MAHENDRA MILLS LTD. v. P. B. DESAI

:846 SHRI P. 13. OF INCOME TAX AND ANR. _March_ 4, 1975 MAHENDRA MILLS LTD. A _v._ DESAI, APPELLATE ASSISTANT COMMISSiOl~ER [V. R. KRISHNA IYER, R. s. SARKARIA AND A. c. GUPTA, JJ.] B _Jnconw-Tax_ _Act,_ 1961-5, _35-Scope_ _of-Record_ _of_ _appeal-Mcn11i11g_ _of._ I~ the course of assessment of the income of the assessee for the year 1959-60 the Income-tax Officer found a discrepancy betwee11 the value of its .closing stock which ·was shown in its books as Rs. 5.89 lakhs a?d the records of the State Bank in which it was shown as Rs. 8.04. lakhs. 1 he Income-tax Officer rejected the explanation of the assessee regarding the discrepancy an.d C worked out the closing stock at Rs. 8.04 lr.khs. When the assessee's appeal against th's order was pending before the Tribunal, the Income-tax O_ffict~r took up for assessment the income of the assessee for the assessment year ?960-61. Rejecting the contention of the asscssee that the opemng stock for the assessment year should be taken to be Rs. 8.04 lakhs but the Income-tax Officer took it as Rs. 5.89 lakhs. On Appeal the Appellate Assistant Com. missioner accepted the contention of the assessee and reversed the decision of the Income-tax Officer. Neither party appealed against this order. Later. however, the Tribunal accepted the explanation of the assessee in regard to D the discrepancy in the closing stock for the assessment year 1959-60 rn1d h~B that the closing stock should be taken as Rs. 5.89 lakhs as shown in its booh. Thereupon the Income-tax Officer moved the Appellate Assistant Commissioner to rectify his order relating to the assessment year 1960-61 and bring it in conformity with the Tribunal's order. The Appellate Assistant Commissioner accordingly passed an order. The assessee then inoved the High Court under Art. 226 of t .. e Constitution E alleging that the Appellate Assistant Commissioner had overstepped the juri:,diction conferred under s. 35 of the Income-tax Act. The HiRh Court dismissed the petition. On appeal to this Court it was contended that the words 'record of apr<cal' in s. 35 of the .Act would mean the record f~r the assessment ycm· J 960-6: and not ·the entl!e r•ecord of the a~sessee relatmg to the earlier years as also ~f later yea!·s; and (2). ~he Appellate. Assistant Co~missio~1er had no jurisdic· F t1on to rectify hr.s dec1s1on by referring to something which took place four years after that dcc1s1on. Dismissing the appeal. HELD _:_ ( 1) For the purpose of ascertaining the true s:ock position tile rec?r'.1 of the assessment for assessment year 1959-60, including 1he "{ribunal's dec1s10n, y.:as not extraneous r:ir irrelevant to the record of the appeal and could leg1timately. be loo~.ed mto .bY the Appellate Assistant Conwis,ioncr G for the purpose or correcting the m1slake. [852C] S!nce the closing stock of .one assessment year furnishes the figure of 11-, 0 opei:img stock for the succee.drng year it follows !hat the record ;howin" ti:, clos!llg stock of assessment year 1959-60 formed a part of the evidence rel~va~~ to the a;isessment for. assessment y~~r 196-0-61. To the extent of ascertninine the closmg and opet1'ng stock pos1t10ns, the two assessments telescoped : 1 each other. The Tribunal's finding that the value of the closing stock 'to~ ?ssessment year 1959-60 h~d completely replaced the Income-tax Officer's findm!! H 10 regard ~o that fact with effect from the date of the Jncome-t Offi :.~ e>rder relatmg to the assessment year 1959-60. If the Jncome-t:: Offi~~< I ... # • A B E H J\IAHENDRA MILLS _V,_ P. B. DESAI _(Sarkaria,_ _!.)_ 847 order relating to assesoment year 1959-60 was relevant to and part of tile 'record of appeal' the TribuJ!al's decision which st,perseded that finding Wes equally so within the contemplation of s. 35 of the Act. [851G-H] (2) The finding of the Tribunal as to the valuation of stock, although recorded sabsequent to the appellate decision of the Appellate Assistant Commissioner, could be taken as forming part of the record of the appeal and taken into accotmt for the purpose of correcting the mJstake nnder s. 35, as to the value of the opening stock for the assessment year 1960-61, apparent from that re~ord. [853B] _C£•mmissio11er_ _of_ _I11come-tax_ v. _Kliem_ _Chand_ _Ramdas_ 61 I.T.R. 41~-LR. 65 I.A. 236, referred to. _Mis._ _Malwran_ _Mills_ _(Pril'ilte) Ltd._ v. _The_ _l11co111e-tax_ _O.fficer,_ _l'orbandar_ (1959] Suppl. 