1976 (3) TMI 37 - HC - Income Tax

Court rejects rectification under section 154 due to proposed mistake complexity. Impugned notice quashed, respondents barred.

The court held that the notice under section 154 was issued within the limitation period but determined that the proposed mistake was not self-evident and ... Depreciation And Development Rebate, Depreciation And Development Rebate, Original Assessment, Original Assessment, Set Off, Set Off Issues Involved:1. Validity of the notice under section 154 of the Income-tax Act, 1961.2. Period of limitation for issuing the notice.3. Whether the mistake proposed to be rectified falls within the purview of section 154.4. Impact of unabsorbed depreciation and development rebate on the relief under section 84.Issue-Wise Detailed Analysis:1. Validity of the Notice under Section 154:The primary issue in this case is the validity of the notice issued under section 154 of the Income-tax Act, 1961, on 15th November 1971, for the assessment year 1963-64. The petitioner, a public limited company, was assessed under section 143(3) with a total income computed at Rs. 96,03,460. The notice indicated a mistake in allowing relief under section 84 without accounting for past losses and unabsorbed depreciation. The court examined whether this mistake was apparent from the records and if it warranted rectification under section 154.2. Period of Limitation for Issuing the Notice:The petitioner challenged the notice on the grounds of being issued beyond the period of limitation. It was argued that the reassessment order dated 25th March 1969 did not alter the grounds for rectification, and thus, the limitation period should be computed from the order dated 29th April 1967. The court rejected this contention, stating that the reassessment order dated 25th March 1969 was the effective order sought to be rectified, and the notice was within the prescribed limitation period. The court referenced the cases of Lalji Haridas v. Income-tax Officer and Lalji Haridas v. R. H. Bhatt, emphasizing that the question of limitation should be raised before the relevant authorities unless the facts are admitted or self-evident.3. Whether the Mistake Proposed to be Rectified Falls within the Purview of Section 154:The main contention was whether the mistake proposed for rectification was one that could be addressed under section 154. Section 154 permits rectification only for mistakes that are obvious, patent, and self-evident. The court cited several precedents, including T. S. Balaram v. Volkart Brothers and India Foils Ltd. v. Income-tax Officer, which established that a mistake on which there can be two views cannot be rectified under section 154. The court noted that the mistake in question involved complex issues regarding the computation of profits and the application of unabsorbed depreciation and development rebate, which could lead to different interpretations.4. Impact of Unabsorbed Depreciation and Development Rebate on the Relief under Section 84:The court examined the details provided by the Income-tax Officer regarding the unabsorbed depreciation and development rebate for the assessment year 1962-63. It was argued that the profits from the new unit, Saurashtra Chemicals, were not sufficient to set off the entire depreciation, and thus, the unabsorbed amount should be carried forward to the next year. The court referred to section 84 and the relevant provisions of the Income-tax Act, including sections 32 and 33, to determine the proper computation of profits and gains. The court acknowledged that the contentions raised by both parties indicated that two views were reasonably possible regarding the treatment of unabsorbed depreciation and development rebate. Consequently, the court held that the proposed rectification involved issues that were not self-evident and required interpretation, which fell outside the scope of section 154.Conclusion:The court concluded that the notice under section 154 was issued within the limitation period but held that the proposed mistake was not self-evident and involved complex issues with multiple interpretations. Therefore, the rectification under section 154 was not warranted. The impugned notice was quashed, and the respondents were restrained from giving effect to it. The rule was made absolute to the extent indicated, with no order as to costs, and the operation of the order was stayed for six weeks.