Case: M/S. Maharana Mills (Private) Ltd Vs. The Income-Tax Officer, Porbandar

6. The appellant before us is a private limited company carrying on the business of manufacturing and selling textiles and the respondent is the Income-tax Officer of Porbander.2. Previous to the year 1949, in Porbander which became a part of the State of Saurashtra, there was no income-tax. In 1949 the Saurashtra Income-tax Ordinance (hereinafter termed the Ordinance) was promulgated which was applicable to the State of Saurashtra. By that Ordinance income-tax became leviable and from 1950 onwards when Saurashtra became part of the Union of India the Indian Income-tax Act (hereinafter referred to as the Act) became applicable by reason of the Finance Act of 1950 (Act XXV of 1950). The appellant was taxed for the accounting year 1949 i.e. the assessment yearIn that year the amount of depreciation allowed under S. 10(2)(vi) of the Act was Rs. 3,43,869. The appellant continued to be assessed to income-tax in the assessment years 1951-52, 1952-53 and 1953-54 and the present appeal relates to the assessment of yearAccording to the assessment order dated June 30, 1955, the amount of depreciation allowed for the assessment year 1953-54 was Rs. 3,48,105. On August 8, 1955 as already stated the appellant made an application for rectification under S. 35 of the Act. In this application he pointed out several mistakes in calculations in regard to the depreciation amount. By his order of February 27, 1956, the Income-tax Officer corrected the Written Down Value of the different properties of the appellant and determined the total allowable depreciation to be Rs. 1,94,074. The order of the Income-tax Officer was asarrive at the Written Down Value of the assets it was necessary to maintain depreciation record. This being not done so far, is done now and working attached.Depreciation allowance as per rules is worked out at Rs. 1,94,074 as per working sheet attached.The correct computation of income is as under:-Income before allowing depreciation as per original assessment order: Rs. 1,00,674Less charity disallowed wrongly written Rs. 21,889 instead of Rs. 20,124 : Rs. 1,765Income - Rs. 98,909Less depreciation : - Rs. 1,94,074(-) Rs. 95,165Less Dividend income as per original assessment order : - Rs. 11,870Loss - Rs. 83,295Loss on account of depreciation to be carried forward. Declared N.thus the unabsorbed depreciation amount which under the assessment order of June 30, 1955 was Rs. 2,31,944 was reduced to Rs. 83,295 and this was set off against the appellants income of the assessment year 1954-55. On February 29, 1956, the Income-tax Officer passed two provisional assessment orders for the years 1954-55 andIn both these orders he calculated the depreciation amouns on the basis of the same Written Down Value as he had determined for the yearThe reasons for calculating them on the new basis were set out by the Income-tax Officer in his order dated May 18, 1956 and theyDepreciation. The depreciation of the Company has not been properly calculated by arriving at Written Down Value as per the Saurashtra Income Tax Ordinance and also as per Indian Income-tax Act. The assessee Company was being assessed regularly even as per Indian Income-tax Act. So Written Down Value of all assets are arrived at by working out the depreciation as per above Ordinance as well as Income-tax Act. The depreciation is worked out as per separate statement keeping in view the following:-(i) Definition of "assessee" as per Indian Income-tax Act.(ii) The exact meaning of W. D. V. as per Income-tax Act.(iii) The meaning of W. D. V. as per the Saurashtra Income-tax Ordinance 1949 and Rules (Page 20 para. 13-5-A).(iv) I. T. R. Volume 25,558. Decision of Calcutta High Court as regards C.I.T., West Bengal,-M/s. Karnani Industrial Bank Ltd.(v) Views expressed by Taxation Enquiry Commissioner, 1953-54 Volume II, page 84 para. 34.(vi) Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950.The depreciation thus worked out as per separate statement.On August 6, 1955 the appellant made an application under S. 35 for certain corrections in the calculations and the order thereon was passed on February 27, 1956 but no written notice of the intended rectification of the Written Down Value and the depreciation amount was given by the Income-tax Officer to the appellant under S. 35(2) read with S. 63 of the Act. On March 9, 1956 the appellant wrote to the Income-tax Officer protesting against thehave exercised powers not vested in you under the said Section, and you have gone beyond the purview of the Act by preparing statements and records which are prejudicial to the rights of theappellant requested the Income-tax Officer to cancel his previous order and to pass a fresh order correcting only those mistakes which had been pointed out by it. On the same day the appellant sent another letter asking for the cancellation of the provisional assessment order for 1954-55 and requested for a revised assessment order on the basis of the return filed by it. The reply of the Income-tax Officer of the same date was that the order was correct and a similar order was made on the second application in