Case Law Details
IN THE ITAT HYDERABAD BENCH ‘A’
Syndicate Realtors
Versus
Income-tax Officer
MA NO. 176 (HYD.) OF 2012
IT APPEAL NO. 188 (HYD.) OF 2009
[ASSESSMENT YEAR 2005-06]
NOVEMBER 16, 2012
ORDER
Chandra Poojari, Accountant Member
This Miscellaneous Application (MA) by the assessee is seeking rectification of the order of the Tribunal dated 29th January, 2010 in ITA No. 188/Hyd/2009 for A.Y. 2005-06.
2. In this case the assessee raised the ground that the ratio laid down by the Hon’ble AP High Court in the case of Rajlaxmi Trading Co. v. CIT [2001] 250 ITR 581/117 Taxman 50 is not applicable to the facts of the assessee’s case. The case before the Hon’ble jurisdictional High Court is u/s. 45(4) of the Act and with reference to the capital asset and has no application to stock-in-trade which is not a capital asset. The Tribunal while adjudicating this issue decided against the assessee by holding as follows:
“8.1 The Hon’ble Supreme Court in the case of ALA Firm v. CIT have held that on dissolution of the firm, valuation of stock in trade has to be made at market price for mutual adjustment of partners shares and surplus is profit liable to tax. The relevant decisions of the Hon’ble Supreme Court in this case is held as under:
“There can be no manner of doubt that in taking accounts for purposes of dissolution, the firm and the partners, being commercial men, would value the assets only on real basis and not at the cost or at their other value appearing in the books. The real rights of the partners cannot be mutually adjusted on any other basis”.
8.2 In the case of Sakthi Trading Co. v. CIT (250 ITR 871) there was a dissolution of the firm following death of one partner. However, as the firm has been reconstituted with the remaining partners and there was no discontinuance of business of the firm, the Hon’ble SC have held that the closing stock of the firm has to be valued at the cost or market price whichever is lower. However, it is pertinent to mention here that in this case the Hon’ble SC while indirectly approving the decision in the ALA Firms case, have clearly noted that the facts in their earlier decision in ALA Firm’s case is different. In this context, it is pertinent to reproduce the following observations made in the said decision:
“From the above, it is evident that in ALA Firm’s case (189 ITR 285), the Court was considering the question of valuation of closing stock at market value in a case where there was dissolution and also discontinuance of the business of the firm. In that case after dissolution, two groups were carrying on separate businesses with the assets and liabilities which fell to their shares from the dissolution of the firm”.
8.3 In the case of Rajlaxmi Trading Co. vs. CIT cited supra which was before the Hon’ble jurisdictional HC, the assessee which was a registered firm, was dissolved on 31.8.1990. Upon such dissolution, one of the partners took over its assets at the book value of Rs. 2,17,555. Applying the provisions of s. 45(4) of the Act, the assessing officer held that the fair market value of the transferred property has to be taken into account as determined by the District Registrar at Rs. 5,36,100. He thus added the different amount of Rs. 3,18,545, in the hands of the assessee firm as short term capital gains. The said assessment was upheld both by the CIT(A) and Hon’ble ITAT. On further appeal by the assessee the Hon’ble Jurisdictional High Court held that the Tribunal was right in taking the market value as the full value of the consideration received or accruing for the purpose of computing the capital gains and thus upheld the addition made in the assessment. The decision of the Hon’ble jurisdictional High Court as per the head note is as held under:
“that the provisions of section 45(4) clearly show that on distribution of capital assets, as a result of dissolution of the firm for the purpose of section 48, the fair market value of the asset on the date of transfer should be taken as the full value of consideration received or accruing as a result of transfer. Therefore, the Tribunal was right in taking the market value as determined by the District Registrar as the full value of the consideration received or accruing for the purpose of computing the capital gain”.
