake apparent from the record": such a mistake must be glaring, obvious or self-evident. The Court emphasized that mistakes rectifiable under the provision are not limited to clerical or arithmetical errors, but the provision does not cover mistakes that can be discovered only by a complicated process of investigation, argument or proof.
Applying these principles to the facts, the Court observed that the assessment order for 1962–1963 was made by repeating the estimate and adopting the assessment reasoning of the preceding years (1960–1961 and 1961–1962) without recording evidence or independently applying the officer's mind. The 1962–1963 order expressly stated that the "full facts" had been discussed in the preceding year's assessment and the estimate was repeated.
Because the earlier years' assessments (on which the 1962–1963 assessment was founded) were thereafter set aside to the extent that the hotels' income was excluded, the Court concluded that the 1962–1963 assessment contained an error that became apparent from the record. That is, once the foundational earlier orders were corrected, the error in the 1962–1963 assessment was glaring and self-evident on the face of the assessment record itself.
The Court held that the ITO was competent to examine the records of the earlier years (1960–1961 and 1961–1962) and to rectify the 1962–1963 assessment so as to bring it into conformity with those corrected earlier-year assessments. The Court reinforced this conclusion by reference to the precedents cited (Maharana Mills, Venkatachalam, and Khemchand Ramdas), treating them as supporting the proposition that an apparent mistake discoverable from the record (including related records) is within the scope of rectification power.
Holding and Implications
Holding: The Court answered the referred question in the affirmative — it held that, on the facts and circumstances of the case, it was within the competence of the Income-tax Officer to rectify the assessment order for the year 1962–1963 under section 154 and to exclude the income from the two hotels from the assessee's total income.
Implications:
- The direct effect is that the ITO had jurisdiction under section 154 to correct the 1962–1963 assessment once the error (arising from reliance on earlier assessments that were subsequently set aside in part) became apparent from the record.
- The Court made no order as to costs.
- The opinion applies established principles about the scope of rectification powers (as illustrated by the cited precedents) to the present factual matrix; the Court did not purport to create a new legal rule beyond the application of those principles to these facts.
Reference answered affirmatively; no order as to costs.
P.C Jain, J.:— This is a reference under section 256(1) of the Income Tax Act, 1961 (hereinafter referred to as the Act) by the Income-tax Appellate Tribunal (Chandigarh Bench).
2. Messrs Ved Parkash Madan Lal, the assesses, is an exercise contractor. While completing the assessment far the assessment years 1960–1961 and 1961–1962, the Income-tax Officer held that two hotels (Dhabas) attained to the two liquor shops also belonged to the assessee firm and accordingly included the income from those hotels in the total income of the assessee. The assessment for the year 1960–1961 was completed on 8th October, 1963, and for the year 1961–1962, on 10th June, 1964. For the assessment year 1962–1963 (with which we are concerned in this reference) the Income-tax Officer followed his earlier orders for the assessment years 1960–1961 and 1961–1962 and included the income from these hotels in the total income of the assessee. It is the common case of the parties that the assessee did not go in appeal to the Appellate Assistant Commissioner or Income-tax against the order of assessment of the Income-tax Officer for the year 1962–1963. The assesee preferred an appeal to the appellate Assistant Commissioner only against the orders of assessment for the years 1960–1961 and 1961–1962. The main contention of the assessee in the appeal was that one of the hotels belonged to Behari Lal and the other to Om Parkash and that the income from the hotel could not be included in his income.
3. The Appellate Assistant Commissioner upheld the order of the Income-tax Officer and rejected the appeal. On second appeal, the order of the Appellate Assistant Commissioner was set aside by the Tribunal and the appeal was remanded for fresh disposal after taking into consideration all the facts of the case and allowing the parties fresh opportunity of leading evidence. After remand, the Appellate Assistant Commissioner remanded the case to the Income-tax Officer for further enquiry. On receipt of the remind remand the Appellate Assistant Commissioner found that the two hotels did not belong to the assessee and the income from the two hotels was accordingly excluded from the total Income of the assessee.
4. After the decision of the Appellate Assistant Commissioner; the assessee filed an application under section 154 of the Act before the Income-tax Officer praying for the rectification of his order of assessment for the year 1962–1963 and for the exclusion of the income from the two hotels from the total Income-tax Officer rejected the application on the ground that the matter did not fall within the purview of section 154 of the Act. A copy of the Income-tax Officer's order dated 19th October, 1967, forms part of the case as Annexure ‘A’. The assassee filed an appeal but the same was rejected by the Appellate Assistant Commissioner vide his order dated 23rd October, 1968 copy Annexure ‘B’. Still dissatisfied, the, assessee Sled a further appeal before the Tribunal but did not succeed, as is evident from the order of the Tribunal dated 28th, April, 1970 copy Annexure ‘C’. Thereafter the assessee filed an application requesting the Tribunal to refer to this Court the question of law which arose out of the Tribunal's order and finding that a question of law did arise, the Tribunal has referred the following question far the opinion of this Court:—
“Whether on the facts and in the circumstances of the case and in view of the order for assessment year 1962–1963 which had become final, it was within the competence of the Income-tax Officer to rectify the assessment order under section 154 and exclude the income from the two hotels from the total income of the assessee”?
