HONDA SIEL POWER PRODUCTS LTD. v. COMMISSIONER OF INCOME TAX, DELHI

Citation: [2007] 12 S.C.R. 552

Court: Supreme Court of India

Bench: S.H. KAPADIA, B. SUDERSHAN REDDY

Case summary

HONDA SIEL POWER PRODUCTS LTD. v. COMMISSIONER OF INCOME TAX, DELHI.pdf

Judgment text

' -\, HONDA SIEL POWER PRODUCTS LTD. V. COMMISSIONER OF INCOME TAX, DELHI NOVEMBER 26, 2007 (S. H. KAPADIA AND B. SUDERSHAN REDDY, JJ. ) .... Income Tax Act, 1961-ss. 254(2) and 154-Rectification by tribunal, ofits own mistake apparentfrom record-Scope of-Tribunal overlookingjudgment ofcoordinate bench on the issue and rejecting the claim ofassessee-On rectification application, tribunal exercising its power u/s. 254(2) and rectifYing its earlier order-Held: Tribunal was justified-When prejudice results from an order attributable to Tribunal's mistake, error or omission apparentfrom record, then it is the duty ofTribunal to set it right-Atonement to wronged party by Tribunal for wrong committed by it does not amount to review ofits earlier order- 'Rule ofprecedent' not obliterated by s. 254 (2)- Precedents. The appellant-assessee, a manufacturer ofgenerators in technical collaboration with aforeign Company, claimed enhanced depreciation under section 43A of the Income Tax Act, 1961.

In appeal by the Revenue, the Tribunal rejected the assessee's claim for enhanced depreciation withoutconsidering the judgment ofthe coordinate bench ofthe Tribunal cited and relied upon by the assessee. The assessee filed rectification application undersection 254 (2) for rectification ofmistake apparent from the order of the Tribunal. The Tribunal allowed the rectification application. The High Courtsetaside theorderofTribunal holding that the Tribunal had, in fact, reviewed its earlier orderwhich fell outside the scope ofs. 254(2) ofthe Act. Hence, the present appeal. )"- Allowing the appeal, the Court HELD: 1. 1. The expression "rectification of mistake from the OF INCOME TAX, DELHI record" occurs in section 154ofthe Income Tax Act, 1961. It also finds place in section 254(2) of the Act.

The purpose behind enactment of section 254(2) giving the power of rectification 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 which has nothing to do with the inherent powers ofthe Tribunal In the instant case, the Tribunal in its Order dated 10. 9. 2003 allowing the Rectification Application gave finding that the case ofDCIT, Sp!. Range 5, New Delhi v. Samtel Color Ltd was cited before it by the assessee but through oversight it missed out the said judgmentwhile dismissing the appeal filed by the Revenue on the question ofadmissibility/allowability ofthe claim ofthe assessee for enhanced depreciation under section 43A. [Para 12] [559-D, E, F] 1. 2. "Rule ofprecedent" is an important aspect oftegal certainty in rule oflaw. That principle is not obliterated by section 254(2) ofthe Act.

When prejudice results from an orderattributableto theTribunal's mistake, error or omission, then it is the duty ofthe Tribunal to set it right. Atonement to thewronged party by the court or Tribunal for the wrong committed by it has nothing to do with the concept ofinherent power to review. In the instant case, the Tribunal was justified in exercising its powers under section 254(2) when it was pointed out to theTribunal thatthejudgmentofthecoordinate benchwas placed before the Tribunalwhen the original ordercame to be passed but itcommitted a mistake in not considering the material which was already on record. Tribunal acknowledged its mistake, and accordingly rectified its order. High Court was not justified in interfering with the said order. The doctrine or concept ofinherent powerwas not gone into.

Proceedingon the basis that ifprejudice had resulted to the party, which prejudice is attributableto theTribunal's mistake, errororomission andwhich error is a manifest error then the Tribunalwould bejustified in rectifying its mistake. Thus, the impugned judgment ofthe High Court is set aside and theorderpassed bytheTribunalallowingthe rectification application filed by the assessee is restored. [Paras 13and14] [559-G; 560-A, B, C, D, E) - C/Tv. Woodward Governor India(P) Ltd, (2007) 162, TAXMAN 60, referred to. CML APPELLATE JURISDICTION: Civil Appeal No. 5412 of 2007. From the Judgment and Order dated 11. 10. 2006 ofthe High Court of Delhi at New Delhi in LT. A. No. 735/2004. Kavita Jha and Sandeep S. Kamail for the Appellant. P. P. Malhotra, I. Ahmad, K. K. Tyagi, P. Narasimhan and Neera Gupta for the Respondents. ) The Judgthent ofthe Court was delivered by KAPADIA, J. 1. Leave granted in this special leave petition. 2.

