CHOKSHI METAL REFINERY Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) IN this case at the instance of the assessee, the following question has been referred to us for our opinion by the Tribunal :

(2.) IN the instant case we are concerned with the asst. yrs. 1967 68 and 1968 69. The assessee is a registered partnership firm and carries on the business of a refinery at Surat. The business was started from 20th Feb., 1963. The relevant years of account are Samvat years 2022 and 2023, respectively, for these two assessment years. The order of assessment for the asst. year 1967 68 was passed on 1st March, 1968, and the total income computed was Rs. 1,49,863. The assessment order for the asst. year 1968 69 was passed on 14th Feb., 1969, and the total income computed was Rs. 1,57,570. On 27th Feb., 1970, the assessee applied to the ITO praying that the assessment for these two years should be rectified so as to grant relief to the assessee under S. 84 of the IT Act, 1961, so far as the asst. year 1967 68 was concerned and under S. 80J so far as the asst. year 1968 69 was concerned. The contention of the assessee in that application was that all the conditions which would justify the granting of the relief under S. 84 prior to its repeal and under S. 80J were satisfied in their case. The assessee firm also contended that the relief was granted to the assessee firm by way of depreciation allowance and development rebate and they claimed that relief under S. 84 calculated at six per cent. of the capital employed would be Rs. 30,543 so far as the asst. year 1967 68 was concerned and under S. 80J for the asst. year 1968 69 the relief would be Rs. 31,020. The application was, therefore, for the purpose of deduction of Rs. 30,543 and Rs. 31,020 for the two assessment years under reference, respectively, from the total incomes computed for these two assessment years. The applications were filed by the ITO by his order dt. 10th March, 1971, on the ground that the assessee had not claimed the deductions under S. 84 or S. 80J in its returns of income nor was the claim put forward at the time of the hearing before him when the original assessments were under consideration. Against these orders of the ITO filing the two applications for the two different years, the assessee took the matter in appeal to the AAC. The AAC held that till the date on which these two applications for rectification under S. 154 were made by the assessee, there was not even an iota of evidence to suggest that the claim under S. 84 or S. 80J was made before the ITO. In this view of the matter, the AAC confirmed the orders of the ITO. Thereafter, the matter was taken in appeal to the Tribunal. Before the Tribunal it was contended on behalf of the assessee that the provisions of S. 84 and S. 80J were mandatory and once from the material available on the record of the ITO, it became clear that the assessee was entitled to the relief under S. 84 or S. 80J, as the case might be, it was incumbent upon the ITO to grant the relief under the section concerned even though no specific claim for this relief was put forward either in the returns filed for these two respective assessment years or was put forward at any subsequent stage till the assessment orders were passed. The Tribunal held that they had not to consider whether the assessee was entitled to relief under S. 84 and S. 80J of the Act in original assessment proceedings but whether, after the completion of such assessment proceedings, under the provisions of S. 154 of the Act, the ITO had jurisdiction to pass an order so as to allow the relief under S. 84 and under s. 80J, respectively. The Tribunal found that it could not be said that the material which was necessary for the purpose of granting the relief under S. 80J of the Act was available with the ITO at the time of making the assessments. The Tribunal also held that none of the conditions required for granting of the relief under S. 80J was specifically satisfied by the assessee in the course of the assessment proceedings under S. 143(3) of the Act and the Tribunal found that the ITO would have had to cull out all the material from the information given to him by the assessee and even after gathering that material from the record, the ITO may perhaps have to debate the matter with the assessee, with the result that it would be possible that the ITO might ultimately not agree with the assessee that the assessee was entitled to relief under S. 80J of the Act. Ultimately, the Tribunal held that no mistake apparent from the record was brought to the notice of the ITO and hence the ITO could not exercise the power given to him under S. 154 of the Act. The Tribunal, therefore, dismissed the appeals of the assessee for the two assessment years and, thereafter, at the instance of the assessee, the question set out hereinabove has been referred to us for our opinion.

