M/S Ama Medical & Diagnostic Centre, ... vs Assessee

Through this Miscellaneous Application filed under section 254(2) of the Income-tax Act, 1961 (hereinafter called in short "the Act") in I.T.A. No. 119/LKW/2013, the assessee has sought rectification in the order of the Tribunal dated 11.4.2014 on the ground that the Tribunal has not followed the judgment of the Hon'ble jurisdictional High Court in the case of CIT vs. Vector Shipping Services (P) Ltd. in I.T.A. No. 1220 of 2013 and has taken a contrary view while rejecting the claim of the assessee. Therefore, an error is crept in the order of the Tribunal.

2. The ld. counsel for the assessee has further contended that the judgment of Hon'ble jurisdictional High Court in the case of Vector Shipping Services (P) Ltd. (supra) was approved by the Hon'ble Apex Court, as the SLP filed by the Department has been dismissed. Therefore, the order of the Tribunal is required to be recalled and the appeal be decided in terms :-2-:

of law laid down by the Hon'ble jurisdictional High Court in the case of Vector Shipping Services (P) Ltd. (supra).

3. The ld. D.R., on the other hand, has submitted that while adjudicating the issue, the Tribunal has taken into account the judgment of the Hon'ble jurisdictional High Court in the case of Vector Shipping Services (P) Ltd. (supra); the order of the Special Bench of the Tribunal in the case M/s Merilyin Shipping & Transports vs. ACIT, 70 DTR 81 and other judgments of the different High Courts, in which contrary view was taken. While adjudicating the issue, the Tribunal has categorically observed that in the case of Vector Shipping Services (P) Ltd., the Hon'ble High Court has simply made a passing reference, as the impugned issue was not raised before the Hon'ble High Court. The Tribunal has reproduced the judgment of the Hon'ble jurisdictional High Court in the case of Vector Shipping Services (P) Ltd. and the judgments of other High Courts in order to analyze the legal position. The ld. D.R. has further contended that even before the Hon'ble Supreme Court, the impugned issue was not raised, therefore, dismissal of the SLP cannot be held to be approval of the view, as propounded by the assessee, in this Miscellaneous Application. The ld. D.R. has further contended that since the Tribunal was quite conscious about the judgments of the jurisdictional High Court and other High Courts and has taken a conscious view, the order of the Tribunal cannot be revised under section 254(2) of the Act, as the scope of section 254(2) of the Act is very limited and only arithmetical error can be rectified.

4. We have heard the rival submissions and also perused the order of the Tribunal vis-à-vis the Miscellaneous Application. During the course of hearing, a specific argument was raised by the ld. counsel for the assessee that the impugned issue is squarely covered by the judgment of the Hon'ble jurisdictional High Court in the case of Vector Shipping Services (P) Ltd. (supra) and the order of the Special Bench of the Tribunal in the case of :-3-:

M/s Merilyin Shipping & Transports vs. ACIT (supra). The ld. D.R. has also referred various judgments of different High Courts, in which contrary view was taken. While adjudicating the issue, the Tribunal has analyzed the judgments of different High Courts including the jurisdictional High Court and also the fact that operation of the order of the Special Bench of the Tribunal in the case of M/s Merilyin Shipping & Transports vs. ACIT (supra) was stayed by the Hon'ble Andhra Pradesh High Court. Having taken into account all the relevant facts and the judicial position on the subject, the Tribunal has taken a conscious view that the impugned issue was not covered by the judgment of the Hon'ble jurisdictional High Court, as the ratio laid down in the case of M/s Merilyin Shipping & Transports vs. ACIT (supra) was not approved by the Hon'ble jurisdictional High Court. The relevant findings of the Tribunal are extracted hereunder for the sake of reference:-

"7.3 Having carefully examined the judgment of Hon'ble Allahabad High Court in the case of Vector Shipping Services P. Ltd. (supra), we find that though there was dispute with regard to the disallowance of payment of salaries on account of non deduction of TDS as required u/s 40(a)(ia) of the Act but no question of law with regard to the ratio laid down by the Tribunal in the case of Merilyn Shipping & Transports was raised before the Hon'ble High Court. The question of law before the Hon'ble High Court is as under:

"(a) Whether on the facts and in the circumstances of the case, the Hon'ble ITAT has rightly confirmed the order of the CIT(A) and thereby deleting the disallowance of Rs.1,17,68,621/- made by the Assessing Officer under section 40(a)(ia) of the I.T. Act, 1961 by ignoring the fact that the company M/s Mercator Lines Ltd. had performed ship management work on behalf of the assessee M/s. Vector Shipping Services (P) Ltd. and there was a Memorandum of Understanding signed :-4-:

between both the companies and as per the definition of memorandum of understanding, it included contract also."

