1993 (3) TMI 84 - HC - Income Tax

Summary

Issues Involved:
1. Computation of the period of limitation for rectification under Section 154 of the Income-tax Act, 1961.
2. Whether the limitation period should be reckoned from the date of the original assessment order or the date of the rectification order.

Detailed Analysis:

Issue 1: Computation of the Period of Limitation for Rectification under Section 154

The primary issue is whether the Tribunal was justified in holding that the period of limitation for rectification should be computed from the date of the rectification orders (July 12, 1982) rather than the original assessment orders. The Tribunal had concluded that the mistake sought to be rectified by the assessee was embedded in the rectification orders passed on July 12, 1982, and thus the limitation period should be computed from that date.

The High Court examined the facts and circumstances, noting that the assessee had initially claimed depreciation on factory buildings at five percent in its returns for the assessment years 1976-77 to 1980-81. The original assessment orders were completed on that basis. The assessee did not file any rectification application regarding this issue until July 4, 1986, when it claimed that the depreciation should have been ten percent.

The Income-tax Officer (ITO) rejected the assessee's rectification petition for the years 1976-77 to 1980-81, stating that the period of limitation ran from the dates of the original assessment orders. The Commissioner of Income-tax (Appeals) upheld this decision. However, the Tribunal, relying on the Patna High Court decision in Bihar State Road Transport Corporation v. CIT [1986] 162 ITR 114, ruled in favor of the assessee, stating that the limitation should be computed from July 12, 1982.

Issue 2: Whether the Limitation Period Should Be Reckoned from the Date of the Original Assessment Order or the Date of the Rectification Order

The High Court analyzed the arguments from both sides. The assessee argued that the original assessment order merged with the rectification orders of July 12, 1982, and thus the limitation period should start from that date. The Revenue, on the other hand, relied on the decision in Bengal Assam Steamship Co. Ltd. v. CIT [1978] 114 ITR 327, which held that the limitation period should be computed from the date of the original order, even if a subsequent rectification order was passed.

The High Court noted that the Tribunal's view was that the mistake in the depreciation allowance was repeated in the rectification orders, and thus the limitation period should be computed from July 12, 1982. However, the High Court disagreed with this approach, stating that the assessment of income is a multi-faceted determination, and different aspects of depreciation can have separate mistakes. The Court emphasized that the doctrine of merger is not rigid and universal and that the original order does not completely merge with the rectification order.

The High Court concluded that the mistake in allowing a lower depreciation rate for factory buildings was embedded in the original assessment order and not in the rectification order, which dealt with extra shift allowance. Therefore, the limitation period should be computed from the date of the original assessment order, not from the rectification order.

The Court also addressed the argument for a liberal construction of the limitation period, stating that the limitation under Section 154(7) is rigid, and there is no provision for condoning the delay.

Conclusion:
The High Court answered the question in the negative, in favor of the Revenue and against the assessee. The period of limitation for rectification should be computed from the date of the original assessment order, not from the date of the rectification order. There will be no order as to costs.

Shyamal Kumar Sen J. concurred with the judgment.