2 S.C.R. 547 and _M._ _K._ _Venkatacha/am_ v. _Bombay_ _Dyeing_ & _Mfg._ _Co._ _Ltd.,_ (1959] S.C.R. 703, followed. (3) There is no room for apprehension that the income-tax authoritie.s. under the gu.ise of correcting mistakes lightly reopen assessments long past and olosed and thus introduce an element of instability in the administration of the Act. A decision is a precedent on its own facts. Each case presents its own features The Income-tax authorities and the Tribunals are supposed to a>pp!y the 1-ricio of a decision to the. facts of particular cases with due care and discernment, bearing in mind the restricted scope of their jurisdiction under s. 35 and the object for which it is ~onferred. [853F] CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1793 of 1970. From the judgment and order dated 24th June, 1970 of the Gujarat High Court in Special Civil Applicatioia No. 1259 of 1969. _S._ _T._ _Desai_ and _I._ _N._ _Shroff,_ for the appellant. _T._ _A._ _Ra111aclw11dra11_ and _S._ _P._ _Nayar,_ for the respo'ddents. The Judgment of the Court was delivered by SARKAR!/'>, J. This appeal directed against the judgment, datd 24.6.1970, of the High Court of Gujarat raises a question in regard to the interpretation of s.35 of the Indian Income-tax Act, 1922 (for short. called the Act). The assessee is a Limited Company which manufactures textiles in its Mill. For the assessment year 1959-60, the assessee showed in its books the value of its closing stock at Rs. 5,89,439 /-. The Iincome-tax Officer in the course of the assessment, .detected that there was some discrepancy between the value of the stock of cotton shown in the books of the assessee and the' records of the State Bank of India with which it had hypothecated that stock. The assessee tried to explain away this discrepancy by saying that it had given an incorrect figure of its stock to the Bank with a view to obtain higher amount of over-draft. The Income-tax Officer rejected this explanation and added Rs. 2,14,682/- to the value of the stock so that according to his assessment, the closing stock for the assessment year 1959-60 worked out to· Rs. 8,04,121/-. Having'failed in first appeal before the Appellate Assistant Commissioner, the assessee preferred a second appeal to the Tribunal. SUPREME COURT REPORTS [19751 3 s.c.R. ?·ending the appeal before the Tribunal, the Income-tax Offi~er A #### c ## D • E F G H ### • tc,:,1~ up the assessment of its income for the !1ext assessm<mt year i.e. J 960-01.. The asscssee contended that openmg stock for the assessment year 1960-1961 should be taken as Rs. 8,04,121/-. The Incomet::.x Officer rejected this contention and took up the opening stock for that assessment year at Rs. 5,89,439 _/-_ without making the addition of Rs. 2, 14,682/-· Agai,1st this order of the Income-tax Officer, the asse...;sce went in appeal before the Appellate Assistant Commissioner who, on 30.6.1965, accepted the same. clespicc opposition from the J I'coi;:e-tax Officer who had pcrsonaily appeared there to defeml his order and held thnt the opening stock for the asscs,ment year 1960. 1961 be taken at Rs. 8,04,121/-. Neither party appealed against this Prcler before the Tribunal. On January 22, 1969, the Tribunal allowed the assessee's appeal referred to above relati'.1g to the assessment year, 1959-60, and accepted the assessee· s explanation about the discrepancy relafa1g to the value of stocks between its account-books and those of the Bank. The Tribunal directed that the addition of Rs. 2, 14,682/- made by the lncome-tax Officer to the closing stock relating to the assessment year ! 959-60 be deleted. Thus, according to the Tribunal's decision, the closing stock for the assessment year 1959-60 (which would ialso be the opening stock for the succeeding year) was Rs. 5,89,439 / as shown in the boob of the assessee. 