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TMI Blog2000 (6) TMI 27X X X X Extracts X X X X X X X X Extracts X X X X ..... d accounts regarding expenses incurred could be allowed a maximum deduction of only Rs. 10,000. In the reasons recorded by the Assessing Officer which are placed on record, it is stated that for the assessment year 1987-88, an amount of Rs. 44,703 had escaped assessment while in respect of the assessment year 1989-90, a sum of Rs. 49,844 had escaped assessment. In short, for these two assessment years 1987-88 and 1989-90, according to the Assessing Officer, he had reason to believe that the income chargeable to tax had escaped the assessment because in the assessments for these two years, the income in question was made the subject of excessive relief under the Act, making them deemed to be cases where income chargeable to tax had escaped assessment within the meaning of Explanation 2(c)(iii) of the Act. As regards the assessment years 1988-89 and 1990-91, the reasons in support of the notices issued for these years under section 148, which are placed on record, show that according to the Assessing Officer the returns of this assessee for these two assessment years were not on the record of the office. It was stated therein that the assessee was sent a letter dated February 14, 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y allowing deduction of the commission on ad hoc basis beyond the maximum allowable deduction of Rs. 10,000 under the said circular dated September 22, 1965, as modified by the circular dated January 6, 1985, of the Board. According to the Assessing Officer, for the assessment year 1986-87 an income of Rs. 62,870 for the assessment year 1988-89 an income of Rs. 81,473, for the assessment year 1989-90 an income of Rs. 79,121, for the assessment year 1990-91 an income of Rs. 1,14,827 and for the assessment year 1990-91 an income of Rs. 1,78,187 had escaped assessment on the ground that excessive deduction beyond the maximum limit of Rs. 10,000 per annum was allowed in respect of these years. Learned counsel appearing for the petitioners in all these matters contended that the Assessing Officer had no basis for issuing notices under section 148, in respect of the assessment years in question. He contended that on a bare reading of the circulars which were issued by the Board, it was clear that the Life Insurance Corporation agents were entitled to get deduction on ad hoc basis at the rates mentioned in the circular and there was no question of applying any ceiling of Rs. 10,000 to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 20,000 and, therefore, the exercise undertaken by initiating the proceedings under section 147 by the Assessing Officer was an affront to the decision taken by his superiors and was nothing beyond a mere change of opinion, which was not permissible for initiating proceedings under section 147 for assessment/reassessment or recomputation of income. Learned counsel further submitted that from circular dated January 6, 1984, in which instructions for amending the earlier circular of September 14, 1965, were issued by the Board, it could be demonstrated how absurd the result would be, if the ceiling of Rs. 10,000 was applied. He submitted that this circular dated January 6, 1984, showed that the Board, after considering the representations that the rate of deduction should be raised from 40 per cent. having regard to the increase in cost, had decided that the expenditure may be allowed at the rate of 50 per cent. of the years' commission where the gross commission was less than Rs. 60,000 and had modified the instructions issued on September 14/22, 1965, to this extent. It was submitted that even the Tribunal had, in case of another assessee in Pankaj Dhirajlal Dhruve v. ITO [1996] 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of section 9 of the Indian Income-tax Act, 1922, because, he could not exercise any rights in that property except with the consent of the custodian and had only some residual beneficial interest in that property which he had left in Pakistan. It was held that such residual beneficial right cannot be considered to be ownership for the purpose of section 9 of the said Income-tax Act. The question before the court was as to who was the "owner" of the property for the purpose of computation of income under section 9 of the Act. (b) K. P. Varghese v. ITO [1981] 131 ITR 597 (SC), was cited for its proposition that literal construction which leads to absurdity, unjust result or mischief should be avoided. While construing the provisions of sub-section (2) of section 52 of the Income-tax Act, 1961, the Supreme Court held that the word "declared" occurring therein was very eloquent and revealing and it clearly indicates that the focus of sub-section (2) is on the consideration declared or disclosed by the assessee as distinguished from the consideration actually received by him and it contemplates a case where the consideration received by the assessee in respect of the transaction wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he must have recourse to the appropriate provision having regard to the facts and circumstances in each case. In cases where the two appear to overlap, the Income-tax Officer must choose one in preference to the other and proceed, and he should not take one as the appropriate proceeding and give it up at a later stage to have recourse to the other, since such proceedings are quasi-judicial and adjudication after notice is intended for the same purpose. In such a case of overlapping, constructive res judicata and not the statutory inhibition, should make the Income-tax Officer desist from using one proceeding after the other instead of using one of the two with due care and caution. (e) Jamnadas Madhavji and Co. v. J. B. Panchal, ITO [1986] 162 ITR 331 (Bom), was cited for the proposition that the Income-tax Officer had no power to issue summons when no proceedings were pending before the Income-tax Officer. This decision was pressed in service for contending that the letter dated February 14, 1994, seeking information from the assessee could not have been written by the Assessing Officer and that since no proceedings were pending at that time, the assessee was not obliged to resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed, that aspect would have been duly taken into account by the Assessing Officer. Even now the assessee can come forward and give particulars in response to those notices, since nothing is concluded even at this stage. Learned counsel further argued that in cases where there was no rectifiable mistake found after initiating the proceedings