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1982 Supreme(Cal) 378
High Court Of Calcutta
SABYASACHI MUKHERJI, SUHAS CHANDRA SEN
SUNDARDAS THACKERSAY AND BROS - Appellant
Versus
COMMISSIONER OF INCOME-TAX - Respondent
Income-Tax Reference 351 Of 1979
Decided On : 12/13/1982
A.C.MAITRA, A.N.Bhattacharji, S.BHATTACHARJEE
Under Section 154 of the Income Tax Act, 1961, a formal notice is not required for rectification of mistakes if the assessee is made aware of the ITO's intention to rectify and is given a reasonable opportunity to show cause.
Headnote:
INCOME TAX - Section 154 - Rectification of mistake - Assessee's consent - No formal notice required - Tribunal's decision upholding rectification upheld.
Fact of the Case:
The assessee, a registered firm, was penalized under Section 271(1)(a) of the Income Tax Act, 1961 for delay in filing returns. The ITO, realizing that he had erred in calculating the quantum of penalty, issued rectification orders under Section 154 of the Act. The assessee challenged the rectification orders before the AAC and the Tribunal, arguing that no notice was issued as required under Section 154(3) and that the enhancement of penalty was detrimental to them.
Finding of the Court:
The Tribunal found that the assessee had not objected to the rectification of the penalty calculation and that the assessee was made aware of the ITO's intention to rectify the order under Section 154. The Tribunal held that no formal notice is required under Section 154 and that the assessee had been given a reasonable opportunity to show cause.
Issues: 1. Whether the ITO was justified in rectifying the mistake in the calculation of penalty under Section 154 of the Act without issuing a formal notice to the assessee? 2. Whether the assessee's consent to the rectification rendered the notice requirement under Section 154(3) redundant?
Ratio Decidendi: 1. Section 154 of the Income Tax Act, 1961 does not prescribe a formal notice for rectification of mistakes. 2. The assessee's consent to the rectification, as evidenced by the order sheet entry, satisfied the requirement of providing a reasonable opportunity to show cause.
Final Decision: The Tribunal's decision upholding the rectification orders was upheld. The question referred by the Tribunal was answered in the affirmative, in favor of the Revenue.
( 1 ) THE Tribunal has referred to us the following question :" Whether, on the facts and in the circumstances of the case, the Tribunal was justified in upholding the orders dated 15th February, 1968, passed by the Income-tax Officer under Section 154 of the I. T. Act, 1961 ? "
( 2 ) THE assessee is a firm registered under the Act. The assessment years are 1963-64 and 1964-65.
( 3 ) AS there was delay of two months in filing the returns of income for each of the years under reference, the ITO imposed penalty under Section 271 (1) (a) of the Act, vide his orders both dated 16th November, 1967. The ITO worked out the quantum of penalty on the basis of the assessed tax payable by the assessee as a registered firm. Against the said orders of the ITO, the assessee preferred appeals before the AAC. Pending the said appeals, the ITO noticed that the quantum of penalty worked out by him was not in accordance with the provisions of Section 271 (2) of the Act, Inasmuch as he had worked out the quantum of penalty on the basis of the assessed tax payable by the assessee as a registered firm instead of treating it as an unregistered firm for this limited purpose, he, therefore, enquired of the assessee whether it had any objection to the rectification of the obvious mistake in the calculation of the quantum of penalty imposable under Section 271 (1) (a) read with Section 271 (2) of the Act. On 23rd January, 1968, the ITO made the following noting in the order sheet :" Sri Jirji Thakersay appears to say that the assessee has no objection to rectification in the matter of calculation of penalty Under Section 271 (1) (a) which is apparent from record ".
( 4 ) THEREFORE, on 13th March, 1968, the ITO passed orders under Section 154 of the Act, whereby he worked out the correct quantum of penalty as contemplated under Section 271 (1) (a) read with Section 271 (2) of the Act and issued demand notices and challans accordingly.
( 5 ) ON 7th March, 1968, the AAC passed a consolidated order in respect of the appeals preferred by the assessee against the orders of the ITO dated 16th November, 1967, made under Section 271 (1) (a) of the Act, wherein the AAC held that " the quantum of penalty " imposed is as per the provisions of the Act and, therefore, cannot be considered as excessive.
( 6 ) IN appeals before the AAC against the orders of the ITO passed under Section 154 of the Act, it was contended on behalf of the assessee that, (i) since there was no mistake apparent on record, the ITO was not justified in passing orders under Section 154 of the Act, whereby he enhanced the quantum of penalty, (ii) as the ITO had not given notices has contemplated under Section 154 (3) of the Act before passing orders under Section 154 of the Act, the penalty proceedings were bad in law, and (iii) the AAC by his order dated 7th March, 1968, had processed the assessee's case by observing that the quantum of penalty imposed was as per the provisions of the Act and cannot, therefore, be considered excessive. Overruling the contention of the assessee, the AAC upheld the action of the ITO.
( 7 ) BEING aggrieved by the order of the AAC, the assessee came up in appeal before the Tribunal. At the outset, the learned representative for the assessee very fairly stated that he cannot possibly dispute the application of the provisions of Section 271 (2) of the Act. He, however, submitted that since the ITO had not issued notices in writing as contemplated under Section 154 (3) of the Act, nor did he verbally inform the assessee of the proposed rectification, the entire proceedings were ab initio bad in law. In this connection, he referred to the decisions of the Tribunal as well as of the High Court in the case of Lohia Jute Press (Pvt.) Ltd. wherein, dealing with the provisions of Section 23a of the Indian I. T. Act, 1922, it was held that the assessee should be given an opportunity of being heard before passing an order under Section 23a of th
