2013 (5) TMI 687 - HC - Income Tax

ITAT s power of rectification - working-out depreciation after computing profit at the rate of 8% - Held that - As in the original order, the Tribunal estimated the profit at the rate of 8% before depreciation, salary and interest to the partners on the basis of decision CIT vs. Jain Construction co. and ors. (1999 (9) TMI 26 - RAJASTHAN High Court) where the precise question was, whether while applying the profit rate of 8% u/s 44AD can depreciation still be claimed thereafter where the High Court had answered the question in favour of assessee. When the Tribunal, therefore, applied such a decision and specifically provided for working-out depreciation after computing profit at the rate of 8%, there was no ambiguity or uncertainty. Simply because the assessee himself had declared profit at 8.13% on such parameters, would not permit the Tribunal to change such a directive in exercise of rectification powers. Power of rectification can be exercised for correcting an error apparent on the face of the record and not for reviewing an order. In the present case, decision of the Tribunal to allow depreciation on 8% profit was a conscious decision. Thus such a view could not have been changed in exercise of power of rectification. On this short ground, we are prepared to reverse the Tribunal s order under challenge.

Summary

Issues:
Validity of an order of the Income Tax Appellate Tribunal dated 21.08.2009 questioned by the assessee. The Tribunal estimated the profit rate at 8% before depreciation, salary, and interest to the partners based on a decision of the Rajasthan High Court. The assessee sought rectification of the order to reflect a net profit rate of 8.13% already declared by them. The main issue revolved around whether the Tribunal was correct in exercising the power of rectification.

Analysis:

1. Original Tribunal Order and Rectification Request:
- The Tribunal initially estimated the profit rate at 8% before depreciation, salary, and interest to the partners based on a decision of the Rajasthan High Court. The assessee filed a rectification request contending that they had already reflected a net profit rate of 8.13%. The Tribunal modified its order and confirmed the disallowance at Rs. 10,98,348/-, as against the initial disallowance of Rs. 26,01,574/- made by the assessing officer.

2. Rectification Power and Application:
- The Tribunal's power of rectification can correct an error apparent on the face of the record but not review an order. In this case, the Tribunal's decision to allow depreciation on 8% profit was a conscious one based on legal precedent. The Tribunal's directive to calculate profit at 8% was clear, and the assessee's self-declaration of 8.13% profit did not warrant a change in the rectification process. The Tribunal's decision to exercise rectification powers in this context was deemed inappropriate.

3. Judgment and Conclusion:
- The High Court reversed the Tribunal's order, emphasizing that rectification powers cannot be used to alter a conscious decision made by the Tribunal. The Court clarified that the assessee would not seek a further reduction in the estimate adopted by the CIT(A). Consequently, the appeal was allowed, the Tribunal's order was set aside, and the revenue's appeal against the CIT(A) order was dismissed without additional benefit to the assessee. The Court upheld the CIT(A) order, ultimately disposing of the tax appeal in favor of the assessee.