R. Balia, J.
1. Heard learned counsel for the parties.
2. This is an application under Section 256(2) of the Income-tax Act, 1961, at the instance of the Commissioner of Income-tax, Jaipur. The applicant requires this court to direct the Income-tax Appellate Tribunal, Jaipur Bench, Jaipur, to refer the following question said to be a question of law arising out of the Tribunal's order dated March 23, 1981 :
'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the issue arising from the order of the Inspecting Assistant Commissioner (Assessment) was highly debatable and it is clearly beyond the purview of Section 13 of the Companies (Profits) Surtax Act, 1964 ?'
3. An application under Section 256(1) was rejected by the Tribunal, inter alia, on the ground that the Tribunal has found as a fact that the amount was set apart by the company which could not be said that it was set apart to meet a known liability or the liability was well known on the date of the balance-sheet and, therefore, the amount set apart as a reserve for bad and doubtful debts was not a provision but a reserve liable to be computed for the purpose of ascertaining the capital deployed for the business under the relevant provisions of the Companies (Profits) Surtax Act, 1964, and, therefore, no question of law arose from the order of the Tribunal.
4. The facts giving rise to this application are that the respondent is a company liable to surtax under the Act of 1964. For the assessment year 1973-74 for computation of capital deployed for the purpose of ascertaining the liability of surtax, it claimed a sum of Rs. 5,50,000 on account of reserve for bad and doubtful debts and advances, as statutory deduction as reserve. The assessment was completed under Section 143(3) of the Income-tax Act read with the provisions of the Act of 1964, by accepting the claim to the said deduction for computing the capital deployed during the previous year relevant to the assessment year 1973-74.
5. The Inspecting Assistant Commissioner vide its order dated August 16, 1997, invoked Section 13 of the Act of 1964 for withdrawal of the allowance of deduction as Rs. 5,55,000 in the computation of capital deployed as a mistake apparent on the face of the record by holding that the said sum was a provision and not a reserve, and rectified the assessment order. The provisions of Section 13 of the Act of 1964 are akin to Section 154 of the Income-tax Act conferring jurisdiction on the concerned authority who has made any order under the Act to rectify a mistake which is apparent from the record.
6. On appeal by the assessee the order was affirmed by the Commissioner of Income-tax (Appeals).
7. On second appeal, the Tribunal allowed the appeal, and held that whether a sum of Rs. 5,50,000 set apart by the assessee constituted a reserve for bad and doubtful debts, or a provision only is highly debatable. For coming to this conclusion, it relied on the decision of the Karnataka High Court in the case of Addl. CIT v. Indian Telephone Industries : [1979]118ITR291(KAR) , in which the Karnataka High Court in similar circumstances held that (page 293) :
'Since the sums set apart as 'reserve for bad and doubtful debts' were not in regard to any known liability on the dates of the balance-sheets, we do not find any substance in the contention urged on behalf of the Department.'
8. The Tribunal also held that the finding given by the Commissioner of Income-tax (Appeals) itself was debatable as it does not set out admitted facts. Therefore, it cannot be said that the sum was set apart to meet a known liability or the liability was well known on the date of the balance-sheet.
9. Thus, holding that both findings of fact necessary for deciding a question of law and its effect was not a mistake apparent from the record, the Inspecting Assistant Commissioner could not have resorted to his power to rectify the assessment order by invoking Section 13 of the Act of 1964.
10. The question as required to be referred to this court shows that the contours of enquiry is whether the alleged mistake found by the Inspecting Assistant Commissioner was a mistake apparent on the face of the record, which could be corrected by rectification.
11. The principle is well settled by the decision of the Supreme Court since the decision in the case of T. S. Balaram, ITO v. Volkart Brothers : [1971]82ITR50(SC) , that the conclusion cannot be said to be a mistake apparent on the face of the record, if its answer is to be found through a long drawn process of reasoning, considering the pros and cons of different aspects of the issue. Obviously by coming to a different foundational fact which has to be reached by reappreciating the evidence and material on record, it cannot be said to be a mistake apparent on the face of the record. It has been stated that the scope is not more than what the court looks for issuing a writ of certiorari for correcting a mistake apparent from the record. The state of law about the scope of rectification was stated by the Supreme Court in T. S. Balaram, 1TO v. Volkart Brothers : [1971]82ITR50(SC) reads as under (page 53) :
'The power of the officers mentioned in Section 154 of the Income-tax Act, 1961, to correct 'any mistake apparent from the record' is undoubtedly not more than that of the High Court to entertain a writ petition on the basis of an 'error apparent on the face of the record'.
A mistake apparent on the record must be an obvious and patent mistake and not something which can be established by a long drawn process of reasoning on points on which there may conceivably be two opinions.'
12. So far as the principle of law is concerned whether credit to the account of reserve for the balance-sheet of the company can be treated to be reserve or provision depends on well known principles.
13. The distinction between 'provision' and 'reserve' is well established. While the 'provision' is a charge of profits which is taken into account in the gross receipts of profit and loss account, 'reserve' is an appropriation of profit to provide for the asset which it represented. Reference in this connection may be made to CIT v. Pratap Cashew Co. (P.) Ltd. : [1979]116ITR733(Ker) . The question has been recently dealt with by the Supreme Court in State Bank of Patiala v. CIT : [1996]219ITR706(SC) , the court said (headnote) :
'The distinction between a provision and a reserve is, in commercial accountancy fairly well-known. Provisions made against anticipated losses and contingencies are charges against profits and, therefore, to be taken into account against gross receipts in the profit and loss account and the balance-sheet. On the other hand, reserves are appropriations of profits, the assets by which they are represented being retained to form part of the capital employed in the business. Provisions are usually shown in the balance-sheet by way of deductions from the assets in respect of which they are made whereas general reserves and reserve funds are shown as part of the proprietor's interest. An amount set aside out of profits and other surplus, not designed to meet a liability, contingency, commitment or diminution in the value of assets known to exist at the date of the balance-sheet is a reserve, but an amount set aside out of profits and other surpluses to provide for any known liability of which the amount cannot be determined with substantial accuracy is a provision.'
14. The Supreme Court further held that (headnote) :
'Substantial amounts were set apart by the assessee, a banking company, as reserves. No amount of bad debt was actually written off or adjusted against the amount claimed as reserves. No claim for any deduction by way of bad debts were made during the relevant assessment years. The assessee never appropriated any amount against any bad and doubtful debts. The amounts throughout remained in the account of the assessee by way of capital and the assessee treated the said amounts as 'reserves' and not as 'provisions' designed to meet any liability, contingency, commitment or diminution in the value of assets known to exist at the relevant dates of the balance-sheets- The facts had been found by the Tribunal. Hence, the amounts set apart towards bad and doubtful debts in these cases were 'reserves' qualifying for appropriate relief under rule l(xi)(b) of the First Schedule and rule l(iii) of the Second Schedule to the Act.'
15. In the present case also the Tribunal has found as a fact as noticed by us above that whether the sum was set apart to meet a liability which was well-known on the date of the balance-sheet or was not so known itself was not free from doubt and the Tribunal has noticed that even facts admitted had not been taken into consideration. This needed examining various facts drawing inferences from some basic findings. In that view of the matter, the decision of the Supreme Court as aforesaid it was apparent that there did not exist any such mistake, which could be said to be a mistake apparent on the face of the record and could not be corrected by invoking the power under Section 13 of the Act. We do not find any error in the order of the Tribunal, rejecting the application under Section 256(1).
16. The application under Section 256(2) is, therefore, rejected. There shall be no order as to costs.