A short question which arises for detennination in this civil appeal filed by the assessee concerns application ofSection 154 ofthe Income Tax Act, 1961 ("1961 Act'') which provides for rectification ofany 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) ofthe 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 ofincome was filed by the assessee declaring nil income. During the relevant y~r~, tB. e assessee had taken a term loan in foreign exchange for the import ofmachinery. On account offluctuation in foreign exchange rate, the liability ofthe assessee to repay the loan in terms ofrupees went up by Rs. 7,10,910.

By referring to the provisions ofsection 43A, the assessee enhanced the figure ofW. D. V. (written down value) ofthe block ofassets 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 ofthe machinery on account of increase or decrease in the liability of unpaid ' ) OF INCOME TAX, DELHI [KAPADIA, J. ] loans utilized for the purchase ofmachinery. 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 ofthe 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, ifactual payment was not made after fluctuation then the value of the asset cannot be increased by adding the increase on account offluctuation. On facts, the Tribunal found that, in the 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 ofmistake 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 MATIER OF : MIS SHRIRAM HONDA POWER EQUIPMENTS LTD. .. ITANOS.

5413 & 54l4/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 U4Y 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 ofdepartmental 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 ofhearing as also in the written propositions that departmental appeal in the case ofSamtel Color Ltd. was decided by the 'E' Bench of the Tribunal vide order dated 10. 12. 2001 wherein, the view ofthe CIT(A) were upheld. A copy ofthe 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 ofSamtel Color Ltd. Since, the order ofcoordinate bench ofTribunal which was relied upon was not considered, and that in forming another view. The view taken by different benches ofthe 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, ifat all, between two views.

Reference in this regard is invited to the decisions ofHon'ble Supreme Court in the case of Sundarjas Kanya/al Bhatija & Ors. v. OF INCOME TAX, DELHI [KAPADIA, J. ] Collector Thane, Maharashtra & Ors. , 183 ITR 130 (SC) and UOI v. Paras Laminates Pvt. Ltd. , 186 ITR 722 (SC). It is, therefore, submitted that the order may be rectified. 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 ofassessment 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 ofpaper book filed before this Hon'ble Tribunal. Papers at page 5to 7 which included working details ofdisallowance under Rule 6D were filed before Assessing Officer. Similarly papers at pages 8 to 12 are details ofprofessional 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 ofthe 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 ofthe coordinate bench ofthe Tribunal dated 10. 12. 2001 in the case of DCIT, Sp!. Range 5, New Delhi v.

Samtel Color Limited in which it was held that enhanced depreciatio~ 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 ofaccounting. In this connection, reliance was also placed by the Tribunal on circular no. 5-P ofCBDT 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 ofthe coordinate bench in Samtel Color Limited (supra) had escaped its attention. 9. Against the order dated l0. 9. 2003, the Department carried the matter in appeal to the High Court vide ITA No. 735/04. By the impugned judgment dated 11. l0.

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 l0. 9. 2003, in the guise ofrectification, the Tribunal had, in fact, reviewed its earlier order which fell outside the scope ofsection 254(2) ofthe 1961 Act and, consequently, the High Court set aside the order ofthe Tribunal dated 10. 9. 2003. Hence, this appeal. An Aside 10. To complete the chronology ofevents, we may state that vide 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 ofaccounting in terms ofsection 145 ofthe 1961 Act, the assessee was bound to abide by the accounting standards laid down by the Institute ofChartered Accountants oflndia ("ICAI"). It was further held that, under the accounting standards, the liability stood revised in the year in which the fluctuation offoreign exchange took place in order to reflect the true state ofaffairs regarding the business ofthe assessee and accordingly, the OF INCOME TAX, DELHI [KAPADIA, J. ] word "paid" in section 43(2) should be read in the light ofthe accounting standards. It was further held that under section 209(3) ofthe Companies Act, it was mandatory for companies to keep accounts on accrual basis only. 11. Suffice it to state that, in view ofthe saidjudgment ofDelhi High Court in the case of Woodward Governer India (P) Ltd. (supra), the view ofthe co-ordinate Bench ofthe Tribunal on section 43A in Samtel Color Ltd.

(supra) stood confomed. 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 ofthe Power ofRectification 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 ofmistake 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 ofthe 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 ofadmissibility/allowability ofthe claim ofthe assessee for enhanced depreciation under section 43A. One of the important reasons for giving the power ofrectification to the Tribunal is to see that no prejudice is caused to either ofthe parties appearing before . _, it by its decision based on a mistake apparent. from the record. 13. "Rule ofprecedent" is an important aspect oflegal certainty in rule oflaw. 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 ofthe Tribunal to set it right. Atonement to the wronged party by the court or Tribunal for the wrong com.

'Ilitted by it has nothing to do with the concept ofinherent 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 judt,ment ofthe 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 notjustified in interfering with the said order. We are not going by the doctrine or concept ofinherent 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 ofthe High Court 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. N. J. Appeal allowed. +