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Opinion - Taxation


A take on mistake

Mohan R. Lavi

Mohan R. Lavi on the need to evolve general principles on `mistakes'

THE Income-Tax Act gives assessing officers (AOs) the opportunity to rectify mistakes apparent from the records to provide assessees an exit option when the fault is with the Department.

What constitutes a mistake apparent from the record and other issues came up before the Calcutta High Court in Vijay Mallya vs Assistant Commissioner of Income Tax (2003 133 Taxman 552 Calcutta).

Facts

The facts of the case were that the assessee, an Indian citizen, had claimed to have left India in connection with employment outside. The AO treated the assessee as `non-resident' even though he was in India for more than 365 days within the preceding four years. For the assessment year (AY) 1989-90, the assessee was a resident. He should have been ordinarily resident.

The Assistant Commissioner issued a notice for rectification under Section 154. The assessee challenged the notice when a single judge dismissed the writ petition on the ground that the absence of reason in the assessment order was a mistake apparent from the record and justifiable under Section 154.

The arguments

The assessee argued that the single judge had held that the absence of reason in the assessment order is a mistake apparent from the record. The AO has not disclosed the reason for his holding the assessee `non-resident' despite the assessee disclosing his status as `resident but not ordinarily resident'. In an order favourable to the assessee, the AO is not supposed to give any reasons.

The proceeding is not an adversary one, requiring giving of reasons to support the finding. Therefore, absence of reason cannot be held to be an error apparent from the record. He had judicial help in S. S. Gadgil vs Lal & Co (1964 53 ITR 231 SC) and CIT vs South Indian Bank Ltd (2001 249 ITR 304 SC).

The Revenue contended that the petitioner had come at the notice stage. All these points could have been raised in answer to the said notice. This question had actually been raised by the petitioner in his reply to the notice. Before this could be decided, he rushed to the court.

When these matters could have been thrashed out before the authority which had issued the notice effectively and efficaciously in view of the existence of alternate remedy, the writ petition cannot be maintained.

Judgment

After hearing the arguments, the Calcutta High Court held that a writ petition cannot be entertained when there is an alternative efficacious remedy. The remedy available under the provisions of the Act in the proceedings itself is an efficacious and adequate alternative remedy.

But in the instant case, the writ petition was entertained and had been kept pending for quite some time. Affidavits had since been exchanged. It would be iniquitous to relegate the petitioner to an alternative remedy after such a long time on the principle enunciated in L. Hirday Narain vs CIT (1970 78 ITR 26 SC). It was held that existence of an alternative remedy would not be a bar in entertaining a writ petition.

The assessee had submitted his reply and without waiting for a decision in the proceeding had rushed to the court and moved the writ petition. On that principle, the writ court could have refused to entertain the writ petition and exercise its discretion at the initial stage. But it had not done so and had entertained the same and kept the matter pending. Therefore, the question of estoppel would not be fatal.

Even if the assessee had come to the court within a very short-term, the estoppel would not stare on his face inasmuch as the writ jurisdiction is invoked for speedy remedy. If the assessee had come after waiting for long , the estoppel could have operated.

Section 154 can be invoked for rectification of a mistake apparent from the records. The mistake contemplated under Section 154 must be one that is apparent on the face of the records. It must be obvious, clear and patent. It must not be a mistake to establish which a long-drawn process of reasoning and arguments is required on points on which there may conceivably be two opinions. It must not be a debatable point of law. It must be a patent and apparent mistake in the assessment. It must not be a question with regard to which two different views may be possible or with regard to which two different opinions can formed. It must be a glaring, obvious or self-evident mistake of fact or a mistake of law, in respect of which there cannot be any two opinions and it should not be one in order to establish which a long-drawn process of arguments or reasoning is to be advanced.

Section 154 empowers the income-tax authority to rectify a mistake apparent from the records. The jurisdiction can be assumed to rectify any mistake apparent from the records. Unless there is a mistake apparent from records, the jurisdiction to rectify cannot be assumed. The mistake apparent from the records is a sine qua non for exercising the jurisdiction under Section 154.

Absence of ingredients to satisfy the existence of mistake apparent from the records disentitles the income-tax authority from exercising its jurisdiction of rectification. Unless there is a mistake apparent from the records, there is nothing to be rectified. If two opinions can be formed, it will not be a case of rectification. It will be taking a different view in law, which is possible only by a superior authority and not by the same authority.

Section 154 does not empower the income-tax authority to usurp the jurisdiction for appellate or revisional jurisdiction exercised by a superior authority. Section 154 cannot be resorted to for obviating the appellate or revisional jurisdiction.

Answering the query whether absence of reasoning would be mistake apparent from the records, the court held that such a proposition would not be a sound one inasmuch as the proceeding undertaken by the AO is not adversary. It is not an adjudication of a civil dispute. It is not in the nature of a judicial proceeding between the contesting parties. It is not a matter capable of a plausible argument.

The AO is empowered to assess the tax. But he does not act as a judge deciding litigation between the citizen and the state. He is an administrative authority — the proceeding is regulated by statute. His function is to estimate the income of the taxpayers and to assess him to tax on the basis of this estimate. Tax legislation necessitates the setting up of machinery to ascertain taxable income and to assess tax on the income between the citizen and the state. Therefore, in estimating or assessing the taxable income and tax on income, it is not necessary to give reasons where the decision is in favour of the assessee. Therefore, absence of reasons cannot be a mistake apparent from the record.

The confusion over the residential status of the assessee was a question of law which can be a ground for rectification under Section 154 provided the mistake is glaring and apparent.

In the instant case, the mistake was not patent, obvious, clear and apparent from the records. The mistake could not be detected without a long-drawn process of reasoning on points on which two opinions are possible. The notice was held to be illegal since the grounds were not within the parameters laid out by Section 154.

Let's have a standard

In spite of a plethora of cases on the issue of mistake apparent from the record, we are still myopic about what would constitute a mistake. Courts seem to be judging such cases on the specifics.. Time has come for the CBDT to develop standards for mistakes apparent from the record.

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