Full Judgment Text
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PETITIONER:
MAHENDRA MILLS LTD.
Vs.
RESPONDENT:
SHERI P. B. DESAI, APPELLATE ASSISTANT COMMISSIONER OF
DATE OF JUDGMENT04/03/1975
BENCH:
SARKARIA, RANJIT SINGH
BENCH:
SARKARIA, RANJIT SINGH
KRISHNAIYER, V.R.
GUPTA, A.C.
CITATION:
1975 AIR 910 1975 SCR (3) 846
1975 SCC (4) 93
ACT:
Income-Tax Act, 1961--S. 35--Scope of--Record of
appeal--Meaning of
HEADNOTE:
in the course of assessment of the income of the assessee
for the year 1959-60 the Income-tax Officer found a
discrepancy between the value of its ,closing stock which
was shown in its books as Rs. 5.89 lakhs and the records of
the State Bank in which it was shown as Rs. 8.04 lakhs. The
Income-tax Officer rejected the explanation of the assessee
regarding the discrepancy and worked out the closing stock
at Rs. 8.04 lakhs. When the assessee’s appeal against this
order was pending before the Tribunal, the Income-tax
Officer took up for assessment the income of the assessee
for the assessment year 1960-61. Rejecting the contention
of the assessee that the opening stock for the assessment
year should be taken to be Rs. 8.04 lakhs but the Income-tax
Officer took it as Rs. 5.89 lakhs. On Appeal the Appellate
Assistant Commissioner accepted the contention of the
assessee and reversed the decision of the Income-tax
Officer. Neither party appealed against this order. Later,
however, the Tribunal accepted the explanation of the
assessee in regard to the discrepancy in the closing stock
for the assessment year 1959-60 and held that the closing
stock should be taken as Rs. 5.89 lakhs as shown in its
books. Thereupon the Income-tax Officer moved the Appellate
Assistant Commissioner to rectify his order relating to the
assessment year 1960-61 and bring it in conformity with the
Tribunal’s order.
The Appellate Assistant Commissioner accordingly passed an
orders
The assessee then moved the High Court under Art. 226 of the
Constitution alleging that the Appellate Assistant
Commissioner had overstepped the jurisdiction conferred
under S. 35 of the Income-tax Act. The High Court dismissed
the petition.
On appeal to this Court it was contended that the words
’record of appeal in s. 35 of the Act would mean the record
for the assessment year 1960-61 and not the entire record of
the assessee relating to the earlier years as also ,of later
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years; and (2) the Appellate Assistant Commissioner had no
jurisdiction to rectify his decision by referring to
something which took place for Years after that
decision.Dismissing the appeal.
HELD : (1) For the Purpose of ascertaining the true stock
position the record of the assessment for assessment year
1959-60, including the Tribunals decision, was not
extraneous or irrelevant to the record of the appeal and
could legitimately be looked into by the Appellate Assistant
commissioner for the purpose of correcting the mistake.
[852C]
Since the closing stock of one assessment year furnishes the
figure of the opening stock for the succeeding year it
follows that the record showing talk closing stock of
assessment year 1959-60 formed a part of the evidence
relevant to the assessment for assessment year 1960-61. To
the extent of ascertaining the closing and opening stock
positions, the two assessments telescoped into each other.
The Tribunal’s finding that the value of the closing took
for assessment year 1959-60 had completely replaced the
Income-tax Officers finding in regard to that fact with
effect from the date of the Income-tax Officer’s order
relating to the assessment year 1959-60. If the income-tax
Officer’s tax Officer’s
847
order relating to assessment year 1959-60 was relevant to
and part of the ’record of appeal’ the Tribunal’s decision
which superseded that finding was. equally so within the
contemplation of s. 35 of the Act. [851G-H]
(2) The finding of the Tribunal as to the voluation of
stock, although recorded subsequent to the appellate
decision of the Appellate Assistant Commissioner, could be
taken as forming part of the record of the appeal and taken
into account for the purpose of correcting the mistake under
s. 35, as to the value of the opening stock for the
assessment year 1960-61, apparent from that record. [853B]
Commissioner of Income-tax v. Khem Chand Ramdas 61 I.T.R.
414-L.R. 65 I.A. 236, referred to.