7.4 The main thrust of the argument before the Hon'ble High Court was that M/s Mercator Lines Ltd. had deducted TDS on salaries paid by it on behalf of the assessee. Under such circumstances, the assessee was not required to deduct TDS on reimbursement being made by it to M/s Mercator Lines Ltd. Besides reference was also made about the order of the Special Bench in the case of Merilyn Shipping & Transports wherein it has been held that if no amount remained payable at the year end, there would not be any disallowance as the provision of section 40(a)(ia) are not applicable.

After recording the finding of the Tribunal and the CIT(A), the Hon'ble High Court has observed in last two paras that the provision of 40(a)(ia) was brought on statute to disallow the claim of even genuine and admissible expenses of the assessee under the head 'Income from Business and Profession' in case the assessee does not deduct TDS on such expenses and the default in deduction of TDS would result in disallowance of expenditure on which such TDS was deductible. Their Lirdships have further observed that in the present case tax was deducted as TDS from the salaries of the employees paid by M/s. Mercator Lines Ltd. and the circumstances under which such salaries were paid by M/s. Mercator Lines Ltd., for M/s. Vector Shipping Services, the assessee were sufficiently explained. In last few lines, the Hon'ble High Court has made a reference to the ratio laid down by the Special Bench of the Tribunal and observed that it is noted that for disallowing expenses from business and profession on the ground that TDS has not been deducted, the amount should be payable and not which has been paid by the end of the year. Except these observations, the Hon'ble High Court has not adverted to the legal proposition laid down by the Special Bench of the Tribunal. For the sake of reference, we extract the finding of the judgment of Hon'ble Jurisdictional High Court in this regard as under:

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"We do not find that the revenue can take any benefit from the observations made by the Special Bench of the Tribunal in the case of Merilyn Shipping and Transport Ltd. (136 ITD. 23) (SB) quoted as above to the effect Section 40(a)(ia) was introduced in the Act by the Finance Act, 2004 with effect from 1.4.2005 with a view to augment the revenue through the mechanism of tax deducted at source. This provision was brought on statute to disallow the claim of even genuine and admissible expenses of the assessee under the head 'Income from Business and Profession' in case the assessee does not deduct TDS on such expenses. The default in deduction of TDS would result in disallowance of expenditure or which such TDS was deductible. In the present case tax was deducted as TDS from the salaries of the employees paid by M/s. Mercator Lines Ltd. and the circumstances under which such salaries were paid by M/s. Mercator Lines Ltd., for M/s. Vector Shipping Services, the assessee were sufficiently explained.

It is to be noted that for disallowing expenses from business and profession on the ground that TDS has not been deducted, the amount should be payable and not which has been paid by the end of the year.

We do not find that the Tribunal has committed any error in recording the finding on the facts, which were not controverted by the department and thus the question of law as framed does not arise for consideration in the appeal."

7.5 The impact of the judgment of Hon'ble Allahabad High Court and other High Courts was also examined by the different benches of the Tribunal and they have categorically held that the Hon'ble Allahabad High Court has decided the issue referred to it on different :-6-:

footing and has made a passing reference about the decision rendered by the Special Bench. Therefore, we are of the view that the Hon'ble Jurisdictional High Court has not examined the impugned issue i.e. whether disallowance u/s 40(a)(ia) of the Act could be made only in respect of such amount which are payable as on 31st March of every year under consideration whereas the Hon'ble Gujarat High Court and Hon'ble Calcutta High Court have dealt with the issue in detail in the light of various judicial pronouncement and have categorically held that section 40(a)(ia) would cover not only to the amount which are payable as on 31st March of a particular year but also which are payable at any time during the year.

7.6 Before the Hon'ble Gujarat High Court in the case of CIT vs. Sikandarkhan N. Tunvar (supra), the following question of law was raised:

(i) Whether the disallowance u/s 40(a)(ia) of the Act would be made only in respect of such amounts which are payable on 31st of March?

(ii) Whether the decision of the Special Bench of the Tribunal in the case of Merilyn Shipping & Transports lays down correct law?

7.7 The Hon'ble High Court have adjudicated the issue in the detail in the light of various judicial pronouncements and have concluded that the section 40(a)(ia) would cover not only the amounts which are payable on 31st March of a particular year but also which are payable at any time during the year. The relevant observations of Hon'ble High Court are extracted as under:

In addition to such provisions already existing, the Legislature introduced yet another provision for ensuring compliance with the requirement of deducing tax at source and depositing it with the Central Government. :-7-:

Section 40(a)(ia), relevant for our purpose, reads as under :

"(ia) any interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub-contractor, being resident, for carrying out any work (including supply of labour for carrying out any work), on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid on or before the due date specified in sub-section (1) of section 139 :

Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted during the previous year but paid after the due date specified in sub-section (1) of section 139, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid."

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In such context, therefore, the question arises whether under section 40(a)(ia) of the Act disallowance of the expenditure payment of which, though required deduction of tax at source has not been made would be confined only to those cases where the amount remains payable till the end of the previous year or would include all amounts which became payable during the entire previous year.

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The decision in the case of Merilyn Shipping and Transports v. Addl. CIT was rendered by the Special Bench by a split opinion. Learned Accountant Member who was in minority, placed heavy reliance on a decision of the Madras High Court in the case of Tube Investments of India Ltd. v. Asst. CIT (TDS) reported in [2010] 325 ITR 610 (Mad). The learned judge did notice that the High Court in such case was concerned with the vires of the statutory provision but found some of the observations made by the court in the process useful and applicable. The learned judge rejected the theory of narrow interpretation of the term "payable" and observed as under (page 21 of 16 ITR (Trib)) :

"12.4 In our considered opinion, there is no ambiguity in the section and the term 'payable' cannot be ascribed a narrow interpretation as contended by the assessee. Had the intentions of the Legislature were to disallow only items outstanding as on March 31, then the term 'payable' would have been qualified by the phrase as outstanding on March 31. However, no such qualification is there in the section and, therefore, the same cannot be read into the section as contended by the assessee."

On the other hand, the learned Judicial Member, speaking for majority, adopted a stricter interpretation. Heavy reliance was placed on the Finance Bill of 2004, which included the draft of the amendment in section 40 and the ultimate amendment which actually was passed by Parliament. It was observed that from the comparison between the proposed and the enacted provision it can be seen that the Legislature has replaced the words "amounts credited or paid" with the word "payable" in :-9-:

the enactment. On such basis, it was held that this is a case of conscious omission and when the language was clear the intention of the Legislature had to be gathered from language used. In their opinion, the provision would apply only to amounts which are payable at the end of the year. Having said so, curiously, it was observed that the proviso to section 40(a)(ia) of the Act lays down that earlier years provision can be allowed in subsequent years only if tax at source is deducted and deposited and, therefore, the Revenue's fear is unfounded as the provision of section 40(a)(ia) of the Act covers the situation.

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What this sub-section, therefore, requires is that there should be an amount payable in the nature described above, which is such on which tax is deductible at source under Chapter XVII-B but such tax has not been deducted or if deducted not paid before the due date. This provision nowhere requires that the amount which is payable must remain so payable throughout during the year. To reiterate the provision has certain strict and stringent requirements before the unpleasant consequences envisaged therein can be applied. We are prepared to and we are duty bound to interpret such requirements strictly. Such requirements, however, cannot be enlarged by any addition or subtraction of words not used by the Legislature. The term used is interest, commission, brokerage, etc., is payable to a resident or amounts payable to a contractor or a sub- contractor for carrying out any work. The language used is not that such amount must continue to remain payable till the end of the accounting year. Any such :-10-:

