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Mahendra Mills Ltd. Vs. P.B. Desai, Appellate Assistant Commissioner and anr. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtGujarat High Court
Decided On
Case NumberSpecial Civil Application No. 1259
Judge
Reported in[1971]79ITR52(Guj)
ActsIncome Tax Act, 1922 - Sections 35
AppellantMahendra Mills Ltd.
RespondentP.B. Desai, Appellate Assistant Commissioner and anr.
Appellant Advocate K.H. Kaji, Adv.
Respondent AdvocateAdvocate-General
Cases ReferredMaharana Mills Pvt. v. Income
Excerpt:
.....1922 - appellant carried business of manufacturing textiles - income-tax discovered discrepancy in stocks in record of appellant and that with bank which petitioner had hypothecated - appellate assistant commissioner undertook to rectify proceedings under section 35 - appeal - appellants contended that act of rectification without jurisdiction as it falls outside provisions in section 35 - provision of section 35 applicable if income-tax officer had exercised powers within one year - appeal dismissed. - - 8,04,121. against this order of the income-tax officer, the petitioners preferred an appeal before the concerned appellate assistant commissioner but the petitioner failed even in that appeal. since the appellate assistant commissioner's finding about the opening stock from the..........writ quashing and setting aside the order of rectification passed by the concerned appellate assistant commissioner on 28th june, 1969, rectifying his assessment order for the assessment year 1960-61. 2. short facts leading to this petition are that the assessment of the petitioner's income for the assessment year 1959-60 was undertaken by the concerned income-tax officer. during the course of the said assessment, the income-tax officer found that there was some discrepancy between the stock of cotton shown in the records of the petitioner and in the records of the state bank of india, with whom the petitioner had hypothecated its said stock of cotton. this discrepancy was sought to be explained by the petitioner by contending that it had given an incorrect figure of its stock to.....
Judgment:

T.U. Mehta, J.

1. The petitioner in this case is a textile mill carrying on its business of manufacturing textiles. By this petition it has prayed for obtaining an appropriate writ quashing and setting aside the order of rectification passed by the concerned Appellate Assistant Commissioner on 28th June, 1969, rectifying his assessment order for the assessment year 1960-61.

2. Short facts leading to this petition are that the assessment of the petitioner's income for the assessment year 1959-60 was undertaken by the concerned Income-tax Officer. During the course of the said assessment, the Income-tax Officer found that there was some discrepancy between the stock of cotton shown in the records of the petitioner and in the records of the State Bank of India, with whom the petitioner had hypothecated its said stock of cotton. This discrepancy was sought to be explained by the petitioner by contending that it had given an incorrect figure of its stock to the bank with a view to obtain higher amount of overdraft. The explanation was not accepted by the Income-tax Officer with the result that the Income-tax Officer added the amount of Rs. 2,14,682 representing the additional closing stock which was not shown by the petitioner in its books of account. According to the accounts of the petitioner its closing stock for the assessment year 1959-60 was Rs. 5,89,439 but on account of the above referred addition, its closing stock was calculated at Rs. 8,04,121. Against this order of the Income-tax Officer, the petitioners preferred an appeal before the concerned Appellate Assistant Commissioner but the petitioner failed even in that appeal. Thereafter, the petitioner preferred a second appeal to the Tribunal.

3. While that appeal was pending, the assessment of the petitioner's income for the next year, i.e., the assessment year 1960-61, was undertaken. During the course of that assessment, the valuation of the opening stock for that year was taken at the book value, i.e., at the figure of Rs. 5,89,439, without making the addition of Rs. 2,14,682. Thus, the value of the opening stock for the assessment year 1960-61 did not correspond with the value of the closing stock for the previous assessment year. The assessee being aggrieved by this decision of the Income-tax Officer, preferred an appeal to the concerned Appellate Assistant Commissioner. The Appellate Assistant Commissioner found that addition to the closing stock for the assessment year 1959-60 was confirmed in first appeal and, therefore, the opening stock for the assessment year 1960-61 should be valued in accordance with the closing and valued the opening stock for the assessment year 1960-61 at Rs. 8,04,121. This order of the Appellate Assistant Commissioner was made on 30th June, 1965.