under section 154 of the Act, but notwithstanding that fact the Assessing Officer still has a reason to believe that the income has escaped assessment, the Assessing Officer is not precluded from reopening the assessment under section 147 in respect of the same income which had escaped assessment and for which he earlier thought that there was a rectifiable mistake. It was submitted that the ambit of section 147 was much wider and all cases of escapement of income whether due to mistake or not, could be taken up for consideration under section 147 for the purpose of assessment, reassessment or recomputation. In support of his submissions, learned counsel for the respondent referred to the following decisions : (a) Mayor, c., of Westminster v. London and North Western Railway Company [1905] AC 426 (HL), a decision of the House of Lords, wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 339 (All), was cited to show that in the opinion of the Allahabad High Court, it cannot be said that if a case was governed by section 34(1) of the Act of 1922, it may not be governed by section 35(1). It was held that if there is a mistake apparent from the record of assessment, it can be rectified under section 35(1) even though some income has escaped from assessment as a result of the mistake. Therefore, rectification of a mistake apparent can be ordered by an Income-tax Officer even if some income had escaped assessment and he could accomplish his object by proceeding under section 34(1) instead. (g) S. Sankappa v. ITO [1968] 68 ITR 760 (SC) was cited to show that the Supreme Court had daid down that it was clear that, when proceedings were taken for rectification of assessment to tax either under section 35(1) or section 35(5) of the Act of 1922, those proceedings mqst be held to be proceedings for assessment. (h) CIT v. Himatlal Bhagubhai [1972] 86 ITR 481 (Guj), was referred to, to point out that it was held by this court that if the Income-tax Officer omits to rectify the assessment of the assessee under section 35(5) of the Act of 1922, within the time prescribed, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d are not maintained, the deduction may be allowed as follows : (i) An ad hoc deduction for expenses at 40 per cent. of the first year's commission and 15 per cent. of the renewal commission, where separate figures with regard to the first year's commission and the renewal commission are available ; (ii) where such separate figures are not available, an ad hoc deduction of 25 per cent. of the total commission may be allowed. In both the above two types of cases, however, the amount of total expenditure allowed should not exceed Rs. 6,000 per annum where the gross insurance commission does not exceed Rs. 20,000 for the year. 2. Where the gross insurance commission exceeds Rs. 20,000, if in any particular case there are special circumstances to justify deduction beyond the aforesaid ceiling, the Income-tax Officer may grant a larger allowance but not exceeding Rs. 10,000. For this purpose, the Income-tax Officer may take into account such factors as whether the agent's insurance activity is on a part-time basis or professional basis, whether a regular establishment is maintained, whether the business is new or established, etc. 3. If an agent has to incur expenditure in exc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bject to conditions therein specified, the benefit of ad hoc deduction in respect of the expenses incurred by agents of the Life Insurance Corporation. 2. In supersession of the above circular and instruction, the Board have decided that the benefit of ad hoc deduction to insurance agents of the Life Insurance Corporation having total commission (including first year commission, renewal commission and bonus commission) of less than Rs. 60,000 for the year, and not maintaining detailed accounts for the expenses incurred by them, may be allowed as follows : (i) where separate figures of the first year and renewal commission are available, 50 per cent. of the first year commission and 15 per cent. of the renewal commission ; (ii) where separate figures as above are not available 33 1/3 per cent. of the gross commission. In both the above cases, the ad hoc deduction will be subject to a ceiling limit of Rs. 20,000. 3. The 'gross commission' in (ii) above will include the first year as well as the renewal commission but will exclude bonus commission. 4. The complete amount of bonus commission is taxable and will be taken into account for purposes of computing the total inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder is likely to be passed against him due to detection of such mistake. It is not an inquiry into finding out a mistake from record, but only a rectifying process undertaken on the basis of mistake noticed from the existing record of the proceedings in which the order is made. The assessee can come forward and say that there is no such mistake apparent from the record, which needs to be so rectified. The whole emphasis in the rectification proceedings is on the existence of mistake in making of the order which is obvious, i.e., easily understood from the record. If what appeared to the Assessing Officer to be a mistake in his order, apparent from the record turns out to be no mistake apparent from the record, as it stood, the rectification aspect will not survive under this provision. The expression "mistake apparent from the record" occurring in section 154 would mean, in the context of the provisions, that it should be evident on a reasonable reading of the record to show that there has been committed by the Assessing Officer a mistake in the order which needs to be rectified. The expression "from the record" entails reading of the record and not a cursory look at its bulk. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equires reopening of the assessment by following the procedure as indicated under section 148 of the Act. In all cases of income having escaped assessment, including the cases where mistake is committed in the assessment order, it would be open for the Assessing Officer to proceed under section 147 for assessment, reassessment or recomputation. However, in a case where according to him the assessment order requires to be amended by rectifying the mistake detected by him which is obvious or evident from the existing record and according to him there is no need to reopen the assessment for any additional material, information, investigation or scrutiny, he may resort to section 154 and rectify it by amending the assessment order as per section 154(3) of the Act. In fact, section 154 would cover all cases of mistakes apparent from the record, which could be rectified by the concerned authorities. Mistake apparent from the record which has the effect of enhancing assessment ought to be rectified by resorting to this special and speedy procedure when in the view of the Assessing Officer it is unnecessary to resort to reopening of the assessment. In the field of chargeable income escapin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent from the record has resulted in escapement which could be rectified by amending the order and enhancing the assessment, then he, on finding that there is no such mistake apparent from the record warranting rectification since the view taken is plausible, cannot in the absence of any other ground on the basis of which he has still reason to believe that the income has escaped assessment, start proceedings again under section 147. If he finds that there is no such mistake since the result was warranted from the record, there would be no occasion to amend the assessment order. Where the rectification could not be done on the ground that there were two views possible or that there was discretion lawfully exercised, then the same will also be true even when the Assessing Officer starts the proceedings under section 147 on the same material, because, that power cannot be invoked when there is only a mere change of opinion and in case where in the proceedings under section 154 it is found that what was thought to be a mistake was not a mistake because that view was warranted or permissible from the existing record, then the same finding will bind the Assessing Officer when trying to e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... knowledge of the Department. However, there are peculiar facts of this case on the basis of which according to the Assessing Officer he had reason to believe that the returns were not filed. The petitioner was specifically asked to file the copies of acknowledgment slips of the return of income for the years 1988-89, 1989-90 (the record of this year was later transferred to the Assessing Officer from the salary ward and therefore no notice was issued for that year), and 1990-91 as stated on oath in paras. 6 and 7 of the affidavit-in-reply. In fact, letter dated February 14, 1994, at annexure B to the reply was issued to the petitioner requesting him to file copies of acknowledgment slips of the returns and statements of income for these assessment years, if filed. The petitioner was told that if this request was not complied with it will be presumed that he had not filed returns of income for these years. The petitioner did not respond to this specific request. The Assessing Officer, therefore, had a reason to believe that the petitioner had not filed the return of income for the assessment years 1988-89 and 1990-91, for which the impugned notice was issued. Learned counsel for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee to find out whether he had filed the returns or not. The Assessing Officer, in any view of the matter, had at the relevant time reason to believe that the returns were not filed and therefore issuance of the notice under section 147 cannot be said to have been done without jurisdiction. The assessee can even now answer these notices and point out that the returns were filed and that there was no escapement of income chargeable to tax. The notices for the assessment years 1987-88 and 1989-90 (the return of which was found from the record transferred on inquiry by the Assessing Officer by the Income-tax Officer of the salary ward as stated in para. 8 of the affidavit-in-reply) in Special Civil Application No. 5453 of 1994 and for all the assessment years in Special Civil Applications Nos. 2381 of 1996 and 10744 of 1996 were given for the reason that the maximum amount of deduction to which a Life Insurance Corporation agent was entitled was only Rs. 10,000 as per the circular dated September 14/22 of 1965, as amended by the circular dated January 6, 1984. The circular dated September 14/22, 1965, provided for allowing an ad hoc deduction at the rate of the percentage s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s somewhat odd in view of the scheme of grant of such benefits, such as standard deductions, under the Act, to provide greater relief to those who fall in the lower income group. Claim to deductions of expenditure higher than the ceiling could always be made if accounts were duly maintained. There appears to be no justification for the criticism that the approach of the Assessing Officer was based on a reading of the circular which can be said to be absurd or startling. Having regard to the nature of the Board's circular dated September 14/22, 1965, read with the amending instruction dated January 6, 1984, it cannot be said that the Assessing Officer could not have formed a belief that the income chargeable to tax had escaped assessment in view of the ceiling referred to therein. The requisite jurisdictional fact for the issuance of the notice under section 147 did exist and there is no valid reason to thwart the proceedings under section 147 at the threshold. It will be open to the petitioners to respond to the impugned notices on the merits and raise all the contentions that they may want to raise in accordance with law against the impugned notices, including on the question of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lar dated September 26, 1994, and held that the mistake stated by the Assessing Officer was not rectifiable under section 154. This cannot be construed to mean that the escaped income came to be accepted by the superior authority as contended in paragraph 4 of the petition, nor can it be said that the Commissioner had held that there was no mistake because the view taken was plausible. The Commissioner could not have gone into the question whether section 147 was attracted in the case because that was within the domain of the Assessing Officer to decide. It will be noticed from the order of the Commissioner that he has just reproduced the contentions till the last paragraph of his order and then simply said that he had considered the rival submissions and without going into the merits of the respective submissions, there is no case for rectification. He has then cursorily observed that the mistake of allowing excessive deduction cannot be set right under section 154 since the issue involved was a controversial issue. Therefore, if in the belief of the Assessing Officer, notwithstanding the fact that escapement was not due to a mistake which could be rectified under section 154 of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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