Is Ramesh Electric (Apparant mistake) overruled?

[CA_balakrishnan]

Dear All,

I want to draw attention to the judgement of the Bombay High Court in Ramesh Electric 213 ITR 497 where it was held that the ITAT's failure to condier an argument does not amount to a mistake apparant from the record for purposes of s. 254(2) of the IT ACt, 1961.

However, in Honda Siel Power Products vs. CIT (Supreme Court) {Pl. see SC section of this site}, the SC has held that the ITAT's failure to refer to a decision cited was a mistake apparant from the record. The following observations are worth noting:

"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.....

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."


IMHO, these observations are very wide and render the judgement in Ramesh Electric bad-in-law.

Do you agree?

[taxationlaws]

Dear Mr Balkrishnan,

In relation your subject query, it seems that SC in Honda Siel case (supra) has taken a view viz. power under section 254(2) is meant to redress prejudice and ITAT can rectify its order where some material argument is not considered etc, which is contrary to views taken by BHC in Ramesh Electric case (supra).

Having said that, one may (respectfully submitted) distinguish the SC ruling in Honda Siel case (supra) on legal and factual grounds, as the same did not deliberate upon distinction (if any) between review and rectification, which has been otherwise considered at length by BHC in Ramesh Electric (supra) and DHC in its underlying ruling in the case of Honda Siel 293 ITR 132/158 Taxman 26 In this connection, it seems that SC in Honda Siel (supra) has also not considered the earlier landmark ruling of SC in the case of T.S.Balaram vs Volkart Bros 82 ITR 50 which interalia held that "...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 from the record. ...". (seems to have implications on underlying issue)

Even further, in an unreported ruling dated 4 December 2007 in the case of Deva Metal Powders, SC speaking through the bench of Hon'ble Justices Dr. ARIJIT PASAYAT & P. SANTHASIVAM, seems to have echoed the similar views which were expressed by BHC in Ramesh Electric case (supra) and DHC in Honda Siel case (supra) (in context of section 22 of Uttar Pradesh Sales Tax Act containing the phrase "........"Rectification of Mistakes: (1)   Any officer or authority, or the Tribunal or the High Court may, on it's own motion or on the application of the dealer or any other interested person rectify any mistake in any order passed by him or it under this Act apparent on the record within three years from the date of the order sought to be rectified...."  In this connection, SC has interalia held that:

"10.   A bare look at Section 22 of the Act makes it clear that a mistake apparent from the record is rectifiable. In order to attract the application of Section 22, the mistake must exist and the same must be apparent from the record.  The power to rectify the mistake, however, does not cover cases where a revision or review of the order is intended.   "Mistake" means to take or understand wrongly or inaccurately; to make an error in interpreting; it is an error, a fault, a misunderstanding, a misconception.  "Apparent" means visible; capable of being seen, obvious; plain.  It means "open to view, visible, evident, appears, appearing as real and true, conspicuous, manifest, obvious, seeming."  A mistake which can be rectified under Section 22 is one which is patent, which is obvious and whose discovery is not dependent on argument or elaboration.  In our view rectification of an order does not mean obliteration of the order originally passed and its substitution by a new order.  What the Revenue intends to do in the present case is precisely the substitution of the order which according to us is not permissible under the provisions of Section 22 and, therefore, the High Court was not justified in holding that there was mistake apparent on the face of the record....."

Further, reference in aforesaid connection may be made to SC ruling in Ralson Industries 288 ITR 322 wherein Hon'ble Justice S.B.Sinha speaking for the court has interalia held that:

"....The scope and ambit of a proceeding for rectification of an order under Section 154 and a proceeding for revision under Section 263 are distinct and different. Order of rectification can be passed on certain contingencies. It does not confer a power of review. If an order of assessment is rectified by Assessing Officer in terms of Section 154 of the Act, the same itself may be a subject matter of a proceeding under Section 263 of the Act. .."

Also, reference may be made to FB ruling of DHC in the case of Kelvinator of India 256 ITR 1 wherein Hon'ble Justice S.B.Sinha (as his lordship then was) speaking for the court has interalia held that:

".....14. It is well settled -principle of interpretation of statute that entire statute should be read as a whole and the same has to be considered thereafter chapter by chapter and then section by section and ultimately word by word. It is not in dispute that the AO does not have any jurisdiction to review its own order. His jurisdiction is confined only to rectification of mistake as contained in s. 154 of the Act. The power of rectification of mistake conferred upon the ITO is circumscribed by the provisions of s. 154 of the Act. The said power can be exercised when mistake is apparent. Even mistake cannot be rectified where it may be a mere possible view or where the issues are debatable. Even the Tribunal has limited jurisdiction under s. 254(2) of the Act. Thus, when the AO or Tribunal has considered the matter in detail and the view taken is a possible view the order cannot be changed by way of exercising the jurisdiction of rectification of mistake.
15. It is a well settled principle of law that what cannot be done directly cannot be done indirectly. If the ITO does not possess the power of review, he cannot be permitted to achieve the said object by taking recourse to initiating a proceeding of reassessment or by way of rectification of mistake. In a case of this nature the Revenue is not without remedy. Sec. 263 of the Act empowers the CIT to review an order which is prejudicial to the Revenue. ..."

Hope the above is useful for analyzing the subject matter under consideration.

Regards
CA. Kapil Goel
taxationlaws@rediffmail.com

[CA_balakrishnan]

Dear Shri Goel,

Thank you very much for your expert analysis of the subject. I have the feeling after reading your piece that Honda Siel may not be the last word on the subject.

I read the judgement of Deva Metal Powders referred to by you. The SC there has emphasized that the judgement relied upon by the AO to make the rectification was not directly on the point but he was seeking to apply the "inference" of the judgement.

In Honda Siel, the judgement which the ITAT omitted to refer was directly on the point and therefore the SC said there was a mistake apparnt from the record.

I am confused whether this has a bearing on the matter. i.e. if it is a direct decision on the point then there is a 'mistake' apparant from the record otherwise not.

At least as things stand today, would I be justified in arguing before the ITAT that Ramesh Electric should not be followed in view of Honda Siel or do you see a problem in this?

Many thanks for your expert guidance.

[taxationlaws]

Dear Mr Balakrishnan,

Although i do not see any problem in relying Honda Siel (supra) (on the stated facts i.e non consideration of directly applicable case law etc), but in fitness of things and to have a wholesome view, whether the same may amount to review or not, may still require specific judicial adjudication (with due respect to the proposition put forth by Hon'ble Supreme Court in Honda Siel (supra) that " 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" etc ).

Further, as regards Ramesh Electric case (supra) is concerned, it may still have application on a  principle (which is undisputed till today) : in the grab of rectification, review cannot be done.

In this connection, one may distinguish honda siel facts (where SC categorically found the relevant 'case law'  which remained unconsidered in Ist instance by ITAT as having material and direct bearing on the issue - without calling for further investigation) with Ramesh Electric case (where grounds which remained unattended by ITAT may be seen to be treated by BHC as i) having little/less bearing on the issue so as to warrant rectification under section 254(2), in light of overall facts and/or ii)calling for further investigation)

May be useful

Regards
Kapil Goel