1986 (4) TMI 31 - HC - Income Tax

Summary

Issues Involved:
1. Rectification of Assessment Orders u/s 154.
2. Limitation for Rectification Orders.
3. Charging of Penal Interest u/s 217 in Rectification Proceedings.

Summary:

1. Rectification of Assessment Orders u/s 154:
The primary issue was whether the Income-tax Officer (ITO) could rectify the assessment orders for the years 1960-61 and 1961-62 by redetermining the written down value of various assets u/s 154 of the Income-tax Act, 1961. The Tribunal upheld the ITO's rectification, stating that the mistake in calculating the written down value was apparent from the record. The ITO corrected the depreciation allowed by considering the depreciation reserve shown in the balance-sheet, which was initially overlooked. The Supreme Court's decision in Maharana Mills Private Ltd. v. ITO [1959] 36 ITR 350 (SC) was cited, confirming that such rectifications fall within the purview of section 154. Thus, the Tribunal was correct in holding that the ITO could rectify the orders u/s 154.

2. Limitation for Rectification Orders:
The second issue was whether the Tribunal was correct in cancelling the ITO's order u/s 154 for the assessment year 1960-61 on the ground of limitation. The Tribunal held that the rectification order dated November 14, 1969, was barred by limitation as it was passed more than four years after the original assessment order dated February 15, 1965. However, the Court held that the limitation should be counted from the first rectification order dated August 17, 1966, making the second rectification order within the permissible time frame. The Supreme Court's decision in S. Sankappa v. ITO [1968] 68 ITR 760 (SC) was referenced, which stated that rectification orders are part of the assessment proceedings. Therefore, the rectification order dated November 14, 1969, was not barred by limitation.

3. Charging of Penal Interest u/s 217 in Rectification Proceedings:
The third issue was whether penal interest u/s 217 could be charged in rectification proceedings u/s 154. The Tribunal initially held that interest could not be charged as rectification under section 154 is not a "regular assessment" under section 2(40). However, the Court referred to the Supreme Court's decisions, which clarified that rectification orders are part of the assessment proceedings and can result in the charge of interest. The Madras High Court's decision in CIT v. Rajalakshmi Mills Ltd. [1980] 125 ITR 141 (Mad) supported this view, stating that rectification makes the original assessment the "regular assessment." Thus, the ITO was justified in charging interest u/s 217 in the rectification orders.

Conclusion:
The Tribunal was correct in holding that the ITO could rectify the assessment orders u/s 154 by redetermining the written down value of assets. The rectification order dated November 14, 1969, was not barred by limitation. Penal interest u/s 217 could be charged in rectification proceedings u/s 154. All questions were answered in favor of the Revenue and against the assessee.