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TMI Blog1986 (4) TMI 31X X X X Extracts X X X X X X X X Extracts X X X X ..... r the opinion of this court: " (1) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in cancelling the Income-tax Officer's order under section 154 passed on November 14, 1969, for the assessment year 1960-61 on the ground that it was barred by limitation? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that penal interest under section 217 of the Income-tax Act, 1961, could not be charged for the assessment years 1960-61 and 1961-62 in proceedings under section 154 ? " Before we proceed with the facts of the case, it is necessary to point out that Taxation Cases Nos. 127 and 128 of 1975 have been registered on the basis of the question suggested at the instance of the assessee, Bihar State Road Transport Corporation, Patna, whereas Taxation Cases Nos. 129 to 131 of 1975 have been registered on the basis of the questions suggested by the Commissioner of Income-tax, Bihar, Patna. The relevant facts of the case can be culled from the statement of the case. Bihar State Road Transport Corporation, Patna (hereinafter referred to as the assessee), is a State-owned Corporation which took over the tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was not reduced by this figure of depreciation in the balance-sheet. The Income-tax Officer was of the view that on the basis of this balance-sheet, the actual cost of acquisition should be taken after deducting the amount of depreciation reserve. This, according to the Income-tax Officer, was the consideration for the buses taken over by the assessee. Thus, the Income-tax Officer worked out the cost of acquisition of buses at Rs. 38,98,220. According to the Income-tax Officer, this was a mistake apparent from the record and he, therefore, rectified this figure and allowed lesser depreciation to the assessee. This order under section 154 of the Act was passed on November 14, 1969. As result of this order, the depreciation allowed to the assessee was reduced from Rs. 37,91,368 to Rs. 9,56,734. The orders of the Income-tax Officer passed under section 154 of the Act for the assessment years 1960-61 and 1961-62 have been annexed and marked as annexures " A " and " A-1 forming part of the statement of the case. Before the Appellate Assistant Commissioner, it was claimed by the assessee that the order of rectification under section 154 of the Act in respect of the assessment year 1960 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the order dated August 17, 1966, passed in 1966 as in that order the original assessment order had merged. It was further argued that the mistake committed by the Income-tax Officer was apparent from the record and could be found out by having a look at the balance-sheet. The Tribunal considered these submissions and disposed of the points raised by the assessee by order dated July 19, 1973. Later on, the assessee moved a miscellaneous petition pointing out that the grounds regarding charge of interest under section 217 of the Act had not been specifically disposed of in the order of the Tribunal. The Tribunal considered those arguments in separate miscellaneous orders dated May 17, 1974, and thus the Tribunal considered the matters raised before it. The Tribunal held that, on the facts of the present case, the provisions of section 154 of the Act would apply and the mistake sought to be rectified was a mistake apparent from the record. According to the Tribunal as the cost of the buses was shown at Rs. 1,53,72,599 in the balance-sheet at the time of the taking over of the undertaking by the assessee and in the same balance-sheet the depreciation reserve for those very asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orking by the Income-tax Officer suffered from any error, and so the actual working of the written down value and the depreciation was also upheld by the Tribunal. The Tribunal also considered the ground regarding the charge of interest under section 217 of the Act in its miscellaneous order dated May 17, 1974. The Tribunal upheld the argument on behalf of the assessee that the interest under section 217 of the Act could be charged only on making regular assessment and not in a rectification proceeding under section 154 of the Act. The Tribunal referred to its earlier order in 1. T. A. No. 628 (Pat) of 1971-72 dated August 30, 1973, in the case of the assessee for the assessment year 1962-63. The Tribunal held in that order that the Income-tax Officer could not charge interest under section 217 of the Act, if as a result of an order under section 154 of the Act, there was positive income which made calculation of interest possible and for this purpose reliance was placed on the decision in Gates Foam and Rubber Co. v. CIT [1973] 90 ITR 422 (Ker). The Tribunal, following its earlier order, held that the charge of interest in both the years was not valid. A copy of the order of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowance of depreciation and, according to him, depreciation had been allowed in excess of what was actually allowable to the assessee. The mistake found by the Income-tax Officer was that the written down value of the buses taken over by the assessee from the Government had been taken