4. Thereafter, the Tribunal gave its decision in the appeal preferred with regard to the assessment year 1959-60, on 22nd January, 1969. By this order, the Tribunal came to the conclusion that the explanation tendered by the petitioner-assessee with regard to the over-valuation of its stock hypothecated with the bank was acceptable and, therefore, the addition of Rs. 2,14,682 made by the Income-tax Officer with regard to the assessment year 1959-60 should be deleted. Thus, according to the final order which was passed by the Tribunal with regard to the assessment year 1959-60, the closing stock of the petitioner-assessee for the assessment year 1959-60 was as shown by the assessee in its account books, i.e., Rs. 5,89,439.

5. In view of the above order of the Tribunal, the Appellate Assistant Commissioner undertook to rectify the proceedings contemplated by section 35 of the Indian Income-tax Act of 1922. By these proceedings, the Appellate Assistant Commissioner wanted to rectify the valuation of the opening stock for the assessment year 1960-61 in order to make it consistent with the decision of the Tribunal on the valuation of the closing stock for the previous assessment year. The petitioner resisted the rectification proceedings, but ultimately assessment was rectified as proposed for the assessment year 1960-61. It is this order of rectification which has led the petitioner to file this petition.

6. The contention of the petitioner is that the order of rectification made by the concerned Appellate Assistant Commissioner is totally without jurisdiction, as it falls outside the ambit of the provisions contained in section 35 of the Income-tax Act of 1922. In this connection, Shri Kaji, who appeared on behalf of the petitioner-assessee, raised two contentions as under :

His first contention was that according to section 35 of the Act of 1922, the Appellate Assistant Commissioner concerned is empowered to rectify any mistake which is apparent from 'the record of the appeal' decided by him. According to Shri Kaji, the original order passed by the Appellate Assistant Commissioner for the assessment year 1960-61, on 30th June, 1965, could not have been rectified by him relying upon the record of the Tribunal, because the word 'record' which appears in section 35 of the Act is limited by the words 'of appeal' meaning thereby that the record from which the mistake should be apparent is the record of the appeal in which the Appellate Assistant Commissioner has passed the original order. It was pointed out that what the Appellate Assistant Commissioner has done in this case is to correct his own record by reference to an extraneous record, viz., the record of the Tribunal for the previous assessment year 1959-60. According to Shri Kaji, the Appellate Assistant Commissioner could not have done this under section 35, because the record of appeal for assessment year 1960-61 in which he had passed the order sought to be rectified, did not contain any mistake and the alleged mistake became apparent only from the record of the previous assessment year on account of the above-referred order of the Tribunal.

7. Another contention which was raised by Shri Kaji was that even if it is believed that the meaning of the word 'record' which appears in section 35 of the Act of 1922 is comprehensive enough to include other proceedings relating to the assessment in question, the said record could not have been rectified on account of something which has happened subsequent to the original decision of the Appellate Assistant Commissioner concerned passed his original order with regard to the assessment for the assessment year 1960-61, the decision of the Tribunal was not before him and, therefore, the mistake which is sought to be rectified was not in existence at the time when that original order was passed. Under the circumstances, contended Shri Kaji, it was not open to the Appellate Assistant Commissioner under the provisions of section 35 of the Act of 1922 to rectify the record on the strength of something which has happened after he passed the original order.

8. These are the only two points which fall for our consideration. If we find ourselves in agreement with these two points which are raised by Mr. Kaji, we should hold that the impugned rectification order is passed by the Appellate Assistant Commissioner without any jurisdiction. However, after giving our serious thought to both these contentions raised by Shri Kaji, we find, for the reasons which follow, that it is not possible for us to agree with any of these two contentions.

