Law:

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Section 154 of the Income-tax Act, 1961 - Rectification of mistakes - Apparent from records - Assessment year 1964-65 - Business income of assessee firm and capital gains were both allocated amongst partners - ITO did not take into consideration amount of capital gains for calculation of income-tax payable by assessee - He subsequently rectified his mistake under section 154 and included capital gains for calculation of tax payable by assessee - Whether there was no mistake apparent from record and it was not competent for ITO to go into true scope of provisions of Act in rectification proceedings under section 154 - Held, yes FACTS The business income of the firm and the capital gains were both allocated amongst the partners in accordance with the relevant provisions of the Act. For the assessment year in question , originally no income-tax was charged from assessee firm, as the amount representing capital gains was not taken into consideration for the purpose of calculating the income-tax payable by the firm under section 182. Subsequently, the ITO found that he had committed a mistake, in not including the capital gains in the income of the firm for the purpose of determining the income-tax payable and treating this mistake as a mistake apparent from the record, he rectified the same under section 154. The AAC upheld the order of the ITO. The Tribunal held that for the purpose of computing the income-tax payable by a registered firm under section 182, the capital gains should not be included in the total income. It also held that the rectification proceedings under section 154 were not maintainable as there was no mistake apparent from record and that the controversy was highly debatable. On reference: HELD In view of the decision of the Supreme Court in T.S. Balaram, ITO v. Volkart Brothers [1971] 82 ITR 50 , it was to be held in the instant case that the ITO was wrong in holding that there was a mistake apparent from the record of assessment of the assessee-firm and it was not competent for him to go into the true scope of the provisions of the Act in rectification proceedings under section 154. Therefore, the rectification order under section 154 was not…

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