interpretation would require reading words which the Legislature has not used. No such interpretation would even otherwise be justified because, in our opinion, the Legislature could not have intended to bring about any such distinction nor the language used in the section brings about any such meaning. If the interpretation, as advanced by the assessees is accepted, it would lead to a situation where the assessee who though was required to deduct the tax at source but no such deduction was made or more flagrantly deduction though made is not paid to the Government, would escape the consequence only because the amount was already paid over before the end of the year in contrast to another assessee who would otherwise be in similar situation but in whose case the amount remained payable till the end of the year. We simply do not see any logic why the Legislature would have desired to bring about such irreconcilable and diverse consequences. We hasten to add that this is not the prime basis on which we have adopted the interpretation which we have given. If the language used by Parliament conveyed such a meaning, we would not have hesitated in adopting such an interpretation. We only highlight that we would not readily accept that the Legislature desired to bring about an incongruous and seemingly irreconcilable consequences. The decision of the Supreme Court in the case of CIT v. Ashokbhai Chimanbhai (supra), would not alter this situation. The said decision, of course, recognizes the concept of ascertaining the profit and loss from the business or profession with reference to a certain period, i.e., the accounting year. In this context, the last date of such accounting period would assume considerable significance. However, this decision nowhere indicates that the events which take place during the accounting period should be ignored and the :-11-:

ascertainment of fulfilling a certain condition provided under the statute must be judged with reference to the last date of the accounting period. Particularly, in the context of requirements of section 40(a)(ia) of the Act, we see no warrant in the said decision of the Supreme Court to apply the test of payability only as on March 31, of the year under consideration. Merely because, accounts are closed on that date and the computation of profit and loss is to be judged with reference to such date, does not mean that whether an amount is payable or not must be ascertained on the strength of the position emerging on March 31."

7.8 Before Hon'ble Calcutta High Court in the case of Crescent Export Syndicate (supra), the following question of law was raised:

"If all the amounts have been paid, then obviously following the principles laid down by the Hon'ble Special Bench of this Tribunal in the case of Merilyn Shipping & Transports, no addition shall be made. If any amount is found to be payable as on the year end, then the Assessing Officer shall give the assessee adequate opportunity to substantiate his case as to why the disallowance, if any, should not be made by invoking the provisions of section 40(1)(ia) of the Act".

7.9 The Hon'ble High Court has examined the issue in the light of the Finance Bill 2004, relevant provisions of the Act and various judicial pronouncements and the detailed order of the Special Bench of the Tribunal in the case of Merilyn Shipping & Transports and have finally concluded that majority view expressed in the Merilyn Shipping & Transports are not acceptable.

7.10 The relevant observations of their Lordships are as under:

"We already have quoted extensively both the majority and the minority views expressed in the :-12-:

aforesaid case. The main thrust of the majority view is based on the fact "that the Legislature has replaced the expression "amounts credited or paid" with the expression 'payable' in the final enactment.

"Comparison between the pre-amendment and post amendment law is permissible for the purpose of ascertaining the mischief sought to be remedied or the object sought to be achieved by an amendment. This is precisely what was done by the Apex Court in the case of CIT Vs. Kelvinator reported in 2010(2) SCC 723. But the same comparison between the draft and the enacted law is not permissible. Nor can the draft or the bill be used for the purpose of regulating the meaning and purport of the enacted law. It is the finally enacted law which is the will of the legislature.

The Learned Tribunal fell into an error in not realizing this aspect of the matter.

The Learned Tribunal held "that where language is clear the intention of the legislature is to be gathered from the language used". Having held so, it was not open to seek to interpret the section on the basis of any comparison between the draft and the section actually enacted nor was it open to speculate as to the effect of the so-called representations made by the professional bodies.

The Learned Tribunal held that "Section 40(a)(ia) of the Act creates a legal fiction by virtue of which even the genuine and admissible expenses claimed by an assessee under the head "income from business and profession" if the assessee does not deduct TDS on such expenses are disallowed".