regard to the assessment of 1954-55.4. On April 16, 1956 the appellant filed a petition in the High Court of Bombay under Arts. 226 and 227 in which it alleged that the Income-tax Officerthe limits of jurisdiction vested in him and exercised illegally jurisdiction not vested in him by law under S. 35 and passed orders, inter alia, and suo motu and without giving any prior notice and altered the entire procedure and basis of calculating depreciation on the written down value of buildings and machinery of the petitioners.The appellant prayed that the order made under S. 35 of the Act be quashed and an injunction issued restraining the Income-tax Officer from recovering the assessed tax. The High Court dismissed this petition on the ground that it contained mis-statements of fact;advantage of this jurisdiction is not available to the subject when adequate and efficacious remedy is available to him under the ordinarythe appellant could, under S. 33A of the Act, have gone in revision to the Commissioner. The High Court also held against the appellant on merits. The appellant has come to this Court by special leave and three questions were raised (1) that no notice as required under S. 35(2) was given to the appellant; (2) that there was no record on the basis of which the rectification in the Written Down Value of the property could be made and (3) that there was no mistake apparent from the record.This is an appeal by special leave against the judgment and order of the High Court of Judicature at Bombay dismissing the appellants petition under Art.

Reasoning:
7. The power under S. 35 is no doubt limited to rectification of mistakes which are apparent from the record. A mistake contemplated by this section is not one which is to be discovered as a result of an argument but it is open to the Income-tax Officer to examine the record including the evidence and if he discovers any mistake he is entitled to rectify the error provided that if the result is enhancement of assessment or reducing the refund then notice has to be given to the assessee and he should be allowed a reasonable opportunity of being heard.18. The scope and effect of the expression "mistake apparent from the record" and the extent of the powers of the Income-tax Officer under S. 35 of the Act were discussed by this Court in Venkatachalam v. Bombay Dyeing and Mfg. Co. Ltd., 1958-34 ITR 143   at p. 149): (AIR 1958 SC 875   at p. 879) where the facts were these: A sum of Rs. 50,063 being interest on tax paid in advance was given credit for under S. 18A(5) of the Act. Subsequently there was an amendment of the Act by which the interest became allowable only on the difference between the amount of tax paid and what was actually determined. As a consequence of this the Income-tax Officer purporting to act under S. 35 of the Act rectified the mistake and reduced the amount of interest credited to Rs. 21,157 and issued a demand for the difference. The assessee obtained a writ of prohibition against the Income-tax Officer on the ground that the mistake contemplated under that provision had to be apparent on the face of the Order and it was not contemplated to cover a mistake resulting from an amendment of the law even though it was retrospective in its effect. The Revenue appealed to this Court. Thus the question for decision in that case was whether an order proper and valid when made could be said to disclose a mistake apparent from the record merely because it became erroneous as a result of a subsequent amendment of the law which was retrospective in its operation. In delivering the judgment of the Court Gajendragadkar J.,the time when the Income-tax Officer applied his mind to the question of rectifying the alleged mistake, there can be no doubt that he had to read the principal Act as containing the inserted proviso as from April 1, 1952. If that be the true position then the order which he made giving credit to the respondent for Rs. 50,603-15-0 is plainly and obviously inconsistent with a specific and clear provision of the statute and that must inevitably be treated as a mistake of law apparent from the record. If a mistake of fact apparent from the record of the assessment order can be rectified under S. 35 we see no reason why a mistake of law which is glaring and obvious cannot be similarlydecision of the Privy Council in 1938-6 ITR 414  : (AIR 1938 PC 175  ) was referred to.19. Counsel for the appellant sought to distinguish both these cases; Venkatachalams case, 1958-34 ITR 143  : (AIR 1958 SC 875  ) and Khem Chands case, 1938-6 ITR 414  : (AIR 1938 PC 175  ) 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. That is a distinction without a difference. If, for instance, the Income-tax Officer had found that in the assessment year 1952-53 there was an apparent arithmetical mistake in the account of the Written Down Value of the properties which resulted in a corresponding mistake in the assessment of the 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 was erroneous because of an initial mistake in determining the Written Down Value could it be said that this would 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 is de hors it?