Power of Tribunal for for rectification of mistake apparent from the record u/s 254(2)

Assessment Year 1990-91 -  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.

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.

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 present case, there was no actual payment after the fluctuation and, therefore,  the assessee was not entitled to claim the benefit under section 43A.

On 9.12.2002, the assessee moved the Tribunal for rectification of mistake apparent from Order dated 2.4.2002 under section 254(2).

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.

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.

While setting aside the order or High Court and restoring the order of Tribunal dated 10-9-2003, honorable Supreme Court has observed that:

……….. 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. 

(For full text of judgment - please visit 2007 -TMI - 2224 - Supreme Court of India)