9. So far as the first point is concerned, the question which is involved is, what is the meaning of the word 'record' which is found used in section 35 of the Act of 1922. In this connection, Shri Kaji drew our attention to one Supreme Court decision given in the case of Income-tax Officer, V Circle, Madras v. S. K. Habibullah. In that case, their Lordships of the Supreme Court considered the question whether individual assessment of the firm. While considering this question, their Lordships have held that the mistakes which may be rectified need not be in the order itself; it may be in any part of the record or proceeding of assessment of the assessee. But for the purpose of assessment, an individual and a firm are distinct entities and even if an individual is a partner of the firm, a mistake discovered because of something contained in the assessment of the firm is not a mistake apparent from the record of assessment of the individual partner. In support of this view, their Lordships have quoted with approval some observations made by Subba Rao C.J. in the case of Kanumarlapudi Lakhshminarayana Chetty v. First Additional Income-tax Officer, Nellore. From the above referred observations of their Lordships of the Supreme Court, it is apparent that their Lordships are guided more by the fact that a firm is a distinct entity so far as the assessment is concerned and, therefore, the assessment proceedings of that firm for a particular year cannot be utilised for the purpose of rectifying individual assessment of a partner of that firm. Such is not the present case, because here we are concerned with the assessment of the same assessee for the previous assessment year. Moreover, here the closing stock of the previous assessment year has been treated as evidence inasmuch as the opening stock of the assessment year in question is based only on the said closing stock of the previous year with the result that that evidence has become a part of the record of this assessment (assessment year 1960-61). We find that the facts of the present case are covered more by the decision given by the Supreme Court in the case of Maharana Mills Pvt. v. Income-tax Officer, Porbandar. In that case the record of previous years was examined by the concerned Income-tax Officer for the purpose of rectification under section 35 of the Income-tax Act, 1922. Contention similar to the one raised by Shri Kaji was also raised in that case. While dealing with that contention, their Lordships of the Supreme Court interpreted the word 'record' which is found used in section 35 of the Act of 1922. While interpreting this word, they have observed that the 'record' contemplated by section 35 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 section 35, to look into the whole evidence and the law applicable to ascertain whether there was an error. So far as the facts of that case were concerned, the assessment for the previous years were required to be seen for the purpose of fixing the written down value. Therefore, their Lordships observed, with regard to the power of the Income-tax Officer to look into the record of the assessment proceedings of the previous year, that if the Income-tax Officer finds that in an earlier assessment year there was an apparent arithmetical mistake in the account of the written down value of the properties of the assessee which resulted in a corresponding mistake in the assessment of the relevant assessment year, he can take the corrected figure for the purpose of the assessment, and it cannot be said that the mistake was not apparent from the record. A fortiori if he discovers that the vary basis of the different earlier assessments was erroneous because of an initial mistake in determining the written down value, it cannot be said that this would not be a mistake apparent from the record. This decision thus lays down that for the purpose of rectifying the mistake under section 35 of the Act of 1922, the Income-tax Officer can look into the whole evidence on which the original assessment was based. Now, so far as the facts of the present case are concerned, it should be recalled that the opening stock of the assessee-company, for the assessment year 1960-61, was taken at the figure of Rs. 8,04,121 in the original order passed by the Appellate Assistant Commissioner because the closing stock of the previous year was taken on that figure by the Income-tax Officer by making the addition of Rs. 2,14,682. In other words, the closing stock of the previous assessment of the assessee's income for the assessment year 1960-61 and it was on the basis of that evidence that the Appellate Assistant Commissioner allowed the appeal of the assessee for the assessment year 1960-61. Under the circumstances, the evidence on which the assessment was based became a part of the recore contemplated by section 35 of the Act.

