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PETITIONER: MAHENDRA MILLS LTD.

       Vs.

RESPONDENT: SHERI  P.  B.  DESAI, APPELLATE  ASSISTANT  COMMISSIONER  OF

DATE OF JUDGMENT04/03/1975

BENCH: SARKARIA, RANJIT SINGH BENCH: SARKARIA, RANJIT SINGH KRISHNAIYER, V.R. GUPTA, A.C.

CITATION:  1975 AIR  910            1975 SCR  (3) 846  1975 SCC  (4)  93

ACT: Income-Tax    Act,   1961--S.   35--Scope   of--Record    of appeal--Meaning of

HEADNOTE: in  the course of assessment of the income of  the  assessee for  the  year  1959-60  the  Income-tax  Officer  found   a discrepancy  between the value of its ,closing  stock  which was shown in its books as Rs. 5.89 lakhs and the records  of the State Bank in which it was shown as Rs. 8.04 lakhs.  The Income-tax Officer rejected the explanation of the  assessee regarding  the discrepancy and worked out the closing  stock at Rs. 8.04 lakhs.  When the assessee’s appeal against  this order  was  pending  before  the  Tribunal,  the  Income-tax Officer  took up for assessment the income of  the  assessee for  the assessment year 1960-61.  Rejecting the  contention of  the assessee that the opening stock for  the  assessment year should be taken to be Rs. 8.04 lakhs but the Income-tax Officer took it as Rs. 5.89 lakhs.  On Appeal the  Appellate Assistant  Commissioner  accepted  the  contention  of   the assessee  and  reversed  the  decision  of  the   Income-tax Officer.  Neither party appealed against this order.  Later, however,  the  Tribunal  accepted  the  explanation  of  the assessee  in regard to the discrepancy in the closing  stock for  the assessment year 1959-60 and held that  the  closing stock  should  be taken as Rs. 5.89 lakhs as  shown  in  its books.  Thereupon the Income-tax Officer moved the Appellate Assistant Commissioner to rectify his order relating to  the assessment year 1960-61 and bring it in conformity with  the Tribunal’s order. The  Appellate Assistant Commissioner accordingly passed  an orders The assessee then moved the High Court under Art. 226 of the Constitution   alleging   that   the   Appellate   Assistant Commissioner  had  overstepped  the  jurisdiction  conferred under S. 35 of the Income-tax Act.  The High Court dismissed the petition. On  appeal  to this Court it was contended  that  the  words ’record of appeal in s. 35 of the Act would mean the  record for the assessment year 1960-61 and not the entire record of the assessee relating to the earlier years as also ,of later

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years;  and (2) the Appellate Assistant Commissioner had  no jurisdiction  to  rectify  his  decision  by  referring   to something   which   took   place  for   Years   after   that decision.Dismissing the appeal. HELD  : (1) For the Purpose of ascertaining the  true  stock position  the record of the assessment for  assessment  year 1959-60,   including   the  Tribunals  decision,   was   not extraneous  or  irrelevant to the record of the  appeal  and could legitimately be looked into by the Appellate Assistant commissioner  for  the purpose of  correcting  the  mistake. [852C] 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  talk  closing  stock  of assessment  year  1959-60  formed a  part  of  the  evidence relevant to the assessment for assessment year 1960-61.   To the  extent  of ascertaining the closing and  opening  stock positions,  the two assessments telescoped into each  other. The  Tribunal’s finding that the value of the  closing  took for  assessment  year 1959-60 had  completely  replaced  the Income-tax  Officers  finding in regard to  that  fact  with effect  from  the  date of the  Income-tax  Officer’s  order relating to the assessment year 1959-60.  If the  income-tax Officer’s tax Officer’s 847 order  relating to assessment year 1959-60 was  relevant  to and  part of the ’record of appeal’ the Tribunal’s  decision which  superseded  that finding was. equally so  within  the contemplation of s. 35 of the Act. [851G-H] (2)  The  finding  of the Tribunal as to  the  voluation  of stock,   although  recorded  subsequent  to  the   appellate decision  of the Appellate Assistant Commissioner, could  be taken as forming part of the record of the appeal and  taken into account for the purpose of correcting the mistake under s.  35,  as  to  the value of  the  opening  stock  for  the assessment year 1960-61, apparent from that record. [853B] Commissioner  of Income-tax v. Khem Chand Ramdas  61  I.T.R. 414-L.R. 65 I.A. 236, referred to. M/s.   Maharan  Mills  (Private)  Ltd.  v.  The   Income-tax Officer,  Porbandar  [1959] Suppl. 2 S.C.R. 547  and  M.  K. Venkatachalam  v.  Bombay Dyeing & Mfg.   Co.  Ltd.,  [1959] S.C.R. 703. followed. (3)  There  is no room for apprehension that the  income-tax authorities, under the guise of correcting mistakes  lightly reopen  assessments long past and closed and thus  introduce an element of instability in the administration of the  Act. A  decision  is  a precedent on its own  facts.   Each  case presents its own features The Income-tax authorities and the Tribunals  are supposed to apply the ratio of a decision  to the facts of particular cases with due care and discernment, hearing  in mind the restricted scope of their  jurisdiction under s. 35 and the object for which it is conferred. [853F]

