TRIBUNAL CAN RECTIFY THE MISTAKE EVEN AFTER EXPIRY OF FOUR YEARS

[Mr. M. GOVINDARAJAN]

Sec. 254 of the Income Tax Act, 1961 provides for rectification of mistake by the Appellate Tribunal. Sec. 254(2) provides that the Appellate Tribunal, may at any time within four years from the date 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.

The discussion taken for this article is whether tribunal can rectify the mistake even after expiry of four years.  In 'Harshavardhan Chemicals and Minerals Ltd., V. Union of India and another' - 2002 (256) ITR 767, the Rajasthan High Court has taken the following view - "Once the assessee has moved the application within four years from the date of appeal, the Tribunal cannot reject that application on the ground that four years have lapsed, which includes the period of pendency of the application before the Tribunal.   If the assessee has moved the application within four years from the date of order, the Tribunal is bound to decide the application on the merits and not on the ground of limitation.  Section 254(2) of the Income Tax Act, 1961 lays down that the Appellate Tribunal may at any time within four years from the date of the order rectify the mistake apparent from the record but that does not mean that if the application is moved within the period allowed, i.e., four years, and remains pending before the Tribunal, after the expiry of four years the Tribunal can reject the application on the ground of limitation."

In 'Sree Ayyanar Spinning &Weaving Mills Ltd., V. Commissioner of Income Tax' - 2008 -TMI - 4622 - (SUPREME COURT) the appellant carries on the business of manufacture of cotton and man-made fibre yarn. For the assessment year 1989-90 assessment under Section 143 (3) was framed by the Deputy Commissioner of Income Tax, Madurai.  The said authority determined the taxable total income based on Section 115J of the Act.  On scrutiny of the computation and the balance sheet the Deputy Commissioner of Income Tax reworked the computation at Rs.1,53,07,444/- . 30% there was reworked at Rs.45,92,239/- In the process of reworking the computation under Section 115J, the Deputy Commissioner added to the profit the excess depreciation which was debited in the profit and loss account in view of the difference which arose due to the change in the method of accounting adopted by the assessee for the claim of depreciation on machinery retrospectively from the year ending 30th June, 1983.  The assessee had changed its method of claiming depreciation from straight line method to written down value method and in that connection it was argued by the assessee that the profit stood computed correctly in accordance with the provisions of the Companies Act and the Assessing Officer had no authority to go beyond the book profits, correctly computed by the assessee in accordance with the provisions of the Companies Act, 1956.  The assessee relied on the judgment of the Supreme Court in 'Apollo Tyres Ltd., V. Commissioner of Income Tax' 2002 -TMI - 6081 - (SUPREME Court)  The Department contended that the said case is not applicable to the facts of the present case because in that case the issue involved was regarding admissibility of deduction relating to extra shift depreciation for past years which were not claimed by Apollo Tyres in the relevant years whereas in the present case the claim of the assessee arose was due to the change in the method of claiming depreciation from straight line method to written down value method.

The Appellate Tribunal has passed order upholding the order of Commissioner of Income tax (Appeals) on computation of income under Sec.115J of the Act.  The Tribunal has dismissed the appeal of the assessee on the ground that the profit and loss account of the assessee did not reflect correct picture for the Assessment Year 1989-90.  On 2nd August 2000 the assessee moved miscellaneous application praying for recall of the order dated 9.12.1996 by mainly relying upon the judgment of the Supreme Court in 'Apollo Tyres Ltd., V. Commissioner of Income Tax' 2002 -TMI - 6081 - (SUPREME Court).   The assessee filed the application for the rectification of mistake within four years as prescribed under Sec. 254(2).  On 31st January, 2003 following the judgment of the Supreme Court in Apollo Tyres Limited the Tribunal allowed the rectification application against which the department filed an appeal before the High Court.

The High Court came to the conclusion that under Section 254(2) the Tribunal could not have allowed rectification beyond four years.  The High Court held that the Tribunal had no power to rectify the mistake after four years which time is set out in section 254(2) of the Act itself for passing an order of rectification either suo motu or an application filed either by the assessee or by the Assessing Officer. The High Court did not go into merits. It allowed the appeal and set aside the order of the Tribunal only on the ground of limitation. Hence the assessee filed the present Civil Appeal before Supreme Court by special leave.

The Supreme Court analyzed the provisions of Sec.254 (2) of the Income Tax Act, 1961.  The Supreme Court is of the view that Section 254(2) is in two parts. Under the first part, the Appellate Tribunal may, at any time, within four years from the date of the order, rectify any mistake apparent from the record and amend any order passed by it under sub-section (1).   Under the second part of Section 254(2) reference is to the amendment of the order passed by the Tribunal under sub-section (1) when the mistake is brought to its notice by the assessee or the Assessing Officer.  The first part of Section 254(2) refers to suo motu exercise of the power of rectification by the Tribunal whereas the second part refers to rectification and amendment on a mistake apparent from the record.  In this case the Supreme Court is concerned with the second part of Section 254(2).   The application for rectification was made within four years.  Application was well within four years.   It is the Tribunal which took its own time to dispose of the application.  Therefore, the Supreme Court held, in the circumstances, the High Court had erred in holding that the application could not have been entertained by the Tribunal beyond four years.

The Supreme Court set aside the impugned judgment of the High Court and directed the High Court to take fresh decision on the merits of the matter.