Case Law Details

Case Name : Kailashnath Malhotra Vs JCIT (ITAT Mumbai)
Appeal Number : MA No. 246/Mum/2007
Date of Judgement/Order : 12/10/2009
Related Assessment Year :
Courts : All ITAT (4784) ITAT Mumbai (1547)

RELEVANT PARAGRAPH

9. I have considered the rival submissions and perused the relevant material on record. Section 254(1) provides that the Tribunal may, after giving both the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit. Sub-section (2) states that the Tribunal may, at any time within four years from the dale of the order, 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. On going through the prescription of sub-section (2) it clearly emerges that the Tribunal is empowered to rectify the mistake which is apparent from record. Now the question arises that what is mistake apparent from record. The mistake, as envisaged under this sub-section, may be factual or legal or both. However it is not any mistake which can be rectified within the ambit of this section. There are two essential ingredients. Firstly there should be mistake and secondly such mistake must be apparent from record. If it is only a mistake, which is not apparent from record, that goes outside the purview of this sub-section. It is evident that the scope of sub-section (2) is restricted to rectifying any mistake in the order which is apparent from record and does not extend to reviewing of the earlier order.

10. The crucial expression ‘mistake apparent from the record” came up for adjudication- before the Hon’ble Supreme Court in the celebrated case of T.S. Balaram, ITO v. Volkart Bro. [1971] 82 ITR 50. In this case it was held that : “a mistake apparent on the record must be an obvious and patent mistake and not something which can be established by a long drawn process of reasoning on points on which there may be conceivably two opinions. A decision on a debatable point of law is not a mistake apparent from the record.” The Hon’ble Supreme court in the case of CIT v. Hero Cycles (P.) Ltd. ([1997] 228 ITR 463)[1] considered the scope of rectification proceedings. In this case the claim for deduction u/s.35B was not originally allowed at all An order was passed by the CIT(A) on assessee’s application directing certain allowance to be given on proportionate basis after verification of the assessee’s claim u/s 35B. The ITO thereafter entertained the assessee’s prayer for rectification of the order and allowed the assessee’s claim in respect of matters like colored albums, export staff traveling expenses, export sales commission, etc. When the matter traveled to the Hon’ble Summit Court, reiterating the well settled position in law, it was held that : “rectification is not possible if the question is debatable. Moreover, the point which was not examined on facts or in law cannot be dealt as mistake apparent on the record.” More recently the Hon’ble Supreme Court in the case of Saurashtra Kutch Stock Exchange Ltd. (supra) came to hold as under:-

“A patent, manifest and self-evident error which does not require elaborate discussion of evidence or argument to establish it, can be said to be an error apparent on the face of the record and can be corrected while exercising certiorari jurisdiction. An error cannot be said to be apparent on the face of the record if one has to travel beyond the record to see whether the judgment is correct or not. An error apparent on the record means an error which strikes on mere looking and does not need a long drawn out process of reasoning on points on which there may be conceivably two opinions. Such error should not require any extraneous matter to show its incorrectness. To put it differently, it should be so manifest and clear that no court would permit it to remain on record. If the view accepted by the court in the original judgment is one of possible views, the case cannot be said to be covered by an error apparent on the face of the record. “

11. A survey of the afore-noted three judgments of the Hon’ble Apex Court makes it manifest that the scope of proceedings u/s 254(2) is confined to rectifying any mistake which is apparent on the very face of it. If the point needs to be proved on the strength of different facets of reasoning, the same would become debatable. Once a particular point falls in the realm of “debatable issue” that automatically goes out of the domain of sub-section (2) of section 254. Thus the error, capable of rectification under this sub-section, must be one which is apparent on the face of order itself. Further if two views are possible on a particular point and the Tribunal has preferred one view over the other, no rectification application lies for impressing upon the Tribunal to choose the other possible view in preference over the one already adopted by it. If however the order passed by the Tribunal is not in conformity with the judgment of the Hon’ble Supreme Court or that of the jurisdictional High Court rendered prior to or subsequent to the impugned order, the same constitutes a mistake from record capable of rectification u/s 254(2). In the same breath it will be an error apparent from record if the order is not in conformity with the retrospective amendment carried out to the statutory provision covering the period and point in dispute, of course, subject to the fulfillment of other conditions prescribed in the Act such as limitation period etc..

