R. Balia, J. - (1.) HEARD learned counsel for the parties.
(2.) THIS is an application under Section 256(2) of the Income-tax Act, 1961, at the instance of the Commissioner of Income-tax, Jaipur. The applicant requires this court to direct the Income-tax Appellate Tribunal, Jaipur Bench, Jaipur, to refer the following question said to be a question of law arising out of the Tribunal's order dated March 23, 1981 : "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the issue arising from the order of the Inspecting Assistant Commissioner (Assessment) was highly debatable and it is clearly beyond the purview of Section 13 of the Companies (Profits) Surtax Act, 1964 ?" An application under Section 256(1) was rejected by the Tribunal, inter alia, on the ground that the Tribunal has found as a fact that the amount was set apart by the company which could not be said that it was set apart to meet a known liability or the liability was well known on the date of the balance-sheet and, therefore, the amount set apart as a reserve for bad and doubtful debts was not a provision but a reserve liable to be computed for the purpose of ascertaining the capital deployed for the business under the relevant provisions of the Companies (Profits) Surtax Act, 1964, and, therefore, no question of law arose from the order of the Tribunal. The facts giving rise to this application are that the respondent is a company liable to surtax under the Act of 1964. For the assessment year 1973-74 for computation of capital deployed for the purpose of ascertaining the liability of surtax, it claimed a sum of Rs. 5,50,000 on account of reserve for bad and doubtful debts and advances, as statutory deduction as reserve. The assessment was completed under Section 143(3) of the Income-tax Act read with the provisions of the Act of 1964, by accepting the claim to the said deduction for computing the capital deployed during the previous year relevant to the assessment year 1973-74. The Inspecting Assistant Commissioner vide its order dated August 16, 1997, invoked Section 13 of the Act of 1964 for withdrawal of the allowance of deduction as Rs. 5,55,000 in the computation of capital deployed as a mistake apparent on the face of the record by holding that the said sum was a provision and not a reserve, and rectified the assessment order. The provisions of Section 13 of the Act of 1964 are akin to Section 154 of the Income-tax Act conferring jurisdiction on the concerned authority who has made any order under the Act to rectify a mistake which is apparent from the record. On appeal by the assessee the order was affirmed by the Commissioner of Income-tax (Appeals).
(3.) ON second appeal, the Tribunal allowed the appeal, and held that whether a sum of Rs. 5,50,000 set apart by the assessee constituted a reserve for bad and doubtful debts, or a provision only is highly debatable. For coming to this conclusion, it relied on the decision of the Karnataka High Court in the case of Addl. CIT v. Indian Telephone Industries [1979] 118 ITR 291, in which the Karnataka High Court in similar circumstances held that (page 293) : "Since the sums set apart as 'reserve for bad and doubtful debts' were not in regard to any known liability on the dates of the balance-sheets, we do not find any substance in the contention urged on behalf of the Department." The Tribunal also held that the finding given by the Commissioner of Income-tax (Appeals) itself was debatable as it does not set out admitted facts. Therefore, it cannot be said that the sum was set apart to meet a known liability or the liability was well known on the date of the balance-sheet. Thus, holding that both findings of fact necessary for deciding a question of law and its effect was not a mistake apparent from the record, the Inspecting Assistant Commissioner could not have resorted to his power to rectify the assessment order by invoking Section 13 of the Act of 1964. ;