M/s. Maharan Mills (Private) Ltd. v. The Income-tax
Officer, Porbandar [1959] Suppl. 2 S.C.R. 547 and M. K.
Venkatachalam v. Bombay Dyeing & Mfg. Co. Ltd., [1959]
S.C.R. 703. followed.
(3) There is no room for apprehension that the income-tax
authorities, under the guise of correcting mistakes lightly
reopen assessments long past and closed and thus introduce
an element of instability in the administration of the Act.
A decision is a precedent on its own facts. Each case
presents its own features The Income-tax authorities and the
Tribunals are supposed to apply the ratio of a decision to
the facts of particular cases with due care and discernment,
hearing in mind the restricted scope of their jurisdiction
under s. 35 and the object for which it is conferred. [853F]
JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1793 of
1970.
From the judgment and order dated 24th June, 1970 of the
Gujarat High Court in Special Civil Application No. 1259 of
1969.
S. T. Desai and I. N. Shroff, for the appellant.
T. A. Ramachandran and S. P. Nayar, for the respondents.
The Judgment of the Court was delivered by
SARKARIA, J. This appeal directed against the judgment,
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dated 24.6.1970, of the High Court of Gujarat raises a
question in regard to the interpretation of s.35 of the
Indian Income-tax Act, 1922 (for short, called the Act).
The assessee is a Limited Company which manufactures
textiles in its Mill. For the assessment year 1959-60, the
assessee showed in its books the value of its closing stock
at Rs. 5,89,439/-. The Income-tax officer in the course of
the assessment, detected that there was some discrepancy
between the value of the stock of cotton shown in the books
of the assessee and the records of the State Bank of India
with which it had hypothecated that stock. The assessee
tried to explain away this discrepancy by saying that it had
given an incorrect figure of its stock to the Bank with a
view to obtain higher amount of over-draft. The Income-tax
Officer rejected this explanation and added Rs. 2,14,682/-
to the value of the stock so that according to his
assessment, the closing stock for the assessment year 1959-
60 worked out to Rs. 8,04,121/-. Having failed in first
appeal before the Appellate Assistant Commissioner, the
assessee preferred a second appeal to the Tribunal.
848
Pending the appeal before the Tribunal, the Income-tax
Officer took up the assessment of its income for the next
assessment year i.e. 1960-61. The assessee contended that
opening stock for the assessment year 1960-1961 should be
taken as Rs. 8,04,121/-. The Income-tax Officer rejected
this contention and took up the opening stock for that
assessment year at Rs. 5,89,439/- without making the
addition of Rs. 2,14,682/-. Against this order of the
Income-tax Officer, the assessee went in appeal before the
Appellate Assistant Commissioner who, on 30.6.1965, accepted
the same, despite opposition from the Income-tax Officer who
had personally appeared there to defend his order and held
that the opening stock for the assessment year 19601961 be
taken at Rs. 8,04,121/-. Neither party appealed against
this order before the Tribunal.
On January 22, 1969, the Tribunal allowed the assessee’s
appeal referred to above relating to the assessment year,
1959-60, and accepted the assessee’s explanation about the
discrepancy relating to the value of stocks between its
account-books and those of the Bank. The Tribunal directed
that the addition of Rs. 2,14,682/- made by the Income-tax
Officer to the closing stock relating to the assessment year
1959-60 be deleted. Thus, according to the Tribunal’s
decision, the closing stock for the assessment year 1959-60
(which would also be the opening stock for the succeeding
year) was Rs. 5,89,439/ as shown in the books of the
assessee.
Thereafter on March 26, 1959, the Income-tax Officer moved
the Appellate Assistant Commissioner requesting that the
latter’s appellate order, dated 30.6.1965, relating to the
assessment year 1960-61 be rectified and brought in
conformity with the Tribunal’s order.
The Appellate Assistant Commissioner then issued a notice
under s.154 of the Act to, the assessee to show cause why
the appellate order, dated 30.6.1965, be not rectified under
s.35 of the Act. Despite objection from the assessee, on
28.6.1969, the Appellate Assistant Commissioner passed an
order for rectifying his decision dated 30.6.1965 The order
of rectification runs thus :
record of appeal as pointed out in the I.T.0’s
letter dated 26.3.69 mentioned above. The
appellate order which is now sought to be
rectified, was passed on 30.6.65. The
rectification is therefore in time.
