Henri Isidore vs Commissioner of Income Tax

N.V. Balasubramanian, J.—At the instance of the assessee, the Income Tax Appellate Tribunal, Madras, has stated a case and referred the

following question of law u/s 256(1) of the Income Tax Act, 1961, for the assessment year 1977-78, for the opinion of this court :

Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in upholding the order of the Income Tax Officer as not

barred by limitation and, therefore, valid ?

The facts leading to the reference are as under :

The assessment year related to the tax case is 1972-73. For the said assessment year, the Income Tax Officer levied a penalty on the assessee u/s

271(1)(a) of the Income Tax Act, 1961 (hereinafter referred to as ""the Act""), on March 29, 1977, for default in filing the return of income within

the prescribed time. The Income Tax Officer in the order of the penalty passed by him, by mistake, had calculated the amount of penalty leviable at

Rs. 4,569, instead of the correct amount of penalty leviable at Rs. 15,064. The mistake has occurred in the order of penalty as the period of

default was erroneously taken as four months instead of 16 months. Since this mistake was apparent from the, record the Income Tax Officer was

of the view that the order of penalty passed by him should be rectified u/s 154 of the Act. The Income Tax Officer issued a show-cause notice to

the assessee on June 27, 1979, calling for the assessee''s objections and in the absence of any explanation from the assessee, the Income Tax

Officer rectified the order of penalty by an order dated November 20, 1979, determining the correct amount of penalty at Rs. 15,864.

The assessee preferred an appeal challenging the order passed by the Income Tax Officer u/s 154 of the Act on the ground that there was no

mistake in the original order and the Income Tax Officer has no power to deal with the provisions of section 271 of the Act. The Appellate

Assistant Commissioner, however, rejected the assessee''s contention stating that the mistake in the order u/s 271(1)(a) of the Act can be

amended by passing an order u/s 154 of the Act.

Dissatisfied with the order of the Appellate Assistant Commissioner, the assessee preferred a further appeal to the Income Tax Appellate Tribunal.

It was contended before the Appellate Tribunal that the time limit prescribed in section 275 of the Act would equally apply to the order passed u/s

154 of the Act, and therefore, the Income Tax Officer has no power to amend an order passed u/s 271 of the Act. The Appellate Tribunal,

however, rejected the contentions of the assessee and held that the time limit prescribed u/s 275 of the Act would apply only to the first order of

penalty passed by the Income Tax Officer. The Appellate Tribunal also rejected the contention of the assessee holding that the penalty order u/s

271 of the Act can be rectified by the Income Tax Officer invoking the provisions of section 154(1)(a) of the Act. The Appellate Tribunal in this

view dismissed the appeal preferred by the assessee.

The assessee has challenged the order of the Appellate Tribunal and sought for a reference on two questions of law. The first question that was

sought for by the assessee was ""whether, there was a mistake apparent on the record in the original order of penalty dated March 29, ''1977"". The

Appellate Tribunal, however, rejected that question on the ground that the said question sought for did not arise out of the order of the Appellate

Tribunal, but, however, it stated a case and referred the question of law set out supra.

Mr. K. Ramagopal, learned counsel appearing for the assessee, submitted that the source of the power of the Income Tax Officer to levy penalty

is section 271 of the Act and u/s 275 of the Act the order imposing penalty should be passed before the expiration of the two years from the end

of the financial year in which the proceedings were completed. He, therefore, submitted that the last day for passing the order is March 31, 1977,

and the order rectifying the penalty order was passed on November 20, 1979, and, therefore, the order passed is beyond the time limit prescribed

in section 275 of the Act. The further submission of learned counsel appearing for the assessee is that penalty cannot be imposed under the guise of

rectification and when the Income Tax Officer exercised suo Motu power for rectification he, in effect, levies penalty on the enhanced amount and

it is not possible for him to get over the bar of limitation prescribed u/s 275 of the Act and he submitted that the penalty levied has serious

consequences and since section 271 of the Act is penal in nature, the benefit of doubt must be given to the assessee. The sum and substance of the

argument of learned counsel for the assessee is that the source of power on the part of the Income Tax Officer to levy penalty is section 271 of the

Act and after the time limit prescribed u/s 275 of the Act, it is not open to the Income Tax Officer to levy penalty and rectify the order of

assessment by recourse to section 154 of the Act.

