2015 (1) TMI 652 - AT - Income Tax

Rectification of order u/s 254 - Deduction u/s 10B - Suppression of vital material facts setting up of the EOU units of Amona and Chitradurga - apparent mistakes on the issue of manufacturing for the purpose of Sec. 10B in the Tribunal s order - Held that - From the submission of the Revenue it is apparent that the material and information on which the Revenue relied by putting up the miscellaneous application has been procured subsequent to the passing of the order not only by the Hon ble Tribunal but also after dismissing the various questions by the Hon ble High Court vide its order dt. 23.9.2013. Rule 18(6) of the Appellate Tribunal Rules explicitly mentions that only the documents that are referred to and relied upon by the parties during the course of the argument shall alone be treated to be part of the record of the Tribunal. Sec. 254(2) empowers the Tribunal to rectify mistake which is apparent on record within 4 years from the date of the order suo moto or on application by the Assessee or Revenue. The provisions of Sec. 254(2) can not be construed in a manner that produces an anomaly or otherwise produces irrational or illogical result. The ld. DR even though vehemently argued, but could not bring to our knowledge that this Tribunal failed to consider the case law as cited before the Tribunal or the Tribunal has not considered the contentions, pleas and arguments raised before the Tribunal by both the sides. The power u/s 254(2) does not contemplate re-hearing which would have the effect of re-writing the order affecting the merit of the case. If the power given u/s 254(2) is read in that manner, then, in our opinion, there will not be any difference between the power to review and the power to rectify the mistake. The legislature has not deliberately conferred the power of review on the Tribunal and the Tribunal cannot review its order under the garb of power given u/s 254(2). Thus we are of the view that the decision of the Tribunal is based on the appreciation of the facts and the case laws. Therefore, the Miscellaneous Application filed by the Revenue, does not relate to mistake apparent on the record rectifiable u/s 254(2) of the Act. - Decided against revenue.

Summary

Issues Involved:
1. Whether the Tribunal's order contained mistakes apparent from the record that needed rectification.
2. Whether the Tribunal correctly applied the definition of "manufacture" under the SEZ Act for the purpose of section 10B.
3. Whether the Tribunal correctly directed the AO to restrict the open market rate of iron ore to the average purchase value.
4. Whether the Tribunal correctly deleted the disallowance of Rs. 12.29 crores made under section 14A of the IT Act.
5. Whether the Tribunal's findings were based on new evidence not available during the assessment.

Detailed Analysis:

1. Mistake Apparent from Record:
The Revenue filed a Miscellaneous Application to rectify the Tribunal's order, alleging that the Assessee suppressed vital material facts regarding the setting up of EOUs at Amona and Chitradurga. The Tribunal had concluded that these units fulfilled the conditions for claiming exemption under section 10B based on the evidence presented. The Revenue argued that new material found during a survey conducted under section 133A after the Tribunal's order necessitated reconsideration. However, the Tribunal noted that the new material was not part of the record at the time of the original hearing and could not be considered under Rule 18(6) of the Appellate Tribunal Rules. The Tribunal emphasized that it could not review its order under the guise of rectification, as it would blur the line between review and rectification.

2. Definition of "Manufacture" under SEZ Act:
The Revenue contended that the Tribunal incorrectly applied the definition of "manufacture" from the SEZ Act, which is specific to section 10AA of the IT Act, to section 10B. The Tribunal had previously decided that the Assessee's processing of iron ore amounted to "manufacture," making them eligible for the exemption under section 10B. The Hon'ble High Court admitted this question for consideration, indicating its significance.

3. Restriction of Open Market Rate:
The Tribunal directed the AO to restrict the open market rate of iron ore to the average purchase value, applying the provisions of section 10B(7) read with section 80IA(8). The Revenue argued that this was incorrect as it did not consider differences in grade and quality of the ore. This question was also admitted by the Hon'ble High Court, highlighting its importance.

4. Disallowance under Section 14A:
The Tribunal deleted the disallowance of Rs. 12.29 crores made under section 14A, following the Mumbai Special Bench's decision in the case of ITO vs. Daga Capital Management Pvt. Ltd. The Revenue challenged this deletion, and the Hon'ble High Court admitted this question as well, underscoring its relevance.

5. New Evidence and Natural Justice:
The Revenue claimed that the Tribunal's findings were based on new evidence not available during the assessment and that the AO was not given an opportunity to verify this new evidence, violating principles of natural justice. The Tribunal noted that the Hon'ble High Court did not admit the questions related to the applicability of the decision in Chowgule & Co. Pvt. Ltd. vs. Union of India and whether the renovated units were new EOUs. The Tribunal emphasized that only documents referred to and relied upon during the arguments could be considered part of the record, as per Rule 18(6) of the Appellate Tribunal Rules.

Conclusion:
The Tribunal dismissed the Miscellaneous Application filed by the Revenue, stating that the issues raised did not constitute mistakes apparent from the record that could be rectified under section 254(2) of the IT Act. The Tribunal reiterated that it could not review its order under the guise of rectification and that the Revenue's appeal before the Hon'ble High Court on the same issues precluded the Tribunal from interfering with its original order. The order was pronounced in the open court on 07/01/2015.