(3.) UNDER the IT Rules 1962, by r. 19, computation of capital employed in an industrial undertaking or a hotel for the purposes of S. 84 has been set out and under r. 19A computation of capital employed in an industrial undertaking or a ship or the business of a hotel for the purposes of S. 80J has been set out. Mr. Shah for the assessee contends that all the information required for computation of the capital employed in an industrial undertaking in accordance with r. 19 or r. 19A was already available on the record of the ITO. Under sub cl. (i) of r. 19(1) the written down value on the commencing date of the period of computation has to be ascertained and, according to Mr. Shah, for the purpose of depreciation allowance, the written down value as of the commencing date of the previous year, namely, Samvat years 2022 or 2023, as the case may be, was certainly available with the ITO from his own record. Under sub r. (5), over and above the capital ascertained under sub r. (1), the average amount of capital employed in a business during any computation period has also to be taken into account and for that purpose the profits or losses made in that period shall, expect so far as the contrary is shown, be deemed to have accrued at an even rate throughout the said period and to have resulted, as they accrued, in a corresponding increase or decrease, as the case may be, in the capital employed in the business. According to Mr. Shah, the return filed for the relevant assessment year would show the profit or loss earned by the business from this new industrial undertaking and, therefore, the material for making the computation under sub r. (5) of r. 19 would also be available with the ITO himself. He also has mentioned that under r. 19A the capital for the purpose of S. 80J employed in an industrial undertaking shall be computed in accordance with sub rules (2) to (4), and the capital employed in a ship shall be computed in accordance with sub r. (5). Under sub r. (2), the aggregate of the amounts representing the values of the assets as on the first day of the computation period, of the undertaking or of the business of the hotel to which the said S. 80J applies shall first be ascertained in the case of assets entitled to depreciation, their written down value; in the case of assets acquired by purchase and not entitled to depreciation, their actual cost to the assessee; in the case of assets acquired otherwise than by purchase and not entitled to depreciation, the value of the assets when they became assets of the business, etc. Thus, same provision as in r. 19 has been made applicable. Provision similar to sub r. (5) of r. 19 is not to be found in r. 19A. Mr. Shah's contention has been that all the computations required to be made for the purpose of arriving at the figure of capital employed in this particular industrial undertaking in the relevant previous year could have been made from materials available with the ITO. The records of the ITO would show, according to Mr. Shah, the year of installation of this machinery, namely, 1963, and, therefore, it would enable him to ascertain up to what period the relief under S. 84 or S. 80J was available to this particular assessee. Mr. Shah also contends that all the information available from the records of the ITO himself would go to show that even the conditions required by S. 80J, Sub S. (4), namely, the four conditions which must cumulatively be present before the relief under S. 80J can be given, were also present in the case of the assessee and the main contention of Mr. Shah has been that in view of all these materials available from the record of the ITO himself, it was obligatory upon the ITO to grant relief under S. 84 or S. 80J for the relevant assessment year. Mr. Shah has contended that in the context of the words "error apparent from the record of the case", the Supreme Court has observed in Maharana Mills (P) Ltd. vs. ITO (1959) 36 ITR 350 (SC) TC53R.275 that the record contemplated by S. 35 of the Indian IT Act, 1922, equivalent to S. 154 of the Act of 1961, does not mean only the order of assessment but it comprises all proceedings on which the assessment order is based and the ITO 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 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. If, for instance, the ITO finds that in an earlier assessment year there was an apparent arithmetical mistake in the account of the written down value of the properties of the assessee which resulted in a corresponding mistake in the assessment of the relevant assessment year, he can take the corrected figure for the purposes of the assessment and it cannot be said that the mistake was not apparent from the record. A fortiori if he discovers that the very basis of the different earlier assessments was erroneous because of an initial mistake in determining the written down value, it cannot 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 ITO makes correct calculations, it cannot be said that that is not rectifying a mistake apparent from the record but is de hors it. The limit to which the ITO can go back does not stop at the written down value of the previous year but extends up to the figure of the original cost, and the method enjoined by S. 10 (5)(b) of the Indian IT Act of 1922 is not that the ITO should merely scale down the written down value of the previous year, but that he should take into consideration the actual cost, determining it for himself, if necessary, take also into consideration the allowances granted in the past, and then make his own computation as to the written down value for the assessment year with which he is concerned. It cannot be said that merely because under S. 35 some written down value and the depreciation amount have been determined they are a final determination binding for all times to come; nor does the determination operate as estoppel or res judicata for the following years. Mr. Shah also contended in this connection that not to give relief under S. 80J or S. 84, as the case might be, when due, only because it is not claimed, is a mistake apparent on the face of the record. Mr. Shah has relied in this connection on the following circular of the Central Board of Revenue issued in June, 1955. The circular is reproduced at page 532 of volume I of Chaturvedi and Pithisaria's Income tax Law, Second Edn., and the circular is as follows: