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TMI Blog1984 (3) TMI 200X X X X Extracts X X X X X X X X Extracts X X X X ..... rectification applications under section 154 of the Income-tax Act, 1961 (' the Act '), stating therein that the ITO should make rectification in his orders as mistake apparent from the record is there for the purpose of recomputation of the deduction admissible under section 80J of the Act, by revising the capital employed without taking into account the liabilities. Reliance was placed on the decision of the Hon'ble Madras High Court in the case of Madras Industrial Linings Ltd. v. ITO [1977] 110 ITR 256. 4. The ITO did not accept the applications of the assessee for rectification under section 154 for the assessment years under consideration. He rejected the rectification application for the assessment year 1967-68 on the ground that the assessee had not claimed it at the time of original assessment ; that, however, on the basis of the Madras High Court decision, the assessee had put in this claim ; that even on merits, the rectification application had been considered and the assessee's petition was rejected. Similarly, the ITO rejected the rectification applications for the other assessment years. The relevant details of completion of original assessments, passing of orders ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able and as such of no help to the assessee ; hence, the Tribunal should not follow its own decision in the cases of the assessee. He further contends that the issue involved in these appeals are fully covered by the decision of the Hon'ble High Courts of Gujarat and Calcutta in the cases of Ahmedabad Sarangpur Mills Co. Ltd. and Bengal Assam Steamship Co. Ltd. where their Lordships held that the period of limitation is to be counted for the purpose of rectification of assessment orders under section 154 from the date of passing of the original assessments and not from the date of orders of assessments passed by the ITO in giving effect to the orders of the appellate authorities or from the date of subsequent rectification order. 8. We have heard the rival contentions and have gone through the records before us. We are of the opinion that the assessee should also fail over here. The reasons are that in the applications filed by the assessee before the ITO for the years under consideration for rectification of the orders on the dates referred to above were for the purpose of recomputation of the deduction admissible under section 80J by revising the capital employed without taking ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hence the ratio laid down by the Tribunal is favourable to the assessee and as such the decision of the Tribunal is to be followed. Therefore, on these reasons, we reject the contentions of the assessee's counsel to follow the decision of the Tribunal as these are not well founded, while we accept that of the learned departmental representative being relevant. 11. In the case of Bengal Assam Steamship Co. Ltd., their Lordships of the Calcutta High Court held that the period of limitation to make an application for rectification of certain mistakes in the assessment order of the ITO under section 154 should be computed from the date of the earlier order of the ITO and not from any subsequent order passed thereon. Similarly, their Lordships of the Gujarat High Court in the case of Ahmedabad Sarangpur Mills Co. Ltd. held as under : ". . . the contention for the revenue that there could be two assessments contemplated under the Income-tax Act, one the original assessment under section 23 of the 1922 Act and the other when the assessment is rectified under section 35, could not be accepted. Even if there could be two such assessment orders, the period of limitation for rectifying t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otherwise will give no finality in the case and the provisions of the Act for appeal and rectification shall be misused. 13. On merits also, the assessee has to fail. The reasons are that the assessee made the claim under section 80J by computing the capital employed excluding the liabilities. In appeals, the assessee did not claim that section 80J relief is to be provided to the assessee on including the liabilities in computing the capital employed. When this is so, then, if the ITO has given effect to the orders of the AAC, accordingly, then, there is no mistake apparent from the record to be rectified by computing the capital employed including the liability for the purpose of section 80J. Furthermore, section 80J has been amended with retrospective effect vide the Finance (No. 2) Act, 1980, according to which relief under section 80J is to be provided by computing the capital employed excluding the liabilities. 14. When this is so, then the question of providing such relief on including the liabilities in computing the capital employed does not arise as the meaning or interpretation of the term ' capital employed ' on the issue is defined and described by this amendment ; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the application filed under section 154 of the Act was filed on 10-5-1979 and was, therefore, within the prescribed time limit. 