Full Judgment Text
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CASE NO.:
Appeal (civil) 5412 of 2007
PETITIONER:
Honda Siel Power Products Ltd
RESPONDENT:
Commissioner of Income Tax, Delhi
DATE OF JUDGMENT: 26/11/2007
BENCH:
S. H. Kapadia & B. Sudershan Reddy
JUDGMENT:
J U D G M E N T
CIVIL APPEAL NO. 5412 OF 2007
(arising out of S.L.P. (C) No. 5551 of 2007)
KAPADIA, J.
Leave 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.
Facts
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
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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 under:
"BEFORE THE INCOME TAX APPELLATE TRIBUNAL:
DELHI BENCHES
HON’BLE "A" BENCH
(HON’BLE VICE PRESIDENT R.M. MEHTA & SH. HON’BLE
SH. Y.K.KAPOR)
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 DATED 2.4.2002
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.
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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.
Yours faithfully,
For SHRIRAM HONDA POWER EQUIPMENTS LIMITED
Sd/-
(AUTHORIZED SIGNATORY)
Dated: 9.12.2002"
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.
An Aside
10. To complete the chronology of events, we may state that vide
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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 Application.
Scope of the Power of Rectification
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.
Conclusion:
14. For the aforestated reasons, the impugned judgment of the High Court
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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.