5. The relevant portion of section 154 under which power is given to the Income-tax Officer to rectify any mistake, reads as under:—
“154. (1) With a view to rectifying any mistake apparent from the record.
(a) the Income-tax Officer may amend any order of assessment or of refund or any other order passed by him.”
6. From the bare perusal of the provision reproduced above, it is clear that the jurisdiction of the Income-tax Officer to make an order of rectification depends upon the existence of a mistake apparent on the face of the record. The mistake is a mistake apparent fro at the record when it is glaring, obvious or a self-evident mistake Form the long age of this section, it is equally clear that a mistake capable of being rectified under this provision, is not confined to clerical or arithmetical mistakes only. However, it is also correct that this provision may not cover any mistake which may be discovered by a complicated process of investigation, argument or proof. When this case is scrutinized keeping in view the above-mentioned guiding principles, than there is no escape from this conclusion that the mistake in the order of assessment for the year 1962–1963 was apparent from the record and the Income-tax Officer, in exercise of his powers under section 154 of the Act was competent to rectify the same. There is no dispute that the assessment order for the year 1962–1963 was passed on the basis of the assessment orders for the years 1960–1961 and 1961–1962. In the order for the assessment year 1962–1963, the Income-tax Officer only observed “full facts of the case have been discussed in the assessment order for the preceding year in which it was held that the assessee himself was the owner of the hotel and income from running of hotel was estimated at Rs. 10,000/-. There is no change in the position this year. The estimate of last year is repeated”. (Quoted from the order of the Appellate Assistant Commissioner, Income-tax, Annexure ‘B’, at page 6). From this order of assessment, it is clear that no evidence at all was recorded while passing the assessment order nor was in mind independently applied, and the same was passed merely on the basis of the assessment orders made in the years 1960–1961 and 1961–1962. When on appeal the assessment orders of 1960–1961 and 1961–1962 were set aside to the extent that the income from the two hotels was excluded, then the error became apparent from the record even with regard to the assessment of the year 1962–1963. The Income-tax Officer would be competent to look into the records of the assessee for the years 1960–1961 and 1961–1962, to rectify the mistake with regard to the assessment order for the year 1962–1963 and to bring it in conformity with the orders of assessment for the earlier two years. The view we have taken, finds full support from the decision of their Lordships of the Supreme Court in Maharana Mills (Private) Ltd. v. Income-tax Officer, Porbander . 1969 16 ITR 350., wherein it has been observed thus:—
“The power under section 35 is no doubt limited to rectification of mistakes which are apparent from the record. A mistake content plated by this section is not one which is to be discovered as a result of an argument but it is open to the laconic 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. The scope and effect of the expression mistake apparent, from, the record and the exact of the powers of the Income-tax Officer under section 35 of the Act were discussed by this Court in Venkatachalam v. Bombay Dyeing and Manufacturing Co. Ltd. . 1988 34 I.T.R 143. where the facts ware these. A sum of Rs. 50,063 being interest on tax paid in advance was given credit for under section 18A(5) of the Act. Subsequently, there was an amendment of the Act by which the interest became allowable only on the difference between the amount of tax paid and what was actually determined. As a consequence of this the Income-tax Officer purporting to act under section 35 of the Act rectified the mistake and reduced the amount of interest credited to Rs. 21,157 and issued a demand for the difference. The assessee obtained a writ of prohibition against the Income-tax Officer on the ground that the mistake contemplated under that provision had to be apparent on the face of order and it was not contemplated to cover a mistake resulting from an amendment of the law even through it was retrospective in its effect. The revenue appealed to this Court. Thus the question for decision in that case was whether an order proper and valid when made could be said to disclose a mistake apparent from the record merely because it become erroneous as a result of a subsequent amendment of the law which was retrospective in its operation. In delivering the judgment of the Court Gajendragadkar, J. said:
7. At the time when the Income-tax Officer applied his mind to the question of rectifying the alleged mistake, there can be no doubt that he had to read the principal Act as containing the inserted proviso as from April 1, 1952. If that be the true position then the order which he made giving credit to the respondent for Rs. 50,603-150 is plainly and obviously inconsistent with a specific and clear provision of the statute and that must inevitably be treated as a mistake of law apparent from the record. If a mistake of fact apparent from the record of the assessment order can be rectified under section 35 we see no reason why a mistake of law which is glaring and obvious cannot be similarly rectified.’
8. The decision of the Privy Council in Commissioner of Income Tax v. Khemchand Ramdas . 1938 6 I.T.R 414. was referred to:
“Counsel for the appellant sought to distinguish both these cases, Venkatachalam's case and Khemchand's case on the ground that the record there considered was the assessment record of that year and the Income-tax Officer did not have to go to the records of the previous year. That is a distinction without a difference. If, for instance, the Income-tax Officer had found that in the assessment year 1952–1953 there was an apparent arithmetical mistake in the account of the written down value of the properties which resulted in a corresponding mistake in the assessment of the year in controversy could he not take the corrected figure for the purposes of the assessment and could it be said that the mistake was not apparent from the record. A fortiori if he discovered that the very basis of the different assessments was erroneous because of an initial mistake in determining the written down value could it be said that this 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, can it be said that is not rectifying a mistake apparent from the record but is de hors it.”
9. No other point was urged.
10. For the reasons recorded above, we answer the question in the affirmative; but make no order as to costs.
11. Reference answered affirmatively.
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