1. The petitioner-company in this writ petition has challenged the notice issued by the ITO under Section 154 of the I.T. Act, 1961 ('the Act'), and made the following prayer;
'It is, therefore, respectfully prayed that this Hon'ble Court be pleased to issue;
(a) a writ, order or direction in the nature of certiorari and/or otherwise quashing the notice dated October 31, 1972 ;
(b) a writ, order or direction in the nature of prohibition and/or otherwise directing the respondent not to act under or in pursuance of the said notice, Ex. 2, or modify the earlier assessment dated December 31, 1971;
(c) a writ, order or direction which be deemed fit and proper in the circumstances of the case. Costs of the petition be allowed.'
2. The notice dated October 31, 1972, reads as under :
'NOTICE UNDER SECTION 154/155 OF THE INCOME-TAX ACT, 1961
M/s. Jaipur Udyog Ltd.
The assessment order under Section 143(3) for the assessment year 1967-68, made on 31-12-1971, requires to be amended as there is a mistake apparent from the record within the meaning of section 154/155 of the Income-tax Act, 1961, The rectification of the mistake, as per details given below will have the effect of enhancing the assessment/reducing the refund/ increasing your liability and if you wish to be heard, you are requested to appear in person or by an authorised representative in my office on 10-11-1972 at 10.00 a.m. If, however, you intend sending a written reply to this notice and do not wish to be heard in person, you are requested to ensure that your reply reaches me on or before the date mentioned above.
3. The assessment order was passed by the ITO on December 31, 1971, for the assessment year 1967-68, and allowed deduction to the petitioner amounting to Rs. 39,40,376 on account of depreciation on buildings, machinery and plant and furniture and fittings as per rates prescribed by Appendix I, Part I, of the I.T. Rules, 1922 ('the Rules') read with Rule 5 of these Rules.
4. The respondent while computing the depreciation applied the percentage of rates for buildings as mentioned in item No. 1 of Appendix I, Part I, for furniture and fittings at the rates mentioned in item No. II, for machinery and plants of cement work at the special rate as mentioned in item No. III(ii)C(2), for machinery and plant covered by remark column of item No. III(ii), the special rates mentioned in Clause (iii) of item No. III, and, for other machinery and plant, not related to the cement works, the special rates mentioned in Clause (iii) of item No. III.
5. According to the petitioner, item No. I of Appendix I, Part I, provides rates of depreciation for buildings, item No. II prescribes rates for furniture and fittings and item No. III prescribes rates for plant and machinery. There are three clauses in item No. III relating to machinery and plant. Clause (i) prescribes general rate of depreciation, which is 7 per cent. of the written down value (WDV) of the machinery and plant. Clause (ii) provides for special rates to be applied to the whole of the machinery and plant used in certain specified industries or concerns. Cement works using rotary kilns is mentioned as one of the industries under this Clause (ii) to which special rate of 10 per cent. is applicable. In the remarks column of Clause (ii) there is a provision that 'The special rates specified hereinafter may be adopted at the option of the assessee for electrical machinery, airconditioning machinery, locomotives, rolling stock, tramways and railways, weighing machines, calculating machines, typewriters, neopost, franking machines, accounting machines, other office machinery, refrigeration plant, containers, etc., and motor vehicles used in these concerns'. The special rates mentioned in this provision applicable to the various kinds of machinery covered by this provision are contained in Clause (iii) to item No. III. The heading of Clause (iii) of item No. III is 'special rates to be applied to other machinery and plant'. The ITO, while computing the depreciation for machinery and plant, applied the special rates as per Clause (ii) of item No. III keeping in view the provision contained in remarks column, and the special rates provided in Clause (iii) of item No. III as will appear from the chart of depreciation (Ex. 1). The ITO computed the amount of depreciation at the rates mentioned therein against each item after considering the facts in detail and the provisions of law applicable in respect of computation of depreciation.
6. The petitioners'case is that right from 1954-55 to 1966-67, the ITO has computed the depreciation in the same manner as he did in 1967-63, that is to say, he applied special rate mentioned in Clause (ii) of item No. III to the machinery and plant of cement works hut to the machinery and plant covered by the provision contained in remarks column of Clause (ii) of item No. III he had applied the special rates mentioned in Clause (iii) of item No. III. This method of computation adopted in the past years has been accepted by the Department throughout and has never been challenged as incorrect or erroneous.
