In a move that will bring cheers to tax payers, Supreme Court has ruled that those aggrieved by a blatantly erroneous or prejudiced order by the Income-Tax Appellate Tribunal (ITAT) can take the matter back to the Tribunal and get the error rectified. The apex court issued such an order in a case involving Honda Siel.
The ruling by a division bench consisting Justice SH Kapadia and Justice BS Reddy means that ITAT cannot hide behind the alibi that is has no power to review its own judgement.
The apex court’s order is in total contrast to the Bombay High Court’s 1993 ruling in the case of Ramesh Electric and Trading Co. In this order, it was held that an error of judgement, howsoever fundamental, cannot be rectified by the ITAT as it would amount to a review of its own decision and the tribunal had no powers to review its own order.
In the Honda Siel case, the ITAT Delhi bench ruled that unless actual payment is made for the increased foreign exchange liability, enhanced depreciation under section 43A was not allowable to the company. Honda Siel filed a petition before the ITAT reminding it that the Tribunal had not taken into account its own decision in the case of Samtel Colour, in which it had ruled in favour of the tax payer.
The company argued that ITAT cannot take a different stand on identical issues. The ITAT allowed Honda’s petition and modified its order and held that despite the fact that increased exchange liability is not paid by Honda, depreciation on that basis was allowable as deduction.
The Delhi High Court had other views on the review by the ITAT. The High Court viewed the modification as a review of its own order and therefore quashed it.
The Supreme court, however, upheld the ITAT’s view. The apex court said “the rule of precedent is an important aspect of legal certainty under the rule of law” and that “when prejudice results from an order attributable to Tribunal’s mistake, error or omission, then it is duty of the Tribunal to set it right”.
Justice Kapadia, preferring fairness over technicalities, observed that “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 of review.” The Supreme Court ruled that ITAT was justified in exercising its powers of rectifying the mistake when it was noticed that the order of another ITAT bench was not followed. The Supreme Court also ordered the interference of the Delhi High Court be vacated.