11rnreafter on March 26, 1959, the Income-tax Officer moved the Appellate Assis1~ant Commissioner requesting that the latter's appellate crder, elated 30.6.1965, relating to the assessment year 1960-61 be r~rtified and brought in conformity with the Tribunal's order. The Appellate Assistant Commissioner then issued a <aotice under ::: 154 of the Act to the assessec to show cause why the appellate order. dated 30.6.1965, be not rectified under s.35 of the Act. Despite objectioi1 frc:11 the asscsscc, on 28.6.1969, the Appellate As-;ist;mt Commissioner passed an order for rectifying his decision elated 30.6.1965 The order of rectification runs thus : "_ ... in the instant case there is a mistake apparent from r~cord of appeal as pointed out ia the I.I.O's letter clntcd 26.3.69 mentioned above. The appellate order whicl1 is now souglit to be rectified, was passed on 30.6.65. The rectification is therefore in time. Accordingly I direct that the value of opening stock for the A.Y. 60-61 be taken at Rs. 5,89,439/-, being equal to the value of the closing stock determined by the Tribunal for the A.Y. 1959-60. Therefore, the relief of Rs. 2,14,682 /- given to the assessee in the origi·aal appellate orper, elated 30.6.1965, stands cancelled. The ITO is directed to give effect to this order." The assessee then impugned this order by a writ petition under .Article 226 of the Constitution before the Gujarat High Court, on the giround that the, Appellate Assistant Commissioner had overstepped tl1e jurisdiction conferred on him under s.35 of the Act. The High Court dismissed the petition. Hence this appeal. A B #### c D E F G H As against this, Mr. Ramachandran, learned Counsel for the Revenue submits that the "record of the appeal" spoken of in s.35 is the . entire evidence which could be looked into by the Appellate Assistant Commissioner for the purpose of the appeal. Since the closing stock of one year and the opening stock of the succeeding year must necessarily be the same, the record of the assessment year 1959-60, was also relevant and therefore, a part of the record of the appeal arising out of the assessment for 1960-61. It is further canvas~ed that the (I) 84 I.T.R. 523. (2) [1959] Supp. 2, S.C.R. 547. (3) 61, I. T. R. 414- LR. 65 T. A. 236. 8-·564SCI 175 l\!AHENDRA MILLS \', P. B. DESAI _(Sarkaria,_ _J.)_ 84 9 Before the High Court, the assessee raised two contentions which have beea re-agitated before us. They are : (i) The Appellate Assistant Commissioner had no jurisdiction to make the impugned order because there was no misrake apparent "from the record of the appeal" within the contemplation of s.35 of the Act. (ii) Assuming that the words "record of the appeal" in s.35 were comprehensive enough to include the record of other related proceedings, the Appellate Assistant Commissioner had no jurisdictioa to rectify his decision dt. 30.6.65, by referring to some thing which actually and factually took place four · years after that decision. Elaborating his contentions, Mr. Desai submits that in the context of the present case, the words "record of the appeal" in s.35 would mean the record for the assessment year 1960-61 which the Appellate Assistant Commissid.1er had actually before him at the time of hearing of the appeal and not the entire record of the assessee relating to the carli<:r years and _a_ _fortiori_ of later years. Such appellate record, it is mentioned, had no apparent error which could be rectified under s.35. The argument proceeds, that the order of the Tribunal for the assessment year 1959-60, made on 22.1.1969-whieh gave rise to the mistake-was something subscqueJ.1t and extraneous and could not, by any stretch of language, be called a part of the "record of the appeal" rehting to the assessment year 1960-61. Support for this contention has been sought from a decision of the Mysore High Court in. _Ganapathi_ _Subbaraya_ _Hegde_ v. _State_ _of_ _Mysore,(1)_ which proceeds on an interpretation of s.37 of the Mysore Agricultural Income-tax Act. Learned Counsel has tried to disHaguish the decision of this Court in _M/s._ _Mahrana_ _Mills_ _(Private)_ _Ltd._ v. _The_ _Income-tax_ _Officer._ _Porbandar(2)_ on the two-fold ground (i) that that was a case of depreciation in which the written-down value had to be calculated with reference to the record of past years, and (ii) unlike the present case, there, the error was in existence and apparent from the record of the appeal at the time of its decision. It is argued _that-Maharana_ _Mills'_ _case_ (>upra) was not one where the mistake was-rectified with reference to something happening subsequently to the original decision of the Appellate Assistant Commissioner. Attempt has also been made to distinguish the Privy Council decision in _Commissioner_ _of_ _Income-_ _tax_ v. _Kliem_ _Chand_ _Ramdas(_ _[8 ]_ _)_ on the ground that there the mistake hJd become apparent as a result of the cancellation of registration of the~ assess<:e firm _in_ _revision_ under s. 33 of the Act. 850 SUPREME COURT REPORTS ll975l 3 s.c.R. Tribunal had for the I.T.O's frading as to the value of the closing stock for the assessment year 1959-60 being Rs. 8,04,121/- completely substituted its own finding regarding such v•alue being Rs. 5,89, 439 /-, with effect from the date of I.T.O's order, and thus the Tribunal's order, though passed subsequently, had, wit~ retrospec.:tive effect, become a part of the record of the appeal relatmg to the assessment year l 960-61, which could legitimately be looked int~ ~y the Ap~llate Assistant Commissioner for the purpose of asccrtammg and rect1fyr,1g the mistake in his appellate decision. Relia1~cc has been placed on the decisions of this Court in _Maharana_ _Mills_ _(P)_ _Ltd._ v. _Income-tax_ _Officer,_ _Porbandar_ (supra) and that of the Privy Council in _Commi.i·_ _sioner of Income-tax_ v. _Khemchand Ramdas_ (supra). The material part of s.35 is in these terms : "35 ( 1). The Commissioner or Appellate Assistant Commissioner may, at any time within four years from the date of any order passed by him in appeal or in the case· of the Commissioner in revision under Section 33A and the Income-Tax Officer may, at any time., within four years from the dat1~ of any assessme1t order or refund order passed by him on bis own motion rectify any mistake _apparent_ _from_ _the_ _record_ _of_ _the_ _appeal,_ revision, assessment or refund as the case may be, and shall within the like period rectify any such mistake which has been brought to his notice by an assessee ... " - 111e crucial words arc those that have been underlined. The interpretation of the words "record of appeal" is not a matter which is _res_ _integra._ It came up for consideration before '.his Court in _Maharana_ _Mills_ _case_ (Supra). The appellant therein (hereinafter called the Mills) was assessed to income-tax for the assessment year 1953-54 and by an order of June 30, 1955, the J.T.0. allow~d depreci<ttbn under s. 10(2) (vi) of the Act in the amount of Rs. 3,48,105/-. On August 8, J 955, the Mills made an application before the I.T.0. for rectification of the order under s.35 of the Act pointing out certain mistakes in calculations of the depreciation amount. The Incomc tax Officer by his order, dated February 27, 1956, corrected the "written down value" of the differe,1t properties of the Mills and detem1ine<l the total allowable depreciation to be Rs. l,94,074/-. The Mills challenged this order of rectification on several grounds two of tl!Jem. which arc material for our purpose, were: (a) that the provision of s.35 under which the Income-tax Officer had acted, was not mean,t for the purpose of making corrections in written down values, the correct provision being s.34 which specifically refers to excessive depreciatiou. :v.id (b) that, in any case, he had exceeded· his jurisdiction under .s.3:> in calculating the depreciation on the written down value of the buildings and machinery of the appellant acting _s110_ _motu_ and that he could corre. ' only those mistakes which had been pointed out by the milfa. The arsument was _tbr:_ recalculation is not rectifying a mistake which is apparent from the record. This Court negatived these contentions with thi~ observation : A B ##### c 0 F G JI A ##### c D E ·F G H MAHENDRA MILLS _v._ p