Mangalore Nursing Home Vs. Income-tax Officer - Court Judgment

Excerpt:

.....dated 22-9-1983 for the assessment year 1979-80 for which the previous year ended on 30-6-1978.2. in the original assessment made on 8-4-1981 under section 143(1) of the it act, 1961, investment allowance on intensive care unit was allowed as deduction. later on the income-tax officer noticed that the investment allowance claimed by the assessee in respect of the intensive care unit was not allowable under the act. since this was a mistake apparent from the record, a show-cause notice under section 154 was issued to the assessee. there was no response from the assessee.the ito, therefore, rectified the assessment under section 154 by disallowing the investment allowance of rs. 11,759.3. in the appeal before the appellate assistant commissioner the assessee contended that the mistake sought to be rectified was due to a change of opinion and so the rectification was not justified. the aac did not agree with the contention of the assessee and held that the ito was well within his jurisdiction in rectifying the original assessment under section 154. accordingly he confirmed the order under section 154 passed by the ito.4. against the order of the aac, the assessee preferred.....

Judgment:

1. This appeal filed by the assessee is against the order of the Appellate Assistant Commissioner dated 22-9-1983 for the assessment year 1979-80 for which the previous year ended on 30-6-1978.

2. In the original assessment made on 8-4-1981 under Section 143(1) of the IT Act, 1961, investment allowance on intensive care unit was allowed as deduction. Later on the Income-tax Officer noticed that the investment allowance claimed by the assessee in respect of the intensive care unit was not allowable under the Act. Since this was a mistake apparent from the record, a show-cause notice under Section 154 was issued to the assessee. There was no response from the assessee.

The ITO, therefore, rectified the assessment under Section 154 by disallowing the investment allowance of Rs. 11,759.

3. In the appeal before the Appellate Assistant Commissioner the assessee contended that the mistake sought to be rectified was due to a change of opinion and so the rectification was not justified. The AAC did not agree with the contention of the assessee and held that the ITO was well within his jurisdiction in rectifying the original assessment under Section 154. Accordingly he confirmed the order under Section 154 passed by the ITO.4. Against the order of the AAC, the assessee preferred the present appeal. The assessee's counsel conceded that the allowance in the original assessment of the investment allowance on the intensive care unit was a mistake. However, he contended as under : Since the assessment was completed under Section 143(1) the mistake has to be corrected only by resorting to Section 143(2)(b). The granting of investment allowance on the intensive care unit made the assessment, completed under Section 143(1), incorrect as per Sub-clause (d) of Clause (1) of Explanation to Section 143(3). This is a specific provision in the IT Act, 1961 to enable the ITO to take remedial action if he was of the opinion that the assessment made under Section 143(1) was incorrect, inadequate or incomplete in any material respect.

Section 154 of the IT Act, 1961 is a general provision for rectification of mistakes apparent from the record. Specific provision prevails over general provisions in the Statute. So, the ITO was not correct in resorting to Section 154 of the IT Act in the present case.

Consequently, the order under Section 154 under consideration is invalid.

5. The arguments of the departmental representative were to the following effect : Section 143(2)(b) speaks of verifying the correctness and completeness of the return'. Section 154 speaks of rectification of 'mistakes apparent from the record'. Section 143(2)(b) applies even if no assessment under Section 143(1) was made. Further, there is no bar for the ITO to take action under Section 154 even though he could have taken action under Section 143(2)(b). So, the impugned order is valid.

6. We have considered the rival submissions. Section 143(2)(&) comes into play only when the ITO considers it necessary or expedient to verify the correctness and completeness of the return, whether or not assessment has been made under Section 143(1). If the ITO considers it necessary to verify the correctness and completeness of the return, he has to obtain the prior approval of the Inspecting Assistant Commissioner in cases where the assessment has already been made under Section 143(1). Then, after the issue of notice under Section 143(2) and after hearing such evidence as the assessee may produce, if the ITO is of the opinion that the assessment made under Section 143(1) was 'incorrect, inadequate or incomplete in any material respect', as clarified in the Explanation to Section 143(3), he is bound to pass an order in writing making a fresh assessment of the total income. The obligation on the part of the ITO to make a fresh assessment under Section 143(3) arises only when he considers it necessary or expedient to verify the correctness and completeness of the return where assessment has been made under Section 143(1) and issues notice with the prior approval of the IAC and finds that the assessment made under Section 143(1) is incorrect, inadequate or incomplete in any material respect as clarified in Explanation to Section 143(3). But Section 154 gives a right to the ITO to rectify any mistake apparent from records.

The word 'record' contemplated in this section includes an order of assessment. In this particular case the ITO was not at all bothered about the correctness and completeness of the 'return'. He wanted the rectification of the mistake of wrongly allowing the investment allowance in the assessment made under Section 143(1). So he had properly resorted to Section 154 of the IT Act. Had he wanted to consider it necessary or expedient to verify the correctness and completeness of the return he would have resorted to Section 143(2)(5).

7. The matter can be looked into from another angle also. The circumstances in which an order under Section 154 or Section 143(3), after complying with the procedure under Section 143(2)(6), may overlap and are not mutually exclusive. If in a given case the requirements of both Sections 154 and 143(3) read with Section 143(2)(d) are satisfied, the application of neither can be ruled out. If the requirements of Section 154 are satisfied the assessee cannot claim as of right that he should be dealt with only under Section 143(3) read with Section 143(2)(&) [See the decision in AM. Wheeler & Co. (P.) Ltd. v. ITO [1964] 51 ITR 92 (All.)]. The Kerala High Court in the case of R.Madhavan Nair v. CIT [1976] 105 ITR 813 considered the powers of the ITO under Sections 155(5) and 147(6) and held that it was open to the ITO to resort to either of the two provisions according to the needs arising from the facts and circumstances of the given case. Where reassessment under Section 147 and rectification under Section 154 are both equally competent, the department may take action under either section since the two sections are not mutually exclusive. For this proposition the following decisions may be seen : CIT v. D.R. Naik [1939] 7 ITR 362 (Bom.), Salem Provident Fund Society Ltd. v. CIT [1961] 42 ITR 547 (Mad.), V.S. Arulanadam v. ITO [1961] 43 ITR 511 (Mad.), Hira Lal Sutwala v. CIT [1965] 56 ITR 336 (All.) and P.C. Doshi v. Seventh ITO [1967] 65 ITR 187 (Bom.).

In view of the above we are unable to accept the contention of the assessee that the ITO should have resorted to only Section 143(2)(6) and not Section 154.

8. In the result, we uphold the orders of the lower authorities and dismiss this appeal.