2018 (10) TMI 795 - AT - Income Tax

Rectification of mistake - Allowability of provision for warranty - Held that - The averments made in the present Miscellaneous Petitions that the Tribunal had failed to consider the chart showing the actual utilization in terms of percentage of sale of previous year is incorrect. Based on information contained in the very same chart, the Tribunal had come to the conclusion that the provision made was not based on the historical data or previous experience, inasmuch as, the chart shows that the percentage of provision for warranty varied from 2.16 to 9.89% which clearly shows that provision made is not based on the historical data. We further note that the averments in the Misc. Petitions that the Tribunal had failed to adjudicate ground relating to restriction of provision for warranty to the extent of 2.14% of sales is also incorrect. Thus, the averments made in the present Miscellaneous Petitions are factually incorrect and the petitioner had only attempted to re-argue the matter on merits which is not permissible in the jurisdiction vested u/s 254 of the Income-tax Act, 1961 hereinafter referred to as the Act for short . The provisions of section 254(2) cannot be exercised to re-argue the matter afresh on different grounds or reasoning. Even the Hon ble jurisdictional High Court in the case of CIT vs. McDowell & Co. Ltd., 2004 (3) TMI 41 - KARNATAKA HIGH COURT held that the power u/s 254(2) of the Income-tax Act,1961 is only to amend the order to rectify any mistake apparent from record and the original should not be recalled for re-hearing the matter. Since in the present petitions, the assessee-company could not point out any mistakes which are capable of being rectified, the miscellaneous petitions cannot be entertained. Thus, in the light of the above legal position, the Miscellaneous Petitions are rejected.

Summary

Issues Involved:
1. Alleged non-consideration of material evidence by the Tribunal.
2. Alleged non-adjudication of the ground challenging the restriction of warranty provision to 2.14% of sales.
3. Scope of rectification under Section 254(2) of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Alleged non-consideration of material evidence by the Tribunal:
The assessee-company contended that the Tribunal did not consider the chart showing the actual utilization of the warranty provision in terms of percentage of sales from previous years. The Tribunal clarified that it had indeed considered the chart and concluded that the warranty provision was not based on historical data or previous experience, as the percentage varied significantly from 2.16% to 9.89%. This indicated that the provision was not reliably based on past history.

2. Alleged non-adjudication of the ground challenging the restriction of warranty provision to 2.14% of sales:
The assessee-company claimed that the Tribunal did not adjudicate the ground challenging the CIT(A)'s direction to restrict the warranty provision to 2.14% of sales. The Tribunal refuted this, stating that it had addressed this issue in paragraph 14 of the impugned order. The Tribunal held that the excess warranty provision deferred income to subsequent years and thus, could not be allowed as a deduction. The decision to restrict the provision to 2.14% of sales was upheld, dismissing the assessee's grounds of appeal.

3. Scope of rectification under Section 254(2) of the Income-tax Act, 1961:
The Tribunal emphasized that Section 254(2) allows for rectification of mistakes apparent from the record but does not permit re-arguing the matter on different grounds. The Tribunal cited several judgments, including Express Newspapers Ltd. vs. DCIT, to underline that a mistake must be patent, manifest, and self-evident to qualify for rectification. The Tribunal also referenced the Hon'ble jurisdictional High Court's ruling in CIT vs. McDowell & Co. Ltd., which clarified that Section 254(2) does not empower the Tribunal to review its earlier order but only to amend it to rectify apparent mistakes. The Tribunal concluded that the assessee-company's petitions were attempts to re-argue the case on merits, which is not permissible under Section 254(2).

Conclusion:
The Tribunal found no merit in the assessee-company's Miscellaneous Petitions and rejected them, affirming that no apparent mistakes were present in the original order that warranted rectification. The Tribunal reiterated that the provisions of Section 254(2) are limited to correcting manifest errors and do not extend to re-hearing or reviewing the case. The order was pronounced in the open court on 10th October 2018.