7. Further, the case of the petitioner is that the ITO now wants to reduce the rates of depreciation for machinery and plant to the general rate of 7 per cent. provided in Clause (i) of item No. III instead of the special rates applied by the assessing ITO under Clauses (ii) and (iii) of item No. III. In the enclosure to the notice, the respondent has indicated that the rectification will reduce the amount of depreciation by Rs. 85,985 which is apparently wrong inasmuch as the proposed rectification by applying the general rate of 7 per cent. to the entire machinery and plant will result in the reduction of the amount of depreciation by lakhs of rupees.
8. After service of the notice, the petitioner replied on November 10, 1972, to the above notice and explained that the rates of depreciation allowed in the assessment order were in accordance with the provisions of Part I of Appendix I. It was submitted that there was no mistake apparent on the record and, therefore, the proceedings should be dropped.
9. Since the proceedings were not dropped, this writ petition has been filed.
10. The petitioner's case is that on May 11, 1973, the respondent disclosed to the representative of the petitioner-company, Shri P.L. Ajmera, that he had initiated rectification proceedings because of the objection by the Revenue Audit Department regarding the rates of depreciation applied by the assessing ITO in his assessment order. The respondent has filed reply and the petitioner has filed rejoinder. According to the respondent, there was mistake in applying rates of depreciation, which is apparent from the record.
11. The respondent's case is that item No. 1 of Appendix I, Part I of the Rules provides rates for depreciation for buildings. Item No. II of the Rules prescribes rates for furniture and fittings and item No. III of the Rules prescribed for machinery and plant. There are three clauses in item No. III relating to machinery and plant. Clause (i) prescribes general rates of depreciation which is 7 per cent. of the WDV of the machinery and plant, Clause (ii) provides for special rates to be applied to the whole of the machinery and plant used in certain specified industries or concerns. Cement works using rotary kilns is mentioned as one of the industries under this clause within item No. III (ii)C(2) to which special rate of 10 per cent. is applicable in the remarks column of Clause (ii).
12. The respondent submitted that the cement works using rotary kilns is one of the industries listed under Clause III(ii)C(2) and for that, special rate of 10 per cent is mentioned. As such, at the time of the original assessment, special rate of 10 per cent. should have been allowed by the ITO who was seized of the matter, while computing the depreciation on the whole of the machinery and plant used in the cement works owned by the petitioner-company. The petitioner-company claimed depreciation at different rates on various items of machinery mentioned above. Since the depreciation on various items of machinery has been charged at different rates and the specific rate of 10 per cent provided for the cement works using rotary kilns has not been applied to the whole of machinery used in the concern ; the general rate of 7 per cent provided in the Appendix referred to above for the machinery and plant should have been charged. It will be thus seen that the then ITO committed a glaring and obvious mistake in computing the amount of depreciation at the rates mentioned in Part I of Appendix I, and this led to the calculation of depreciation contrary to the provisions of law as contained in Appendix I, Part I, read with rule 5,
13. The respondent's case is that the petitioner-company cannot claim depreciation at the special rate in item No. III. The petitioner-company cannot at one and the same time claim special rates of depreciation on machinery and plant on cement works and different rates of depreciation on other items of machinery and plant mentioned in the remarks column of Clause (ii) of item No. III. The petitioner-company did not exercise any option. A careful reading of Clause (ii) of item No. III read with rule 5 clearly shows that cement works using rotary kilns have to claim special rate of 10 per cent on the whole of machinery and plant used by them. The special rates of 10 per cent may be adopted by the assessee at its option for machinery and plant mentioned in remarks column of Clause (ii) of item No. III. It was submitted that the petitioner-company did not claim the special rates of depreciation on the whole of its machinery and plant nor did it exercise its option for the application of special rates of depreciation on such machinery and plant as mentioned in Clause (ii) of item No. III. Therefore, the correct rate which should have been applied and which has not been applied by mistake, is the general rate of depreciation being 7 per cent on the machinery and plant used by the petitioner-company. Such a mistake is a mistake of law apparent from the record, which can be rectified under Section 154.
