RECTIFICATION UNDER SECTION 154— SCOPE OF "RECORD"
With a view to rectifying any mistake apparent from the record an income-tax authority referred to in section 116 may,—
(a) amend any order passed by it under the provisions of this Act;
(b) amend any intimation or deemed intimation under sub-section (1) of section 143.
Where any matter has been considered and decided in any proceeding by way of appeal or revision relating to an order referred to in sub-section (1), the authority passing such order may, notwithstanding anything contained in any law for the time being in force, amend the matter which has been so considered and decided.
2. Latest decision of Kerala High Court
In its latest decision the Kerala High Court in Upasana Hospital and Nursing Home Vs. CIT (2002) 253 ITR 507 (Ker): (2002) 19 SITC 554 (Ker), it was held that mistake apparent on face of records is not confined to records of one particular assessment, but entire records of assessee relating to all assessment years can be used as record for rectification of mistake and, therefore, order of rectification was justified.
Full facts and decision is given here below :
(i) Factual Matrix
The assessee is a partnership firm running a nursing home at Quilon. The business premises of the assessee, and the residential premises of the partners and employees were searched by the Income Tax Department on 19.12.1985, recovering cash, deposit receipts, promissory notes, etc. In the assessment, pursuant to search for the assessment year 1986-87 completed on 17.3.1989, the income was assessed at Rs. 24,55,780, which included an addition of Rs.11,67,000. Out of the addition of Rs. 11,67,000, Rs. 8,86,000 was offered by the assessee representing unaccounted cash, promissory notes bank deposits, etc., recovered on search. Though the assessee had constructed a hospital building, and the cost of investment accounted by the assessee was not accepted by the assessing officer, the assessing officer did not make addition on account of unexplained investment for the assessment year 1986-87 in the assessment order dated 17-3- 1989. the Income Tax Officer determined the cost of investment in the hospital building at Rs. 76,42,000 as against Rs. 53,36,000 accounted by the assessee. Therefore, the assessing officer proposed an additional Rs. 22,56,000 towards unexplained investment for the assessment year 1983-84 to 1986-87. However, when the assessment was in fact completed, the assessing officer made addition on account of unexplained investment towards cost of building only for the three assessment years 1983-84 to 1985-
86. These three assessments were contested in appeal before the first appellate authority, who reduced the addition on account of unexplained investment to Rs. 19 lakhs. On further appeals, and in miscellaneous petitions, the Tribunal finally reduced the addition on account of unexplained investments to Rs. 5,07,936 with a direction to the assessing officer to apportion the same for the assessment years 1983-84 to 1986-87. Thereupon, the assessment were modified. The assessee has also no dispute with regard to the unexplained expenditure finally sustained by the Tribunal. There is also no dispute by the assessee in respect of the addition apportioned and made for the assessment years 1983- 84 to 1985-86, because those were assessments, pending in appeal, before the Tribunal and revisions were carried out consequent upon the Tribunal's ultimate order. However, the assessee questioned the validity of the addition, representing unexplained investment, sustained by the Tribunal for the assessment year 1986-87 on the ground that the said addition made by rectification of the assessment for the assessment year 1986-87 originally completed on 17.3.1989, was without jurisdiction. In fact under the order dated 30.4.1990, the addition made on account of unexplained investment in the building for the assessment year 1986-87 was Rs. 4,87,587. An appeal was filed by the assessee against this order apparently issued under section 154 of the Act. The Commissioner (Appeals) pointed out that the addition made on the basis of the order of the Income Tax Tribunal for the assessment years 1983-84 to 1985-86 has to be modified in view of the subsequent order of the Tribunal in a miscellaneous petition filed thereafter, under which the addition was reduced from Rs. 4,87,587 to Rs. 93,209. The assessee filed. Further appeal before the Tribunal, contending that the rectification order under section 154 of the Income Tax Act for the assessment year 1986-87 is without jurisdiction. It was the contention of the assessee that in the original assessment made on 17.3.1989, there was no addition on account of unexplained investment in the building. According to the assessee, even though the Tribunal while disposing of the appeals for the assessment years 1983-84 to 1985-86 ultimately held that an amount of Rs. 93,209 is to be added towards unexplained expenditure in the building for the assessment year 1986-87, the assessing officer cannot revise the assessment under section 154 of the Act. As there was no appeal for the assessment year 1986- 87, the assessing officer also cannot revise the assessment for the year 1986-87 pursuant to the order of the Tribunal for other years is the contention canvassed by the assessee before the Tribunal. However, the Tribunal held that a mistake apparent on the face of the record is not confined to the mistakes in the record of that assessment year alone, but the mistake can also arise in relation to the record for other assessment year also. The Tribunal was of the view that for the purpose of treating the mistake apparent on the face of the record, the assessing officer can refer to earlier years' assessments of the assessee. Accordingly, the Tribunal held that when the Tribunal sustained the addition on account of unexplained expenditure on the building at Rs. 5,97,936 with direction to spread over the same for the assessment years 1983-84 to 1986-87, that is a mistake in the original assessment for 1986-87 dated 17.3.1989, with regard to non-inclusion of addition of Rs. 93,209 sustained. On this reasoning, the Tribunal upheld the order.
(ii) Decision of High Court
The approach of the Tribunal is correct and the mistake arises in the assessment for the assessment year 1986-87 consequent upon changes made in the assessment for 1983-84 to 1985-86 pursuant to the Tribunal's orders. The assessee has no dispute with regard to the ultimate amount of unexplained expenditure sustained by the Tribunal, and to the direction of the Tribunal to spread over the unexplained expenditure for the four assessment years. The only objection is that the Act vests no power on the assessing officer to carry out the finding of the Tribunal for the year, which was not in appeal. The power of rectification under section 154 is to be exercised with reference to the records of the assessee available with the assessing officer, and not with particular reference to the assessment alone. The error apparent on the face of the record cannot be said to be the record of one particular assessment, but the entire record of the assessee relating to all assessments years. The same is the view, taken by the Supreme Court and other High Courts. Section 154 is a section, under which an assessee will also get relief consequent on the changes in the earlier assessment years after appeal or revision, etc. Therefore, one does not find any merit in the contention raised by the assessee regarding the validity of the rectification order issued under section 154 of the Act.