Under the Income Tax Act, the orders given by the Appellate Tribunal comes under the preview of section 254. The section states that once both parties are given equal opportunity of being heard, the tribunal can put forth the decision that it thinks fit. Further, under the second subsection, it is stated that if there is any ‘mistake apparent from the record’ which requires rectification, the Assessing Officer or the assessee can file an application for the same within six months from the end of the month in which the said decision was passed by the Tribunal. A proviso is attached to this subsection and it states that any rectification request which includes an increase in the liability of the assessee or enhancing of assessment or reducing a refund, cannot be made under this section unless the tribunal provides the assessee with a proper notice and reasonable opportunity of being heard. The section draws a guideline or set of rules for the Appellate Tribunals stating that where the Tribunals find it possible should hear and decided the matter within four years from the end of the financial year in which the appeal was brought forth. And should also pass an order for the stay of any proceeding going on with respect of this specific appeal, and it is to be kept in the loop that the order should be passed only in a situation where the Tribunal finds merit in the rectification application filed for appeals covered under section 253 which deals with the appeals filed to the appellate tribunal. The order of stay passed should not exceed the period of 180 days which means that the appeal should be disposed off by the Tribunal within this said period, further this period can be extended with the help of an application coupled up with valid reasons and if the tribunal on its personal discretion finds the reasons valid can allow an extension for up to 365 days.
With the above explanation of section 254, it can be culled out that under its subsection 2 there is a power of rectification that vests within the Appellate Tribunal for any order that it passes. But there definitely is a limitation to what extent the Tribunal can use this power, and this power is explained under the subsection 2 of this section. The verbatim of this subsection is as follows:-
“(2) The Appellate Tribunal may, at any time within six months from the end of the month in which the order was passed, with a view to rectifying any mistake apparent from the record, amend any order passed by it under sub-section (1), and shall make such amendment if the mistake is brought to its notice by the assessee or the Assessing Officer:
Provided that an amendment which has the effect of enhancing an assessment or reducing a refund or otherwise increasing the liability of the assessee, shall not be made under this sub-section unless the Appellate Tribunal has given notice to the assessee of its intention to do so and has allowed the assessee a reasonable opportunity of being heard :
Provided further that any application filed by the assessee in this sub-section on or after the 1st day of October, 1998, shall be accompanied by a fee of fifty rupees.”[i]
Under this section, the Appellate Tribunal has the power to rectify an error that is clerical or arithmetical in nature. It can be any kind of mistake that is appearing as such on the face of it or is simple in nature and includes no question of law or fact, like for example a change in the name of any of the parties to the case. The reason to give the Tribunal with such a power is that nobody should suffer because of the mistake of a Tribunal, be it the assessee or the Department. The power of rectification with the Tribunals is to exercise fair play and justice. And if there is a mistake made by the tribunal it is its own duty to set it right. Over the time there are various judgments passed by various courts that describe the scope of this section for the reason of understanding the power that vests with the tribunal for the purpose of rectification. In the case of ACIT vs. Saurashtra Kutch Stock Exchange[ii] the Gujarat High Court widely discussed the Tribunal’s power to rectify the mistake apparent from the record. Here the court stated that the power of rectification can be used by the Tribunal for removing any sort of error which does not disturb the finality of an order passed by the Tribunal under the subsection (1) of section 254. Further, the Court here mentioned that the mistake which needs rectification should be self-evident in nature and should not include any debatable question. And ‘mistake apparent from record’ cannot be confined to some strict reasoning and definition, as it attains a variable nature that can change with the facts of each case. The other very important point stated by the court, in this case, was that non-consideration of a judgment passed by a High Court will always constitute a ‘mistake apparent from record’ and it is regardless of when the judgment was passed. This judgment of Gujarat HC was later affirmed by the Supreme Court when the Department went into appeal against the said decision. Further, in the case of T.S. Balaram vs. Volkart Brothers[iii] the Supreme Court stated that under this section a mistake that is obvious and patent can be rectified or an error which does not include any long-drawn process of reasoning on points on which there can be two different opinions, can be rectified by the Tribunal. In the case of Smt. Baljeet Jolly vs. CIT[iv] the Delhi High Court while explaining this section mentioned that ‘Apparent’ must be something which appears to be ex facie and is incapable of argument or debate. The scope of this section was increased slightly in the case of Karan & Co. vs. ITAT[v] where the court stated that ‘Mistake’ is not only an arithmetical or clerical error. It is subjective and is something that a duly and judiciously instructed mind can find out from the record.
