JUDGMENT
C. N. Ramachandran Nair, J.
1. The income-tax reference case is about the validity of a rectification order passed by the Income-tax Officer under Section 154 of the Income-tax Act, 1961, for the assessment year 1986-87. The
question referred by the Tribunal at the instance of the assessee is the following :
“Whether the Income-tax Appellate Tribunal was right in law in upholding the validity of the order under Section 154 dated April 30, 1990, as an order of rectification in respect of a mistake apparent on record ?”
2. 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 December 19, 1985, recovering cash, deposit receipts, promissory notes, etc. In the assessment pursuant to search for the assessment year 1986-87 completed on March 17,1989, 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 March 17, 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 addition of Rs. 22,56,000 towards unexplained investment for the assessment years 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 investment 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 assessments 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 March 17, 1989, was without jurisdiction. In fact under the order dated April 30, 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 of
Income-tax (Appeals) pointed out that the addition made on the basis of the
order of the Income-tax Appellate 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
March 17, 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 can
not 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 years 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 March 17, 1989, with regard to non-
inclusion of addition of Rs. 93,209 sustained. On this reasoning, the Tribunal
upheld the order. It is against mis order that the assessee got the above question referred to this court.
3. We have heard Sri C. K. Nair, counsel for- the assessee, and Sri P. K. R. Menon, senior standing counsel for the Revenue.
4. As already pointed out, the short question is whether the finding of the Tribunal that an amount of Rs. 93,209 is the addition to be made on account of unexplained expenditure in the building for the assessment year 1986-87, while disposing of the appeals for the assessment years 1983-84 to 1985-86, can give rise to a mistake in the assessment for the assessment year 1986-87 that can be rectified under Section 154 of the Income-tax Act. The assessee’s counsel contended that the assessment dated March 17, 1989, for the assessment year 1986-87 was not the subject-matter of any appeal before the
Tribunal. Accordingly, no revision can be made by the Income-tax Officer pursuant to the appellate order of the Tribunal. The further contention of counsel for the assessee is that the mistake apparent on the face of the record should be confined to the record of the assessment year 1986-87, which does not disclose any unexplained expenditure on the building. In other words, the orders for earlier assessment years cannot be treated as record for rectification of mistake for a later assessment. On the other hand, the Revenue’s counsel contended that the record of the case is not the record of the assessment year alone, but it comprises all the proceedings in the file of the assessee available with the Department. In fact, the reliefs like depreciation on the basis of the written down value, carry forward loss, are related matters and when there is a change in one assessment consequent on appeal or revision, the same has to be carried out in the next year only by rectification. Therefore, according to counsel for the Revenue, when there is a final decision by the Tribunal sustaining the unexplained expenditure on the building for the four assessment years 1983-84 to 1986-87, with a direction to the Assessing Officer to apportion the amount for all these years, consequential orders have to be passed in respect of the assessments under appeal and for other years, the Tribunal’s order can be given effect to only by rectification proceedings under Section 154 of the Act. Apart from the above decisions relied upon by the Tribunal, counsel for the Revenue has brought to our notice the decisions of the Supreme Court in Maharana Mills P. Ltd. v. ITO [1959] 36 ITR 350 ; T.S. Balaram, ITO v. Volkart Brothers [1971] 82 ITR 50 and Mahendra Mills Ltd. v. P. B. Desai, AAC [1975] 99 ITR 135; and that of the Madras High Court in CIT v. M. R. M. Plantations P. Ltd. [1999] 240 ITR 660, all to the effect that a mistake on record is not confined to an assessment year’s file alone.
5. From the above, we find that 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 assessments 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. We feel that 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 the assessment years. The same is the view taken by the Supreme Court and other High Courts in the decisions referred to above. 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, we do 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. The reference is accordingly answered in favour of the Revenue and against the assessee.