12. It is therefore, clear that the power given to the Tribunal u/s 254(2) is confined to rectifying any mistake which is apparent from the record. The Tribunal is not empowered to review its order in the garb of rectification u/s 254(2). The Hon’ble jurisdictional High Court in the case of Ramesh Electric & Trading Co. (supra) considered a case in which the Tribunal was required to decide whether the commission payment of Rs. 54,000 was deductible u/s 37. After examining the circumstances it came to the conclusion that the amount was not deductible. The assessee moved miscellaneous application u/s 254(2) stating that although the appeal memo contained five different grounds of appeal but the order of the Tribunal did not mention three of the grounds. It was contended that the order of the Tribunal did not consider some of the arguments advanced by the assessee. Such application was entertained by the Tribunal. On re-hearing the matter the assessee was allowed deduction of the commission payment by the tribunal. On appeal, the Hon’ble Bombay High Court held as under:-

“These two arguments, according to the Tribunal, were overlooked by it while passing the earlier order, and, hence, it purported to exercise its power of rectification by re-examining all the circumstances relating to this transaction and upholding it. Clearly, this could not have been done in the exercise of any power of rectification. In the present case, in the first order, there is no mistake which is apparent from the record at all. The Tribunal was required to decide whether the commission payment of Rs. 54,000 was deductible under section 37 of the Income-tax Act. After examining the circumstances, the Tribunal came to the conclusion that it was not so deductible. The Tribunal cannot, in exercise of its power of rectification, look into some other circumstances which would support or not support its conclusion so arrived at. The mistake which the Tribunal is entitled to Correct is not an error of judgment but a mistake which is apparent from the record itself. No such mistake was apparent from the record. In fact, we doubt if this sort of an exercise could have been done by the Tribunal even if it had the power of review. The Tribunal has, patently, far exceeded its jurisdiction under section 254(2) of the Income-tax Act in re deciding the entire dispute which was before it in this fashion, and the Tribunal has committed a gross and inexplicable error for reasons which we fail to understand. “

13. From the above pronouncement of law by the Hon’ble jurisdictional High Court, which is binding on all the authorities under its jurisdiction, it is more than evident that the Tribunal has got the power of rectifying a mistake which is apparent from the record itself and even an error of judgment is outside the ambit of section 254(2) of the Act. The oft-quoted judgment of the Hon’ble Rajasthan High court in CIT v. Ramesh Chand Modi [2001] 249 ITR 323[2] distinguishing the judgment of the Hon’ble jurisdictional High Court in the case of Ramesh Electric & Traaing Co. (supra) needs to be examined. In this later case the Tribunal omitted to decide some of the grounds of the appeal by oversight. The Hon’ble Rajasthan High Court approved the view taken by the Tribunal in exercising its power u/s 254(2) by recalling the order to make a fresh order deciding the issues which were left undecided. The Hon’ble Rajasthan High Court discussed in para 5 the judgment of the Hon’ble jurisdictional High Court in Ramesh Electric & Trading Co. (supra) and held that the issue raised before it was different from the one considered by the Hon’ble Bombay High Court. It was clarified that the ratio decidendi of Ramesh Electric & Trading Co. (supra) was that while deciding an issue the Tribunal did not take into consideration some of the arguments and it was under those circumstances that the miscellaneous Application was held to be not maintainable. Further it was clarified that the case before the Hon’ble Rajasthan High Court was on the failure to decide the grounds raised by the assessee in appeal memo. It is, therefore, axiomatic that the judgment of the Hon’ble jurisdictional High Court in the case of Ramesh Electric & Trading Co. (supra) has not been diluted in any manner by any other Courts including the Rajasthan High Court in Ramesh Chand Modi (supra). Be that as it may we are duty bound to religiously follow the mandate of any judgment rendered by the Hon’ble jurisdictional High Court and cannot needlessly venture to distinguish it on one count or the other. It is still further noticed an opinion similar to that of the Hon’ble Bombay High Court has been rendered by the Hon’ble Delhi High Court in a recent judgment in Ras Bihari Bansal v. CIT [2007] 293 ITR 365[3]. In this case it has been ruled that section 254(2) enables the Tribunal to rectify any mistake apparent from the record. “It is well settled that an oversight of a fact cannot constitute an apparent mistake rectifiable under this section. Similarly, failure of the Tribunal to consider an argument advanced by either party for arriving at a conclusion, is not an error apparent on the record, although it may be an error of judgment. The mere fact that the Tribunal had not allowed a deduction, even if the conclusion is wrong, will be no ground for moving an application under section 254(2). Further, in the garb of an application for rectification, the assessee cannot be permitted to reopen and re-argue the whole matter, which is beyond the scope of the section.”

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