The scope of power of rectification of an order passed under section 254(1) of the Income Tax Act does not include the power to review or recall the order that is sought to be rectified. A review includes revision of facts and judgments and this can lead to the change in the conclusion of the order passed by the Tribunal which is out of the scope of rectification under section 254 (2). It is a well-established law that a court cannot review its own order as it is against the principle of natural justice because it might include bias. Further, it is clear that the rectification application of section 254 (2) is filed under the same Tribunal who has passed the order which requires rectification and on the other hand an application of review cannot be filed under the same court which herein makes review out of the scope of rectification. Also, a review may include de novo arguments or change in the subject matter of the appeal filed but at a contrast, rectification of an order cannot include any of these two mentioned things. In the case of Commissioner of Income Tax vs. Ramesh Electric and Trading Co.[vi] it was held that the Bombay High court that the Appellate Tribunal does not have any power to review its own Orders under provisions of Act as it can lead to redefining of the case and the only power Tribunal possesses is to rectify any mistake in its own order which is apparent from record. It is merely the power of amending its own order. In another case of C.I.T. vs. Hindustan Coca Cola Beverages P Ltd[vii] It was stated by the court that review is a larger concept and that a review can include rectification but a rectification cannot include a review. And that, the nature of power of rectification cannot result in a review or recall of an order.
The power of rectification with the Appellate Tribunal inculcates in itself the power of rejection of this miscellaneous application as well. A mere non-consideration of material on record can qualify as a ground for rejection of this application as stated by the Supreme Court in the case of Hindustan Siel Power Products Ltd vs. C.I.T.[viii] Another ground stated by the Delhi High Court in the case of PCIT vs. N.R. Portfolio[ix] is that if the court finds any speculation in assessee’s conduct then the application can be rejected by the court. Other than this, it can be said that the principle of finality go hand in hand with the power of rectification provided in this section. The principle of finality here means that once an order is rectified, it attains finality. This further means that an order of rectification passed under sub-section (2) cannot be further rectified and no successive applications for rectification of the original order can be maintained, as it will defeat the whole object of section 254(2).
With the above description of the following section, it can be concluded that the power of rectification that vests with the appellate tribunal is there to ensure a smooth trial. The fundamental principle here is that there should be justice and fair play provided to the parties who seek their rights thought the court and if it is the court itself that has made a mistake, then it is the duty of the court to mend it back. But it should always be kept in the loop that, nobody should be allowed to take an unfair advantage of such power and procedure. And that is why it is very important to provide the courts with discretionary power so that they can use the power of rectification according to their own circumspection. It can be further concluded from the above-mentioned points that only glaring or ex facie mistakes comes under the purview of this power and everything else bounds to get rejected. Keeping in mind the object of smooth trial, in the year 2016, the Income Tax Amendment Act introduced a limitation period of 6 months to file for the purpose of rectification which previously was of four years. The period of four years in my view was extremely unnecessary and time taking and provided the parties with an undue advantage of misusing the remedy provided. With this amendment, a smooth and speedy trial can be ensured which is in fact a necessity of the current judiciary system.
Notes:-
[i] Section 254, The Income Tax Act, 1961
[ii] 2003 SCC OnLine Guj 352
[iii] (1971) 2 SCC 526
[iv] (2001) 164 CTR (Del) 37
[v] (2001) 169 CTR (Del) 361
[vi] (1993) 203 ITR 497 (Bom)
[vii] CIT 293 ITR page 226
[viii] (2007) 12 SCC 596
[ix] (2019) SCC OnLine (Del) 7343
Author Bio
A well written article. Clear, concise and to the point.