D. DESAI _(Sarkaria,_ J.) 8 5 1 "1 he words used in the section are "apparent from the <ecord" aud the record docs not mean only the order of assessment but it comprises all proceedings on which the assessment order is based and the Income-tax Officer is ci,1titled for the purpose of exercising his jurisdiction unde_r s.35 to look into the whole evidence and the law applicable to asccnain whether there was an error. If he dollbls the Written Down Value of the previous year it is open to him to check up the previous calcul?''' :·,s and if he finds any mistake it is open to him to make fresh calculations in accordance with the Jaw applicable including the Rules made thereunder." This Court then noticed _Venkatachalam's_ case(1) and _Khem_ _Chand's_ case (supra) in support of the view taken by it. Counsel for the then appellant sought to distinguish these cases on the ground that the record there considered was the assessment record of that year and the Income-tax Officer did not have to go to the records of the previous year. This argument was repelled in these terms : "That is a distinction without a difference. Jf, for instance, the Income-tax Officer had found that in the assessment year 1952-53 there was an apparent arithmatic mistake in the account of the Written Down Value of the prope11ies which resuited in a correspondin.~ ;i1i,take in the asscssl)lent of ·,he year in controversy could he not take the corrected figure for the purposes of the assessment and could it be said that the mistake was not apparent from the record. A _fortiori_ if he discovered that the very basis of the different assessments \vas erroneous because of an initial mistake in determining the Written Down Value could it be said that this v.-uuld not be a mistake apparent from the record. And if' in order to determine the correct Written Down Value the Income-tax Officer makes correct calculations, can it be said that that is not rectifying a mistake apparent from the record but _de110rs_ it." The observations of this Court, quoted above, fully apply to the facts of the case in hand. It will bear repetition that the closing stock for the assessment year 1959-60 as entered in the books of the assesscc. was Rs. 5,89,439/-, and as found by the Income-tax Officer wa;~ Rs. 8,04,121/-. Since the closing stock of one assessment year furnishes the figure 'Of the opening stock for the succeeding year, it follows that the record showing the closing stock of assessment yen 1959-60· formed a part of the evidence relevant to the assessment for the assessment year 1960-61. Thus to the extent of ascertaining the closing and opening stock p·0sitions, the two assessments telescoped into each other. Jndeed, it was on this basis that the Appellate Assistant Commissioner had by his decision dated 30-6-1965 allowed the assessee's appeal regarding A.Y. 1960-61. The Tribunal's finding, (I) !1959] S.C.R. 703. 852 SUPREME COURT REPORTS [1975] 3 S.C.lll. that the value of the closing stock for A.Y. 1959-60 should be Rs. 5,89,439/-, had completely replaced the Income-tax Office:r's finding in regard to th'at fact with effect from the date of the Incometax Officer's order relating to A.Y. 1959-60. If the I.T.0.'s finding with regard to the closing stock for A.Y. 1959-60 was relevant to and part of the "record of appeal", the Tribunal's decision which superseded that finding, was equally so within the contemplation of s.35 of the Act. It cannot be gainsaid that the mistake in regard to the opening stock for A.Y. 1960-61 being Rs. 8,04,121/-, was quite apparent when the Appellate Assistant Commissioner undertook to rectify his aJ?pellate. order dated 3~-6--65, t~e correct figure of valuation finally determmed by the Tnbunal bemg Rs. 5,89,439/-. Thus considered, it is clear that ~or the purpose of ascertaining the true stock position the record of the assessment for A.Y. 1959-60, including the Tribunal's decision, was not extraneous or irrelevant to the record of the appeal and could legitimately be !o'Oked into for the purpose of correcting the mistake by the Appellate Assistant Commissioner. Thus the first contention of the appellant stands