D. K. KAPUR J. - A common statement of case has been submitted under section 256(1) of the Income-tax Act, 1961, for the assessment years 1950-51 and 1951-52, regarding the following question for the opinion of this court :
'Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the rectification of mistake in the assessments for the years 1950-51 and 1951-52, completed under the Indian Income-tax Act, 1922, could be carried out under the provisions of section 155(4) of the Income-tax Act, 1961 ?'
The assessed is a private limited company carrying on the business of manufacturing and selling paints and colours. In the assessment year 1949-50, a loss return was filed showing a loss of Rs. 24,018. The assessment was completed under section 23(3) of the Indian Income-tax Act, 1922; most of the loss was allowed and adjustments were made regarding earlier losses which were being carried forward from earlier years and there was also some adjustment regarding depreciation. In the result, Rs. 44,355 was allowed by the Income-tax Officer to be carried forward for future years.
In the assessment year 1950-51, the assessed declared an income of Rs. 20,220 and an adjustment of carried forward losses for earlier years was claimed. After adjusting losses, the assessed was permitted to carry forward an amount of Rs. 19,134 as loss. Similarly, for the assessment year 1951-52, adjustment was allowed in respect of the carried forward loss against the income of that year. This was the position under the Act of 1922.
There was some police complaint against the assessed in the late sixties relating to the misuse of steel quota allotted for manufacture of tins and caps. As a result of this, the books of account were produced before the police authorities which showed that the total sales were Rs. 9,15,846 for the assessment year 1949-50 as against the actual sales shown in the books which amounted to Rs. 5,16,792. A notice was issued under sections 147/148 of the Income-tax Act, 1961. The assessed was called upon to produce the account books which had been tendered before the police, but these books were withheld. In the result, a best judgment assessment was made under section 144 which resulted in the assesseds income being assessed at Rs. 36,536 as against the previous loss assessment of Rs. 44.355 which had been allowed to be carried forward (as a loss). Penalty proceedings were also commenced. The assessed appealed to the Appellate Assistant Commissioner, but eventually, the assessed agreed not to press the quantum appeal before the Appellate Assistant Commissioner and conceded that a penalty of 20 per cent. should be imposed under section 271(1) (c). This led to the finalisation of the reassessment for the assessment year 1949-50. The result was that the quantum appeal was rejected and a penalty under section 271(1) (c) was imposed.
The result of these proceedings on the following two years 1950-51 and 1951-52 was that a carried forward loss which did not exist had been allowed to be adjusted against the income of these two years. The Income-tax Officer in these circumstances took action under section 155 of the Income-tax Act, 1961, on the ground that there was a mistake apparent from the record which should be rectified under section 155(4). Show cause notices were issued to the assessed. As a result of rectification, the income assessed for these two years was Rs. 25,221 and Rs. 3,243, respectively.
The rectification order was challenged in appeal before the Appellate Assistant Commissioner, who held that section 155(4) was available and then the assessed came in further appeal to the Tribunal.
The case of the assessed before the Tribunal was that the assessment for the years 1950-51 and 1951-52 had been completed according to the 1922 Act and recourse could not be had to the provisions of the 1961 Act. It was claimed that there was no provision corresponding to section 155(4) in the 1922 Act and, thereforee, the Income-tax Officer could not reopen the assessments for 1950-51 and 1951-52 for the purpose of rectification. It was also contended that section 155(4) was not retroactive beyond 1962. The Tribunal came to the conclusion that there were general powers available under section 35 of the 1922 Act which enabled the Income-tax Officer to rectify the assessments for the years 1950-51 and 1951-52 after the reassessment had been completed for the year 1949-50.
The Tribunals view was that the basic and essential corollary which emerged from the reassessment for the assessment year 1949-50 was that the loss stood wiped off, there being no carried forward loss which could be adjusted against the income of 1950-51 and 1951-52. The view was that a literal application of the law would not alone be sufficient and suitable modification could be made. Accordingly, the provisions of section 155(4) were treated as an elaboration of the powers already existing under section 35 of the 1922 Act. In other words, the Tribunal came to the conclusion that section 35 of the 1922 Act was available and a mere mention of the wrong section would not affect the merits of the rectification.
