TMI Blog1974 (9) TMI 29X X X X Extracts X X X X X X X X Extracts X X X X ..... 1961-62 to 1963-64 by the predecessor-in-office of the respondent herein. The assessment order for assessment year 1961-62 was passed on December 26, 1962, for assessment year 1962-63, it was passed on March 25, 1966, and for assessment year 1963-64, it was passed on July 5, 1966. It appears that the respondent herein who was the Income-tax Officer at the relevant time having jurisdiction in the matter of assessment of the petitioner-company was of the opinion that a mistake had crept in computing loss for assessment year 1954-55 and effect of the loss would be arising for the first time in 1961-62 as there was positive income in that year. The respondent herein, therefore, wanted to rectify the assessment orders for assessment years 1961-62, 1962-63 and 1963-64; the reasons for rectification for all these assessment orders were identical. The respondent, therefore, issued notices under section 154 of the Income-tax Act, 1961, on February 3, 1968. The petitioner-company resisted the rectification proceedings sought to be initiated, contending, inter alia, that the proposed rectification would be beyond limitation as prescribed under the relevant sections. It should be noted that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oceedings as well as the final rectification orders passed by the respondent herein. The Tribunal granted the reference and it has come before this court as Income-tax Reference No. 10 of 1972, which we have disposed of by separate order rejecting the said reference. In order to understand the rival contentions in this special civil application, we may have to refer shortly to the dates of the original orders of assessment, the date of issuance of notices under section 154 and the nature of the mistake which was sought to be rectified. For the assessment year 1954-55, the Income-tax Officer by his order of February 27, 1958, completed assessment of the petitioner-company and determined the business loss of the petitioner-company at Rs. 12,39,626 and the Income-tax Officer observed : "Business loss determined for the assessment year is Rs. 12,39,626, and loss on account of depreciation is Rs. 1,69,284, which is carried forward." This loss of Rs. 12,39,626 was carried forward and ultimately allowed to be set off against the business income of Rs. 10,18,899 of the petitioner-company in the assessment year 1961-62 with the result that an amount of Rs. 47,887, which was a ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eing supervision charges and profit on sale of old machinery, respectively, to the actual loss of Rs. 9,46,030. In other words, the actual loss for assessment year 1954-55 to be set off was only Rs. 6,67,226. The Income-tax Officer allowed a set off of Rs. 10,10,487 as he had computed loss for the said assessment year 1954-55 at Rs. 12,55,920. This actual mistake has been clearly brought out in the notices issued by the respondent herein for initiation of rectification proceedings on February 3, 1968. It should be recalled that this loss of assessment year 1954-55 was allowed to be set off in assessment year 1961-62 for which the order was passed on December 26, 1962. A further fact should also be recalled that the Income-tax Officer has by an order of May 21, 1965, rectified the original order of assessment pertaining to assessment year 1961-62, in pursuance of the decision in appeal on some rectification orders for different years. The effect of this rectification (which we will call the first rectification for purposes of this petition) was that instead of a carry forward of Rs. 47,387 on account of loss of assessment year 1954-55, permitted by the Income-tax Officer in his orig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the respondent is within his competence to initiate proceedings for this second rectification challenged in this petition. The answer to the question raised in this petition turns on what is the import of the words, "within four years from the date of any order passed" by the Income-tax Officer. According to the learned counsel for the respondent, the words "date of any order" should be so construed as to include assessment order passed under section 35 of the Indian Income-tax Act, 1922. According to the learned counsel for the petitioner-company, there is no warrant in the structure of section 35 to enlarge the import of the words, "from the date of any order", so as to consequentially enlarge the period of limitation of four years in cases like the present one. The learned counsel for the respondent in support of his contention that the court should not restrict the meaning of the words, "from the date of any assessment order" to the assessment made only under section 23, relied on the decision of this court in Mandal Ginning and Pressing Co. Ltd. v. Commissioner of Income-tax, where a Division Bench of this court consisting of Bhagwati C. J. (as he then was) and P. D. Desai J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om it is an assessment under section 35, sub-section (1). Once an assessment under section 23 is made, it is final and conclusive, unless the conditions exist which entitle the Income-tax Officer to disturb the finality of the assessment under section 34 or section 35. When the Income-tax Officer disturbs the finality of the assessment by rectifying it in exercise of the power conferred under section 35, sub-section (1), he acts de hors section 23 with a view to overriding an erroneous part of the assessment under section 23. It is impossible to conceive how this act of the Income-tax Officer can be regarded as assessment under section 23. We may point out that there is nothing in the Act which gives a mandate or creates a fiction that, when the Income-tax Officer rectifies an assessment in exercise of the power conferred under section 35, sub-section (1), he must follow the procedure laid down in sections 22 and 23 as we find in section 34 nor is there any fiction created by the statute that when an assessment is rectified in exercise of the power conferred under section 35, sub-section (1), the rectified assessment shall be deemed to be an assessment under section 23 or shall be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Division Bench was concerned with the question of jurisdiction of the Income-tax Officer to rectify proceedings under section 35(5) of the Indian Income-tax Act, 1922. In sub-section (5) of section 35 it has been provided that in respect of any completed assessment of a partner in a firm if it is found on the assessment or reassessment of the firm or on any reduction or enhancement made in the income of the firm under section 31, section 33, section 33A, section 33B, section 66 or section 66A, that the share of the partner in the profit or loss of the firm has not been included in the assessment of the partner or, if included, is not correct, the inclusion of the share in the assessment or the correction thereof, as the case may be, would be deemed to be a rectification of a mistake apparent from the record within the meaning of section 35 and the provisions of sub-section (1) would apply thereto accordingly, the period of four years referred to in that sub-section being computed from the date of the final order passed in the case of the firm. The Division Bench of this court in Karsondas Bhagwandas Patel's case while dealing with the point of limitation urged on behalf of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isedly done because the rectification which would be required in the case of a partner's assessment may be the result of assessment/reassessment of the firm or on any reduction or enhancement made in the income of the firm under the sections prescribed in sub-section (5) of section 35. In those different contingencies whether it may be assessment or it may be reassessment of the firm or any reduction or enhancement made in the income of the firm, it would be the date of the final order which is to be considered as a commencing point of limitation. How that commencing point of limitation which is available under sub-section (5) of section 35 can also be relied upon for purposes of computation of limitation under section 35(1) has not been appreciated by us. The learned counsel for the respondent attempted to persuade us that it is the date of the final order which should be considered the commencing point of limitation, whether the case is under sub-section (5) or sub-section (1) of section 35. We are not inclined to accept this submission of the learned counsel for the respondent for the simple reason, as stated above, that the commencing point of limitation prescribed in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e that the limitation should commence to run from the first rectification order of May 21, 1965, even then, what was sought to be rectified was the mistake which was committed by the Income-tax Officer in allowing the set-off of the loss of assessment year 1954-55 against the business income of the petitioner-company for the relevant assessment year 1961-62. In the aforesaid first rectification order of May 21, 1965, the Income-tax Officer had taken the same amount, namely, Rs. 12,39,626, as loss for assessment year 1954-55. It, therefore, cannot be said that what was sought to be done by the respondent herein was in effect and substance the rectification of the order of May 21, 1965. Assuming that it is virtually an order of assessment as held by the Division Bench of this court in Mandal Ginning Pressing Company's case, it, therefore, cannot be said that the Income-tax Officer was within limitation prescribed for rectifying action under section 154 since what he was trying to rectify was the error of setting off of the loss of Rs. 12,39,626 of assessment year 1954-55, which he has allowed against the business income of Rs. 10,18,899 of assessment year 1961-62 by his assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X
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