Learned counsel for the assessee relied upon the decision of the Supreme Court in the case of Mrs. Khorshed Shapoor Chenai and Others Vs.

Assistant Controller of Estate Duty, Andhra Pradesh and Others, and submitted that it is not permissible for the Income Tax Officer to invoke the

powers of rectification as larger period is prescribed u/s 154 of the Act when section 275 of the Act prescribes a shorter period for the levy of

penalty.

Mr. C. V. Rajan, learned counsel appearing for the Revenue, on the other hand, submitted that the power to levy penalty has been exercised

within the period prescribed u/s 275 of the Act and u/s 154 of the Act it is open to the Income Tax Officer to rectify the mistake in the order of

penalty. His further submission was that the Income Tax Officer by the rectification order has not imposed penalty which was already imposed in

the original order and in the rectification he only rectified the mistake that occurred in the calculation of the penalty in the original order. His

submission was that the provisions of section 154 of the Act would apply to penalty orders as well.

We have carefully considered the submissions of learned counsel appearing for the assessee and learned counsel appearing for the Revenue. The

facts of the case have been set out earlier. There is no dispute that the initial order of penalty was passed by the Income Tax Officer within the time

limit prescribed in section 275 of the Act, namely, on March 29, 1977. The only question is whether the order of penalty passed u/s 271(1)(a) of

the Act can be rectified u/s 154 of the Act. It is relevant to notice that the mistake is with reference to the calculation of penalty and the

quantification of the penalty in the original order was made at Rs. 4,569 instead of the correct amount of Rs. 15,864. The mistake has occurred

because the Income Tax Officer has erroneously taken the period of default as four months instead of 16 months. The question whether the order

of penalty passed u/s 271 of the Act can be rectified has to be considered in the light of the provisions of section 154 of the Act.

The material provisions of section 154 of the Act, in so far as it is relevant for the purpose of the case, reads as under :

Rectification of mistake. - (1) With a view to rectifying any mistake apparent from the record -

(a) the Income Tax Officer may amend any order of assessment or of refund or any other order passed by him;

(b) the Appellate Assistant Commissioner may amend any order passed by him u/s 250 or section 271;...

(e) the Commissioner may amend any order passed by him in revision u/s 263 or section 264.

Section 154 empowers the Income Tax Officer to amend any order of assessment, any order of refund or any other order passed by him. We

are of the view that the expression ""any other order passed by him"" occurring in section 154 of the Act brings within its scope every order passed

by the Income Tax Officer under the Act and that would necessarily include the order passed by the Income Tax Officer u/s 271 of the Act as

well.

In Commissioner of Income Tax, Andhra Pradesh Vs. Sri Ramakrishna Motor Transport, , the Andhra Pradesh High Court was dealing with a

case of the power of the Income Tax Officer to rectify the order cancelling the registration u/s 186 of the Act. The Andhra Pradesh High Court

held that the power of the Income Tax Officer u/s 154(1)(a) of the Act is wide enough to include any order and there is no warrant to apply the

principle of ejusdem generis and cut down the amplitude of the power of rectification u/s 154(1)(a) to orders of assessment and refund, more

particularly in view of the fact that the words ""assessment"" and ""refund"" do not constitute a ""class"" and, therefore, the language employed in section

154 of the Act is wide and brooks no ambiguity. The above decision of the Andhra Pradesh High Court makes it clear that it is permissible for the

Income Tax Officer to rectify any order passed by him under the provisions of the Income Tax Act.

Secondly, section 154(1)(b) of the Act empowers the Appellate Assistant Commissioner to amend any order passed by him u/s 250 or section

271 of the Act and it shows that Parliament has empowered the Appellate Assistant Commissioner, and he is one of the authorities mentioned in

section 271 of the Act to levy penalty, to rectify the order of penalty passed by him u/s 271 of the Act. If that is the intention of Parliament, there is

absolutely no reason why the power of rectification should be denied to the Income Tax Officer who is also one of the authorities mentioned in

section 271 of the Act to levy penalty.

Thirdly, the question whether the order can be rectified under the provisions of section 154 of the Act, has to be tested on the language

employed u/s 154 of the Act and the condition prescribed u/s 154 of the Act. If the ingredients found in section 154 of the Act are satisfied we are

of the opinion that the order passed by the Income Tax Officer u/s 271 of the Act is also liable to be rectified provided, other conditions found in

section 154 of the Act are satisfied.