in the earlier order on a wrong figure in so far as the depreciation reserve which had been created in the balance-sheet had not been taken into consideration in determining the written down value of those buses. Cost of the buses, as taken by the Income-tax Officer was Rs. 1,51,65,473 and this was the figure which appeared in the balance-sheet for the accounting year ending on March 31, 1960. The Income-tax Officer found that in the same balance-sheet, there was depreciation reserve of Rs. 1,12,69,253. This reserve had been created from year to year and was kept in a separate account. The cost of the buses was not reduced by this figure of depreciation (reserve) in the balance-sheet. The Income-tax Officer was of the view that on the basis of this balance-sheet, the actual cost of acquisition should be taken after deducting the amount of depreciation reserve. This, according to the Income-tax Office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t years 1960-61 and 1961-62 it appears that the original cost of the buses was shown at Rs. 1,53,72,599 and the depreciation reserve was shown at Rs. 1,12,69,253 and thus the actual cost was calculated at Rs. 41,03,346. However, it is for the Income-tax Officer to look into the figures. The only argument before us on behalf of the assessee is that the Income-tax Officer was not justified in rectifying the order under section 154 of the Act as depreciation reserve can be taken as a capital asset of the assessee. However, it cannot be doubted that when the cost of the buses was shown on one side and the depreciation reserve was shown on the other side in the balance-sheet, then the actual cost to the assessee will be the actual cost shown in the balance-sheet minus the depreciation reserve. Mr. K. N. Jain has submitted that this is a debatable issue as to whether the depreciation reserve can be deducted from the original cost as shown in the balance-sheet and for this purpose he has relied on the case of T. S. Balaram, ITO v. Volkart Brothers [1971] 82 ITR 50 (SC), which is a decision of the Supreme Court, where their Lordships have held that mistake apparent on the record must be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder. It has also been held in this decision 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 purposes of the assessment and it cannot be said that the mistake was not apparent from the record. It has also been held in this decision that a fortiori if he discovers that the very basis of the different earlier assessment was erroneous because of an initial mistake in determining the written down value, it cannot be said that this mistake 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, it cannot be said that that is not rectifying a mistake apparent from the record but is dehors it. It has also been held in this decision that the limit to which the Income-tax Officer can go back does not stop at the written down value of the previous year but extends up to the figure of the original cost and the method enj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the order under section 154 passed on August 17, 1966, but had rectified the original assessment order passed on February 15, 1965. It was also submitted on behalf of the assessee that the mistake, if any, in the determination of the written down value of the old buses was there in the original order and it was merely repeated when the rectification order was passed by the Income-tax Officer on August 17, 1966, and so the Income-tax Officer was wrong in saying that he was rectifying the order dated August 17, 1966, as there was no mistake in the order and the mistake was only in the order dated February 15, 1965. He, therefore, submitted that the order of rectification was barred by limitation as it was passed more than four years after February 15, 1965. The Tribunal took the view that the original assessment order was passed on February 15, 1965, and that the first rectification order was passed on August 17, 1966, but the second rectification order was passed on November 14, 1969, but as the second rectification order was passed beyond four years, so the rectification was barred by limitation and so the Tribunal held that the rectification order was barred by limitation. Unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ful to either of the parties. Mr. K. N. Jain has relied on the case reported in Ganpat Rai Hiralal v. Aggarwal Chamber of Commerce Ltd., AIR 1952 SC 409, which is equivalent to [1952] 15 SCJ 564, where it has been held that where an application for amendment of a decree was made on February 2, 1960, it cannot be said that the amendment is a continuation of the suit or proceeding therein and that it is the nature of an independent proceeding, though connected with the order of which amendment is sought. This decision under the Civil Procedure Code is not at all applicable to a rectification under section 154 of the Act, and so no reliance can be placed on this decision for deciding the present dispute before us. Mr. B. P. Rajgarhia has relied on the case of Hira Lal Sutwala v. CIT [1965] 56 ITR 339 (All), where it has been held that the rectification of an apparent mistake under section 35(1) of the old Act does not prevent subsequent rectification of another apparent mistake under the same provision. Mr. B. P. Rajgarhia has relied on the case of Addl. CIT v. Kanta Behan [1983] 140 ITR 187 (Delhi). However, in this case, the rectification was made of a reassessment order and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Lordships of the Supreme Court held that the other attack that the rectification order is beyond the point of time provided in rule 38 of the Mysore Sales Tax Rules is also without substance and that what was sought to be rectified was the assessment order rectified as a consequence of Supreme Court's decision in Yaddalam's case [1965] 16 STC 231 (SC), and that after such rectification, the original assessment order was no longer in force and that was not the order sought to be rectified. Their Lordships also mentioned that it is admitted that all the rectification orders would be within time calculated from the original rectification order. It was also held that rule 38 itself speaks of " any order " and there is no doubt that the rectified order is also " any order " which can be rectified under rule 38 In the judgment to the Supreme Court, the appendix is the decision of the Mysore High Court. The Mysore High Court has pointed out at pages 22 and 23 of the decision that the next question relates to the plea of limitation. It was argued in that case that every order of rectification made under rule 38 gets merged or relates back to the earlier order of assessment and, in that vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Co. [1980] 122 ITR 430 (Mad), where also the question of exercise of power by the Commissioner under section 263 of the Act was involved and in that connection it was observed that the doctrine of merger will have to be taken into account in the light of what was in controversy before the appellate authority or what could have been considered by the appellate authority. Thus, it is evident that the doctrine of merger is not applicable in this case and the case has to be decided on the basis of the Supreme Court decision which I have already discussed above. It is thus evident that the first rectification order was passed on August 17, 1966, and so the second rectification order passed on November 14, 1969, will be within time from August 17,1966, Thus following the Supreme Court decision, it has to be held that the rectification order dated August 17, 1966, clearly goes to show that besides rectification of status, it was found that there was a mistake in the computation of depreciation allowance in the original assessment order and so the rectification was made relating to the depreciation allowance by order dated August 17, 1966, and again when a mistake was further detected in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 217 of the Act. The Tribunal relied on the decision in Gates Foam and Rubber Co. v. CIT [1973] 90 ITR 422 (Ker) and held that when a rectification is made under section 154 of the Act, then it is not a regular assessment and so interest cannot be charged under section 217 of the Act. This will be evident from annexure-10 which is the miscellaneous order passed by the Tribunal. The Tribunal in this miscellaneous order relied on the earlier order of the Tribunal relating to I.T.A. No. 528 of 1971-72. This order is annexure-E in the brief and this order shows that the order under section 154 of the Act is not a regular assessment within the meaning of section 2(40) of the Act which lays down that " regular assessment " means the assessment made under section 143 or section 144, and on this basis, the Tribunal held that the rectification under section 154 of the Act is not a regular assessment and so interest cannot be charged in a rectification order under section 154 of the Act. For this purpose, reliance was placed again on the decision in Gates Foam and Rubber Co. v. CIT [1973] 90 ITR 422 (Ker). Section 217(1) of the Act, as it existed in the assessment years 1960-61 and 1961 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fication. It has also been held in this decision that even in the absence of a specific provision like section 215(3), the intendment of the legislature is to give the benefit of interest to the assessee up to the date of the regular assessment with reference to the amount of tax refunded to him either by rectification or by reason of the modification of the assessment on appeal. Thus, it is evident that the rectification of the assessment under section 154 of the Act has the effect of making the original assessment order the regular assessment order or correct assessment order and that the original assessment order was made regular in truth and in fact as a result of the rectification. Mr. B. P. Rajgarhia has also relied on the case of ITO v. Ashok Textiles Limited [1961] 41 ITR 732 (SC). In this case also the first rectification order under section 35 of the old Act was passed and subsequently it was discovered that this rectification order was also erroneous and so second rectification order was passed by which additional income-tax was charged at a higher rate and also interest was charged on income-tax which the company had failed to pay in advance under section 18A of the ol ..... X X X X Extracts X X X X X X X X Extracts X X X X
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