LILAVATIBEN HARJIVANDAS KOTECHA Vs. INCOME TAX OFFICER

JUDGEMENT

(1.) THE petitioner in this Special Civil Application is the assessee and is also the applicant in the income-tax reference. THE Special Civil Application is in connection with the asst. yr. 1961-62 and the reference is in connection with the asst. yr. 1962-63. THE question which arises for consideration is the same in both the matters as will be pointed out later in the course of this judgment and, therefore, we are disposing of both these matters by this common judgment.

(2.) THE petitioner in the special civil application challenges two orders, one passed by the ITO, the first respondent herein, on 10th Sept., 1970, being annex. "E" to the petition. This order was passed by way of rectification in exercise of the powers of the ITO under s. 35 of the Indian IT Act, 1922. THE other order which she challenges in these proceedings is the order of the CIT, the second respondent herein, passed in revision in exercise of the powers under s. 33A(2) of the Act of 1922. That order was passed on 19th Dec., 1973, and a copy of the order is Annexure "A" to the petition. Thus, in these proceedings, Annexures. "A" and "E" to the petition are challenged and the challenge is on the ground of the scope of the power of rectification under s. 35 of the Indian IT Act of 1922.

(3.) AGAINST the order of rectification an appeal was preferred to the AAC, but the AAC held that the appeal was not maintainable under the provisions of the 1922 Act and he, therefore, dismissed the appeal on that preliminary ground. Thereafter, the petitioner filed an application before the CIT, the first respondent in the special civil application under s. 33A of the Act of 1922, r/w s. 264 of the Act of 1961, against the order of rectification passed by the ITO. According to the petitioner, in regard to the orders of rectification passed by the ITO for the asst. yrs. 1962-63 and 1963-64, appeals were filed before the AAC. Those appeals were allowed by the AAC upholding the contention raised by the petitioner regarding the inapplicability of rectification provisions to the original orders of assessment as revised from time to time but as finalised ultimately. AGAINST the decision of the AAC, for the asst. yrs. 1962-63 and 1963-64, the Department went in appeal to the Tribunal, and while appeals for those two years were pending before the Tribunal, the revision application under s. 33A of the Act of 1922, r/w s. 264 of the Act of 1961, came up for hearing before the CIT. The petitioner was informed about the hearing by notice dt. 28th Nov., 1973, and by her letter dt. 5th Dec., 1973, the petitioner pointed out that though the CIT had fixed the hearing of the revision application on 10th Dec., 1973, in view of the fact that the same question was being agitated before the Tribunal in those two appeals, the hearing of the revision application should be postponed till after the decision given by the Tribunal in those two appeals. Without adjourning the matter and without giving any further opportunity of being heard to the petitioner, according to her, the CIT by his order dt. 19th Dec., 1973, Annexure "A" to the petition, dismissed the revision application under s. 33A and these two orders Annexures "A" and "E" to the petition, have been challenged in this special civil application. The facts leading to the reference are that, in connection with the asst. yr. 1962-63, the ITO had taken into consideration the losses allocated to the share of the assessee and her three minor sons when the assessments of the two partnership firms of Rasik Solvent Extraction Company and Krishna Oil Mills were finalised by the ITO in charge of the assessment of those two firms. As shown by the original order of assessment dt. 9th Jan., 1967, passed by the ITO, the minors' share of loss aggregating to Rs. 1,28,424 from Rasik Solvent Extraction Company and the minors' share of loss aggregating to Rs. 38,766 from Krishna Oil Mills were deducted from the income of the petitioner, computed from all other sources in her assessment for the asst. yr. 1962-63, and her total income was computed accordingly. A similar benefit was given to the petitioner in respect of the asst. yr. 1963-64, regarding the losses from Krishna Oil Mills and Rasik Solvent Extraction Company. After giving appropriate notice as required by law and hearing the petitioner, the ITO, by his order dated 10th Sept., 1970, rectified the orders of assessment for the asst. yrs. 1962-63 and 1963-64, and withdrew the benefit given to the petitioner in respect of losses which were reflected in her assessment as regards the attributable share of the minors in respect of losses from Rasik Solvent Extraction Company and Krishna Oil Mills. For the asst. yr. 1962-63, a sum of Rs. 38,004 in connection with the losses of the firm of Krishna Oil Mills was added back to the income of the assessee and a sum of Rs. 73,545 in respect of shares of losses which fell to the share of minors from the firm of Rasik Solvent Extraction Company was also added back. We are merely concerned in the present case with the asst. yr. 1962-63, because the reference has been made by the Tribunal only in respect of the asst. yr. 1962-63. The assessee carried the matter in appeal before the AAC who was of the view that in accordance with the provisions contained in cl. 6 of the partnership deed as also s. 3 of the Partnership Act, there was no question of construction of s. 16 (3) of the Act of 1922 or s. 64 of the Act of 1961. He further stated that the losses were allocated by the ITO in accordance with the partnership deed and he directed that the withdrawal of losses, to the extent of accumulated profits in the minors' hands, would stand but the main contention of the ITO on which the order under s. 154 was passed was not in order. He, accordingly, directed the ITO to modify his order in the light of the observations made by him. AGAINST the decision of the AAC, the Revenue took the matter in appeal before the Tribunal and the Tribunal, after considering the rival submissions, was of the view that as there was a mistake of law apparent from the record the ITO was competent to rectify the said mistake of law under the provisions of s. 154 of the Act. The Tribunal relied upon the decision of this High Court in Surat Textile Mills Ltd. vs. CIT (1971) 80 ITR 1 (Guj) : TC53R.171, and also relying upon the observations of this High Court in Dayalbhai Madhavji Vadera's case (supra), which the Tribunal took to be binding in the State of Gujarat, it held that the rectification order was proper. However, the Tribunal pointed out in its order that so far as Krishna Oil Mills were concerned, the ITO, who completed the assessment of that particular partnership firm, had determined the losses coming to the petitioner at twenty-five per cent and not at 6.25 per cent apparently because in that assessment order, as shown by Annexure "G" in the paper book at p. 82, an amount of loss representing 25 per cent was, shown against the name of the assessee. The Tribunal came to the conclusion that it was not open to the ITO, hearing rectification proceedings, to go behind the order passed under s. 156 of the IT Act and, hence, so far as Krishna Oil Mills were concerned, the order of rectification was erroneous and contrary to law. However, the Tribunal upheld the order of rectification as regards the deduction in respect of the minors' share of loss aggregating to Rs. 73,545. Thereafter, at the instance of the assessee, the following three questions have been referred to us for our opinion :