2014 (7) TMI 687 - HC - Income Tax

Jurisdiction of Tribunal for rectification u/s 254(2) Mistake apparent on record Held that - CBDT has issued a Circular No. 68 F. No. 245/17/71-A & PAC , dated 17.11.1971 explaining as to when a mistake apparent from the record could be corrected in the event of a subsequent decision delivered by the Supreme Court of India - relying upon Assistant Commissioner of Income Tax Vs. Saurashtra Kutch Stock Exchange Ltd. 2008 (9) TMI 11 - SUPREME COURT - an error apparent on the record means an error which strikes one on mere looking and does not need a long drawn out process of reasoning on points on which there may be conceivably two opinions - where the business continued, the valuation of the closing stock would have to be determined either at cost price or market price, whichever is lower - decision passed by the Tribunal based on an earlier decision of the Supreme Court is a mistake apparent from the record and consequently a rectification application u/s 254(2) is maintainable - the Tribunal was justified in passing the order u/s 254(2) of the Act Decided against Revenue.

Summary

Issues:
1. Rectification of mistake under section 254(2) of the Income Tax Act based on subsequent Supreme Court decision.
2. Jurisdiction of the Tribunal to rectify its mistake under section 254(2) of the Act.
3. Permissibility of rectification amounting to a review of decision.
4. Application of Circular No. 68 regarding rectification of mistakes based on subsequent Supreme Court decisions.
5. Interpretation of "error apparent on the record" for rectification purposes.
6. Precedents supporting rectification based on subsequent Supreme Court decisions.

Analysis:

1. The Tribunal, in the assessment year 1990-91, initially held that in case of dissolution or closure of a firm, the closing stock must be valued at market price, based on the Supreme Court decision in A.L.A. Firm's case. However, during the rectification application under section 254(2) of the Income Tax Act, the Tribunal considered the subsequent Supreme Court decision in Sakthi Trading Co. case, which clarified that in cases where the business continued, the closing stock valuation should be at cost price or market price, whichever is lower. The rectification was allowed based on this new interpretation of law.

2. The department contended that the Tribunal exceeded its jurisdiction by rectifying its mistake under section 254(2) after passing the original order on merits. However, the High Court observed that the rectification was justified as it was based on a subsequent interpretation of law by the Supreme Court, making it a mistake apparent from the record. The High Court referred to Circular No. 68, which allows rectificatory action in such cases.

3. The High Court further addressed the issue of whether the rectification amounted to a review of the decision, which the department argued was impermissible under section 254(2) of the Act. Citing the decision in Assistant Commissioner of Income Tax Vs. Saurashtra Kutch Stock Exchange Ltd., the High Court emphasized that rectification aims to remove errors and achieve finality, especially when there is a clear mistake apparent on the record, as in this case.

4. The High Court also highlighted the relevance of Circular No. 68, which provides guidelines for correcting mistakes based on subsequent Supreme Court decisions. The Circular emphasizes that rectification is warranted when a later Supreme Court decision reveals a mistake in completed assessments, ensuring that justice prevails and errors are rectified promptly.

5. In interpreting the term "error apparent on the record," the High Court referred to the decision in Shahbad Co-operative Sugar Mills Ltd. case, where the Punjab and Haryana High Court held that rectification proceedings are permissible once the Supreme Court clarifies its earlier decision. The High Court reiterated that an error apparent on the record should be evident without extensive reasoning and can be rectified to uphold justice and correctness in assessments.

6. Based on the above analysis and precedents, the High Court concluded that the rectification made by the Tribunal under section 254(2) of the Act was justifiable due to the subsequent Supreme Court decision affecting the valuation of closing stock. Therefore, the appeal challenging the rectification was dismissed, as no substantial question of law was found to arise from the case.