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Accordingly I direct that the value of opening
stock for the A.Y. 60-61 be taken at Rs.
5,89,439/-, being equal to the value of the
closing stock determined by the Tribunal for
the A.Y. 1959-60. Therefore, the relief of
Rs. 2,14,682/- given to the assessee in the
original appellate order, dated 30.6.1965,
stands cancelled. The ITO is directed to give
effect to this order."
The assessee then impugned this order by a writ petition
under Article 226 of the Constitution before the Gujarat
High Court, on the ground that the Appellate Assistant
Commissioner had overstepped the jurisdiction conferred on
him under s.35 of the Act. The High Court dismissed the
petition. Hence this appeal.
849
Before the High Court, the assessee raised two contentions
which have been re-agitated before us. They are : (i) The
Appellate Assistant Commissioner had no jurisdiction to make
the impugned order because there was no mistake apparent
"from the record of the appeal" within-the contemplation of
s.35 of the Act. (ii) Assuming that the words "record of the
appeal’ in s.35 were comprehensive enough to include the
record of other related proceedings, the Appellate Assistant
Commissioner had no jurisdiction to rectify his decision dt.
30.6.65, by referring to some thing which actually and
factually took place four years after that decision.
Elaborating his contentions, Mr. Desai submits that in the
context of the present case, the words "record of the
appeal" in s.35 would mean the record for the assessment
year 1960-61 which the Appellate Assistant Commissioner had
actually before him at the time of hearing of the appeal and
not the entire record of the assessee relating to the
earlier years and a fortiori of later years. Such appellate
record, it is mentioned, had no apparent error which could
be rectified under s.35. The argument proceeds, that the
order of the Tribunal for the assessment year 1959-60, made
on 22.1.1969-which gave rise to the mistake-was something
subsequent and extraneous and could not, by any stretch of
language, be called a part of the "record of the appeal"
relating to the assessment year 1960-61. Support for this
contention has been sought from a decision of the Mysore
High Court in Ganapathi Subbaraya Hegde v. State of
Mysore,(1) which proceeds on an interpretation of s.37 of
the Mysore Agricultural Income-tax Act. Learned Counsel has
tried to distinguish the, decision of this Court in M/s.
Mahrana Mills (Private) Ltd. v. The Income-tax Officer.
Porbandar(2) on the two-fold ground (i) that that was a case
of depreciation in which the written-down value had to be
calculated with reference to the record of past years, and
(ii) unlike the present case, there, the error was in
existence and apparent from the record of the appeal at the
time of its decision. it is argued that-Maharana Mills’ case
(supra) was not one where the mistake was rectified with
reference to something happening subsequently to the
original decision of the Appellate Assistant Commissioner.
Attempt has also been made to distinguish the Privy Council
decision in Commissioner of Income-tax v. Khem Chand
Ramdas(3) on the ground that there the mistake hid become
apparent as a result of the cancellation of registration of
the assessee firm in revision under s. 33 of the Act.
As against this, Mr. Ramachandran, learned Counsel for the
Revenue submits that the "record of the appeal" spoken of in
s.35 is the entire evidence which could be looked into by
the Appellate Assistant Commissioner for the purpose of the
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appeal. Since the closing stock of one year and the opening
stock of the succeeding year must necessarily be the same.
the record of the assessment year 1959-60, was also relevant
and therefore, a part of the record of the appeal arising
out of the assessment for 1960-61. It is further canvassed
that the
(1) 84 I.T.R. 523. (2) [1959] Supp 2 S.C.R. 547.
(3) 61, I. T. R. 414- L.R. 651.
8--564SCI/75
850
Tribunal had for the I.T.O’s finding as to the value of the
closing stock for the assessment year 1959-60 being Rs.
8,04,121/- completely substituted its own finding regarding
such value being Rs. 5,89, 439/-, with effect from the date
of I.T.O’s order, and thus the Tribunal’s order, though
passed subsequently, had, with retrospective effect, become
a part of the record of the, appeal relating, to the
assessment year 1960-61, which could legitimately be looked
into by the Appellate Assistant Commissioner for the purpose
of ascertaining and rectifying the mistake in his appellate
decision. Reliance has been placed on the decisions of this
Court in Maharana Mills (P) Ltd. v. Income-tax Officer,
Porbandat (supra) and that of the Privy Council in Commis-
sioner of Income-tax v. Khemchand Ramdas (supra).