JUDGMENT: CIVIL  APPELLATE  JURISDICTION : Civil Appeal  No.  1793  of 1970. From  the  judgment and order dated 24th June, 1970  of  the Gujarat High Court in Special Civil Application No. 1259  of 1969. S.   T. Desai and I. N. Shroff, for the appellant. T.   A. Ramachandran and S. P. Nayar, for the respondents. The Judgment of the Court was delivered by SARKARIA,  J.  This appeal directed  against  the  judgment,

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dated  24.6.1970,  of  the High Court of  Gujarat  raises  a question  in  regard to the interpretation of  s.35  of  the Indian Income-tax Act, 1922 (for short, called the Act). 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 appeal  before  the Appellate  Assistant  Commissioner,  the assessee preferred a second appeal to the Tribunal. 848 Pending  the  appeal  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 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 appeal 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 19601961  be taken  at  Rs. 8,04,121/-.  Neither party  appealed  against this order before the Tribunal. On  January  22, 1969, the Tribunal allowed  the  assessee’s appeal  referred to above relating to the  assessment  year, 1959-60,  and accepted the assessee’s 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  Tribunal’s 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 assessee. Thereafter  on March 26, 1959, the Income-tax Officer  moved the  Appellate  Assistant Commissioner requesting  that  the latter’s  appellate order, dated 30.6.1965, relating to  the assessment   year  1960-61  be  rectified  and  brought   in conformity with the Tribunal’s order. The  Appellate Assistant Commissioner then issued  a  notice under  s.154 of the Act to, the assessee to show  cause  why the appellate order, dated 30.6.1965, be not rectified under s.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 :               record of appeal as pointed out in the I.T.0’s               letter  dated  26.3.69 mentioned  above.   The               appellate  order  which is now  sought  to  be               rectified,   was   passed  on   30.6.65.   The               rectification    is   therefore    in    time.

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             Accordingly I direct that the value of opening               stock  for  the  A.Y. 60-61 be  taken  at  Rs.               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.  2,14,682/- 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." 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  s.35 of the Act.  The High Court  dismissed  the petition.  Hence this appeal.                             849 Before  the High Court, the assessee raised two  contentions which  have been re-agitated before us.  They are : (i)  The Appellate Assistant Commissioner had no jurisdiction to make the  impugned  order because there was no  mistake  apparent "from the record of the appeal" within-the contemplation  of s.35 of the Act. (ii) Assuming that the words "record of the appeal’  in  s.35 were comprehensive enough to  include  the record of other related proceedings, the Appellate Assistant Commissioner had no jurisdiction to rectify his decision dt. 30.6.65,  by  referring  to some thing  which  actually  and factually took place four years after that decision. Elaborating  his contentions, Mr. Desai submits that in  the context  of  the  present case, the  words  "record  of  the appeal"  in  s.35 would mean the record for  the  assessment year 1960-61 which the Appellate Assistant Commissioner  had actually before him at the time of hearing of the appeal and not  the  entire  record of the  assessee  relating  to  the earlier years and a fortiori of later years.  Such appellate record,  it is mentioned, had no apparent error which  could be  rectified  under s.35. The argument proceeds,  that  the order of the Tribunal for the assessment year 1959-60,  made on  22.1.1969-which gave rise to the  mistake-was  something subsequent  and extraneous and could not, by any stretch  of language,  be  called a part of the "record of  the  appeal" relating  to the assessment year 1960-61.  Support for  this contention  has  been sought from a decision of  the  Mysore High  Court  in  Ganapathi  Subbaraya  Hegde  v.  State   of Mysore,(1)  which proceeds on an interpretation of  s.37  of the Mysore Agricultural Income-tax Act.  Learned Counsel has tried  to  distinguish the, decision of this Court  in  M/s. Mahrana  Mills  (Private) Ltd. v.  The  Income-tax  Officer. Porbandar(2) on the two-fold ground (i) that that was a case of  depreciation in which the written-down value had  to  be calculated  with reference to the record of past years,  and (ii)  unlike  the  present case, there,  the  error  was  in existence and apparent from the record of the appeal at  the time of its decision. it is argued that-Maharana Mills’ case (supra)  was  not one where the mistake was  rectified  with reference   to  something  happening  subsequently  to   the original  decision of the Appellate Assistant  Commissioner. Attempt has also been made to distinguish the Privy  Council decision  in  Commissioner  of  Income-tax  v.  Khem   Chand Ramdas(3)  on the ground that there the mistake  hid  become apparent as a result of the cancellation of registration  of the assessee firm in revision under s. 33 of the Act. As  against this, Mr. Ramachandran, learned Counsel for  the Revenue submits that the "record of the appeal" spoken of in s.35  is the entire evidence which could be looked  into  by the Appellate Assistant Commissioner for the purpose of  the