10. Shri Kaji contended that the word used in section 35 is not 'record' simpliciter because it is circumscribed by the words 'of the appeal' meaning thereby that it would be the record of the appeal in which the original order was passed by the Appellate Assistant Commissioner which can be looked at for the purpose of rectification. We find ourselves unable to agree with this contention because the expression 'record of appeal' is comprehensive enough to include within it the whole record of evidence on which the original assessment order was based by the Appellate Assistant Commissioner. Since the Appellate Assistant Commissioner's finding about the opening stock from the assessment year 1960-61 was based on the figure of the closing stock for the previous year, that figure of the said closing stock did become a part of the record of the appeal decided by the Appellate Assistant Commissioner for the assessment year 1960-61. In our opinion, therefore, Shri Kaji should fail in his first contention.

11. So far as the second point is concerned, Shri Kaji contended that the mistake in question cannot be construed as found from the record of the Appellate Assistant Commissioner because that mistake was not in that record at the time when the Appellate Assistant Commissioner passed his order dated 30th June, 1965, with regard to the assessment year 1960-61. According to Shri Kaji the mistake, if any, was discovered subsequent to that order because of the particular view taken by the Tribunal with regard to the closing stock of the previous assessment year 1960-61. Shri Kaji, therefore, submitted that section 35 does not allow the Appellate Assistant Commissioner to rectify his record by reference to something which has happened subsequent to his original order. Here also we find ourselves unable to accept this contention. It is evident that, while disposing of the assessee's appeal for the assessment year 1960-61, the Appellate Assistant Commissioner valued the opening stock for the assessment year at Rs. 8,04,121, and since that figure was found to be incorrect, the mistake with regard to this figure became quite apparent when the Appellate Assistant Commissioner undertook the rectification proceeding under section 35. The figure at which the Tribunal ultimately put the valuation of the closing stock for the assessment year 1959-60 became the correct figure of the valuation of the opening stock for the assessment year 1960-61. Therefore, when the Appellate Assistant Commissioner opened the impugned rectification proceedings under section 35 of the Act, what he found was that the figure of Rs. 8,04,121 was not a correct figure inasmuch as that was substituted by the final finding of fact arrived at by the Tribunal.

12. In our opinion, the fact of this case are mostly similar to the facts of the Privy Council case in Commissioner of Income-tax v. Khemchand Ramdas. In fact case, the facts were that the assessee did not produce the books of account and assessment was made by the concerned Income-tax Officer on the basis of his 'best judgment'. The said Income-tax Officer however, allowed the assessee's application for registration of his firm. Since it was treated as a registered firm, no super-tax was assessed. Thereafter, the Commissioner of Income-tax called for the record under section 33 of the Act of 1922 and cancelled the registration of the firm. He also ordered the Income-tax Officer to take necessary consequential action, the assessee became liable to super-tax. Subsequently, a notice of demand for the payment of the super-tax was also issued. On these facts the Privy Council held that the fresh action taken by the Income-tax Officer was out of time and, therefore, the demand for super-tax was illegal. But so far as the applicability of section 35 of the Act of 1922 is concerned, the following observations are found to have been made by Lord Romer at page 426 :

'In the present case it is a debatable question whether the circumstances were such as to bring it within the provisions of section 34. It is not necessary to determine that question inasmuch as, in their Lordships' 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 make upon them as it stood after the cancellation of the respondent's registration and the order effecting the cancellation would have formed part of that record it would be apparent that a mistake had been made in stating that no super-tax was leviable.'

13. It is evident from these observations that the cancellation of the firm's registration which had taken place after the original assessment was taken as forming part of the record and was also taken into account for the purpose of rectifying the mistake on the ground that it was a mistake apparent from the record of the case. We find that the facts of the case, which is before us, are mostly similar to the facts of the above-referred Privy Council case and are covered by the above-quoted observations of Lord Romer.

14. In this view of the matter, we do not find any substance even in the second point raised by Shri Kaji.

Therefore, this petition fails. The rule is discharged with costs.

15. Shri Kaji for the petitioner applies for leave to appeal to the Supreme Court. Looking to the facts of the case, we grant that leave under article 133(1)(c) of the Constitution.


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