Case: Mahendra Mills Ltd Vs. P.B. Desai, Appellate Assistant Commissioner of Income Tax and Anr

2. The assessee is a Limited Company which manufactures textiles in its Mill. For the assessment year 1959-60, the assessee showed in its books the value of its closing stock at Rs. 5,89,439/-. The Income-tax Officer in the course of the assessment, detected that there was some discrepancy between the value of the stock of cotton shown in the books of the assessee and the records of the State Bank of India with which it had hypothecated that stock. The assessee tried to explain away this discrepancy by saying that it had given an incorrect figure of its stock to the Bank with a view to obtain higher amount of over-draft. The Income-tax Officer rejected this explanation and added Rs. 2,14,682/- to the value of the stock so that according to his assessment, the closing stock for the assessment year 1959-60 worked out to Rs. 8,04,121/-. Having failed in first appea1 before the Appellate Assistant Commissioner, the assessee preferred a second appeal to the Tribunal3. Pending the appea1 before the Tribunal, the Income-tax Officer took up the assessment of its income for the next assessment year, i.e., 1960-61. The assessee contended that the opening stock for the assessment year 1960-1961 should be taken as Rs. 8.04.121/-. The Income-tax Officer rejected this contention and took up the opening stock for that assessment year at Rs. 5,89,439/- without making the addition of Rs. 2,14,682/-. Against this order of the Income-tax Officer, the assessee went in appea1 before the Appellate Assistant Commissioner who, on 30-6-1965, accepted the same despite opposition from the Income-tax Officer who had personally appeared there to defend his order and held that the opening stock for the assessment year, 1960-1961 be taken at Rs. 8,04,121/-. Neither party appealed against this order before the Tribunal4. On January 22, 1969 the Tribunal allowed the assessees appea1 referred to above relating to the assessment year, 1959-60, and accepted the assessees explanation about the discrepancy relating to the value of stocks between its account-books and those of the Bank. The Tribunal directed that the addition of Rs. 2.14,682/- made by the Income-tax Officer to the closing stock relating to the assessment year 1959-60 be deleted. Thus, according to the Tribunals decision the closing stock for the assessment year 1959-60 (which would also be the opening stock for the succeeding year) was Rs. 5,89,439/- as shown in the books of the assessee5. Thereafter on March 26, 1969, the Income-tax Officer moved the Appellate Assistant Commissioner requesting that the latters appellate order, dated 30-6-1965 relating to the assessment year 1960-61 be rectified and brought in conformity with the Tribunals order6. The Appellate Assistant Commissioner then issued a notice under Section 154 of the Act to the assessee to show cause why the appellate order dated 30-6-1965, be not rectified under Section 35 of the Act. Despite objection from the assessee, on 28-6-1969. the Appellate Assistant Commissioner passed an order for rectifying his decision dated 30-6-1965. The order of rectification runs thus:" ........ in the instant case there is a mistake apparent from record of appeal as pointed out in the I.-T. O.s letter dated 26-3-1969 mentioned above. The appellate order which is now sought to be rectified, was passed on 30-6-1965. The rectification is therefore in time. Accordingly I direct that the value of opening stock for the A.Y. 60-61 be taken at Rupees 5,89,439/- being equal to the value of the closing stock determined by the Tribunal for the A.Y. 1959-60. Therefore, the relief of Rs. 2,14,6821/- given to the assessee in the original appellate order dated 30-6-1965, stands cancelled. The ITO is directed to give effect to this order"7. The assessee then impugned this order by a writ petition under Article 226 of the Constitution before the Gujarat High Court. on the ground that the appellate Assistant Commissioner had overstepped the jurisdiction conferred on him under Section 35 of the Act. The High Court dismissed the petition. Hence this appeal.

Reasoning:
13. The interpretation of the words "record of appeal" is not a matter which is res integra15. The observations of this Court, quoted above, fully apply to the facts of the case in hand. It will bear repetition that the closing stock for the assessment year 1959-60 as entered in the books of the assesses was Rs. 5,89,439/- and as found by the Income-tax Officer was Rs. 8,04,121/-.Since the closing stock of one assessment year furnishes the figure of the opening stock for the succeeding year, it follows that the record showing the closing stock of assessment year 1959-60 formed a part of the evidence re1evant to the assessment for the assessment year 1960-61, Thus to the extent of ascertaining the closing and opening stock positions, the two assessments telescoped into each other. Indeed, it was on this basis that the Appellate Assistant Commissioner had by his decision dated 30-6-1965 allowed the assessees appeal regarding A. Y. 1960-61. The Tribunals finding, that the value of the closing stock for A. Y. 1959-60 should be Rupees 5,89,439/-, had completely replaced the Income-tax Officers finding in regard to that fact with effect from the date of the Income-tax Officers order relating to A. Y. 1959-60. If the I.T. Os, finding with regard to the closing stock for A. Y. l959-60 was relevant to any part of the "record of appeal" the Tribunals decision which superseded that finding was equally so within the contemplation of Section 35 of the Act. It cannot be gainsaid that the mistake in regard to the opening stock for A. Y. 1960-61 being Rs. 8.,04,121/-, was quite apparent when the Appellate Assistant Commissioner undertook to rectify his appellate order dated 30-6-1965. The correct figure of finally determined by the Tribuna1 being Rs. 5,89,439|-.Thus considered, it is clear that for the purpose of ascertaining the true stock position the record of the assessment for A. Y. 1959-60. including the Tribunals decision was not extraneous or irrelevant to the record of the appeal and could legitimately be looked into for the purpose of correcting the mistake by the Appellate Assistant Commissioner16. Thus the first contention of the appellant stands overruled17. The second point canvassed by Shri Desai is well-nigh covered by the ratio of the Privy Council decision in Khem Chands case18. From the quotes above it is evident that the Judicial Committee considered the order of the Commissioner cancelling the registration of the assessees firm. - although passed about 11 days after the original assessment - to have formed part of the record of that assessment, for the purpose of rectifying the mistake as a mistake apparent from the record of the case. On parity of reasoning, in the instant case the finding of the Tribunal as to the valuation of the stock although recorded subsequently to the appellate decision of the Appellate Assistant Commissioner, could be taken as forming part of the record of appeal and taken into account for the purpose of correcting the mistake under Section 35 as to the value of the opening stock for A. Y. 1960-61 apparent from that recordIt is apprehended that if the phrase "record of the appeal" is widely interpreted so as to cover the records of all collateral proceedings and subsequent events. it would leave the door wide open to endless harassment of assessees; the income-tax authorities would under the guise of correcting mistakes lightly reopen assessments long past and closed and thus introduce an element of disconcerting instability in the administration of the Act21. In our opinion there is no room for any such apprehension. It must be remembered that a decision is a precedent on its own facts. Each case presents its own features. The income-tax authorities and Tribunals are supposed to apply the ratio of a decision to the facts of Particular cases with due care and discernment bearing in mind the restricted scope of their jurisdiction under S. 35 and the object for which it is conferred.