1978 (3) TMI 52 - HC - Income Tax

Summary

Issues Involved:
1. Competency of the appeal before the AAC.
2. Applicability of Section 154 of the I.T. Act, 1961, versus Section 35 of the Indian I.T. Act, 1922.
3. Interpretation of Section 297(2)(a) of the I.T. Act, 1961.
4. Procedural versus substantive law in rectification matters.
5. Validity and appealability of amended assessment orders.

Detailed Analysis:

1. Competency of the Appeal Before the AAC:
The primary issue was whether the Tribunal was justified in dismissing the appeal filed by the assessee on the grounds that no competent appeal lay before the AAC. The Tribunal concluded that since the ITO's order, although passed under Section 154 of the I.T. Act, 1961, should be treated as an order under Section 35 of the Indian I.T. Act, 1922, no appeal was competent. The Tribunal noted, "Before parting with the case we wish to place on record the peculiar circumstances in which the assessee has failed before us."

2. Applicability of Section 154 of the I.T. Act, 1961, versus Section 35 of the Indian I.T. Act, 1922:
The Tribunal treated the rectification order as being under Section 35 of the 1922 Act, despite it being passed under Section 154 of the 1961 Act. The Tribunal held that the ITO should have rectified the order under Section 35 of the 1922 Act, and the mere fact that the ITO had committed an error in passing the order under a wrong section did not validate further errors. The Tribunal cited, "the order should be treated in such a manner as to make it valid, if possible."

3. Interpretation of Section 297(2)(a) of the I.T. Act, 1961:
The court analyzed whether Section 297(2)(a) of the I.T. Act, 1961, made it mandatory for the ITO to complete the assessment under the 1922 Act. The court noted, "the expression 'may' in cl. (a) of sub-s. (2) of s. 297 in contradistinction to the expression 'shall' in cl. (b) of sub-s. (2) of s. 297." The court concluded that the use of "may" indicated an enabling provision rather than a mandatory obligation. Therefore, the ITO's action under the 1961 Act was not illegal.

4. Procedural versus Substantive Law in Rectification Matters:
The court discussed the retrospective operation of procedural law, citing various precedents. It was observed, "procedural matters must be according to the law applicable at the time the proceedings are being taken." The court referenced the Supreme Court's observations in S. Sankappa v. ITO [1968] 68 ITR 760, emphasizing that procedural laws should guide rectification actions.

5. Validity and Appealability of Amended Assessment Orders:
The court addressed whether an amended assessment order could be appealed. It was argued that, "the amended order of assessment could be appealed from," but the court clarified that the appeal before the Tribunal was about the validity of the amendment itself, not the amended order. The court stated, "the errors alleged to have been committed were such errors which could not be described to be errors apparent from the face of the records."

Conclusion:
The court concluded that the ITO's action under the provisions of the new Act was not illegal, and thus, the appeal was competent. The question was answered in the negative and in favor of the assessee, with the court stating, "We will, therefore, answer the question in the negative and in favour of the assessee." The parties were ordered to pay and bear their own costs.