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CASE NO.: Appeal (civil)  5412 of 2007

PETITIONER: Honda Siel Power Products Ltd

RESPONDENT: Commissioner of Income Tax, Delhi

DATE OF JUDGMENT: 26/11/2007

BENCH: S. H. Kapadia & B. Sudershan Reddy

JUDGMENT: J U D G M E N T

CIVIL APPEAL NO.  5412 OF 2007 (arising out of S.L.P. (C) No. 5551 of 2007)

KAPADIA, J.

                Leave granted in this special leave petition.

        2.      A short question which arises for determination in this civil appeal  filed by the assessee concerns application of Section 154 of the Income Tax  Act, 1961 ("1961 Act") which provides for rectification of any 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) of the 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 of income was filed by the assessee declaring nil income.  During the relevant year, the assessee had taken a term loan in foreign  exchange for the import of machinery. On account of fluctuation in foreign  exchange rate, the liability of the assessee to repay the loan in terms of  rupees went up by Rs. 7,10,910. By referring to the provisions of section  43A, the assessee enhanced the figure of W.D.V. (written down value) of the  block of assets 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 of the machinery on account of  increase or decrease in the liability of unpaid loans utilized for the purchase  of machinery.

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 of the 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, if actual payment was not made after  fluctuation then the value of the asset cannot be increased by adding the  increase on account of fluctuation. On facts, the Tribunal found that, in the

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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 of  mistake 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 MATTER OF  : M/S SHRIRAM HONDA POWER                                           EQUIPMENTS LTD. ITA NOS.                      :  5413 & 5414/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

MAY 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 of departmental 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 of hearing as  also in the written propositions that departmental  appeal in the case of Samtel Color Ltd. was decided by  the ’E’ Bench of the Tribunal vide order dated  10.12.2001 wherein, the view of the CIT(A) were  upheld. A copy of the 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 of Samtel Color Ltd. Since, the  order of coordinate bench of Tribunal which was relied  upon was not considered, and that in forming another  view. The view taken by different benches of the  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, if at all, between two  views. Reference in this regard is invited to the  decisions of Hon’ble Supreme Court in the case of  Sundarjas Kanyalal Bhatija & Others vs. Collector  Thane, Maharashtra & Others 183 ITR 130 (SC) and  UOI vs. Paras Laminates Pvt. Ltd. 186 ITR 722 (SC).  It is, therefore, submitted that the order may be  rectified.

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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 of assessment 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  of paper book filed before this Hon’ble Tribunal.  Papers at page 5 to 7 which included working details  of disallowance under Rule 6D were filed before  Assessing Officer. Similarly papers at pages 8 to 12  are details of professional 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 of the 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 of the coordinate bench of the Tribunal dated 10.12.2001 in the  case of DCIT, Spl. Range 5, New Delhi  v.  Samtel Color Limited in  which it was held that enhanced depreciation 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 of  accounting.  In this connection, reliance was also placed by the Tribunal on   circular no. 5-P of CBDT 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 of  the coordinate bench in Samtel Color Limited (supra) had escaped its  attention.

9.      Against the order dated 10.9.2003, the Department carried the matter  in appeal to the High Court vide ITA No. 735/04. By the impugned  judgment dated 11.10.2006, 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 10.9.2003, in the guise of rectification, the Tribunal had, in fact,  reviewed its earlier order which fell outside the scope of section 254(2) of  the 1961 Act and, consequently, the High Court set aside the order of the  Tribunal dated 10.9.2003. Hence, this appeal.

An Aside 10.     To complete the chronology of events, we may state that vide

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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  of accounting in terms of section 145 of the 1961 Act, the assessee was  bound to abide by the accounting standards laid down by the Institute of  Chartered Accountants of India ("ICAI"). It was further held that, under the  accounting standards, the liability stood revised in the year in which the  fluctuation of foreign exchange took place in order to reflect the true state of  affairs regarding the business of the assessee and accordingly, the word  "paid" in section 43(2) should be read in the light of the accounting  standards. It was further held that under section 209(3) of the Companies  Act, it was  mandatory for companies to keep accounts on accrual basis only.

11.     Suffice it to state that, in view of the said judgment of Delhi High  Court in the case of Woodward Governer India (P) Ltd. (supra), the view  of the co-ordinate Bench of the Tribunal on section 43A in Samtel Color  Ltd. (supra) stood confirmed. 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 of the Power of Rectification   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 of mistake 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 of the 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  of admissibility/allowability of the claim of the assessee for enhanced  depreciation under section 43A. One of the important reasons for giving the  power of rectification to the Tribunal is to see that no prejudice is caused to  either of the parties appearing before it by its decision based on a mistake  apparent from the record.  

13.     "Rule of precedent" is an important aspect of legal certainty in rule of  law. 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 of the Tribunal to  set it right. 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  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  judgment of the 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 not justified in interfering with the said order. We are  not going by the doctrine or concept of inherent 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 of the High Court

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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.