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Having held so was it open to the Tribunal to seek to justify that "this fiction cannot be extended any further and, therefore, cannot be invoked by Assessing Officer to disallow the genuine and reasonable expenditure on the amounts of expenditure already paid"? Does this not amount to deliberately reading something in the law which is not there?

We, as such, have no doubt in our mind that the Learned Tribunal realized the meaning and purport of Section 40(a)(ia) correctly when it held that in case of omission to deduct tax even the genuine and admissible expenses are to be disallowed. But they sought to remove the rigour of the law by holding that the disallowance shall be restricted to the money which is yet to be paid. What the Tribunal by majority did was to supply the casus omissus which was not permissible and could only have been done by the Supreme Court in an appropriate case. Reference in this regard may be made to the judgment in the case of Bhuwalka Steel Industries vs. Bombay Iron & Steel Labour Board reported in 2010 (2) SCC 273.

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The key words used in Section 40(a)(ia), according to us, are "on which tax is deductible at source under Chapter XVII -B". If the question is "which expenses are sought to be disallowed?" The answer is bound to be "those expenses on which tax is deductible at source under Chapter XVII -B. Once this is realized nothing turns on the basis of the fact that the legislature used the word 'payable' and not 'paid or credited'. Unless :-14-:

any amount is payable, it can neither be paid nor credited. If an amount has neither been paid nor credited, there can be no occasion for claiming any deduction.

The language used in the draft was unclear and susceptible to giving more than one meaning. By looking at the draft it could be said that the legislature wanted to treat the payments made or credited in favour of a contractor or sub-contractor differently than the payments on account of interest, commission or brokerage, fees for professional services or fees for technical services because the words "amounts credited or paid" were used only in relation to a contractor or sub-contractor. This differential treatment was not intended. Therefore, the legislature provided that the amounts, on which tax is deductible at source under Chapter XVII-B payable on account of interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical services or to a contractor or sub-contractor shall not be deducted in computing the income of an assessee in case he has not deduced, or after deduction has not paid within the specified time. The language used by the legislature in the finally enacted law is clear and unambiguous whereas the language used in the bill was ambiguous.

A few words are now necessary to deal with the submission of Mr. Bagchi and Ms. Roychowdhuri. There can be no denial that the provision in question is harsh. But that is no ground to read the same in a manner which was not intended by the legislature. This is our answer to the submission of Mr. Bagchi. The submission of Ms. Roychowdhuri that the second proviso sought to become effective from 1st April, 2013 should be held to :-15-:

have already become operative prior to the appointed date cannot also be acceded to for the same reason indicated above. The law was deliberately made harsh to secure compliance of the provisions requiring deductions of tax at source. It is not the case of an inadvertent error.

For the reasons discussed above, we are of the opinion that the majority views expressed in the case of Merilyn Shipping & Transports are not acceptable. The submissions advanced by learned advocates have already been dealt with and rejected.

The appeal is, thus, allowed in favour of the revenue."

7.11 Our attention was also invited to a circular dated 16/12/2013 issued by the CBDT clarifying the stand of the Department in the light of the aforesaid judgments of different High Courts and it has been clarified that statutory provisions are amply clear and in the context of section 40(a)(ia) of the Act, the term payable would include amounts which are paid during the previous year. For the sake of reference, we extract the circular as under:

Circular No. 10/DV/2013 (Departmental View) F. No. 279/Misc./M-61/2012-ITJ (Vol.-II) Government of India Ministry of Finance Department of Revenue Central Board of Direct Taxes

New Delhi, the December 16th 2013

Subject: Circular on Section 40(a)(ia) of the Income Tax Act, 1961-reg. It has been brought to the :-16-:

notice of the Board that there are conflicting interpretations by judicial authorities regarding the applicability of the provisions of section 40(a)(ia) of the Income-tax Act, 1961 (`the Act') with regard to the amount not deductible in computing the income chargeable under the head 'Profits and gains of business or profession'.

2. Section 40(a)(ia) of the Act reads as under:

".....any interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub contractor, being resident, for carrying out any work (including supply of labour for carrying out any work), on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid on or before the due date specified in sub-section (1) of section 139..."