These are the circumstances in which this reference had been submitted to this court.
It is clear from the reasoning of the Tribunal that the view which prevailed was that section 155(4) was somewhat similar to section 35 of the 1922 Act. For purposes of convenience, the two provisions can be quoted here. Section 155 deals with amendments and sub-section (4) states as follows :
' (4) Where as a result of proceedings initiated under section 147, a loss or depreciation has been recomputed and in consequence thereof it is necessary to recompute the total income of the assessed for the succeeding year or years to which the loss or depreciation allowance has been carried forward and set off under the provisions of sub-section (1) of section 72, or sub-section (2) of section 73, or sub-section (1) of section 74, or sub-section (3) of section 74A, the Income-tax Officer may proceed to recompute the total income in respect of such year or years and make the necessary amendment; and the provisions of section 154 shall, so far as may be, apply thereto, the period of four years specified in sub-section (7) of that section being reckoned from the date of the order passed under section 147.'
This provision clearly states that if a carried forward loss is permitted to be set off against other income and it becomes necessary due to recomputation of the loss to make an adjustment, then the Income-tax Officer has the power under section 154 to make the necessary amendment. In other words, if the loss of 1949-50 was permitted to be set off against the profits of 1950-51 and 1951-52, it presupposes the existence of that loss. If on reassessment for 1949-50, the loss disappeared or even diminished, the assesseds assessment consequently changed in the assessment for 1950-51 and 1951-52, resulting in a computation of the total income for those two years. This amendment is now permissible under section 155(4).
The question is, was this also permitted under the 1922 Act According to the Tribunal, section 35 of the 1922 Act contains such a power. Section 35 was the section relating to rectification of a mistake or mistakes. The section is a long section which need not be reproduced in full here. The operative part of section 35(1) is :
'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 assessment order or 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 assessed.'
The assessment order for 1950-51, which is annexure A-2 to the statement of the case, was passed on August 13, 1951, and that for 1951-52 was passed in February, 1955. The rectification order for 1951-52 was passed on December 23, 1971, and that for 1950-51 must have been passed round about the same time, though the exact date is not available in the statement of the case. In any case, these orders were passed long after the period of four years had expired.
There are other portions of section 35 which grant an express power for rectification in certain cases, but an examination of the same shows that no part of it applies to a case like the present where as a consequence of a reassessment for a particular assessment year, some changes have to be made to the assessment order for some other years. The result is that we cannot hold that section 35 was available or that section 155(4) is merely an Explanationn of the powers contained in section 154 or the corresponding section 35 of the 1922 Act.
This brings us to consider the possibility that section 155(4) is applicable even to a case decided under the 1922 Act. On this aspect of the case, we find that section 155(4) of the 1961 Act cannot reasonably be applied to a case decided under the 1922 Act. The reason for this is that section 297(2) (a) of the 1961 Act says :
'where a return of income has been filed before the commencement of this Act by any person for any assessment year, proceedings for the assessment of that person for that year may be taken and continued as if this Act had not been passed.'
Therefore, in respect of the assessments for 1950-51 and 1951-52, the new Act had to be disregarded and consequently section 155(4) of the new Act could not be applied to a proceeding under the old Act.
If any authority is required for this obvious proposition, reference may be made to J. P. Jani, ITO v. Induprasad Devshankar Bhatt : 72ITR595(SC) , where an Income-tax Officer issued a notice under section 148 of the Income-tax Act, 1961, to reopen the assessment of an assessed which was barred under the 1922 Act. It was observed there that unless a statute expressly provides or there is a necessary implication, retrospective operation should not be given to the statute so as to affect, alter or destory any right already acquired or to revive any remedy already lost by efflux of time.
In the present case, the situation is an unfortunate one because the carried forward loss for 1949-50 has been allowed to be adjusted against the income of 1950-51 and 1951-52. On reassessment, the loss for 1949-50 has disappeared, but yet the assessed has got the advantage of the same. However, if the remedy is lot due to efflux of time, we cannot help the same.
Consequently, we have to answer the question referred to us in the negative, in favor of the assessed and against the Department. However, we do not think we would be justified in awarding costs in favor of the assessed and, accordingly, we allow the parties to bear their own costs.