1983 (4) TMI 4 - HC - Income Tax

Court Invalidates Notice under Section 154 of Income-tax Act Due to Debatable Legal Issue

The court invalidated the notice issued under Section 154 of the Income-tax Act, ruling that the alleged mistake was not apparent but rather a debatable ... Alternate Remedy, Depreciation, Mistake, Writ Issues Involved:1. Validity of the notice issued under Section 154 of the Income-tax Act, 1961.2. Correctness of the depreciation rates applied by the Income-tax Officer (ITO) in the assessment order.3. Jurisdictional authority to rectify mistakes apparent from the record under Section 154.Issue-wise Detailed Analysis:1. Validity of the Notice Issued under Section 154 of the Income-tax Act, 1961:The petitioner-company challenged the notice issued by the ITO under Section 154 of the Income-tax Act, 1961, seeking to amend the assessment order dated December 31, 1971, for the assessment year 1967-68. The petitioner argued that there was no mistake apparent on the record that warranted rectification. The court referenced the Supreme Court decision in T. S. Balaram, ITO v. Volkart Bros., which clarified that a 'mistake apparent on the record must be an obvious and patent mistake and not something which can be established by a long drawn process of reasoning on points on which there may conceivably be two opinions.' The court found that the issue at hand required significant reasoning and could lead to multiple interpretations, thus not qualifying as a mistake apparent on the record. Consequently, the court quashed the notice under Section 154, deeming it invalid.2. Correctness of the Depreciation Rates Applied by the Income-tax Officer (ITO) in the Assessment Order:The petitioner claimed that the ITO had correctly applied the special rates of depreciation as per clauses (ii) and (iii) of item No. III in Appendix I, Part I of the Income-tax Rules, 1922. The ITO had historically computed depreciation using these special rates from 1954-55 to 1966-67, which had been accepted by the Department. The respondent, however, argued that the ITO should have applied the general rate of 7% for the entire machinery and plant used in the cement works, as the petitioner did not exercise the option to apply special rates for certain machinery as mentioned in the remarks column of clause (ii) of item No. III. The court noted that determining the correct rates of depreciation involved a debatable point of law, requiring detailed consideration and reasoning, thus falling outside the scope of Section 154 rectification.3. Jurisdictional Authority to Rectify Mistakes Apparent from the Record under Section 154:The respondent contended that the ITO had the jurisdiction to rectify the mistake under Section 154, as the incorrect application of depreciation rates was a mistake apparent from the record. The court, however, emphasized that the principle laid down in Volkart Bros.' case was applicable, where the mistake must be obvious and not subject to debate. The court also referenced the Supreme Court decisions in ITO v. Asok Textiles Ltd. and Maharana Mills (P.) Ltd. v. ITO, which allowed rectification of both factual and legal errors apparent from the record. Despite these precedents, the court concluded that the issue at hand was debatable and required thorough reasoning, thus not qualifying as a mistake apparent from the record. Therefore, the jurisdictional fact necessary for invoking Section 154 was missing.Conclusion:The court found that the notice issued under Section 154 was invalid as the alleged mistake was not apparent from the record but rather a debatable point of law. The writ petition was accepted, and the impugned notice was quashed without any order as to costs.