1976 (4) TMI 25 - HC - Income Tax

Court limits Income-tax Officer's authority to rectify assessments, emphasizing strict timeframe rules.

Mettur Chemicals And Industrial Corporation Limited Versus Commissioner Of Income-Tax, Madras I

Mettur Chemicals And Industrial Corporation Limited Versus Commissioner Of Income-Tax, Madras I - [1977] 110 ITR 822, 1977 CTR 29 Issues Involved:1. Whether the Tribunal was right in holding that there was a mistake apparent from the record which could be rectified by the Income-tax Officer u/s 154 in respect of the assessments for 1959-60 and 1960-61.2. Whether the Tribunal was right in holding that the order u/s 154 dated February 25, 1965, relating to the assessment for 1959-60 was not barred by the period of limitation.Summary:Issue 1: Mistake Apparent from the RecordThe court affirmed that the Tribunal was correct in holding that there was a mistake apparent from the record which could be rectified by the Income-tax Officer u/s 154. The Income-tax Officer had erroneously deducted wealth-tax paid by the assessee from the business income, which was contrary to the authoritative pronouncement in Kumbakonam Electric Supply Corporation Ltd. v. Commissioner of Income-tax [1963] 50 ITR 809 (Mad). This decision clarified that wealth-tax paid by a company is not an allowable expenditure in computing taxable income. Therefore, the Income-tax Officer was within his jurisdiction to rectify this mistake apparent from the record by adding back the wealth-tax initially deducted.Issue 2: Period of LimitationThe court held that the proceedings initiated by the Income-tax Officer u/s 154 for the assessment year 1959-60 were barred by limitation. The original assessment was completed on May 27, 1960, and the notice u/s 154 was issued on February 16, 1965, beyond the four-year period prescribed u/s 154(7). The court rejected the revenue's contention that the period of limitation should be computed from the date of the subsequent order of reassessment under section 147(b), dated November 23, 1962. The court relied on the decision of the Allahabad High Court in Standard Chemical Co. Pvt. Ltd. v. Income-tax Officer, which held that the original assessment order does not merge into the order passed under section 148, and the period of limitation should be computed from the date of the original order.The court concluded that the proceedings initiated u/s 154 were barred by limitation and the order passed by the Income-tax Officer was without jurisdiction. Consequently, the answer to the second question was in the negative and against the revenue.