14. During the course of arguments, the learned counsel for the petitioner submitted that the concept of mistake apparent on the face of the record has been clarified by an authoritative decision of the hon'ble Supreme Court in T.S. Balaram, ITO v. Volkart Bros. : 82ITR50(SC) . Their Lordships of the Supreme Court observed as under (p. 53) 1
'A mistake apparent on the record must be an obvious and patent mistake and not something which can be established by a long drawn process of reasoning on points on which there may conceivably be two opinions...A decision on a debatable point of law is not a mistake apparent from the record.... '
15. This judgment of the apex court only reiterates the principle for application of Section 154, which has been laid down in various other decisions such as in India Foils Ltd. v. ITO : 87ITR333(Cal) .
16. Mr. Dalip Singh submitted that in ITO v. Asok Textiles Ltd. : 41ITR732(SC) the hon'ble Supreme Court has observed that the ITO under Section 35 of the Indian I.T. Act, 1922 (' the 1922 Act') can examine the record and if he discovers that he has made a mistake he can rectify the error and the error which can be corrected may be an error of fact or of law. It was observed as under (p. 699 of AIR 1961):
'Where the Income-tax Officer discovers that he has overlooked the fact that Section 2 of the Finance Act, 1952, read with Part B, proviso (ii) of First Schedule was attracted to the assessment in dispute making the assessee liable to the payment of additional income-tax, and also the fact that the assessee was liable to penal interest under Section 18A(8) of the Income-tax Act, the order of the Income-tax Officer under Section 35 imposing the additional tax and correcting the omission to impose penal interest in regard to the assessment in dispute was not without jurisdiction.'
17. In this case, their Lordships of the Supreme Court referred to the earlier case of Maharana Mills (P.) Ltd. v. ITO : 36ITR350(SC) wherein the scope of Section 35 of the 1922 Act was laid down in the following words (p. 358):
'The power under Section 35 is no doubt limited to rectification of mistakes which are apparent from the record. A mistake contemplated by this section is not one which is to be discovered as a result of an argument but it is open to the Income-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. '
18. It was further held that the ITO, under Section 35 of the 1922 Act, can examine the record and if he discovers that he had made a mistake, he can rectify the error.
19. It appears that these two judgments of Asok Textiles : 41ITR732(SC) and Maharana Mills' case : 36ITR350(SC) were neither brought to the notice of the hon'ble judges of the Supreme Court or the principles laid down in those decisions were not discussed in Volkart Bros.' case : 82ITR50(SC) for some other reasons, but the fact remains that the judgment of Volkart Bros, is the latest in the series of the judgments referred to before me and it is of August, 1971, and since no other judgment contrary to it of a later date has been shown, it will have to be given effect to.
20. I would not enter into the controversy whether the grant of rebate at the rates specified in Appendix I, Part I of rule 5 under item No. III, Clause (ii) special rates to be applied to the whole of the machinery to the following concerned and Clause (iii) the special rates to be applied to the other machinery and plant was justified or not because although long drawn arguments were made before me by both the sides with a view to persuade me to hold that the view taken by the ITO was correct according to the petitioner and erroneous according to the respondents, I find that it requires much more serious thoughtful consideration and cannot be decided merely by a reading of this Appendix.
21. May be that what the respondent contends regarding the non-application of two special rates at the same time in view of the peculiar words used in Clause (ii) 'whole of the machinery and plant' may be correct or may be that on account of the remarks clause in column 3 providing an adoption of the option of the assessee for various species of machineries may result in application of both special rates, but it cannot be said that the point is free from doubt and debate.
22. As I look into it, it is very much debatable and to come to a conclusion regarding the application or non-application, the propositions and deductions can be assessed only by long-drawn reasonings and again there can be bona fide and fair occasion for having two opinions. In view of this, the principle laid down in Volkart Bros.' case : 82ITR50(SC) squarely applies and it cannot be said that a notice under Section 154 could have been served because in my opinion the jurisdictional fact is wanting and missing.
23. Mr. Singh has also raised an objection that since in reply to show-cause notice the assessee is entitled to convince the ITO that Section 154 is not tenable, this court should not interfere. It is established law by now that when jurisdictional facts are missing, then this court need not compel the assessee to undergo the entire ordeal of showing cause to the ITO first and then file an appeal under the hierarchy, before the Department under the Act. The question would be different if there is doubt about the application of the principles but in the instant case, it is patent that jurisdictional fact regarding mistake being apparent on the record, is wholly and totally missing.
24. In view of the above, the impugned notice is quashed. The writ petition is consequently accepted without any order as to costs.