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Issues Involved:
1. Jurisdiction under section 154 of the Income-tax Act, 1961. 2. Inclusion of preliminary expenses and share issue expenses in the capital base for relief under section 80J of the Income-tax Act. Comprehensive, Issue-wise Detailed Analysis: 1. Jurisdiction under section 154 of the Income-tax Act, 1961: The primary issue was whether the Income-tax Officer (ITO) had the jurisdiction to rectify the assessment under section 154 of the Income-tax Act to exclude preliminary expenses and share issue expenses from the capital base for relief under section 80J. The Tribunal had concluded that the rectification by the ITO was not justified as the issue involved a long-drawn process of reasoning and was not an apparent mistake on the face of the record. The court examined the argument presented by the learned standing counsel for the Department, who contended that the ITO was correct in exercising jurisdiction under section 154 as there was an error apparent on the face of the record. The ITO had included the preliminary and share issue expenses in the capital base for the assessment year 1970-71, which was inconsistent with the treatment in the previous two years. The court referred to the principles laid out in T. S. Balaram, ITO v. Volkart Brothers, which stated that a mistake apparent on the record must be obvious and patent and not something that requires a long-drawn process of reasoning. The court concluded that the inclusion of preliminary and share issue expenses in the capital base was indeed an error apparent on the face of the record. The decision to include these expenses required a long-drawn process of reasoning, which was not appropriate for rectification under section 154. Therefore, the Tribunal's conclusion that the ITO did not have the jurisdiction to rectify the mistake was incorrect. 2. Inclusion of Preliminary Expenses and Share Issue Expenses in the Capital Base for Relief under Section 80J: The second issue was whether the preliminary expenses and share issue expenses should be included in the capital base for the purpose of relief under section 80J. The Tribunal had found that these expenses did not form part of the capital base within rule 19A(3) or otherwise, as they were not represented by any value and were shown in the balance-sheet for the sake of complete exhibition of financial affairs. The court noted that in the first two years of assessment, these expenses were not included in the capital base for relief under section 80J. Including them in the third year would be inconsistent and incorrect. The court referred to the Bombay High Court's decision in Modella Woollens Ltd. v. CIT, which held that preliminary expenses and share issue expenses are nominal or theoretical expenses and should not be considered as assets for the purpose of calculating the capital base. The court also referred to T. S. Rajam v. CED, which held that the complexity of the problem or the need for genuine argument does not oust the jurisdiction of the Department to rectify a mistake. The essence of rectification is to bring the order in harmony with the existing law. The court concluded that no long-drawn process of reasoning was required to exclude these expenses from the capital base for relief under section 80J. Conclusion: The court held that the Tribunal was incorrect in concluding that there was no error apparent on the face of the record, warranting jurisdiction under section 154 of the Act. The preliminary expenses and share issue expenses should not have been included in the capital base for the purpose of relief under section 80J. Accordingly, the court answered the question referred to it in the negative and in favor of the Department. No costs were awarded.
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