M.B. Farooqi, J. - (1.) FOR a proper appreciation of the facts it will be convenient to set out the following family pedigree : JUDGEMENT_487_ITR121_1980Html1.htm Brij Mohan and his sons, Murari Lal and Prabhat Kumar, constituted a partnership firm called M/s. Bhauram Jawahirmal, the assessee before us. On 22nd August, 1960, Murari Lal purported to make a gift of Rs. 10,000 to his sister, Saroj Kumari. On September 21, 1960, Brij Mohan purported to make a gift of Rs. 10,000 to his second daughter-in-law, Sita Devi. The gifts were effected by transfer entries in the books of the assessee-firm. FOR the assessment year 1961-62, the assessee claimed deduction of interest credited in the accounts of Saroj Kumari and Pushpa Devi by reason of the amounts gifted to them on August 23, 1960, and September 21, 1960. The ITO repelled the claim. Equally so the AAC held that these were cross-gifts. The assessee took the matter in appeal before the Income-tax Appellate Tribunal. The Tribunal did not agree with the AAC that the gifts constituted cross-gifts. However, it agreed with the case of the revenue that the same were invalid on the ground that the cash balance in the books of account of the assessee on the respective dates of the gifts were not sufficient to enable the donors to make the gifts. In that view the Tribunal upheld the disallowance of the deduction. On a reference, this court took the view that the sole consideration which prevailed with the Tribunal that the cash balance available with the assessee-firm was inadequate for covering the amounts gifted by the donors by transfer entries made in the assessee's books was insufficient to invalidate the gifts. The court held that there was no suggestion that the transactions were not bona fide nor even that the gifts were not acted upon. In conclusion, the court held that these two gifts were valid. There was a third gift also involved in the case, but we are not concerned with that gift in the present case. The decision of this court is Bhau Ram Jawaharmal v. CIT [1971] 82 ITR 772 (see para. 6 of the Tribunal's order dated 3rd May, 1974).
(2.) IT appears that, in the meantime, the assessments for subsequent years were completed. We are concerned in this case with the assessment years 1962-63 and 1967-68. For these years the assessee claimed deduction of interest credited in the accounts of the donees on the basis of the aforesaid two gifts as also on the basis of one made subsequently on October 22, 1960, by Brij Mohan to Smt. Sita Devi. The ITO and the AAC both disallowed the deduction on the common ground that the assessee did not pursue the matter further for these years. On August 6, 1971, the assessee filed an application for rectification under Section 154 of the I.T. Act, 1961. The assessee prayed that on the basis of the judgment of this court in the reference for the year 1961-62, the interest paid on the aforesaid gifts may be deducted from its income, inter alia, for the years 1962-63 and 1967-68. The AAC rejected the application. On appeal, the Tribunal upheld the order of the AAC. At the instance of the assessee, the Tribunal has now referred the following question of law for our opinion: "Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the application of the assessee under Section 154 requesting for rectification of the orders of the Appellate Assistant Commissioner for the assessment years 1962-63 and 1967-68 was rightly rejected by the Appellate Assistant Commissioner? " The AAC rejected the application observing : "A subsequent decision of the High Court cannot lead to rectification of the orders of the Appellate Assistant Commissioner which were passed earlier in the light of the interpretation of law prevailing at that time when those orders were passed. The Tribunal has expressed the same difficulty in these words : "If the matter is open, the subordinate courts are bound to follow the High Court's decision under the same set of facts, but the question here is not that but whether an order already passed would become erroneous after that decision, to be corrected as a mistake apparent from the record. In such a situation it is not possible to hold that there are errors in the appellate order. What the assessee wants is not a rectification but a review of the order passed and that is not permissible in these proceedings."
(3.) THESE observations convey that if a mistake is revealed in an order of assessment on the basis of a judgment of the High Court rendered subsequently, it will, under no circumstances, constitute a mistake apparent from the record. We are unable to subscribe to this view. It contains a statement of law which is much too wide. Although it will be difficult to lay down the circumstances under which a mistake discovered in an assessment order on the basis of a subsequent judgment of the High Court would be a mistake apparent on the record, one thing is clear to us : where an order of assessment is based upon a decision of the Tribunal which was the subject-matter of reference to the High Court, when the order was made, then any error discovered in the order, on the basis of the subsequent judgment of the High Court on that reference, would be an error apparent from the record. We say so because, in the circumstances, it will be assumed that the law declared by the High Court, even if such declaration was made subsequently, was the only correct law applicable at the time when the order was made. Therefore, if the authority making the order has not applied that law, the mistake is obvious and self-evident and does not call for any debate or discussion to discover it. Where that is so, it would constitute a mistake apparent from the record as contemplated by Section 154 of the I.T. Act, 1961. It was so held by a Division Bench of this court in CIT v. Sir Shadi Lal Sugar Mills [1978] 114 ITR 729. The court observed (p. 731): "On the decided cases it seems settled that a mistake, to be apparent on the record within the meaning of Section 154 of the Act, ought to be a mistake which does not require any elucidation or debate for its discovery." In this background, let us proceed to deal with the relevant orders.;