1970 (6) TMI 1 - HC - Income Tax

Overhauling of stock to obtain more credit from bank - AAC increased the value of opening stock for the A.Y. 1960-61 - finding about the opening stock for the year 1960-61 was based on the figure of closing stock of the previous year - AAC had jurisdiction to rectify order u/s 35

Summary

Issues Involved:
1. Jurisdiction of the Appellate Assistant Commissioner under Section 35 of the Income-tax Act, 1922.
2. Interpretation of the term "record" in Section 35 of the Income-tax Act, 1922.
3. Rectification based on subsequent events.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Appellate Assistant Commissioner under Section 35 of the Income-tax Act, 1922:
The petitioner, a textile mill, contested the rectification order passed by the Appellate Assistant Commissioner on 28th June, 1969, arguing that it was without jurisdiction under Section 35 of the Income-tax Act, 1922. The petitioner contended that the rectification fell outside the ambit of Section 35, which allows rectification of mistakes apparent from "the record of the appeal" decided by the Appellate Assistant Commissioner. The petitioner argued that the Appellate Assistant Commissioner relied on the Tribunal's record for the previous assessment year (1959-60), which was extraneous to the record of the appeal for the assessment year 1960-61.

2. Interpretation of the term "record" in Section 35 of the Income-tax Act, 1922:
The petitioner argued that the term "record" in Section 35 is limited to the record of the specific appeal in which the original order was passed, and it should not include records from other assessment years or proceedings. The court, however, disagreed with this narrow interpretation. It referred to the Supreme Court's decision in Maharana Mills Pvt. Ltd. v. Income-tax Officer, Porbandar, which held that "record" under Section 35 includes all proceedings on which the assessment order is based. The court concluded that the closing stock of the previous assessment year (1959-60) formed part of the evidence for the assessment year 1960-61 and thus became part of the record for the latter year.

3. Rectification based on subsequent events:
The petitioner contended that even if the term "record" is interpreted broadly, the Appellate Assistant Commissioner could not rectify the record based on subsequent events, specifically the Tribunal's decision regarding the closing stock for the assessment year 1959-60, which occurred after the original order for the assessment year 1960-61. The court rejected this argument, stating that the mistake in the valuation of the opening stock for the assessment year 1960-61 became apparent when the Tribunal's decision corrected the closing stock for the previous year. The court cited the Privy Council case in Commissioner of Income-tax v. Khemchand Ramdas, which allowed rectification based on subsequent events that formed part of the record.

Conclusion:
The court found no merit in the petitioner's contentions and upheld the rectification order. It held that the Appellate Assistant Commissioner acted within his jurisdiction under Section 35 of the Income-tax Act, 1922, and that the term "record" includes the evidence on which the original assessment was based. The court also allowed rectification based on subsequent events that corrected an apparent mistake. Consequently, the petition was dismissed, and the rule was discharged with costs. Leave to appeal to the Supreme Court was granted under Article 133(1)(c) of the Constitution.