Supreme Court Upholds Income-tax Officer's Rectification of Written Down Value Under Section 35 of Indian Income-tax Act, 1922. Rectification of Depreciation Calculation Was Valid Despite Absence of Written Notice to Assessee Because Assessee Had Actual Opportunity of Being Heard.

Writ petition under Articles 226 and 227 of the Constitution of India challenging the Income-tax Officer's order passed under Section 35 of the Indian Income-tax Act, 1922, rectifying the written down value and depreciation allowance.

The appellant sought quashing of the Income-tax Officer's order dated February 27, 1956, and an injunction restraining the Income-tax Officer from recovering the assessed tax.

The appellant contended that the rectification order was passed without written notice, exceeded jurisdiction under Section 35, and improperly recalculated depreciation suo motu beyond the mistakes pointed out by the assessee.

The High Court of Bombay dismissed the writ petition on grounds of misstatements of fact, availability of adequate alternative remedy under Section 33A, and on merits. The appellant obtained special leave to appeal to the Supreme Court.

Whether the absence of a written notice under Section 35 of the Indian Income-tax Act, 1922 invalidates the rectification order when the assessee had actual notice and opportunity of being heard. Whether the expression 'mistake apparent from the record' in Section 35(1) empowers the Income-tax Officer to examine the entire record, including previous years' depreciation calculations, and to recalculate written down value. Whether the Income-tax Officer can exercise suo motu jurisdiction under Section 35 to correct mistakes beyond those pointed out by the assessee.

Appellant argued that no written notice as required under Section 35 read with Section 63 was given before rectification of written down value and depreciation. Appellant argued that Section 35 was not meant for correcting written down values; the correct provision was Section 34 which specifically refers to excessive depreciation. Appellant argued that the Income-tax Officer exceeded jurisdiction by calculating depreciation on written down value suo motu and could correct only those mistakes pointed out by the assessee. Respondent argued that the remedy under Article 226 is discretionary and the High Court had correctly refused to exercise it because an adequate alternative remedy was available under Section 33A. Respondent argued that the correctness of depreciation figures was discussed with the appellant's Secretary, who agreed to the rectification, and therefore the requirement of notice was satisfied. Respondent argued that the Income-tax Officer was entitled to examine the whole record including previous calculations and applicable law to ascertain and rectify any mistake apparent from the record.

Under Section 35(1) of the Indian Income-tax Act, 1922, 'record' includes the entire proceedings and evidence on which the assessment order is based; the Income-tax Officer may examine the whole record, including previous years' computations and applicable law, and rectify any mistake apparent from the record. The requirement of notice is satisfied if the assessee is actually heard and the matter discussed, even without a written notice. The Income-tax Officer is not confined to mistakes pointed out by the assessee but may suo motu correct apparent mistakes, provided that if the effect is to enhance assessment or reduce refund, the assessee must be given a reasonable opportunity of being heard.

The object of the provision as to notice under s. 35 is that no order should be passed to the detriment of an assessee without affording him an opportunity for being heard and that if, as a matter of fact, the assessee knew of the proceedings and the matter had been discussed with him, an adverse order would not be invalid merely because no written notice was given. The word 'record' used in the phrase 'mistake apparent from the record' in s. 35(I) of the Act refers not only to the order of assessment but comprises all proceedings on which the assessment order is based and the Income-tax Officer is entitled for the purpose of exercising his jurisdiction under s. 35 to look into the whole evidence and the law applicable to ascertain whether there was an error. A mistake contemplated by this section is not one which is to be discovered as a result of an argument but it is open to the Income-tax Officer to examine the record including the evidence and if he discovers any mistake he is entitled to rectify the error provided that if the result is enhancement of assessment or reducing the refund, then notice has to be given to the assessee and he should be allowed a reasonable opportunity of being heard.

The appellant was assessed to income-tax for the assessment year 1953-54 under the Indian Income-tax Act, 1922; the assessment order dated June 30, 1955 allowed depreciation of Rs. 3,48,105. On August 8, 1955, the appellant filed an application under Section 35 for rectification of certain mistakes. The Income-tax Officer passed an order on February 27, 1956, recalculating the written down value and reducing the depreciation to Rs. 1,94,074. The appellant protested by letters dated March 9, 1956, but the Income-tax Officer rejected the objections. The appellant filed a writ petition under Articles 226 and 227 in the High Court of Bombay, which dismissed it on November 26, 1957. The appellant then appealed to the Supreme Court by special leave.

• Indian Income-tax Act, 1922: Section 10(2)(vi), Section 35(1), Section 35, Section 63, Section 34, Section 33A
• Finance Act, 1950:
• Saurashtra Income-tax Ordinance, 1949: