Commissioner of Income-tax Vs. Jagabandhu Roul - Court Judgment

R.N. Misra, C.J.

1. On the application of the Revenue made under Section 256(2) of the I.T. Act of 1961, this court directed the Cuttack Bench of the Income-tax Appellate Tribunal to state a case and refer the following two questions for the opinion of the court :

'(1) Whether on the facts and circumstances of the case, at the point of time when penalty was imposed there was lack of jurisdiction in the authority imposing penalty ?

(2) Whether on the facts and circumstances of the case, the Tribunal was legally competent to reverse its final decision in exercise of powers under Section 254(2) of the Act '

Pursuant to our direction, the Tribunal has stated the case and referred the questions.

2. The assessee is a partnership firm engaged in the trade of tobacco and tobacco products. The relevant assessment years are 1971-72 and 1972-73. The assessee returned incomes of Rs. 12,736 and Rs. 9,925 respectively for the two years. The ITO rejected the return and assessed income of Rs. 50,810 and Rs. 38,790, respectively, for the years in question. The Tribunal, in second appeal, determined income of Rs. 35,420 and Rs. 26,520, respectively. These included sums of Rs. 12,000 and Rs. 5,000, respectively, as income from undisclosed sources.

3. The ITO thereupon started proceedings under Section 271(1)(c) of the Act and referred the proceedings to the IAC under Section 274(2) of the Act for disposal. Before the IAC, the assessee contended that the cash credits of Rs. 12,000 and Rs. 5,000, respectively, in the two assessment yearswere surrendered by the assessee for being taxed and, therefore, there was no scope for initiating penalty proceedings. Reliance in support of this proposition was placed on the decision in the case of Gumani Ram Siri Ram v. CIT, . The IAC did not accept the stand and on the footing that the assessee had failed to discharge the onus which lay on him under Section 271(1)(c) of the Act, he imposed penalties of Rs. 12,000 and Rs. 5,000, respectively, for the two years. On appeal, the Tribunal upheld the action of the IAC by holding that Section 271(1)(c) applied to the assessee and he had failed to discharge the onus that lay on him. Accordingly, the appeals were dismissed and the imposition of penalty was sustained.

4. Subsequently, the asseasee moved a miscellaneous application purporting to be under Section 254(2) of the Act praying for rectification of the mistake by contending that the decision of this court in the case of CIT v. Dhadi Sahu, : [1976]105ITR56(Orissa) had not been referred to by the Tribunal while disposing of the appeals. The Tribunal took the view that the ratio of the decision applied and a mistake had been committed which required rectification. It, therefore, held that the IAC had no jurisdiction to impose the penalty and in view of the legal infirmity, the imposition of penalty was liable to be set aside.

5. Though notice from this court was given and was duly served on the assessee, no appearance has been effected on its behalf before us.

6. Learned standing counsel contends that the correctness of the decision in Dadhi Sahu's case, : [1976]105ITR56(Orissa) has been challenged in appeal before the Supreme Court. He has placed before us a subsequent decision of this court in the case of Pawan Kumar More v. ITO, : [1979]118ITR1012(Orissa) where, when the Tribunal refused to rectify the mistake on the basis of Dhadi Sahu's decision in an application made under Section 154 of the Act, this court did not interfere. He has also contended that the Kerala High Court has taken a view different from our own in Dhadi Sahu's case so far as the legal aspect is concerned. According to learned standing counsel Section 254 had no application at all to the facts of the case and the Tribunal went beyond its jurisdiction in allowing the relief to the assessee in purported exercise of jurisdiction to rectify a mistake.

7. The decision in Dhadi Sahu's case, : [1976]105ITR56(Orissa) , is binding on us and, merely because some other High Court has taken a different view, we do not propose to re-examine the correctness of the decision in Dhadi Sahu's case. The matter is already before the Supreme Court and as and when the result of the appeal would be known, the legalposition would be finally settled. Until then, Dhadi Sahu's case must be taken to be binding on this court.

8. Section 254(2) of the I.T. Act provides :

' The Appellate Tribunal may, at any time within four years from the date of the order, with a view to rectifying any mistake apparent from the record, amend any order passed by it under Sub-section (1), and shall make such amendment if the mistake is brought to its notice by the assessee or the Income-tax Officer :...... '

Section 254(2) of the I.T. Act of 1961, corresponds to Section 35 of the Indian I.T. Act of 1922. In the case of CIT v. Sevugan, : [1948]16ITR59(Mad) , Gentle C. J. spoke for the Madras High Court thus (p. 66):

' Section 35 has limited application. It enables rectification to be made of any mistake, apparent from the record, either on his own motion by the Commissioner or the Appellate Assistant Commissioner or by the Appellate Tribunal on their own motion, or when such a mistake is brought to their notice by an assessee. Clearly that section does not enable an order to be reversed by revision or by review but permits only some error, which is apparent on the face of the record, to be corrected.'