3. In the case of Merilyn Shipping & Transports v. Addl. CIT , it was held by Special Bench of ITAT, Vishakhapatnam, that the provisions of section 40(a)(ia) of the Act would apply only to the amount which remained payable at the end of the relevant financial year and could not be invoked to disallow the amount which had actually been paid during the previous year without deduction of tax at source. The order of the Special Bench has since been put under interim suspension by the Andhra Pradesh High Court.

3.1 The Hon'ble Calcutta High Court and Hon'ble Gujarat High Court in the case of Commissioner of Income-tax, Kolkata-XI v. Crescent Exports Syndicate :-17-:

and Commissioner of Income-tax-IV v. Sikandarkhan N Tunvar respectively, have held that section 40(a)(ia) of the Act would cover not only the amounts which are payable at the end of the previous year but also which are payable at any time during the year.

3.2 The Hon'ble High Courts have further held that the intention of the legislation was to disallow certain types of expense, subject to provisions of Chapter XVII-B, which are payable at any time during the year but no tax was deducted at source or if deducted was not paid within the stipulated time. There is no such condition that amount should remain payable at the end of the year.

3.3 The Hon'ble Allahabad High Court in CIT v. Vector Shipping Service (P) Ltd . has affirmed the decision of the Special Bench in Merilyn Shipping that for disallowance under section 40(a) (ia) ofthe Act, the amount should be payable and not which has been paid during the year. However, the decisions of the Hon'ble Gujarat and Calcutta High Courts (supra) were not brought to the attention of the Hon'ble Allahabad High Court.

3.4 In the case of ACIT, Circle 4(2), Mumbai v. Rishti Stock and Shares Pvt. Ltd. in ITA No. 112/Mum/2012, Hon'ble ITAT, Mumbai in its order dated 02-08-2013 has examined the decision of the Hon'ble Allahabad High Court (supra) as regards to section 40(a)(ia) of the Act and concluded that the same was an "orbiter dicta" while the decisions of the Hon'ble Gujarat and Calcutta High Court (supra) were 'ratio decidendi'. The ITAT accordingly applied the view taken by the Hon'ble :-18-:

Gujarat and Calcutta High Court as ratio decidendi prevails over an orbiter dicta.

4. After careful examination of the issue, the Board is of the considered view that the provision of section 40(a) (ia) of the Act would cover not only the amounts which arc payable as on 31st March of a previous year but also amounts which are payable at any time during the year. The statutory provisions are amply clear and in the context of section 40(a) (ia) of the Act the term 'payable' would include 'amounts which are paid during the previous year'.

5. Where any High Court decides an issue contrary to the 'Departmental View', the `Departmental View' thereon shall not be operative in the area falling in the jurisdiction of the relevant High Court. However, the CCIT concerned should immediately bring the judgement to the notice of the CTC. The CTC shall examine the said judgement on priority to decide as to whether filing of SLP to the Supreme Court will be adequate response for the time being or some legislative amendment is called for.

6. The above clarification may be brought to the notice of all officers."

8. Keeping in view the aforesaid judgments of various High Courts and the Tribunal, we are of the considered opinion that the view expressed or the ratio laid down by the Special Bench of the Tribunal in the case of Merilyn Shipping & Transports has been overruled. Therefore, it cannot be said that since the Hon'ble Jurisdictional High Court has approved the view taken by the Special Bench of the Tribunal in the case of Merilyn Shipping & Transports , the same has to be followed by the Tribunal situated within the :-19-:

jurisdiction of Hon'ble Allahabad High Court. Had the impugned issue been examined and adjudicated by the Jurisdictional High Court, it would have been respectfully followed by the Tribunal irrespective of the fact that contrary view have been expressed by the different High Courts. The Hon'ble Jurisdictional High Court has not examined the impugned issue at all and simple passing reference was made with regard to the order of the Special Bench of the Tribunal in the case of Merilyn Shipping & Transports and the relief was granted to the assessee on merit. Therefore, the ratio laid down in the case of Merilyn Shipping & Transports , which has been suspended by Hon'ble Andhra Pradesh High Court has not been approved by the Hon'ble Allahabad High Court. Therefore, subordinate judicial forum are not required to follow the ratio order laid down in the case of Merilyn Shipping & Transports (supra), as it was overruled by the other High Court.