5. The learned Commissioner (Appeals) ought to have held that as the application under section 154 was within time, the appellate was entitled to have the assessment order rectified in accordance with the ratio of the decision of the Madras High Court in Madras Industrial Linings Ltd. v. ITO [1977] 110 ITR 256." The dates of the original assessment, the dates on the ITO's orders giving effect to the appellate orders and the dates on which applications were filed by the assessee under section 154 were as under : -------------------------------------------------------------------------------------------------------------------------------------------------- Assessment Date of original Date of the Dates on which years assessment orders of the application filed ITO giving under section effect to the 154 appellate orders -------------------------------------------------------------------------------------------------------------------------------------------------- 1967-68 29-3-1968 31-3-1977 10-5-1979 1968-69 15-11-1971 31-3-1977 10-5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order either rectifying the original assessment order or giving effect to any appellate order. The Commissioner (Appeals) referred to the decision in Ahmedabad Sarangpur Mills Co. Ltd.'s case and Bengal Assam Steamship Co. Ltd.'s case. He observed that it was clear that even if there had been a subsequent rectification of the original assessment order so long as the rectification to be made is in respect of a mistake which was committed in the original assessment order, the limitation would commence from the date of the original assessment order and not the subsequent rectificatory order. The Commissioner (Appeals) held that the limitation has to be counted from the date of passing of the original assessment order and on such basis the assessee's rectification petitions were barred by limitation. The Commissioner (Appeals), thus, dismissed the assessee's appeals. The Commissioner (Appeals) did not deal with the assessee's further contention on the merits. 4. We have heard the parties. Before us, the learned counsel for the assessee relied on the order of the ' C ' Bench of this Tribunal in the case of Salem Co-operative Spg. Mills Ltd. and contended that the assessee's applicatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manner as before. Later the ITO realised that he had committed a mistake regarding the order in which the deductions were made, since the business loss carried forward should have been deducted first, before deducting the current year's development rebate. He, therefore, made an order on 13-12-1979, rectifying the revised assessment made on 14-8-1978. This resulted in the variation of the amount carried forward for the subsequent year and, accordingly, he rectified the assessment order for the assessment year 1974-75 as a consequence. On appeal by the assessee, the Commissioner (Appeals) held that the rectification made by the ITO in effect corrected a mistake in the original assessment order dated 17-12-1974 and, hence, the order passed by the ITO on 13-12-1979, after more than four years after that date, was barred by limitation. Since the rectification for the subsequent year was consequential, he cancelled the rectification orders for both the years. The revenue appealed to the Tribunal against the AAC's order contending that the rectification was only of the order dated 14-8-1978 and, therefore, it was in time. The Tribunal accepted this contention as under : " Needless to s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 's case for the assessment year 1954-55 in the case, the ITO passed an order dated 22-2-1961 under section 49A of the Act giving certain relief to the assessee under Double Tax Avoidance Agreement. On 4-9-1963, the ITO passed an order under section 154 by which he rectified the order dated 22-2-1961. There was similar rectification by the ITO for the assessment year 1955-56. On 22-10-1965, the assessee applied for rectification of certain mistakes in the assessment orders which the ITO rejected on the ground that the application was time barred. The ITO, however, rectified certain mistakes, on 4-2-1966. The assessee filed appeals from those orders, but both the appellate authorities dismissed those appeals as the assessee's application for rectification was time barred. The High Court held that the period of limitation will run from the dates of the earlier orders of the ITO in respect of both the assessment years. Bengal Assam Steamship Co. Ltd.'s case, relied on by the department, is thus similar to Ahmedabad Sarangpur Mills Co. Ltd.'s case in that here also the original order of the ITO was not superseded but merely rectified by a rectification order. Ahmedabad Sarangpur Mills C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the date of the ITO's order giving effect to the appellate order and not the date of the original assessment order which has ceased to exist. This view of the Tribunal also finds support from the following observation of the Calcutta High Court decision in Chloride India Ltd. v. CIT [1977] 106 ITR 38 : ". . . .When an assessment is modified pursuant to the order of the appellate authority or direction, the subsequent order will be regular assessment and must supersede and replace the earlier assessment order . . ." [Emphasis supplied] This same view was echoed by the Madras High Court in Triplicane Urban Co-operative Society Ltd.'s case, holding that the ITO's order passed to give effect to the decision of the AAC is an order passed under section 143 of the Act and is, therefore, a regular assessment, vide also Rayon