Facts

Assessee company had taken a term loan in foreign exchange for import of machinery. The liability of the assessee to repay the loan in terms of rupees went  up by Rs. 7,10,910 on account of fluctuation in foreign exchange rate during the

F.Y. 1990-91 relevant to A.Y. 1991-92. While filing the Return of Income for A.Y. 1991-92, the assessee enhanced the WDV of the block of assets by Rs. 7,10,910 in accordance with the provisions of section 43A of the Act and claimed depreciation  on such enhanced amount of WDV. The assessing officer came to the conclusion that such revision in the actual cost was not permissible. As per the assessing officer the adjustment to the actual cost of the machinery was permissible only,     if the liability is actually paid and in the case where the liability of loan remains unpaid such adjustment was  not  allowable. On  appeal to  the  CIT  (A),  the  CIT

(A) allowed the claim of the assessee. While allowing the claim of the assesse,     the CIT (A) relied on his own order in another case namely,  Samtel Colour Ltd.  The department preferred appeal to the Tribunal. During the course of the hearing before the  Tribunal,  the  assessee brought on  record  that  the  order of  the CIT

(A) in the case of Samtel Colour Ltd. has also been confirmed by the Tribunal.    The assessee also filed a copy of the order of the Tribunal in the case of Samtel Colour Ltd. However, the Tribunal decided the appeal of the department against  the assessee. While deciding the appeal, the Tribunal failed to take cognizance of the order of the Co-ordinate Bench of the Tribunal in the case of Samtel Colour Ltd., which was filed by the assessee.

The assessee preferred a Miscellaneous Application against the order of the Tribunal under section 254(2) of the Act. The assessee contended before the Tribunal  that the non-consideration of the decision of the co-ordinate bench was    a mistake apparent from the records and hence the order passed in the appeal requires to be rectified. The Tribunal acknowledged the mistake  on  its  part in not following the said order of the co-ordinate bench and rectified the order in appeal accordingly. The revenue filed an appeal to the Delhi High Court against  the order of the Tribunal in the Miscellaneous Application. The Delhi High Court held that under section 254 of the Act, there is no inherent power available to review its own order. Considering that no express power has been given to the Tribunal, it is not permissible to the Tribunal to indirectly review its order under section 254(2) of the Act. The action of the Tribunal amounted to review of the order already passed by the Tribunal and the same is not permissible under

section 254(2) of the Act. The High Court also held that the fact that a decision      of co-ordinate bench was cited and placed on record but the same had escaped attention of the bench can hardly be construed as a mistake apparent from the record. Accordingly, the DelhiHigh Court set aside the order passed by the Tribunal in the Miscellaneous Application [CIT v. Honda Siel Power Products  Ltd. (2007) 293 ITR 132 (Delhi)(HC). Aggrieved by the said order of the Delhi   High Court, the assessee preferred the appealto the Supreme Court.

Issue

The issue before the Hon. Supreme Court was whether not considering the decision of a co-ordinate bench is a mistake apparent from records and therefore whether the Tribunal was justified in correcting the same u/s. 254(2) of the Act.

View

The Supreme Court observed that 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.  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. The  Supreme Court also explained that “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 IT 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.

Held

The Supreme Court held that 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 co-ordinate 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 and has accordingly rectified its  order. The High Court was not justified in interfering with the said order. (AY. 1991-92) (CA No. 5412 of 2007 dt. 26-11-2007)

Editorial : In the case of Lachmandas Bhatia Hingwala Pvt. Ltd. v. ACIT (2011) 330 ITR 243 (Delhi) (HC), the full bench of the Delhi High Court following the decision of Supreme Court in Honda Siel Power Products Ltd. (supra) has held   that under section 254, fundamental principle is that no party appearing before   the Tribunal should suffer on account of any mistake committed by the Tribunal and no prejudice is caused to either of the parties before the Tribunal which is attributable to the Tribunal’s mistake, omission or commission and if the same error is a manifest error, then the Tribunal would be justified to recall its order. While exercising the power of rectification under section 254(2), Tribunal can recall its order in entirety, if it is satisfied that prejudice has resulted to the party which is attributable to the Tribunal’s mistake, error or omission and which error is a manifest error and it has nothing to do with the doctrine or concept of inherent power of review.

“My imperfections and failures are as much   a blessing from God as mysuccesses and my

talents and I lay them both at his feet.”

– Mahatma Gandhi