Commissioner Of Income-Tax vs M.R.M. Plantations (P.) Ltd.

on 9 June, 1998

Equivalent citations: 1999 240 ITR 660 Mad

Bench: R J Babu, N Balasubramanian

Commissioner Of Income-Tax vs M.R.M. Plantations (P.) Ltd. on 9/6/1998

JUDGMENT

R. Jayasimha Babu, J.

1. The principal question that arises in these references is as to the scope of the "record" occurring in Section
154 of the Income-tax Act, 1961. That section reads as under :

"154. Rectification of mistake.--(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 ;

(b) the Appellate Assistant Commissioner may amend any order passed by him under Section 250 or Section
271 ;

(c) the Commissioner may amend any order passed by him in revision under Section 263 or Section 264.

(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-

(a) may make an amendment under Sub-section (1) of its own motion, and

(b) shall make such amendment for rectifying any such mistake which has been brought to its notice by the
assessee, and where the authority concerned is the Appellate Assistant Commissioner, by the Income-tax
Officer also.

(3) An amendment, which has the effect of enhancing an assessment or reducing a refund or otherwise
increasing the liability of the assessee, shall not be made under this section unless the authority concerned has
given notice to the assessee of its intention so to do and has allowed the assessee a reasonable opportunity of
being heard.

(4) Where an amendment is made under this section, an order shall be passed in writing by the income-tax
authority concerned.

(5) Subject to the provisions of Section 241, where any such amendment has the effect of reducing the
assessment, the Income-tax Officer shall make any refund which may be due to such assessee.

(6) Where any such amendment has the effect of enhancing the assessment or reducing a refund already made,
the Income-tax Officer shall serve on the assessee a notice of demand in the prescribed form specifying the
sum payable, and such notice of demand shall be deemed to be issued under Section 156 and the provisions of
this Act shall apply accordingly.

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 Commissioner Of Income-Tax vs M.R.M. Plantations (P.) Ltd. on 9 June, 1998

(7) Save as otherwise provided in Section 155 or Sub-section (4) of Section 186 no amendment under this
section shall be made after the expiry of four years from the date of the order sought to be amended."

2. The word "record" is not defined in Section 154 or in the definition section. While the assessee contends
that the word "record" as it is used in Section 154(1) means only the record available to the Assessing Officer
at the time the order sought to be rectified was passed, it is the case of the Revenue that the "record" referred
to in Section 154(1) is the record available to the officer exercising the power under that section at the time
the proceedings for rectification are properly initiated within the period of limitation provided in Section
154(7).

3. The assessee owns a rubber estate and for the assessment year 1973-74 it had a business loss, unabsorbed
depreciation and also long-term capital gains. While the business loss was set off against the long-term capital
gains, the unabsorbed depreciation was not at all set off. The amount which was not set off was Rs. 54,156,
being the amount of aggregate unabsorbed depreciation for the assessment years 1971-72 and 1972-73. The
assessment for the assessment year 1973-74, was completed by allowing the unabsorbed depreciation to be
carried forward while taxing the capital gains of that year. In the succeeding assessment year 1974-75, the
unabsorbed depreciation for the assessment years 1971-72 and 1972-73 was deducted from the total income of
the assessee and as the assessee was liable to pay tax under Section 104(1) of the Act, on account of the
failure to comply with its requirements, an order was passed against the assessee under that provision.

4. Thereafter, the assessment order for the assessment year 1975-74 was sought to be rectified for the purpose
of setting off the unabsorbed depreciation for the assessment years 1971-72 and 1972-73 against the capital
gain. After hearing the assessee and overruling the assessee's objections, the set-off was given effect to as a
consequence of which the taxable income got reduced and the assessee was given a refund of Rs. 24,367. The
assessee is aggrieved by the order of the Tribunal upholding the order made by the Assessing Officer and the
question as to "whether the adjustment so effected is a mistake apparent from the record within the meaning
of Section 154 of the Income-tax Act" has been referred to us for our opinion, at the instance of the assessee.

5. Consequent to the adjustment of the unabsorbed depreciation against the capital gains for the assessment
year 1975-74 in terms of that rectification order, the Assessing Officer proceeded to rectify the assessment
order for the succeeding year as well. After hearing the assessee and overruling the assessee's objections, the
assessment order for the assessment year 1974-75 was rectified resulting in an additional demand for Rs.
36,964. The order made against the assessee under Section 104 of the Act also came to be revised under
Section 155(7) of the Act resulting in an additional demand of Rs. 45,282.