A Bench of the Bombay High Court in Sidhramappa Andannappa Manvi v. CIT, : [1952]21ITR333(Bom) , observed (p. 341);

' In that case : [1948]16ITR59(Mad) , the Madras High Court was not considering at all what was the effect of the order under Section 35. It is true that they did say that Section 35 had a limited application and it does not enable and order to be reversed, revised, or reviewed, but permits only such error which is on the face of the record to be corrected. With respect that position in law is undisputable.'

In K. Parameswaran Pillai v. Addl. ITO, , the Travancore-Cochin High Court took the same view by saying (p. 889):

' Again, the jurisdiction to correct by way of rectification under Section 35 of the Indian Act is limited. It deals only with errors apparent on the face of the record which can be corrected at any stage. As observed by Gentle C.J., that section does not enable an order to be reversed by revision or by review, but permits only some error which is apparent on the record to be corrected.'

In N.V.N. Nagappa Chettiar v. ITO, : [1958]34ITR583(Mad) , Balakrishna Ayyar J. spoke for the court thus (p. 585) :

' Before an Income-tax Officer can exercise his powers under Section 35 of the Act to rectify a mistake the mistake must be apparent from the record of the assessment. This ' record of the assessment' is only that partof the record which leads to the determination and ascertainment of the tax payable and no more. Again, before it can properly be said that a mistake is apparent from the record it must be something very obvious and manifest. A mistake to establish which a very elaborate process of reasoning, and controversial reasoning at that, is called for, cannot be said to be a mistake apparent from the record. An error in law or a wrong procedure adopted in the assessment proceedings would not be a mistake within the meaning of Section 35 :..... Mistakes to discover which complicated processes of investigation and argument are required are outside the scope of Section 35 of the Act.' (underlining is ours).

In CIT v. Sheolal Ramlal, : [1958]33ITR47(MP) the Madhya Pradesh High Court held (p. 54):

' Rectification within the meaning of Section 35 means the correction of an error which is apparent on the face of the record. That error must be demonstrable without the taking out of any additional evidence and without any detailed arguments pro and con.'

The Madras High Court again examined the question in CIT v. J. Sundaram, : [1964]52ITR474(Mad) and concluded by saying (p. 477) :

'The Tribunal has no jurisdiction to pass such an order when there is no error apparent from the record. The Tribunal having found that the Department was right in levying the penalties and that there were no mitigating circumstances calling for reduction of the penalties cannot say that, because the assessee co-operated with the Department, the penalties should be reduced.'

A learned single judge of the Calcutta High Court in Shew Paper Exchange v. ITO, : [1974]93ITR186(Cal) has also taken the same view.

9. In our opinion, the Tribunal does not have a power of review. What has been given under Section 254(2) of the Act is one of rectification of mistakes. There can be no two opinions that the power of review has to be statutorily conferred.

10. In the instant case, no reference has been made by the Tribunal while disposing of the appeal to Dhadi Sahu's case, : [1976]105ITR56(Orissa) , because the same had not been placed before it. When Dhadi Sahu's case was not before the Tribunal at the appellate stage for consideration, and the assessee applied to the Tribunal to review its decision by applying the principle in Dhadi Sahu's case, it was really not an application within the ambit of Section 254(2) of the Act, but was one for review. In the case of Pawan Kumar More, : [1979]118ITR1012(Orissa) , this court observed (pp. 1014, 1015) :

' On the basis of the law indicated in the aforesaid decision : [1976]105ITR56(Orissa) , the assessee made an application purporting to be under Section 154 of the Act to the Appellate Tribunal. The Tribunal took the view that there was no error apparent on the face of the record and, accordingly, declined to interfere. Assessee has, therefore, come with this writ application asking for quashing of the imposition of penalty on the ground that the statutory authority had no jurisdiction to exercise or alternatively to issue a direction to the Tribunal to rectify the mistake.

On the ratio of the decision of this court in Dhadi Sahu's case, : [1976]105ITR56(Orissa) , the imposition of penalty in the matter is admittedly without jurisdiction. Learned standing counsel has, however, contended that the penalty proceedings had become final several years back and it would not be appropriate to allow the concluded matter to be reopened at this point of time. He again submits that the matter had once come before this court and the reference application under Section 256(2) of the Act had also been rejected. Merely because the effect of the law which has been declared in Dhadi Sahu's case, : [1976]105ITR56(Orissa) , is against the Revenue, it would not mean that every matter where a different view had been taken and has become final should be permitted to be reopened. We find force in the objection of the learned standing counsel.'

We are inclined to agree with the learned standing counsel that the Tribunal exceeded its jurisdiction when it reviewed its earlier decision purporting to act under Section 254(2) of the Act and vacated the penalty the imposition of which it had upheld while disposing of the appeal. Learned standing counsel had stated to us at the time of hearing that it would be enough if the second question referred to us be answered. Our answer to the second question, therefore, shall be :

On the facts and in the circumstances of the case, the Tribunal was not legally competent to reverse its final decision in exercise of powers under Section 254(2) of the I.T. Act. Since the assessee is not represented, we make no order for costs.

Patnaik, J.

11. I agree.