The material part of s.35 is in these terms
"35(1). The Commissioner or Appellate
Assistant Commissioner may, at any time within
four years from the date of any order passed
by him in appeal or in the case of the
Commissioner in revision under Section 33A and
the Income-Tax Officer may, at any time,
within four years from the date of any
assessmet order of refund order passed by him
on his own motion rectify any mistake apparent
from the record of the appeal, revision,
assessment or refund as the case may be, and
shall within the like period rectify any such
mistake which has been brought to his notice
by an assessee. . . "
The crucial words are those that have been underlined.
The interpretation of the words "record of appeal" is not a
matter which is res integra. It came up for consideration
before this Court in Maharana Mills case (Supra). The
appellant therein (hereinafter called the Mills) was
assessed to income-tax for the assessment year 1953-54 and
by an order of June 30, 1955, the I.T.O. allowed deprecia-
tion under S. 10(2) (vi) of the Act in the amount of Rs.
3,48,105/-. On August 8, 1955, the Mills made an
application before the I.T.O. for rectification of the order
under s.35 of the Act pointing out certain mistakes in
calculations of the depreciation amount. The Income-tax
Officer by his order, dated February 27, 1956, corrected the
"written down value" of the different properties of the
Mills and determined the total allowable depreciation to be
Rs.- 1,94,074/-. The Mills challenged this order of
rectification on several grounds two of them, which are
material for our purpose, were : (a) that the provision of
s.35 under which the Income-tax Officer had acted, was not
meant for the purpose of making corrections in written down
values, the correct provision being s.34 which specifically
refers to excessive depreciation, and (b) that, in any case,
he had exceeded his jurisdiction under s.35 in calculating
the depreciation on the written down value of the, buildings
and machinery of the appellant acting suo motu and that he-
could correct only those mistakes which had been pointed out
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by the miffs. The argument was that recalculation is not
rectifying a mistake which is apparent from the record.
This Court negatived these contentions with this observation
851
"The words used in the section are "apparent
from the record" and the record does not mean
only the order of assessment but it comprises
all proceedings on which the assessment order
is based and the Income-tax Officer is
entitled for the purpose of exercising his
jurisdiction under s.35 to look into the whole
evidence and the law applicable to ascertain
whether there was an error. If he doubts the
Written Down Value of the previous year it is
open to him to check up the previous
calculations and if he finds any mistake it is
open to him to make fresh calculations in
accordance with the law applicable including
the Rules made thereunder."
This Court then noticed Venkatachalam’s case(1) and Khem
Chand’s case (supra) in support of the view taken by it.
Counsel for the then appellant sought to distinguish these
cases 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.
This argument was repelled in these terms :
"That is a distinction without a difference.
If, for instance, the Income-tax Officer had
found that in the assessment year 1952-53
there was an apparent arithmatic 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
that is not rectifying a mistake apparent from
the record but dehors it.",
The observations of this Court, quoted above, fully apply to
the facts of the case in hand. It will bear repetition that
the closing stock for the assessment year 1959-60 as entered
in the books of the assessee, was Rs. 5,89,439/-, and as
found by the Income-tax Officer was Rs. 8,04,121/-. Since
the closing stock of one assessment year furnishes the
figure of the opening stock for the succeeding year, it
follows &,at the record showing the closing stock of
assessment year 1959-60 formed a part of the evidence
relevant to the assessment for the assessment year 1960-61.
Thus to the extent of ascertaining the closing and opening
stock positions, the two assessments telescoped into each
other. Indeed, it was on this basis that the Appellate
Assistant Commissioner had by his decision dated 30-6-1965
allowed the assessee’s appeal regarding A.Y. 1960-61. The
Tribunal’s finding
(1) [1959] S.C.R. 703.
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852
that the value of the closing stock for A.Y. 1959-60 should
be Rs. 5,89,439/-, had completely replaced the Income-tax
Officer’s finding in regard to that fact with effect from
the date of the Income-tax Officer’s-order relating to A.Y.