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appeal.  Since the closing stock of one year and the opening stock  of the succeeding year must necessarily be the  same. the record of the assessment year 1959-60, was also relevant and  therefore, a part of the record of the  appeal  arising out of the assessment for 1960-61.  It is further  canvassed that the (1) 84 I.T.R. 523.     (2)  [1959] Supp 2 S.C.R. 547. (3) 61, I. T. R. 414- L.R. 651. 8--564SCI/75 850 Tribunal had for the I.T.O’s finding as to the value of  the closing  stock  for the assessment year  1959-60  being  Rs. 8,04,121/- completely substituted its own finding  regarding such value being Rs. 5,89, 439/-, with effect from the  date of  I.T.O’s  order, and thus the  Tribunal’s  order,  though passed subsequently, had, with retrospective effect,  become a  part  of  the  record of the,  appeal  relating,  to  the assessment year 1960-61, which could legitimately  be looked into by the Appellate Assistant Commissioner for the purpose of ascertaining and rectifying the mistake in his  appellate decision.  Reliance has been placed on the decisions of this Court  in  Maharana Mills (P) Ltd.  v.  Income-tax  Officer, Porbandat  (supra) and that of the Privy Council in  Commis- sioner of Income-tax v. Khemchand Ramdas (supra). The material part of s.35 is in these terms               "35(1).    The   Commissioner   or   Appellate               Assistant Commissioner may, at any time within               four  years from the date of any order  passed               by  him  in  appeal  or in  the  case  of  the               Commissioner in revision under Section 33A and               the  Income-Tax  Officer  may,  at  any  time,               within  four  years  from  the  date  of   any               assessmet order of refund order passed by  him               on his own motion rectify any mistake apparent               from  the  record  of  the  appeal,  revision,               assessment  or refund as the case may be,  and               shall within the like period rectify any  such               mistake  which has been brought to his  notice               by an assessee. . . " The crucial words are those that have been underlined. The interpretation of the words "record of appeal" is not  a matter  which is res integra.  It came up for  consideration before  this  Court  in Maharana Mills  case  (Supra).   The appellant   therein  (hereinafter  called  the  Mills)   was assessed  to income-tax for the assessment year 1953-54  and by  an order of June 30, 1955, the I.T.O. allowed  deprecia- tion  under  S. 10(2) (vi) of the Act in the amount  of  Rs. 3,48,105/-.    On  August  8,  1955,  the  Mills   made   an application before the I.T.O. for rectification of the order under  s.35  of  the Act pointing out  certain  mistakes  in calculations  of  the depreciation amount.   The  Income-tax Officer by his order, dated February 27, 1956, corrected the "written  down  value" of the different  properties  of  the Mills and determined the total allowable depreciation to  be Rs.-  1,94,074/-.   The  Mills  challenged  this  order   of rectification  on  several grounds two of  them,  which  are material  for our purpose, were : (a) that the provision  of s.35  under which the Income-tax Officer had acted, was  not meant for the purpose of making corrections in written  down values, the correct provision being s.34 which  specifically refers to excessive depreciation, and (b) that, in any case, he  had exceeded his jurisdiction under s.35 in  calculating the depreciation on the written down value of the, buildings and machinery of the appellant acting suo motu and that  he- could correct only those mistakes which had been pointed out

