1997 (10) TMI 16 - HC - Income Tax

Court upholds Income-tax Officer's authority to rectify penalty order under Section 154

Henri Isidore Versus Commissioner Of Income-Tax

The court upheld the Income-tax Officer's authority to rectify the penalty order under Section 154 of the Income-tax Act, 1961, as the mistake in the ... Rectification Of Mistakes, Penalty, Limitation Issues Involved:1. Validity of the rectification order under Section 154 of the Income-tax Act, 1961.2. Applicability of the time limit prescribed under Section 275 of the Income-tax Act, 1961, to rectification orders.Issue-wise Detailed Analysis:1. Validity of the Rectification Order under Section 154 of the Income-tax Act, 1961:The primary issue revolves around whether the Income-tax Officer (ITO) had the authority to rectify the penalty order under Section 154 of the Income-tax Act, 1961. The original penalty order was passed on March 29, 1977, for default in filing the return of income within the prescribed time, but it contained a mistake in the calculation of the penalty amount. The ITO had erroneously calculated the penalty at Rs. 4,569 instead of Rs. 15,064 due to an incorrect period of default being considered. The ITO sought to rectify this mistake under Section 154, issuing a show-cause notice on June 27, 1979, and subsequently rectifying the order on November 20, 1979.The assessee challenged the rectification, arguing that there was no mistake in the original order and that the ITO lacked the power to amend the penalty order under Section 154. The Appellate Assistant Commissioner rejected this contention, and the Income-tax Appellate Tribunal (ITAT) upheld the decision, stating that the ITO could rectify the penalty order under Section 154.The court held that the expression 'any other order passed by him' in Section 154 includes the penalty order under Section 271. The court referenced the Andhra Pradesh High Court's decision in CIT v. Sri Ramakrishna Motor Transport, which stated that the power of rectification under Section 154(1)(a) is broad and includes any order passed by the ITO. The court concluded that the ITO had the power to rectify the penalty order under Section 154, as the mistake was apparent on the record.2. Applicability of the Time Limit Prescribed under Section 275 of the Income-tax Act, 1961, to Rectification Orders:The second issue concerns whether the time limit prescribed under Section 275 for passing penalty orders applies to rectification orders under Section 154. The assessee contended that the rectification order was invalid as it was passed beyond the two-year time limit specified in Section 275, which ended on March 31, 1977. The assessee argued that rectifying the penalty under Section 154 effectively imposed a new penalty, which should be subject to the same time constraints.The court rejected this argument, noting that the initial penalty order was passed within the time limit prescribed under Section 275. The court clarified that Section 275's time limit applies only to the initial penalty order, not to subsequent rectifications of apparent mistakes. The court cited its own decision in CIT v. Sara Enterprises and decisions from the Rajasthan and Gujarat High Courts, which held that the time limit in Section 275 applies only to the initial penalty order and not to rectifications or orders passed on appeal, revision, or High Court directions.The court emphasized that the ITO's rectification under Section 154 did not constitute a new penalty but merely corrected a calculation error in the original penalty order. The court also noted that Section 154 applies to any order passed by the ITO, including penalty orders, and is not restricted to orders of assessment or refund.Conclusion:The court found no error in the ITAT's decision and held that the ITO was competent to rectify the penalty order under Section 154. The rectification was valid as it corrected an apparent mistake, and the time limit under Section 275 did not apply to this rectification. The court answered the question of law in the affirmative, against the assessee, and ruled that there would be no order as to costs.