6. The assessee having appealed to the Tribunal against those orders, for the assessment year 1974-75, the
Tribunal set aside the order made by the Assessing Officer on the ground that the record before the Assessing
Officer in respect of the assessment of the assessee's income for the assessment year 1974-75 at the time the
original order of assessment was made, did not contain any error apparent from the record. The Tribunal has
taken the view that the term "record" in Section 154(1) of the Act is confined to the record that was before the
Assessing Officer at the time the original order of assessment was made and, therefore, it was impermissible
for the authority to look into any order which came into existence subsequent to the date of the assessment
order. The Tribunal has also taken the view that an order made by way of rectification, unlike an order passed
in appeal does not relate back to the date of the original order. The view of the Tribunal that there was no
mistake apparent from the record for the assessment year 1974-75 and that neither the original assessment nor
the order under Section 104 of the Act could have been rectified or revised has been challenged by the
Revenue at whose instance, the question as to "whether the deduction of unabsorbed depreciation in the
assessment for the year 1974-75 is a mistake apparent from the record" has been referred to us for our
opinion. The Revenue has also raised a question as to "whether the Tribunal has rightly cancelled the order
made under Section 155(7) revising the order under Section 104 of the Act."

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 Commissioner Of Income-Tax vs M.R.M. Plantations (P.) Ltd. on 9 June, 1998

7. It is not disputed before us that if the order of rectification for the assessment year 1974-75 is found to be
sustainable, the order under Section 155(7) of the Act would be equally sustainable. Learned counsel for the
Revenue has not disputed the Tribunal's finding that an order of rectification would not have the effect of
relating back to the time the original order was passed and that its effect is only prospective.

8. Before the Tribunal, it had been urged for the Revenue that the order made by the Assessing Officer in
respect of the assessment year 1974-75 rectifying the errors therein was an order made under Section 154 of
the Act though the order itself did not mention the provisions. The Tribunal accepted the case so pleaded by
the Revenue and had considered the same, by regarding the order made against the assessee as an order of
rectification under Section 154 of the Act in respect of the assessment year 1974-75 as well.

9. Section 154 of the Act opens with the words "with a view to rectifying any mistake apparent from the
record . . ." The term "record" as noticed earlier is not defined in the section or in the definition section of the
Act. For determining the true scope of this provision and the meaning to be properly assigned to the term
"record" it is necessary to keep in view the object of the provision and the nature of the power conferred on
the authorities under that provision. These are the criteria which the Supreme Court adopted while considering
the scope and effect of Section 263 of the Act and the meaning to be assigned to the word "record" used in
that provision, in the case of CIT v. Shree Majunathesware Packing Products and Camphor Works [1998] 231
ITR 53. The object with which power is conferred by Section 154 is as stated in the marginal heading
"rectification of mistake". The principal condition for exercising the power under Section 154 of the Act is the
existence of a mistake in the record. The mistake is not to be a mistake which requires in-depth probing to
discover, but is a mistake which is "apparent" from the record. The power conferred by this provision is only
to enable the authorities to rectify the "apparent" mistakes in the record. The record referred to is the record
which the authorities are required to examine for the purpose of rectifying the mistakes in the orders
mentioned in Clauses (a), (b) and (c) of Section 154(1) of the Act. The section does not either expressly or
implicitly require that the authorities exercising power under this provision should limit their attention only to
the order sought to be rectified.

10. The requirement that the mistake in the record be "apparent" does not imply that no other relevant
document should be looked into. If in the light of other legally valid orders it is found that the original order
contains mistakes which are apparent, the rectification of such mistakes is not barred under Section 154. The
object of the provision is the rectification of mistakes in the record and that object is ill-served if the
authorities are compelled to preserve such mistakes in the order by asking them to wear blinkers and not look
into relevant unimpeachable material such as the rectified order of assessment for the period preceding the
assessment year in the light of which mistakes in the order sought to be rectified are apparent.

11. It is neither necessary nor possible to set out exhaustively all the material that can possibly be regarded as
forming part of the "record" for the purpose of examination under Section 154(1) of the Act. On the facts of
this case, the order of assessment for the immediately preceding year which was rectified was undoubtedly a
part of the record which was available for examination by the Income-tax Officer for the purpose of deciding
as to whether there was a mistake apparent on the face of the record in the order of assessment for the
immediately succeeding year, namely, the assessment year 1974-75. More so, as the figures of unabsorbed
depreciation considered in the assessment for the assessment year 1974-75 were the figures which the
officers: were required to obtain from the assessment order of the previous year and the two assessment orders
to that extent were interlinked. After the rectification of the assessment order for the assessment year 1973-74
no amount towards unabsorbed depreciation was available for being adjusted in the assessment year 1974-75.
The set off allowed on the original assessment order for that year was an apparent mistake which was
rectifiable under Section 154.

12. It is no doubt true as submitted by learned counsel for the assessee that even an erroneous order may be
given effect to if it is not rectified within the time allowed by law. However, such order cannot be regarded as
having become final until the expiry of the period available for such rectification.
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 Commissioner Of Income-Tax vs M.R.M. Plantations (P.) Ltd. on 9 June, 1998

13. Learned counsel for the assessee submitted that unlike Section 263, Section 154 of the Act does not
contain the definition of the word "record". The absence of the definition, however, cannot have the
consequence of limiting its meaning to a very narrow and limited sphere of the record of the original
proceedings alone. The period of four years prescribed in the section for initiating rectification proceedings, is
meant to protect the assessee against unduly delayed proceedings for rectification, as also to enable the
authorities to have sufficient time within which to give effect to the consequence of any orders which may be
rectified or revised or modified when they have a direct.bearing upon the assessment order sought to be
rectified under Section 154(1) of the Act. Such orders would form part of the record which is available for,
scrutiny by the officers exercising powers under Section 154 of the Act, The. record for the purpose of Section
154(1) is the record available to the authorities at the time of initiation of proceedings for rectification and not
merely the record of the original proceeding sought to be rectified.