5. The scope of section 254(2) of the Act has been explained through various judicial pronouncements and it has been repeatedly held that the order of the Tribunal under section 254(2) of the Act can only be rectified when there is an error apparent on the record. If the order is passed having examined all the aspects, the same cannot be reviewed under the garb of rectification.

6. The scope of provisions of section 254(2) of the Act has been repeatedly examined by the Hon'ble Apex Court and various High Courts and it was held that the Tribunal can rectify only those mistakes which are arithmetical or clerical or apparent in its order. The Tribunal has no jurisdiction to review its own order in the grab of rectification. It was also held that if the Tribunal commits an error of judgement, that error cannot be rectified under the provisions of section 254(2) of the Act as the Tribunal is not empowered by the statute to review its own order. In the case of CIT Vs. Vardhman Spinning; 226 ITR 296 their Lordships of the :-20-:

Punjab and Haryana High Court have held in specific terms that "the Appellate Tribunal is creation of statutes and it can exercise only those powers which have been conferred upon it. The only power conferred on the Tribunal u/s 254(2) of the I.T. Act, 1961 is to rectify any mistake apparent from record. The jurisdiction to review or modify orders passed by the authorities under the Act cannot be interfered with on the basis of supposed inherent rights. U/s 254(1) of the Act, the Appellate Tribunal, after hearing the contesting parties, can pass such order as it deems fit. Sec. 254(2) of the Act specifically empowers the Appellate Tribunal at any time within four years of the date of an order to amend any order passed by it u/s 254(1) of the Act with a view to rectify any mistake apparent from record either suo moto or on an application made. What can be rectified under this section is a mistake which is apparent and patent. The mistake has to be such for which no elaborate reasons or inquiry is necessary. Where two opinions are possible, then it cannot be said to be an error apparent on the face of the record".

7. In the case of CIT Vs. Suman Tea and Plywood Industries (P) Ltd., 226 ITR 34 their Lordships of Calcutta High Court have expressed similar observations after holding that "under section 254(2) of the Income-

tax Act, an order, which has been passed by the Tribunal reaches finality the moment the same is passed; cannot be touched thereafter. By section 254(2) of the Act, the Tribunal, however, has been authorized to rectify mistakes in its orders, which are apparent on the face of the records. The expression `mistake apparent on the record' means a mistake either clerical or grammatical or arithmetical or of like nature, which can be detected without there being any necessity to re-argue the matter or to re-appraise the fact as appearing from the records." In another case CIT Vs. Golal Chand Agarwal; 202 ITR 14 their Lordships of Calcutta High Court have also held that section 254(2) of the Income-tax Act, 1961 empowers the Tribunal to amend its order passed u/s 254(1) to rectify any mistake :-21-:

apparent from the record either suo moto or on an application. If in its order there is no mistake which is patent and obvious on the basis of the record, the exercise of the jurisdiction by the Tribunal u/s 254(2) will be illegal and improper. An oversight of the fact cannot constitute an apparent mistake rectifiable under section 254(2). This might, at the worst, lead to perversity of the order for which the remedy available to the assessee is not under section 254(2) but a reference proceedings u/s 256. The normal rule is that the remedy by way of review is a creature of the statute and unless clothed with such power by the statute, no authority can exercise the power.

8. The Hon'ble High Court of Allahabad in the case of CIT Vs. ITAT; 143 CTR 446 has held that "sub-section (1) of section 254 confers ample powers on the Tribunal to pass such orders in any appeal filed before it as it thinks fit. Sub-section (2) of section 254 postulates that the Tribunal may amend any order passed by it under sub-sec. (1) of section 254 with a view to rectifying any mistake apparent from the record. The power of the Tribunal conferred by sub-section (2) of section 254 for rectifying any mistake apparent from the record cannot be exercised by the Tribunal to recall any order passed by it under section 254(2). Further, reviewing and recalling an order is one thing and rectifying a mistake in the order which is apparent from the record is quite another. In the absence of any statutory provision for review by Tribunal, the order passed by the Tribunal cannot be recalled or reviewed under section 254(2) of the Act." The provisions of section 254 were also examined by the Hon'ble High Court of M.P. in the case of Prakash Chand Mehta Vs. CIT; 220 ITR 277 in which their Lordship have held that scope of section 254(2) of the Income-tax Act is very limited and it is only the apparent error which can be rectified.