Traders (P.) Ltd. v. ITO [1980] 126 ITR 135 (Mad.). Thus, adopting the reasoning and conclusion in the aforesaid order of the Tribunal in Salem Co-operative Spg. Mills Ltd.'s case, I would hold that the assessee's rectification applications dated 10-5-1979 are within time computed with reference to the ITO's order dated 31-3-1977, and 30-9-1977, which are the subj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Before I go to the relevant facts, I would like to refresh myself with the provision laying down the limitation for rectifying the orders under section 155(4) of the Act. That provision is contained in sub-section (7) of section 154, which is to the following effect : " (7) Save as otherwise provided in section 155 or sub-section (4) of section 186 no amendment under this section shall be made after the expiry of four years from the date of the order sought to be amended." This section simply means that the period of four years is to be reckoned from the date of the order sought to be amended. I have to, therefore, see in the present case, what is the order sought to be amended and what was its date. That should resolve the conflict. 3. In the present case, the assessee, a limited company, filed its returns for the assessment years 1967-68 to 1971-72. The assessments for these years were completed on 29-3-1968, 15-11-1971, 28-1-1972, 11-3-1973 and 22-3-1973, respectively. There were appeals filed against these orders and after the receipt of the appellate orders, the ITO passed orders giving effect to the appellate orders for the first three years on 31-3-1977 and for the lat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the judgments of the High Court, and that the decision of the Gujarat High Court should have been followed. He was also of the opinion that there was another judgment of the Calcutta High Court, which was not noticed by the earlier Bench. He also dealt with the merits, but I am not in this reference concerned with the merits. 7. But, the learned Accountant Member preferred to follow the view expressed by the earlier Bench of the Tribunal. He was of the firm opinion that the High Court decisions referred to by the departmental representative the Gujarat High Court decision in Ahmedabad Sarangpur Mills Co. Ltd.'s case the Calcutta High Court decision in Bengal Assam Steamship Co. Ltd's case and the Madras High Court decision in Mettur Chemical Industrial Corpn. Ltd.'s case, are clearly distinguishable and the facts were not at all in pari materia. After pointing out the point of distinction, he sought support for the view he took from another decision of the Calcutta High Court in Chloride India Ltd.'s case, where the Calcutta High Court observed that when an assessment was modified pursuant to an appellate order or direction, the subsequent order will be regular assessment and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment year 1961-62, the notice was virtually under section 35 of the 1922 Act. In the meantime, the Income-tax Officer had on May 21, 1965, passed an order of rectification under section 154 of the 1961 Act in respect of the assessment order for the assessment year 1961-62 on a different matter. In pursuance of the three notices, the Income-tax Officer passed orders of rectification of the assessment orders of the three years 1961-62 to 1963-64 overruling the assessee's objection on the ground of limitation. The petitioner filed a writ petition challenging the notices and orders of rectification, contending that the rectification proceedings were barred by limitation as they were made after four years from the date of the assessment order :" The Gujarat High Court, no doubt, held that the period of limitation commenced from the date of the original assessment order passed on 26-12-1962 and not from the later date, and consequently, the notices issued of rectification on 3-2-1968 were clearly time-barred. In coming to this conclusion, the Gujarat High Court pointed out at page 722 of its report that the mistake sought to be rectified existed in the original assessment order passed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of limitation should commence from the original assessment order, because it was a mistake in that order that was sought to be rectified. So, before the High Court also, there was no such thing as the earlier assessment order being superseded by the subsequent order. So too, is the case before the Madras High Court in Mettur Chemical Industrial Corpn. Ltd.'s case which I think, is not necessary for me to give the facts in detail because they are given in the order passed by my learned brother, the Accountant Member. The question, therefore, ultimately turns upon, as I said in the beginning, where does the mistake lie ? Does it lie in the original assessment order or does it lie in the subsequent proceedings, call it by whatever name ? If the mistake lies in the subsequent order, section 154 postulates the rectification of mistake in that order also and the time limit under sub-section (7) would commence from that order. Once it is held that the original assessment order ceased to exist, then the question of computing the time limit from the date of the non-existing order does not arise. My learned brothers did not differ on the question whether the original assessment order cease ..... X X X X Extracts X X X X X X X X Extracts X X X X
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