14. The Supreme Court in the case of CIT.v. Shree Majunathesware Packing Products and Camphor Works
[1998] 251 ITR 53 has held that "record" in Section 263 of the Act means the record before the Commissioner
at the time of the exercise of the power of revision. For reaching that conclusion, the court did not rely only on
the definition of the word "record" which had been introduced in Section 263 as is evident from the following
observations of the court (headnote) :

"It cannot be said that the correct and settled legal position, with respect to the meaning of the word 'record'
till June 1, 1988, is that it meant the record which was available to the Income-tax Officer at the time of
passing of the assessment order. Such a harrow interpretation of the word 'record' is not justified in view of
the object of the provision and the nature and scope of the power conferred upon the Commissioner."

15. Those observations are equally applicable to the interpretation of the term "record" in Section 154 of the
Act.

16. Learned counsel for the assessee contended that the authority should have initiated proceedings under
Section 147(b) of the Act and not under Section 154 of the Act. There are no words of limitation in Section
154 to the effect that if the proceedings can be initiated under any other provision, Section 154 cannot be
resorted to. In the case of Salem Provident Fund Society Ltd. v. CIT [1961] 42 ITR 547, it was held by this
court that proceedings can be held under Section 34 or 35 and that the availability of the power vested with
the Income-tax Officer by Section 35 did not appear to bar the exercise of the jurisdiction vested in him by
Section 34 of the Act. In the case of Indra Singh and Sons Pvt Ltd. v. Union of India [1967] 64 ITR 501, it
was held by the Calcutta High Court that the Income-tax Officer can proceed under Section 35 of the 1922
Act, if he had jurisdiction to do so, even though he had jurisdiction to proceed under Section 34 of the said
Act also.

17. Learned counsel for the assessee referred to the case of Seshasayee Paper and Boards Ltd. v. IAC of I.T.
[1986] 157 ITR 342 (Mad), to support her submission that even a wrong order has a finality and unless that
finality is disturbed by a process known to law or by a process authorised by law, the rights of the assessee
and the Revenue will continue to be governed by the order. That proposition, however, does not assist the
assessee as it cannot be disputed that the order of assessment for the year 1974-75 could not have been
regarded as having become final before the expiry of the period of four years that was available to the
authorities for initiating rectification proceedings.

18. Counsel for the assessee also placed reliance on the decision of the Delhi High Court in the case of Anglo
Dutch Paint, Colour and Varnish Works Pvt. Ltd. v. CIT [1986] 157 ITR 614, wherein the Delhi High Court
in a case arising under the Indian Income-tax Act, 1922, held that Section 35 of that Act did not apply to a
case where in consequence of the reassessment for a particular assessment year some changes had to be made
in the assessment orders for some other years. That decision also does not assist the assessee as Section 154 of
the Act is clearly attracted to the case of the assessee herein and it was permissible for the Income-tax Officer
to rectify the mistakes apparent in the assessment order for the year 1974-75 after the assessment order for the
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 Commissioner Of Income-Tax vs M.R.M. Plantations (P.) Ltd. on 9 June, 1998

year 1973-74 was rectified and as a consequence of which there was no unabsorbed depreciation available for
being adjusted in the assessment year 1974-75.

19. The question referred to us at the instance of the assessee for the assessment year 1973-74 is, therefore,
answered in the affirmative, in favour of the Revenue and against the assessee. The mistake in not allowing
the unabsorbed depreciation as a deduction from the capital gains in the year 1973-74, is clearly a mistake
apparent from the record as under Section 71(2) of the Act, that amount was required to be set off against the
capital gain and that had not been done in the original assessment order. The original assessment order also
did not conform to the law laid down by the Supreme Court in the case of CIT v. Virmani Industries Pvt. Ltd.
[1995] 216 ITR 607.

20. The questions referred to us at the instance of the Revenue for the assessment year 1974-75 are required to
be answered in the affirmative in so far as it relates to the rectification of the mistakes in the assessment order
for the year 1974-75 and in the negative in so far as the order made under Section 155(7) of the Act is
concerned. The questions are answered in favour of the Revenue and against the assessee. The order of
rectification-revising the assessment order for the year 1974-75 is one which had been made in accordance
with Section 154 of the Act and the order revising the order made under Section 104 of the Act is one which
has been made in accordance with Section 154(7) of the Act. The orders so made are lawful and binding on
the assessee. The Revenue is entitled to costs in the sum of Rs. 1,000.

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