9. Their Lordships of the Apex court in the case of T.S. Balaram ITO Vs. Volkart Brothers; 82 ITR 50 (SC) have held that a mistake apparent on :-22-:

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 record. Their Lordships have further held that if a statement of any person has been recorded without producing him in the witness box, the authorities should not act upon that statement without affording the assessee an opportunity to cross-examine the witness, but that is a matter not for rectification but it is a matter relating to the merits of the case as to whether the Tribunal has gone wrong in not considering the affidavit of a particular person and has acted upon the statement of the same person which was recorded by the ITO without being permitted to cross examine by the assessee. This is not a matter in which the apparent error is involved but it is a matter more of merit and cannot be rectified within the scope of rectification. The powers of the Tribunal while making a rectification were again examined by the Apex Court in the case of CIT Vs. Hero Cycles Pvt. Ltd.; 228 ITR 463 in which their Lordships have held that rectification can only be made when a glaring mistake of fact or law committed by the officer passing the order becomes apparent from record. Rectification is not possible if the question is debatable. Moreover, a point which was not examined on facts or in law cannot be dealt with as mistake apparent from record. In the case of ITO Vs. ITAT; 229 ITR 651 their Lordships of Patna High Court have also expressed a similar observation after holding that section 254(2) of the Act empowers the Tribunal to amend any order passed by it under sub-section (1) with a view to rectifying a mistake from record. However, section 254(2) does not authorize the Tribunal to review its order or to sit in appeal over its earlier order. If it is done, it would amount to an amendment of an earlier order with a view to rectify a mistake apparent from record, but it would be an order passed on reappraisal of the material facts and :-23-:

circumstances and on a fresh application of the legal position which is not permissible within the scope of section 254(2) of the Act.

10. In the case of Ms. Deeksha Suri Vs. ITAT; 232 ITR 395 their Lordships of Delhi High Court have held in specific terms that "the Income- tax Appellate Tribunal is a creature of the statute. It has not been vested with the review jurisdiction by the statute creating it. The Tribunal does not have any power to review its own judgements or orders. The grounds on which the courts may open or vacate their judgements are generally matters which render the judgement void or which are specified in the statutes authorizing such sections. The language of section 254(2) of the Income-tax Act, 1961 is clear. The foundation for the exercising the jurisdiction is "with a view to rectify any mistake apparent on the record"

and the object is achieved by "amending any order passed by it". 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 on the record".

11. Similar views have also been expressed by the Guwahati High Court in the case of CIT Vs. Prahlad Rai Todi 251 ITR 833 by holding that "A bare look at section 254(2) will show that this section gives the power to rectify any mistake apparent from the record and not to amend any order passed by it and to make such amendment if the mistake is brought to its notice by the Assessing Officer or the assessee. So, when we speak of amendment or rectifying the mistake the earlier order can never be recalled by the Tribunal. The earlier order must hold the field and the mistake can be rectified or amended can be made to the order. The Tribunal cannot, in law and facts, recall and destroy its final order as a whole with a view to rectify the same order under section 254(2) of the Act. The action of the :-24-:

Tribunal actually amounts to review of its earlier order and that power to review is not available to the Tribunal."

12. In the light of the above judicial pronouncements, we are of the considered view that the Tribunal has given a specific finding on the impugned issue after taking into account various judicial pronouncements. Therefore, no error is crept in the order of the Tribunal and accordingly we reject the Miscellaneous Application.

13. In the result, Miscellaneous Application of the assessee is dismissed.

Order was pronounced in the open court on the date mentioned on the captioned page.

Sd/- Sd/- [A. K. GARODIA] [SUNIL KUMAR YADAV] ACCOUNTANT MEMBER JUDICIAL MEMBER

DATED: 20th February, 2015 JJ:0502

Copy forwarded to: 1. Applicant 2. Respondent 3. CIT(A) 4. CIT 5. DR Assistant Registrar