There is no dispute that the source of power of the Income Tax Officer and the Appellate Assistant Commissioner, to levy penalty is u/s 271 of

the Act and when the Income Tax Officer has initiated penalty proceedings and completed the penalty proceedings within the period prescribed u/s

275 of the Act, and if there are certain mistakes which are apparent on the face of the record in the order of penalty, the Income Tax Officer has

necessary power to rectify the same u/s 154 of the Act. The period prescribed u/s 275 of the Act within which the order imposing penalty should

be passed in our opinion, apply only to the initial order of the first order, of penalty which would be passed by the competent authority. This court,

in the case of Commissioner of Income Tax Vs. Sara Enterprises, , following the decision of the Rajasthan High Court in the case of J.P. Sharma

and Sons Vs. Commissioner of Income Tax, , and the decision of the Gujarat High Court in the case of CIT v. Vakharia Cotton Traders [1936]

161 ITR 441, has taken the view that the bar created by the provisions of section 275 of the Act would apply only to the initial order of penalty

and if an order of penalty is passed on account of the direction of the higher authority in appeal or on revision, or on account of an answer given by

the High Court, then, the time limit laid down in section 275 of the Act will not apply. Applying the principles laid down by the decision of this

court cited supra, we hold that the provisions of section 275 of the Act would apply only to the case of the first order of penalty passed by the

authority. If the order of penalty was passed within the time limit prescribed u/s 275 of the Act, it is not necessary to refer to the time limit

prescribed u/s 275 of the Act, if there are mistakes in the order of penalty. The source of the power of the Income Tax Officer is section 154 of

the Act, when he rectifies the order of penalty and only the time limit prescribed u/s 154 of the Act would apply, provided other conditions of

section 154 of the Act are fulfilled. The decision relied upon by learned counsel appearing for the assessee in the case of Mrs. Khorshed Shapoor

Chenai and Others Vs. Assistant Controller of Estate Duty, Andhra Pradesh and Others, , in our opinion, has no application to the facts of the

case. As rightly contended by learned counsel for the Revenue, the Income Tax Officer has already imposed penalty by the original'' order dated

March 29, 1977, and there was a mistake in the quantification of the penalty and the mistake was sought to be rectified in the order passed by him

u/s 154 of the Act. We are of the view that by rectifying the mistake and calculating the correct amount of penalty, the officer is not imposing a

penalty as penalty proceedings have already been initiated and penalty was imposed by the original order. The Appellate Tribunal has found that

the other conditions of the provisions of section 154 of the Act are fully satisfied.

We also do not find any force in the contention of Mr. K. Ramagopal, learned counsel for the assessee, that section 154 of the Act is placed

under Chapter XIV, procedure for assessment and, therefore, the Income Tax Officer is not empowered to pass an order of rectification. A close

study of section 154 of the Act shows that it applies not only to the order of assessment, but also to an order of refund. As already noticed by us,

it applies to any other order passed by the Income Tax Officer. According to us, section 154(1)(a) applies to any order passed by the Income Tax

Officer and if there are mistakes which are apparent in the records, it is open to the Income Tax Officer to rectify the same. Further, the Appellate

Assistant Commissioner is also empowered to pass an order rectifying the order passed by him u/s 271 of the Act. Section 154(1)(b) of the Act

indicates that it is not only confined to an order of assessment, but it also extends to the order of penalty passed under Chapter XXI, ""penalties

imposable"". Further more, the Commissioner of Income Tax is also empowered to amend any order passed by way of revision and the provisions

relating to revision are found in Chapter XX, ""appeals and revision"". Under the said provision, the Commissioner is also empowered to pass an

order of rectification in the order of revision passed by him. Thus section 154 of the Act gives the indication that section 154 of the Act is not

restricted to orders of assessment passed under Chapter XIV, ""procedure for assessment"" but extends to orders of penalty as well. Therefore, we

reject the contention of Mr. Ramagopal, learned counsel for the assessee, in this regard as untenable.

We find no error or any infirmity in the order of the Appellate Tribunal in holding that the Income Tax Officer was competent to rectify the

order of penalty u/s 154 of the Act. Accordingly, we answer the question of law referred to us in the affirmative and against the assessee.

However, in the circumstances of the case, there will be no order as to costs.