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2009 (3) TMI 9 - HC - Income TaxRectification u/s 154 (2) (b) ITO passed order adding profits u/r 3(6) but suo moto increasing liabilities u/s 3(4) - ITO was required to calculate the benefits grantable to assessee u/s 15-C of IT Act 1922 and this calculation was required to be done as per rule-3 of Indian Income Tax (Computation of Capital of Indistrial Undertakings) Rules 1949 - No distinction was made by ITO to categorise the debts into debts due and debts owed - held that mistake rectified was not mistake apparent
Issues Involved:
1. Whether the Tribunal was correct in law to hold that the Income Tax Officer (ITO) could rectify other apparent mistakes on his own motion under Section 154(2)(a) of the Income Tax Act, 1961, while rectifying an order based on the assessee's application under Section 154(2)(b), even if the four-year limitation period under Section 154(7) had expired. Detailed Analysis: 1. Rectification of Mistakes Under Section 154: The primary issue revolves around the interpretation and application of Section 154 of the Income Tax Act, 1961. The section allows for the rectification of mistakes apparent from the record. The court examined whether the ITO could rectify other apparent mistakes on his own motion under Section 154(2)(a) while acting on an application from the assessee under Section 154(2)(b), even if the limitation period had expired. 2. Facts of the Case: - Initial Assessment and Appeals: - The ITO initially assessed the assessee's return for the Assessment Year (A.Y.) 1960-61 on 23.3.1965. - The assessee appealed, and the Commissioner (Appeals) granted relief under Section 15(c) on 27.2.1969, which became final as no further appeal was filed. - The ITO implemented this order on 29.5.1969, granting relief under Section 15-C to the extent of Rs.1,04,01,109. - Application for Rectification: - On 21.12.1972, the assessee filed an application to rectify the order dated 29.5.1969, claiming a mistake in the calculation of benefits under Section 15-C. - The ITO rectified this on 20.3.1975 under Section 154, granting the requested benefits. - Suo Moto Rectification by ITO: - The ITO also identified additional mistakes regarding liabilities not considered in the initial calculation and rectified these on his own motion. 3. Legal Precedents and Interpretation: - Mistake Apparent from the Record: - The court referred to the precedent in Arvind N. Mafatlal Vs. Income Tax Officer, which defined the scope of "mistake apparent from the record" under Section 35 of the Indian Income Tax Act, 1922, which is analogous to Section 154. - The mistake should be "patent on the record" and not one that requires elucidation or debate. - Supreme Court's View: - The Supreme Court in T.S. Balaram, Income-tax Officer, Company Circle-IV Vs. Volkart Brothers & Ors. emphasized that a mistake apparent on the record must be obvious and not one that requires a long-drawn reasoning process. 4. Calculation of Benefits Under Section 15-C: - Rule 3 of the Indian Income Tax (Computation of Capital of Industrial Undertakings) Rules 1949: - The rule outlines how to compute the capital employed, including the valuation of assets and deduction of liabilities. - The ITO's additional rectification involved recalculating liabilities such as Managing Agency Commission, sundry creditors, and other provisions. 5. Debts Owed vs. Debts Due: - Distinction and Implications: - The court noted the distinction between "debts owed" and "debts due," as emphasized in CIT Bombay City-VI Vs. National Organic Chemical Industries Ltd. - The ITO's rectification did not distinguish between these categories, leading to a debatable issue that could not be considered a mistake apparent from the record. 6. Conclusion: - The court concluded that the additional rectification by the ITO regarding liabilities could not be deemed a "mistake apparent on the record" since it involved debatable points of law and required elucidation. - Consequently, the rectification sought by the ITO was not justified under Section 154. 7. Final Judgment: - The court answered the reference to the limited extent that the rectification of additional liabilities was not a mistake apparent on the record. - The rest of the question referred was not required to be answered, and the reference was disposed of with no orders as to costs.
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