1959-60. if the I.T.O.’s finding with regard to the closing
stock for A.Y. 1959-60 was relevant to and part of the
"record of appeal", the Tribunal’s decision which superseded
that finding" was equally so within the contemplation of
s.35 of the Act. It cannot be gainsaid that the mistake in
regard to the opening stock for A.Y. 1960-61 being Rs.
8,04,121/-, was quite apparent when the Appellate Assistant
Commissioner undertook to rectify his appellate order dated
30-6-65, the correct figure of valuation finally determined
by the Tribunal being Rs. 5,89,439/-. Thus considered, it
is clear that for the purpose of ascertaining the true stock
position the record of the assessment for A.Y. 1959-60,
including the Tribunal’s decision, was not extraneous or
irrelevant to the record of the appeal and could
legitimately be looked into for the purpose of correcting
the mistake by the Appellate Assistant Commissioner.
Thus the first contention of the appellant stands overruled.
The second point canvassed by Shri Desai is well-nigh
covered by the ratio of the privy Council decisions in Khem
Chand’s case (supra). The assessee in that case did not
produce his account books and the Income tax Officer made an
assessment on the ’best-judgment basis’. On the application
of the assessee, however, be all-owed registration of the
assessee-firm on-January 17, 1927. As it was a registered
firm, he did not in the assessment order made under s.23(4)
on the same day, assess any super-tax. The Commissioner of
Income-tax in exercise of his powers under s.33 of the Act,
called for the record, cancelled the registration on January
28, 1927, and directed the I.T.O. to take necessary
consequential action. The result was that by an order,
dated May 4, 1929, the assessee was assessed to super-tax.
Three days later, a demand notice was issued. On these
facts, delivering the opinion of the Judicial Committee,
Lord Romer made these pertinent observations in regard to
the applicability of s.35 :
"in their Lordship’s opinion, the case clearly
would have fallen within the provisions of
section 35 had the Income-tax Officer
exercised his powers under the section within
one year from the date on which the earlier
demand was served upon the respondents. For,
looking at the record ,of the assessments made
upon them as it stood after the cancellation
of the respondent’s registration-and the order
affecting the cancellation would have formed
part of the record-it would be apparent that a
mistake had been made in stating that no
super-tax was leviable."
From the quotes above, it is evident that the Judicial
Committee considered the order of the Commissioner
cancelling the registration of the assessee’s firm-although
passed about 11 days after the
853
original assessment-to have formed part of the record of the
assessment, for the purpose of rectifying the mistake as a
mistake apparent from the record of the case. On parity of
reasoning, in the instant case, the finding of the Tribunal
as to the valuataion of the stock, although recorded
subsequently to the appellate decision of the Appellate
Assistant Commissioner, could be taken as forming part of
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the record of appeal and taken into account for the purpose
of correcting the mistake, under s.35, as to the value of
the opening stock for A.Y. 1960-61, apparent from that
record.
We do not want to overburden this judgment by a discussion
of Ganapatho Subbaraya Hegde’s case (supra) cited by Shri
Desai. Suffice it to say that this was a case under s.37 of
the Mysore Agricultural Income-tax Act, 1957. The notice
for rectification issued in that case and the orders of the
authority were found to be defective in as much as they did
not state that there was any mistake apparent on the record
of the assessment proceedings for the previous three years
in question. Maharana Mills’ case and Khemchand’s case
(supra) were not noticed by the High Court in that case.
Lastly, Shri Desai urged that we should not lose sight of
the startling results which might flow from a liberal
interpretation of s.35. It is apprehended that if the phrase
"record of the appeal" is widely interpreted so as to cover
the records of all collateral proceedings and subsequent
events, it would leave the door wide open to endless
harassment of assessees; the income-tax authorities would
under the guise of correcting mistakes, lightly reopen
assessments long past and closed, and thus introduce an
element of disconcerting instability in the administration
of the Act.
In our opinion, there is no room for any such apprehension.
It must be remembered that a decision is a precedent on its
own facts. Each case presents its own features. The
income-tax authorities and Tribunals are supposed to apply
the ratio of a decision, to the facts of particular cases
with due care and discernment, bearing in mind the
restricted scope of their jurisdiction under s.35 and the
object for which it is conferred.
The appeal fails and is dismissed with costs.
P.B.R. Appeal
dismissed.
854