1997 (7) TMI 61 - HC - Income Tax

Summary

Issues Involved:
1. Justification of the Tribunal in canceling the order passed by the Income-tax Officer u/s 154 of the Income-tax Act.

Summary:

Issue 1: Justification of the Tribunal in canceling the order passed by the Income-tax Officer u/s 154 of the Income-tax Act

The matter pertains to the assessment year 1979-80 under the Income-tax Act, 1961. The primary question is whether the Tribunal was justified in canceling the order passed by the Income-tax Officer (ITO) u/s 154 of the Act. The assessee, a company engaged in the export of tea and spices, claimed a weighted deduction u/s 35B for certain expenditures. The ITO initially allowed these deductions in the assessment order dated February 26, 1980. However, a subsequent notice u/s 154 was issued, stating that the deductions were granted due to the non-application of the provisions of sub-section (1A) of section 35B, which was inserted by the Finance Act, 1978, effective from April 1, 1978. The ITO rectified the assessment, withdrawing the weighted deduction of Rs. 1,20,160.

The assessee appealed, and the Commissioner of Income-tax (Appeals) confirmed the ITO's order. However, the Income-tax Appellate Tribunal (ITAT) canceled the rectification order, leading to the current reference.

The Revenue argued that the ITO omitted to consider section 35B(1A), which mandates that for deductions u/s 35B, the assessee must be a small-scale exporter or a holder of an export house certificate. The assessee did not meet these conditions. The Tribunal's view that the ITO had applied his mind fully during the original assessment was challenged by the Revenue, asserting that overlooking a mandatory provision constitutes a mistake apparent from the record, justifying rectification u/s 154.

The court examined the scope of "mistake apparent from the record" and concluded that the ITO's failure to apply section 35B(1A) was a patent mistake. The court referenced several Supreme Court decisions, including M. K. Venkatachalam, ITO v. Bombay Dyeing and Manufacturing Co. Ltd. [1958] 34 ITR 143, which supported the view that overlooking a mandatory provision is a mistake apparent from the record.

The court held that the Tribunal's approach was faulty and that the ITO was justified in invoking section 154 to correct the mistake. The question was answered in the negative, against the assessee and in favor of the Revenue.