CIVIL APPEAL NO. 5412 OF 2007
(arising out of S.L.P. (C) No. 5551 of 2007)
S. H. Kapadia, J.
granted in this special leave petition.
2. A short question which arises for
determination in this civil appeal filed by the assessee concerns
application of Section 154 of the Income Tax Act, 1961 ("1961 Act")
which provides for rectification of any mistake apparent from the record
by any income tax authority. It may be mentioned at this stage that the
words "rectification of any mistake apparent from the record" find place
in section 254(2) of the said 1961 Act.
3. Assessee company is engaged in the manufacture of portable generator
sets in technical collaboration with Honda Motor Company, Japan. In this
civil appeal, we are concerned with assessment year 1991-92. On
30.12.1991 return of income was filed by the assessee declaring nil
income. During the relevant year, the assessee had taken a term loan in
foreign exchange for the import of machinery. On account of fluctuation
in foreign exchange rate, the liability of the assessee to repay the
loan in terms of rupees went up by Rs. 7,10,910. By referring to the
provisions of section 43A, the assessee enhanced the figure of W.D.V.
(written down value) of the block of assets and claimed depreciation
accordingly. The A.O. came to the conclusion that such revision in the
actual cost was not admissible as section 43A refers to adjustment qua
the actual cost of the machinery on account of increase or decrease in
the liability of unpaid loans utilized for the purchase of machinery.
4. Aggrieved by the said decision,
the matter was carried in appeal by the assessee before CIT(A) who took
the view that the claim of the assessee was admissible in view of the
fact that in the year preceding assessment year 1991-92 increased
depreciation was given to the assessee.
5. On this aspect, therefore, the
Department carried the matter in appeal to the I.T.A.T. ("the Tribunal")
for both the assessment years 1990-91 and 1991-92. By judgment and order
dated 2.4.2002 the Tribunal held that CIT(A) had erred in allowing the
enhanced depreciation as under section 43A actual payment was a
condition precedent for availing the benefit under that section.
According to the Tribunal, if actual payment was not made after
fluctuation then the value of the asset cannot be increased by adding
the increase on account of fluctuation. On facts, the Tribunal found
that, in the present case, there was no actual payment after the
fluctuation and, therefore, the assessee was not entitled to claim the
benefit under section 43A.
6. On 9.12.2002, the assessee moved
the Tribunal for rectification of mistake apparent from Order dated
2.4.2002. That application was made under section 254(2) which reads as
"BEFORE THE INCOME TAX APPELLATE
HON'BLE "A" BENCH
(HON'BLE VICE PRESIDENT R.M. MEHTA & SH. HON'BLE
IN THE MATTER OF : M/S SHRIRAM HONDA POWER EQUIPMENTS LTD.
ITA NOS. : 5413 & 5414/D/96(A)
5544 & 5545/D/96(D)
ASSESSMENT YEARS: 1990-91 & 1991-92
SUB: APPLICATION U/S 254(2) FOR RECTIFICATION OF MISTAKES IN THE ORDER
MAY IT PLEASE YOUR HONOURS
1. By the captioned order, cross
appeals for assessment years 1990-91 and 1991-92 were disposed of. The
aforesaid appeals were heard on 4.2.2002. After the hearing, the Hon'ble
Bench on the request made, permitted the assessee to file written
submissions in respect of cross appeals for assessment year 1991-92. The
submissions were duly filed on 7.2.2002. The order was passed by the
Hon'ble Tribunal on 2.4.2002.
2. That ground No. 2 of departmental
appeal for assessment year 1990-91 (ITA No. 5544/D/96) and ground No. 3
of departmental appeal for assessment year 1991-92 (ITA No. 5545/D/96)
were against allowance of depreciation on exchange rate fluctuation
which had not been paid by the assessee. This issue was decided by the
CIT(A) in favour of the assessee by relying upon his order in the case
of Samtel Color Ltd. It was submitted during the course of hearing as
also in the written propositions that departmental appeal in the case of
Samtel Color Ltd. was decided by the 'E' Bench of the Tribunal vide
order dated 10.12.2001 wherein, the view of the CIT(A) were upheld. A
copy of the order was placed at pages 48 to 52 of the paper book.
2.1 That, in deciding the aforesaid
ground against the assessee, the Hon'ble Bench inadvertently has not
referred to the decision of Samtel Color Ltd. Since, the order of
coordinate bench of Tribunal which was relied upon was not considered,
and that in forming another view. The view taken by different benches of
the Tribunal was not distinguished, therefore, a mistake apparent from
record has crept in. The issue could not be decided without being
referred to a Special Bench to reconcile the difference, if at all,
between two views. Reference in this regard is invited to the decisions
of Hon'ble Supreme Court in the case of Sundarjas Kanyalal Bhatija &
Others vs. Collector Thane, Maharashtra & Others 183 ITR 130 (SC) and
UOI vs. Paras Laminates Pvt. Ltd. 186 ITR 722 (SC). It is, therefore,
submitted that the order may be rectified.
3. Disallowance under Rule 6D
covered by ground Nos. 3 & 2 for assessment years 1990-91 & 1991-92
respectively were decided against for the reason that requisite details
were not furnished before the authorities below. In respect of
assessment year 1991-92 details of amount disallowable under Rule 6D
were furnished before CIT(A) but the same were not admitted. These very
papers were filed at pages 5 to 26 of paper book filed before this
Hon'ble Tribunal. Papers at page 5 to 7 which included working details
of disallowance under Rule 6D were filed before Assessing Officer.
Similarly papers at pages 8 to 12 are details of professional fee and
the same were also filed before Assessing Officer. Explanation with
reference to each of expenditure was also furnished. The Hon'ble Bench
in deciding the issue inadvertently did not consider the submission made
and as such, a mistake has crept in.