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by  the  miffs. The argument was that recalculation  is  not rectifying  a  mistake which is apparent  from  the  record. This Court negatived these contentions with this observation                             851               "The  words used in the section are  "apparent               from the record" and the record does not  mean               only the order of assessment but it  comprises               all proceedings on which the assessment  order               is   based  and  the  Income-tax  Officer   is               entitled  for  the purpose of  exercising  his               jurisdiction under s.35 to look into the whole               evidence  and the law applicable to  ascertain               whether there was an error.  If he doubts  the               Written Down Value of the previous year it  is               open   to  him  to  check  up   the   previous               calculations and if he finds any mistake it is               open  to  him to make  fresh  calculations  in               accordance  with the law applicable  including               the Rules made thereunder." This  Court  then noticed Venkatachalam’s case(1)  and  Khem Chand’s  case  (supra) in support of the view taken  by  it. Counsel  for the then appellant sought to distinguish  these cases 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. This argument was repelled in these terms :               "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 arithmatic  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 dehors it.", 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 assessee, 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  &,at  the  record  showing  the  closing  stock  of assessment  year  1959-60  formed a  part  of  the  evidence relevant 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 assessee’s appeal regarding A.Y. 1960-61.   The Tribunal’s finding (1)  [1959] S.C.R. 703.

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852 that the value of the closing stock for A.Y. 1959-60  should be  Rs. 5,89,439/-, had completely replaced  the  Income-tax Officer’s  finding in regard to that fact with  effect  from the date of the Income-tax Officer’s-order relating to  A.Y. 1959-60. if the I.T.O.’s finding with regard to the  closing stock  for  A.Y.  1959-60 was relevant to and  part  of  the "record of appeal", the Tribunal’s decision which superseded that  finding"  was equally so within the  contemplation  of s.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 30-6-65, the correct figure of valuation finally  determined by  the Tribunal 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  Tribunal’s 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 Commissioner. Thus the first contention of the appellant stands overruled. The  second  point  canvassed by  Shri  Desai  is  well-nigh covered by the ratio of the privy Council decisions in  Khem Chand’s  case  (supra).  The assessee in that case  did  not produce his account books and the Income tax Officer made an assessment on the ’best-judgment basis’.  On the application of  the assessee, however, be all-owed registration  of  the assessee-firm  on-January 17, 1927.  As it was a  registered firm, he did not in the assessment order made under  s.23(4) on the same day, assess any super-tax.  The Commissioner  of Income-tax in exercise of his powers under s.33 of the  Act, called for the record, cancelled the registration on January 28,  1927,  and  directed  the  I.T.O.  to  take   necessary consequential  action.   The result was that  by  an  order, dated  May 4, 1929, the assessee was assessed to  super-tax. Three  days  later, a demand notice was  issued.   On  these facts,  delivering  the opinion of the  Judicial  Committee, Lord  Romer made these pertinent observations in  regard  to the applicability of s.35 :               "in their Lordship’s opinion, the case clearly               would  have  fallen within the  provisions  of               section   35   had  the   Income-tax   Officer               exercised his powers under the section  within               one  year from the date on which  the  earlier               demand was served upon the respondents.   For,               looking at the record ,of the assessments made               upon  them as it stood after the  cancellation               of the respondent’s registration-and the order               affecting  the cancellation would have  formed               part of the record-it would be apparent that a               mistake  had  been  made in  stating  that  no               super-tax was leviable." From  the  quotes  above, it is evident  that  the  Judicial Committee   considered   the  order  of   the   Commissioner cancelling the registration of the assessee’s  firm-although passed about 11 days after the 853 original assessment-to have formed part of the record of the 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  valuataion  of  the  stock,  although  recorded subsequently  to  the appellate decision  of  the  Appellate Assistant  Commissioner, could be taken as forming  part  of

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the record of appeal and taken into account for the  purpose of  correcting the mistake, under s.35, as to the  value  of the  opening  stock  for A.Y. 1960-61,  apparent  from  that record. We  do not want to overburden this judgment by a  discussion of  Ganapatho Subbaraya Hegde’s case (supra) cited  by  Shri Desai.  Suffice it to say that this was a case under s.37 of the  Mysore Agricultural Income-tax Act, 1957.   The  notice for rectification issued in that case and the orders of  the authority were found to be defective in as much as they  did not state that there was any mistake apparent on the  record of  the assessment proceedings for the previous three  years in  question.   Maharana Mills’ case  and  Khemchand’s  case (supra) were not noticed by the High Court in that case. Lastly,  Shri Desai urged that we should not lose  sight  of the  startling  results  which might  flow  from  a  liberal interpretation of s.35. It 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 Act. 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. The appeal fails and is dismissed with costs. P.B.R.                                                Appeal dismissed. 854