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Judgment
Bharucha, J.—The Petitioners carry on the business of dairy farming and maintain cattle for the purpose. The petitioners'' assessments to income tax for the asst. yrs. 1976-77, 1977-78 and 1978-79 were completed on 14-2-1979, 29-2-1980 and 13-6-1980 respectively. For each of these assessment years the petitioners had claimed and been allowed a loss, inter alia, on the sale or death of cattle on the basis worked out in Schedule E of the notes in their annual accounts.
Even in previous years losses so claimed had been allowed.
On 17-7-1981 the petitioners were served with a notice issued by their ITO. It stated that the petitioners'' assessment orders for the asst. yrs. 1976-77 and 1977-78 required amendment as there was in each a mistake apparent from the record within the meaning of s. 154 of the IT Act, 1961. The details of the proposed rectification were given in an enclosed statement and the petitioners were required to show cause there against. The statement said, inter alia, this :
"The company has been allowed loss of Rs. 4,31,086 under s. 36(vi) in respect of animals sold/died. The loss has not been worked out properly. What is allowable under s. 36(vi) is the difference between the actual cost of the animals and amount, if any, realised in respect of the carcasses or animals. No account is required to be taken in respect of the valuation of the animals whether at the beginning of the year or at the close of the year. In the present case, cost of each and every animals is not available on the record. The same may please be ascertained and current loss allowed. This remark is applicable for asst. yr. 1977-78 as well".
The petitioners shown cause on 22-8-1981. They contended that no rectification was called for. In regard to the loss on sale of cattle, the petitioners contended that the loss had been worked out on the basis of actual cost. On 5-5-1982 the petitioners sent to the ITO a further reply in regard to the loss on the sale of cattle.
On 21-5-1982 the ITO wrote to the petitioners that he had reviewed the loss on the sale of cattle starting from the asst. yr. 1976-77 up to the asst. yr. 1980-81. He stated that a close scrutiny of the calculations enclosed by him would show that he had followed a consistent pattern of valuation of closing stock which would be the only scientific alternative for the petitioners in the absence of identification numbers for cattle to show which particular item of cattle was sole or discarded. The ITO stated that his letter should also be treated as a notice under s. 154 of the asst. yr. 1978-79.
This petition challenges the notices dt. 17-7-1981 and 21-5-1982.
It was submitted by Mr. Trivedi, ld. counsel for the petitioners, that this was not a case of a mistake apparent from the record to which the provisions of s. 154 could apply. Sec. 154 entitles the Income tax authority to amend any order passed by it under the provisions of the Act "with a view to rectifying any mistake apparent from the record." In the case of T.S. Balaram, Income Tax Officer, Company Circle IV, Bombay Vs. Volkart Brothers, Bombay, the Supreme Court held that "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 be conceivably two opinions. A decision on a debatable point of law was not a mistake apparent from the record". That this is the present position in law is not in dispute.
As I understood, counsel, cattle which have ceased to give milk are under, as the term is, salvage. Thereafter, they may yield milk or they may fail to do so. Cattle under salvage are valued by the petitioners at 50 per cent of the average cost of acquisition whereas other cattle are valued at 100 per cent of the average cost of acquisition of cattle. This method of valuation of cattle had at all times prior to the first of the impugned notices been accepted by the income tax authorities. By the first of the impugned notices the ITO invoked the provisions of s. 36(1)(vi) of the Act. Sec. 28 deals with income which is chargeable to income tax under the head of ''profit and agains of business or profession''. Sec. 29 provides that the income referred to in s. 28 shall be computed in accordance with the provisions contained in ss. 30 to 43A. Sec. 36 deals with deductions that shall be allowed in computing income under s. 28. By reason of cl. (vi) of sub-s. (1) thereof, a deduction is permissible "in respect of animals which have been used for the purposes of business or profession otherwise than as stock-in-trade and have died or become permanently useless for such purposes, the difference between the actual cost to the assessee of the animal and the amount, if any, realised in respect of the carcasses or animals."
The ITO stated in the first of the impugned notices that the petitioners had been allowed losses under s. 36(1)(vi) in respect of cattle which had been sold or had died but that the losses had not been worked out properly. He stated that no account was required to be taken in respect of the valuation of cattle at the beginning of the year or at the close of the year. He asked that the cost of each and every animal should be ascertained and the correct loss allowed. In the second of the impugned notices, however, he accepted the position that the cost of each and every animal could not be ascertained. This position is not disputed before me.
The petitioners maintain, for the purpose of their business, a large number of cattle. It is not feasible to identify each animal and to maintain a record of the cost of its acquisition. It is reasonable that the average cost of the acquisition of the cattle should be considered. Patently, cattle which do not yield milk for the time being but which may or may not yield milk in future must be valued at something less than the average cost of acquisition. Over the years the Petitioners have valued such cattle, called cattle under salvage, at 50 per cent of the average cost of acquisition. It is proposed by the ITO by the impugned notices to rectify the assessments of the Petitioners for the aforementioned 3 years in regard to this method of valuation. While the ITO may or may not be right in the method of valuation that he proposes to substitute, it cannot be said that the method employed heretofore by the petitioners, and accepted by the Income tax authorities, over the years is an obvious or patent mistake. If at all it is a mistake, it is a mistake, it is a mistake whose discovery will require investigation and debate. Even then there may, conceivably, be two opinions about the proper method of valuation in the particular circumstances.
It is, therefore, not possible to hold that there is a mistake apparent on the record which entitles the ITO to invoke the provisions of s. 154 by the issuance of the impugned notices. The impugned notices must, accordingly, be quashed and set aside and the respondents be restrained from taking any steps pursuant thereto.
Rule absolute accordingly.
No order as to costs.