4. Ground No. 4 of appeal for
assessment year 1991-92 which was against disallowance of Rs. 16,011/-
out of sales conference expenses has not been disposed of.
In view of the factual position explained above, it is submitted that
order may be rectified accordingly.
For SHRIRAM HONDA POWER EQUIPMENTS LIMITED
7. In the rectification application,
the assessee pointed out the earlier judgment of the coordinate bench of
the Tribunal dated 10.12.2001 in the case of DCIT, Spl. Range 5, New
Delhi v. Samtel Color Limited in which it was held that enhanced
depreciation was allowable even on notional increase in the cost of the
asset on account of exchange rate fluctuation and despite the fact that
the additional liability resulting from the said fluctuation had not
been paid by the assessee. It was held that the word "paid" in section
43(2) meant amount actually paid or incurred according to the method of
accounting. In this connection, reliance was also placed by the Tribunal
on circular no. 5-P of CBDT dated 9.10.1967.
8. Vide order dated 10.9.2003 the
Tribunal, in the present case, allowed the rectification application
filed by the assessee stating that the judgment of the coordinate bench
in Samtel Color Limited (supra) had escaped its attention.
9. Against the order dated
10.9.2003, the Department carried the matter in appeal to the High Court
vide ITA No. 735/04. By the impugned judgment dated 11.10.2006, the High
Court came to the conclusion, relying on its earlier decisions, that the
power to rectify any mistake was not equivalent to a power to review or
recall the order sought to be rectified. By the impugned judgment, the
High Court came to the conclusion that vide order dated 10.9.2003, in
the guise of rectification, the Tribunal had, in fact, reviewed its
earlier order which fell outside the scope of section 254(2) of the 1961
Act and, consequently, the High Court set aside the order of the
Tribunal dated 10.9.2003. Hence, this appeal.
10. To complete the chronology of events, we may state that vide
judgment dated 30.4.2007 in the case of CIT v. Woodward Governor India
(P) Ltd. reported in (2007) 162 TAXMAN 60 delivered by Delhi High Court
under section 43A, as it stood prior to 1.4.2003, came to be delivered.
By the said judgment, it was held that section 43A was prospective and
not clarificatory as contended by the Department. It was further held
that in cases where the assessee followed the mercantile system of
accounting in terms of section 145 of the 1961 Act, the assessee was
bound to abide by the accounting standards laid down by the Institute of
Chartered Accountants of India ("ICAI"). It was further held that, under
the accounting standards, the liability stood revised in the year in
which the fluctuation of foreign exchange took place in order to reflect
the true state of affairs regarding the business of the assessee and
accordingly, the word "paid" in section 43(2) should be read in the
light of the accounting standards. It was further held that under
section 209(3) of the Companies Act, it was mandatory for companies to
keep accounts on accrual basis only.
11. Suffice it to state that, in
view of the said judgment of Delhi High Court in the case of Woodward
Governer India (P) Ltd. (supra), the view of the co-ordinate Bench of
the Tribunal on section 43A in Samtel Color Ltd. (supra) stood
confirmed. We do not wish to express any opinion on the judgment of the
High Court in Woodward Governor (supra) except to say that judgment of
the co-ordinated Bench of the Income Tax Appellate Tribunal has been
confirmed which circumstance is relevant in deciding Rectification
Scope of the Power of
12. As stated above, in this case we are concerned with the application
under section 254(2) of the 1961 Act. As stated above, the expression
"rectification of mistake from the record" occurs in section 154. It
also finds place in section 254(2). The purpose behind enactment of
section 254(2) is based on the fundamental principle that no party
appearing before the Tribunal, be it an assessee or the Department,
should suffer on account of any mistake committed by the Tribunal. This
fundamental principle has nothing to do with the inherent powers of the
Tribunal. In the present case, the Tribunal in its Order dated 10.9.2003
allowing the Rectification Application has given a finding that Samtel
Color Ltd. (supra) was cited before it by the assessee but through
oversight it had missed out the said judgment while dismissing the
appeal filed by the assessee on the question of admissibility/allowability
of the claim of the assessee for enhanced depreciation under section
43A. One of the important reasons for giving the power of rectification
to the Tribunal is to see that no prejudice is caused to either of the
parties appearing before it by its decision based on a mistake apparent
from the record.
13. "Rule of precedent" is an
important aspect of legal certainty in rule of law. That principle is
not obliterated by section 254(2) of the Income-tax Act, 1961. When
prejudice results from an order attributable to the Tribunal's mistake,
error or omission, then it is the duty of the Tribunal to set it right.
Atonement to the wronged party by the court or Tribunal for the wrong
committed by it has nothing to do with the concept of inherent power to
review. In the present case, the Tribunal was justified in exercising
its powers under section 254(2) when it was pointed out to the Tribunal
that the judgment of the coordinate bench was placed before the Tribunal
when the original order came to be passed but it had committed a mistake
in not considering the material which was already on record. The
Tribunal has acknowledged its mistake, it has accordingly rectified its
order. In our view, the High Court was not justified in interfering with
the said order. We are not going by the doctrine or concept of inherent
power. We are simply proceeding on the basis that if prejudice had
resulted to the party, which prejudice is attributable to the Tribunal's
mistake, error or omission and which error is a manifest error then the
Tribunal would be justified in rectifying its mistake, which had been
done in the present case.
14. For the aforestated reasons, the impugned judgment of the High Court
is set aside and the order passed by the Tribunal allowing the
rectification application filed by the assessee is restored.
Consequently, the appeal is allowed with no order as to costs.
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