1987 (6) TMI 123 - AT - Income Tax

Summary

Issues Involved:

1. Jurisdiction of the Income-tax Officer (ITO) under Section 154 for rectification of the assessment made under Section 143(1).
2. Validity of the adjustments made by the ITO in the order under Section 154.
3. Interpretation of "mistake apparent from the records" and its applicability to the case.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Income-tax Officer (ITO) under Section 154 for rectification of the assessment made under Section 143(1):

The primary issue revolves around whether the ITO had the jurisdiction to rectify an assessment under Section 143(1) using Section 154. The assessment for the year 1977-78 was initially completed under Section 143(1) on 29-8-1978. Subsequently, the ITO passed an order under Section 154 on 26-8-1982, modifying the assessment by disallowing the interest of Rs. 24,047 initially allowed. The assessee contended that the rectification under Section 154 was beyond the ITO's jurisdiction as the alleged mistake was not apparent from the records but required a detailed examination of the firm's accounts.

2. Validity of the adjustments made by the ITO in the order under Section 154:

The ITO justified the rectification by stating that the withdrawals from the firms were for personal purposes such as payment of Life Insurance Premium, purchase of furniture, and air tickets. The ITO argued that interest on borrowals is allowable only if the borrowals are for business purposes or for payment of income tax. Since the withdrawals were for personal purposes, the allowance of interest was considered a mistake apparent from the records. The AAC, however, quashed the order under Section 154, stating that the issue was debatable and more than one opinion was possible, thus not constituting a mistake apparent from the records.

3. Interpretation of "mistake apparent from the records" and its applicability to the case:

The Tribunal examined whether the information used by the ITO for rectification was available in the records at the time of the original assessment under Section 143(1). The Accountant Member noted that adjustments permissible under Section 143(1) were limited to those specified in the statute. Since the information regarding the personal use of funds was derived from the firm's accounts, which were not part of the original records accompanying the return, it could not be considered a mistake apparent from the records. The Judicial Member, however, opined that the provisions of Section 154 were applicable irrespective of whether the assessment was made under Section 143(1) or 143(3), and any mistake in the assessment order could be rectified under Section 154.

Separate Judgments:

Accountant Member's Judgment:

The Accountant Member concluded that the ITO exceeded his jurisdiction by making adjustments under Section 154 that were not permissible under Section 143(1). The adjustments were based on information not available in the original records, thus not constituting a mistake apparent from the records. Therefore, the order under Section 154 was rightly annulled by the AAC.

Judicial Member's Judgment:

The Judicial Member disagreed, stating that the assessment order under Section 143(1) is still an assessment order and falls within the purview of Section 154. He argued that the ITO had the jurisdiction to rectify any mistake apparent from the record, including those in assessments made under Section 143(1). He suggested that the matter be remanded to the AAC for fresh disposal after giving both the assessee and the ITO an opportunity to substantiate their contentions.

Third Member's Judgment:

The Third Member agreed with the Accountant Member, emphasizing that the information used for rectification was not part of the original records. Therefore, the mistake was not apparent from the records, and the ITO's rectification under Section 154 was not justified. The Third Member concluded that the ITO should have used other provisions like Section 147 or 263 for such adjustments.

Conclusion:

The majority view held that the ITO exceeded his jurisdiction by using Section 154 to rectify the assessment made under Section 143(1) based on information not available in the original records. The appeal of the revenue was dismissed, and the AAC's order annulling the rectification under Section 154 was upheld.