2002 (5) TMI 223 - AT - Income Tax

Summary

Issues Involved:

1. Rectification of the ITAT order under section 254(2) of the Income-tax Act.
2. Valuation of stock-in-trade (investments) for income-tax purposes.
3. Applicability of the Supreme Court's decision in UCO Bank v. CIT to the present case.
4. Consideration of subsequent judicial pronouncements as a ground for rectification.

Issue-wise Detailed Analysis:

1. Rectification of the ITAT order under section 254(2) of the Income-tax Act:

The applicant sought rectification of the ITAT, Jaipur Bench's order dated 7-1-1994 for assessment years 1982-83, 1983-84, and 1984-85. The basis for this application was the assertion that the original order contained a mistake of law, as it was based on a Calcutta High Court decision that had since been overturned by the Supreme Court. The rectification was sought under section 254(2) of the Income-tax Act, which allows for correction of mistakes apparent from the record.

2. Valuation of stock-in-trade (investments) for income-tax purposes:

The core issue revolved around whether the loss on account of the valuation of stock-in-trade (securities) at market price, as opposed to cost, could be allowed as a business loss. The original ITAT order had denied this, following the Calcutta High Court's decision, which stated that the claim for loss based on notional valuation of stock in trade for tax purposes could not be permitted. However, the Supreme Court in UCO Bank v. CIT held that banks could value their stock-in-trade (investments) at cost or market value, whichever is lower, for income-tax purposes, even if the balance sheet showed the investments at cost.

3. Applicability of the Supreme Court's decision in UCO Bank v. CIT to the present case:

The applicant argued that the Supreme Court's decision in UCO Bank v. CIT was directly applicable to their case. The Supreme Court had ruled that for valuing closing stock, it is permissible to value it at cost or market value, whichever is lower. This method of accounting, if adopted consistently and regularly, could not be discarded by the Departmental authorities. The ITAT accepted this argument, noting that the Supreme Court's decision established the correct legal position, which should be applied retrospectively.

4. Consideration of subsequent judicial pronouncements as a ground for rectification:

The applicant cited various judgments to support the contention that a subsequent Supreme Court decision could constitute a "mistake apparent from the record" and thus be grounds for rectification. The ITAT referred to several cases, including Kit Kotagiri Tea & Coffee Estates Co. Ltd. v. ITAT and State of Kerala v. P.K. Syed Akbar Sahib, which held that a subsequent binding decision taking a different view of the law could justify rectification. The ITAT concluded that the subsequent Supreme Court decision in UCO Bank's case rendered the original ITAT order erroneous and that this error was apparent and rectifiable under section 254(2) of the Income-tax Act.

Conclusion:

The ITAT, Jaipur Bench, rectified its earlier order dated 7-1-1998, acknowledging that it contained an apparent mistake of law as per the subsequent Supreme Court judgment in UCO Bank v. CIT. The ITAT directed the Assessing Officer to allow the losses claimed for the assessment years 1982-83, 1983-84, and 1984-85, thereby granting the rectification application filed by the applicant-assessee.