TMI Blog1989 (3) TMI 160X X X X Extracts X X X X X X X X Extracts X X X X ..... , the Income-tax Officer rectified those original assessments u/s 154 of the Act. In the rectification orders passed by the Income-tax Officer, the Income-tax Officer took the positive incomes earned by the assessee under the different heads (ignoring the loss from the business). Then, he totalled up the expenses incurred by the assessee. Out of the said expenses, he took a portion which bore the same proportion to the total expenses as the dividend income bore to the aforesaid total positive incomes. Thus, the Income-tax Officer estimated the expenses which, in his opinion, related to the earning of the dividend income. He deducted these estimated expenses from the gross dividends and allowed relief u/s 80M of the Act only on the balance. In other words, the Income-tax Officer reduced the relief u/s 80M of the Act by following the above process in the rectification orders passed by him. It may be stated in this connection that the gross dividend has been included in the total income of the assessee and subjected to tax in both the years under consideration and no expenses relatable to the earning of the dividend has been determined and deducted from the gross dividend for the purp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rent from the records u/s 154 of the Act. Apart from the above, the method applied by the Income-tax officer to estimate the amount of expenses attributable to the earning of the dividends is open to challenge, debate and longdrawn-out reasoning. In this connection, he produced certain orders of the Tribunal wherein this very point has been decided in favour of the assessee under similar facts and circumstances. These orders are the order dated 1-1-1986 in ITA Nos. 1709 1710 (Cal.)/84, order dated 15-1-1986 in ITA Nos. 1700 1701 (Cal.)/84, order dated 6-1-1986 in ITA Nos. 2263 2264 (Cal.)/84 and order dated 15-1-1986 in ITA Nos. 1968 1699 (Cal.)/84. 7. We have considered the contentions of both the parties as well as the facts on record. We have gone through the aforesaid orders of the Tribunal with which we are in respectful agreement. We find from the original assessment orders that the entire gross dividends have been subjected to tax. Hence, it cannot be said that any amount was spent for earning those dividends. Had that been so, the Income-tax Officer would have deducted the said expenses from the gross dividends and included only the net amount of dividends in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee before the CIT(A) was that what had been recomputed by the ITO as the deduction allowable u/s 80M was debatable and was open to divergent opinions inasmuch as that it needed further investigation into the facts and, therefore, the ITO had no jurisdiction to rectify the alleged mistake. The CIT(A) accepted the contention of the assessee. He mentioned---"as pointed out by the authorised representative (that) there is a dispute between the department and the appellant-company as to what should be the net dividend income on which the latter should be entitled to section 80M relief". He on this reasoning allowed the appeal. 4. Learned counsel of the assessee reiterated the same argument before us while opposing this departmental appeal. 5. The argument advanced for and on behalf of the assessee is apparently fallacious. Foundation of the jurisdiction of the ITO to take proceedings for rectification of an order of assessment is 'a mistake apparent from the record' in the assessment order. Such mistake, no doubt, should be obvious and for its deduction or discovery no elaborate argument is required. The test laid down by the Hon'ble Supreme Court in several judgments is for d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion itself would be unworkable. Take an example of an order of the Tribunal passed inadvertently in ignorance of proper service of notice upon a party. There is obviously apparent mistake on the record. Such order cannot be recalled by the Tribunal if the argument that the order to be substituted in the consequence of the rectification would be debatable and would be open to arguments. Again, take an example of the facts as were in the case of Kastur Chand Jain v. GTO [1961] 42 ITR 288 before the Calcutta High Court. In that case the value of the shares for the purpose of the Gift-tax Act was calculated on the basis of rules framed under the Wealth-tax Act. This was found by the Hon'ble High Court a mistake apparent from the face of the record and the assessment order was quashed by the Hon'ble High Court, with a right to the department to make assessment again. The reassessment, though on the lines suggested by the Hon'ble High Court, would be equally a debatable order. I, therefore, do not find any merit in the argument that the amendment in consequence of rectification should be free from debate. 8. It is not questioned before us that a mistake apparent from the record may fol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bench and the Bench did not take those orders of the Tribunal into account. 13. Since the CIT(A) has disposed of the appeal on the preliminary ground holding lack of jurisdiction of the ITO, the case requires to be remitted to him for decision on merit. 