3. The learned AR submitted that the judgment of the Hon’ble Jurisdictional High Court in the case of Rajlaxmi Trading Co. (supra) was delivered on 02-02-2001 and reported in [2001] 250 ITR 581 (AP). In deciding the case, the Hon’ble Andhra Pradesh High Court followed by the ratio laid down by the Supreme Court in the case of ALA Firm v. CIT [1991] 55 Taxman 497. The judgement of the Supreme Court in the case of Sakthi Trading Co. v. CIT [2001] 118 Taxman 301 relied on by the assessee firm was delivered by the Supreme court on 02-08-2001 and reported in the same Sakthi Trading Co.’s case (supra). In the said Shakti Trading case, the issue before the Supreme Court was the valuation of stock on dissolution of the firm and the Hon’ble Apex Court distinguished the ratio laid down in the case of ALA Firm. The The AR drew the attention of the Hon’ble Tribunal to page. no. 8 of the order dated 29-01-2010 wherein the assessee’s case was dismissed relying on the judgment of the Hon’ble Andhra Pradesh High Court in the Rajlaxmi Trading Co.’s case (supra). The AR submitted that in the case of Rajlaxmi Trading Co.’s case (supra) the issue before the court was valuation of capital assets on dissolution of firm and not stock in trade.
4. The AR submitted that the issue before the Hon’ble Supreme Court both in the case of ALA Firm and Sakthi Trading Co., (supra) was with respect to valuation of stock in trade at the time of dissolution of the firm and the judgment of Sakti Trading Co.’s case (supra) was delivered subsequent to Rajlaxmi Trading Co.’s case (supra), the ratio laid down by the Hon’ble Supreme Court in the case of Sakthi Trading Co. (supra) is relevant and applicable to the facts and circumstances of the assessee’s case. The assessee therefore submits that the decision of the jurisdictional High Court in Rajlaxmi Trading Co.’s case (supra) is not relevant to the facts and circumstance of the assessee firm’s case as the same is not concerned with stock-in-trade, but deals with capital assets valuation on dissolution of the firm. The AR submitted that the ratio laid down by the Hon’ble Supreme Court in Sakthi Trading Co.’s case (supra) needs to be considered as it is applicable to the facts and circumstance of the assessee’s case. The assessee firm, on the basis of the submissions made above respectfully prays that the order of the Income Tax Appellate Tribunal in ITA No. 188/Hyd/2009 for Asst. Year 2005-06 may kindly be recalled and an opportunity may kindly be given to the assessee firm to present its case for reconsideration.
5. The DR strongly relied on the order of the Tribunal.
6. We have heard both the parties and perused the material on record. As seen from the arguments of the assessee’s counsel, the assessee wants to re-argue the issue before the Tribunal once again which is not permitted u/s. 254(2) of the Act. The Tribunal while adjudicating the issue on earlier occasion considered the entire arguments of the assessee’s case and given the finding, incidentally, not in favour of the assessee. As the issue is decided against the assessee, now the assessee finds that there is mistake apparent on record which is actually not so.
7. Further it is well settled that statutory authority cannot exercise power of review unless such power is expressly conferred. There is no express power of review conferred on this Tribunal. Even otherwise, the scope of review does not extent to re-hearing of the case on merit. It is held in the case of CIT v. Pearl Woolen Mills [2011] 330 ITR 164/[2010] 191 Taxman 286 (Punj. &Har.):
“Held, that the Tribunal could not re adjudicate the matter under section 254(2). It is well settled that a statutory authority cannot exercise power of review unless such power is expressly conferred. There was no express power of review conferred on the Tribunal. Even otherwise, the scope of review did not extent to rehearing a case on the merits. Neither by invoking inherent power nor the principle of mistake of court not prejudicing a litigant nor by involving doctrine of incidental power, could the Tribunal reverse a decision on the merits. The Tribunal was not justified in recalling its previous finding restoring the addition, more so when an application for the same relief had been earlier dismissed.”
