ORDER
K.B. Menon, Judicial Member
1. This appeal by the department and the cross-objection by the assessee relate to the assessment year 1967-68. The first assessment in the case was set aside by the AAC and a fresh assessment was made on 31-7-1973. The controversy in the present appeal relates to two rectification orders passed with regard to the assessment order made on 31-7-1973, which may conveniently be referred to as the original assessment.
2. The assessee owned three tractors. With regard to two tractors, the assessee had paid interest during the relevant accounting period. In the original assessment, depreciation was allowed only on the written down value of the tractors. The interest paid was not capitalised and added to the WDV and, consequently, no depreciation was allowed on this amount. On 4-3-1976, the assessee applied for rectification of certain mistakes in the original assessment, order. The rectification order was passed by the ITO under Section 154 of the Income-tax Act, 1961 (‘the Act’) on 17-3-1976, wherein the ITO added the interest paid on the balance of the unpaid purchase price to the WDV and allowed depreciation at 25 per cent on the total amount. The interest so added to the WDV came to Rs. 19,632. He made this addition in the case of all the three tractors and allowed depreciation accordingly. Subsequently, on 22-11-1978, the ITO passed another rectification order, which may conveniently be referred to as the second rectification order. As already stated, by the first rectification order, the ITO had added as interest an amount of Rs. 19,632 to the WDV of three tractors. Even according to the ledger maintained by the assessee, there has been no payment of any interest with regard to the third tractor bearing No. 619C No. II. There has been such payment of interest only with regard to the other two tractors. The ITO had, therefore, committed an error in adding the interest amount of Rs. 19,632 to the WDV in the case of the third tractor in the first rectification order. This is clearly a mistake apparent from the records’. It was to correct this mistake that the ITO passed the second rectification order. By the same, he reduced the WDV of the third tractor by the amount of interest, which had been wrongly added to the same. Thus, by the second rectification order, the ITO did not withdraw any relief given by the original assessment order. He only corrected a mistake committed in the first rectification order, which of course, will have the effect of reducing the relief granted by the first rectification order.
3. The assessee filed an appeal against the second rectification order. He raised two contentions. One was that the order is barred by limitation, as the order has been passed beyond four years of the original assessment. The second was that the issue covered by the second rectification order was a debatable one and that the mistake was not apparent from the records. The first contention was rejected by the Commissioner (Appeals), as the second rectification was within four years of the first rectification order. The Commissioner (Appeals), however, accepted the second contention and cancelled the second rectification order.
4. In its appeal, the department questions the correctness of the finding of the Commissioner (Appeals) that the issue involved in the second rectification order was a debatable one and that the mistake corrected was not one apparent from the records. The facts leading to the passing of the rectification order have been set out in paragraph No. 2 above. The learned counsel for the assessee was not able to refute these facts. It is clear from the facts stated that the adding of interest amount to the WDV in the case of the third tractor, was a mistake apparent from the records. No debatable issue was involved in the correction of this mistake. The Commissioner (Appeals) has, therefore, erred in cancelling the second rectification order on the ground that the error was not apparent from the records.
5. In the cross-objection, the assessee questions the correctness of the finding of the Commissioner (Appeals) that the second rectification order was not barred by limitation. As already stated, the second rectification order was beyond four years of the original assessment order but was within four years of the first rectification order,
6. Section 154(l)(a) confers powers on the ITO to amend any order of assessment or of refund or any other order passed by him’. The first contention advanced by the learned counsel for the assessee was that this provision authorises the ITO to amend only an assessment order or a refund order or any other original order and not an earlier rectification order. It was claimed that a rectification order has no independent existence as by that order, what is done is only to correct the assessment order. It was, therefore, claimed that no earlier rectification order was available for further rectification and that what could be rectified is only the original assessment order as rectified by an earlier rectification order.
7. We are unable to accept this contention. In our view, the words ‘any other order’ in Section 154(l)(a) will include an earlier rectification order. The rectification order has an independent existence. Even an appeal has been allowed from the order. There may be cases where the mistake is only in the rectification order and it may not even be reflected in the assessment order as corrected by the rectification order. We are, therefore, of the view that a mistake apparent from the records in an earlier rectification order can be corrected by a subsequent rectification order under Section 154(l)(o).
8. The second contention advanced by the learned counsel for the assessee was that although the mistake occurred in the first rectification order, the mistake became part and parcel of the original assessment order on the passing of the first rectification order, that any subsequent rectification of the mistake will be the rectification of a mistake in the original assessment order and that such a rectification is possible only within four years of the date of the original assessment order. In support of this contention, the learned counsel relied upon the decision of the Gujarat High Court in Ahmedabad Sarangpur Mills Co. Ltd. v. A.S. Manohar, ITO [1976] 102 ITR 712 and that of the Calcutta High Court in Bengal Assam Steamship Co. Ltd. v. CIT [1978] 114 ITR 327. On the other hand, it was contended by the learned departmental representative that the mistake was in the first rectification order, that the same could be corrected within four years of the passing of the first rectification order and that the fact that the first rectification order may effect certain changes in the original assessment order is totally irrelevant.
9. We have considered the matter. In the case of Ahmedabad Sarangpur Mills Co. Ltd. (supra), the mistake sought to be corrected by the second rectification order was not one occurring in the first rectification order. It was a mistake which existed in the assessment order even before the passing of the earlier rectification order. In dealing with this matter, the Gujarat High Court observed that :
… Even assuming as contended by the learned counsel for the revenue that the limitation should commence to run from the first rectification order of May 21, 1965, even then, what was sought to be rectified was the mistake which was committed by the Income-tax Officer in allowing the set off of the loss of assessment year 1954-55 against the business income of the petitioner-company for the relevant assessment year 1961-62. In the aforesaid first rectification order of May 21,1965, the Income-tax Officer had taken the same amount, namely, Rs. 12,39,626, as loss for assessment year 1954-55. It, therefore, cannot be said that what was sought to be done by the respondent herein was in effect and substance the rectification of the order of May 21, 1965. …
In the case of Bengal Assam Steamship Co. Ltd. (supra), from the facts available in the judgment, it would appear that the second rectification was sought with regard to certain mistakes in the original assessment orders and that the mistakes were not connected with the earlier rectification orders. We are inclined to accept the contention of the learned departmental representative that, in the present case, what the ITO has rectified is a mistake committed in the earlier rectification order. We have already held that a rectification order has an independent existence and that it could be rectified by a subsequent rectification order. We are unable to accept the contention of the learned counsel for the assessee that the rectification of a mistake in the earlier rectification order , will amount to rectification of a mistake in the assessment order. If the contention of the assessee is accepted, the ITO will find himself helpless in correcting an accidental error or mistake committed in a rectification order passed by him on the eve of the expiry of four years from the date of the assessment order. This will cause hardship not only to the department but to the assessee also. We are, therefore, of the view that when the mistake sought to be rectified is essentially one committed in the earlier rectification order, the period of limitation for rectifying the mistake should be reckoned from the date of the earlier rectification order and not from the date of the original assessment order. The following commentary of Chaturvedi and Pithisaria’s on Income-tax Law, 3rd edition, volume 3, lends support to the above view :
… However, where the rectification order itself is to be rectified, the period of limitation starts from the date of the first rectification order and not the original order.
The rectification order under appeal is, therefore, within time.
10. In the result, the appeal is allowed and the cross-objection is dismissed.