14. I would, therefore, allow the appeal with a direction to the CIT(A) to render decision on the merit of the case. ORDER UNDER SECTION 255(4) We, having differed on the following point in the above appeals filed by the department, refer the following point of difference to the President under section 255(4) of the Income-tax Act, 1961 : "Whether, on the facts and in the circumstances of the case, the Commissioner of Income-tax (Appeals) erred in quashing the orders under section 154 of the Income-tax Act, 1961 passed by the Income-tax Officer for the assessment years 1977-78 and 1978-79 ?" THIRD MEMBER ORDER Per Shri Ch. G. Krishnamurthy, President --- These appeals were originally heard by B-Bench, Calcutta. The learned Members of the Tribunal, who constituted the Bench, could not agree on a particular point and that point of difference of opinion, mentioned below, was referred to me as a Third Member : "Wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ause that would virtually amount to computing the net income by estimating the allowable expenditure by adopting a certain formula and such a method or formula could be a matter of dispute and since debatable and disputable items are not open to rectification u/s 154, the rectification orders passed by the Income-tax Officer were wrong and illegal. The attention of the Commissioner (A) was also drawn to a number of appeals involving identical point, which were decided in favour of the assessee. The Commissioner (A) holding that he himself held in a number of cases that the Income-tax Officer exceeded his jurisdiction when he computed the net dividend income on the basis of a disputable formula and referring to the Supreme Court decision in the case of Volkart Bros., held that the Income-tax Officer had exceeded his jurisdiction in computing net dividend income for the purposes of allowing relief u/s 80M, under section 154. He therefore allowed the appeals of the assessee. 3. Against these orders, the department came up in appeal before the Tribunal. Arguments addressed before the Bench were that the Income-tax Officer in the original assessment orders did not determine any expens ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ach to itself the further condition that it should be infallible. He placed reliance on a decision of the Bombay High Court in the case of Blue Star Engg. Co. (Bombay) (P.) Ltd. Having thus held that location of the mistake apparent from the record being different from the amendment of such a mistake, he held that in this case no argument was needed to find out the mistake, which was glaring from the order of the Income-tax Officer because section 80AA as amended with retrospective effect from 1-4-1968 did show that the allowance of the relief u/s 80M on the gross dividends was wrong. He did not agree with the view expressed by the learned Accountant Member that for the detection of the mistake apparent from the record, there should be a mention in the original assessment order as to the incurring of any expenditure to earn the dividends. According to him, this was not at all necessary. He expressed his dissent with the views expressed by the other Benches of the Tribunal and instead referred to an order passed by the Hyderabad Bench of the Tribunal on identical facts reported in A.P. State Financial Corpn.'s case and preferred to follow that view, which was not in consonance with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at once the Income-tax Officer's order was found to be suffering from a mistake, that had to be rectified and the assessee would not come to any grief if he was able to show in an appeal that could be filed against such a rectification order, that expenditure estimated was very excessive. When it was open to the assessee to show that the expenditure allowed was excessive by filing an appeal to the Appellate Asstt. Commissioner and then to the Tribunal, the assessee was not without remedy. In such an event the original order passed, which glaringly show out a mistake should not be allowed to remain unrectified. My attention was also drawn to the orders passed by the Calcutta Benches of the Tribunal, the more recent one is in 'E' Bench of the Tribunal, which the learned Judicial Member had relied upon. 5. In the recent decision of the Calcutta Bench 'E' of the Tribunal, reference was made to a recent decision of the Supreme Court in the case of J.M. Shah, which was also cited before me in the course of arguments. In this case the Supreme Court pointed out that there was a difference between resorting to the power of rectification with reference to a particular provision in an amend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n other words, if the order sought to be rectified in this case had not become final, that order could be rectified within the period provided under the Statute. The order for the assessment year 1977-78 was passed on 10-12-1979 and for the assessment year 1978-79 on 19-1-1980. The period of four years expires for the assessment year 1977-78 on 9-12-1983 and for the assessment year 1978-79 on 7-11-1983. The rectifications were therefore within the period of limitation. The power of rectification to the Income-tax Officer is therefore traceable to the inherent power given to him u/s 154. So, applying the law laid down by the Supreme Court in the case of J.M. Shah, referred to above, it cannot be said that the orders passed by the Income-tax Officer were wrong. 6. Now before me it was not disputed that there was no expenditure incurred in earning dividend income. All that was urged that the method adopted by the Income-tax Officer to arrive at that expenditure attributable to the earning of dividend income was a matter of dispute and open to challenge. It may be so but that does not mean as pointed out by the learned Judicial Member that some expenditure was incurred and that has t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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