8. The scope and ambit of application of section 254(2) is very limited. The same is restricted to rectification of mistakes apparent from the record. We shall first deal with the question of the power of the Tribunal to recall an order in its entirety. Recalling the entire order obviously would mean passing of a fresh order. That does not appear to be the legislative intent. The order passed by the Tribunal under s. 254(1) is the effective order so far as the appeal is concerned. Any order passed under s. 254(2) either allowing the amendment or refusing to amend gets merged with the original order passed. The order as amended or remaining un-amended is the effective order for all practical purposes. An order under s. 254(2) does not have existence de hors the order under s. 254(1). Recalling of the order is not permissible under s. 254(2). Recalling of an order automatically necessitates rehearing and re-adjudication of the entire subject-matter of appeal. The dispute no longer remains restricted to any mistake sought to be rectified. Power to recall an order is prescribed in terms of Rule 24 of the ITAT Rules, 1963, and that too only in case where the assessee shows that it had a reasonable cause for being absent at a time when the appeal was taken up and was decided ex-parte. Judged in the above background the order passed by the Tribunal is indefensible.
9. The words used in s. 254(2) are ‘shall make such amendment, if the mistake is brought to its notice’. Clearly, if there is a mistake, then an amendment is required to be carried out in the original order to correct that particular mistake. The provision does not indicate that the Tribunal can recall the entire order and pass a fresh decision. That would amount to a review of the entire order and that is not permissible under the IT Act. The power to rectify a mistake under s. 254(2) cannot be used for recalling the entire order. No power of review has been given to the Tribunal under the IT Act. Thus, what it could not do directly could not be allowed to be done indirectly.
10. In the case of CIT v. Hindustan Coca Cola Beverages (P.) Ltd. [2007] 293 ITR 163/159 Taxman 122 (Delhi), their Lordships while considering the powers of the Tribunal under s. 254(2) of the IT Act, 1961 observed as under:
“Under s. 254(2) of the IT Act, 1961, the Tribunal has the power to rectify mistakes in its order. However, it is plain that the power to rectify a mistake is not equivalent to a power to review or recall the order sought to be rectified. Rectification is a species of the larger concept of review. Although it is possible that the pre-requisite for exercise of either power may be similar (a mistake apparent from the record), by its very nature the power to rectify a mistake cannot result in the recall and review of the order sought to be rectified.”
11. Thus the scope and ambit of application u/s. 254(2) is as follows:
(a) Firstly, the scope and ambit of application of s. 254(2) of IT Act is restricted to rectification of the mistakes apparent from the record.
(b) Secondly, that no party appearing before the Tribunal should suffer on account of any mistake committed by the Tribunal and if the prejudice has resulted to the party, which prejudice is attributable to the Tribunal’s mistake/error or omission, and which an error is a manifest error, then the Tribunal would be justified in rectifying its mistake. The “rule of precedent” is an important aspect of legal certainty in the rule of law and that principle is not obliterated by s. 254(2) of the Act and non-consideration of precedent by the Tribunal causes a prejudice to the assessee.
(c) Thirdly, power to rectify a mistake is not equivalent to a power to review or recall the order sought to be rectified.
(d) Fourthly, under s. 254(2) an oversight of a fact cannot constitute an apparent mistake rectifiable under the section.
(e) Fifthly, failure on the part of the Tribunal to consider an argument advanced by either party for arriving at a conclusion is not an error apparent on record, although it may be an error of judgement.
(f) Sixthly, even if on the basis of a wrong conclusion the Tribunal has not allowed a claim of the party it will not be a ground for moving an application under s. 254(2) of the Act.
(g) Lastly, in the garb of an application for rectification under s. 254(2) the assessee cannot be permitted to reopen and re argue the whole matter as the same is beyond the scope of s. 254(2) of the IT Act.
12. Being so, in our opinion, the argument of the assessee’s counsel holds no merit and deserves to be rejected in toto.
13. In the result, the MA filed by the assessee is dismissed.