overruled. A B ###### c The second point canvassed by Shri Desai is well-nigh covered D by the ratio of the privy Council decisions in _Khem_ _Chand's_ case (supra). The assessee in that case did not produce his account books and the lncume tax Officer made an assessment on the 'best-judgmmt basis'. On the application of the assessee, however, he allowed registration of the assessee-firm on January 17, 1927. As it was a registered firm, he did not in the assessment order made under s.23(4) on the same day, assess any super-tax. The Ccmmissioner of E Income-tax in exercise of his powers under s.33 of the Act, called for the record, cancelled the registration on January 28, 1927, and directed the I.T,O. to take necessary consequential action. The result was that by an order, dated May 4, 1929, the assessee was assessed to super-tax. Three days later, a demand notice was issued. On these facts, ddivering the opinion of the Judicial Committee, Lord Romer made these pertinent observations in regard to the applicability F of s.35 : "in their Lordship's opiniun, the case clearly would have fallen within the provisions of section 35 had the Incometax Officer exercised his powers under the section within one year from tne date on which the earlier demand was #### served upon the respondents. For, looking at the record c of the assessments made upon them as it stood after the cancellation of the respondent's registration-and the order affecting the cancellation would have formed part of the record-it would be apparent that a mistake had been made in stating that no super-tax was leviable." From the quotes above, it is evident that the Judicial Committee H considered the order of the Commissioner cancelling the registration of the assessee's firm-although passed about 11 days after the A B #### c D E MAHENDRA MILLS _V._ P. B. DESAI _(Sarkaria,_ _J.)_ 853 original assessment-to have formed part of the record of the assessment, for the purpose of rectifying the mistake as a mistake apparent from the ·record of the case. On parity of reas(ming, in the instant case, the finding of the Tribunal as to the valuataion of the stock, although recorded subsequently to the appellate decision of the Appellate Assistant Commissioner, could be taken as forming part of the record of appeal and taken into account for the purpose of correcting the mistake, under s.35, as to the value of the opening stock for A.Y. 1960-61, apparent from that record., We do not want to overburden this judgment by a discussion of _Ganapatho_ _Subbaraya_ _Hegde's_ case (supra) cited by Shri Desai. Suffice it to say that this was a case under s.37 of the Mysore Agricultural IncC1llle-tax Act, 1957. The notice for rectification issued in that case and the orciers of the authority were found to be defective in as much as they did not state that there was any mistake apparent on the record of the assessment proceedings for the previous three years· in question. _Maharana_ _Mills'_ case and _Khemchand's_ case (supra) were not noticed by the High Court in that case. Lastly, Shri Desai urged that we should not lose sight of the startling results which might flow from a liberal interpretation of s.35. It is apprehended that if the phrase "record of the appeal" is widely interpreted so as to cover the records of all collateral proceedings and subsequent events, it would leave the door wide open to endless harassment of assessees; the income-tax authorities would under the guise of correcting mistakes, lightly reopen assessments long past and closed, and thus introduce an element of disconcerting instability in the administration of the Act. In our opinion, there is no worn for any such apprehension. It must be remembered that a decision is a precedent on its own facts. Each case presents its own features. The income-tax authorities and Tribunals are supposed to apply the ratio of a decision, to the facts of particular cases with due care and discernment, bearing in mind F · the restricted scope of their jurisdiction under s.35 and the object for which it is conferred. The appeal fails and is dismissed with costs. P.B.R. _Appeal dismissed._