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TMI Blog2014 (6) TMI 630X X X X Extracts X X X X X X X X Extracts X X X X ..... ecord, the Tribunal is competent enough to set aside the order of the lower appellate authority to that extent, although no specific ground is taken for that purpose by the concerned party - in a given situation, there is an obligation on the part of the Tribunal to consider the subject-matter of appeal and secondly to issue effective directions for adjudicating the subject-matter of appeal, which includes the entire process of assessment and which has been held to be an integrated process. Whether a mistake can be pointed out on the part of ITAT even when the assessee did not seek any relief from the Tribunal – Held that:- It is a mistake apparent from record, so that the order rectifying the mistake is valid- where the Tribunal passes an order taking into account information not disclosed to the assessee, there is a mistake apparent from the order so that Tribunal is duty bound in rectifying the mistake when it is brought to the notice of the Tribunal - while maintaining our order on the main issue with regard to allowability of deduction u/s 35(1) - the Tribunal order is to be amended to that extent and the Registry is directed to post the cases for hearing on 6.10.2014 for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntific research as per section 43(4) of the Act is as follows: (i) scientific research means any activities for the extension of knowledge in the fields of natural or applied science including agriculture, animal husbandry or fisheries; ** ** ** (ii) references to scientific research related to a business or class of business include- (a) any scientific research which may lead to or facilitate an extension of that business or, as the case may be, all businesses of that class; 21. It is the plea of the assessee that even if the expenditure is considered as of capital nature the same should be allowed as deduction u/s. 35 provided such expenditure is incurred on scientific research. According to the AR, if the expenditure is not allowable u/s. 35(1)(i) then the expenditure is nothing but scientific research and development expenditure and, therefore, allowable u/s. 35(1)(iv) of the Act. U/s. 35(1)(iv) deduction is to be allowed in respect of any expenditure of capital nature on scientific research relating to business carried on by the assessee. The business carried on by the assessee in the present case, cannot itself be co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herefore, effectively, these words indicate the engagement of the assessee in the business. What is the definition of 'scientific research' and what is 'scientific research related to a business' are defined, whereas the former one is an exhaustive definition, latter one is inclusive definition. As there is no dispute on the term 'scientific research', the present discussion restricted to 'scientific research related to a business', an area of dispute between the parties. 'Scientific research related to a business' when read in conjunction with the cl. (iv) of s. 35(1), the words 'carried on by the assessee' assume importance. Consequently, the scientific research related to a business carried on by the assessee should be read to restrict the scope of the deductions. Consequently, the deduction is not available when the scientific research relates to a business not carried on by the assessee. The nexus between the scientific research on one side and its relationship with the business carried on by the assessee on the other side assumes great significance. The reference to 'scientific research related to a business' in s. 43(4) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd, it was incurred for setting up of facilities for commercial production of a new product. In such circumstances, the assessee, in our considered opinion, cannot be said to have carried on scientific research activity. Further, it is also not the case of the assessee that he is covered by s. 43(4)(iii)(a) i.e., the cases of scientific research which may 'lead to or to facilitate an extension of that business'. Thus, by incurring this expenditure the assessee generates a marketable product or stock-in-trade. In these circumstances, we are of the opinion that the provisions of s. 35(1)(i) or (iv) have no application to assessee's case and accordingly the argument of the assessee's counsel is dismissed. 3. The learned AR now submitted that in respect of claim of deduction u/s 35 (1)(i) the Tribunal in para 22 of its order wrongly observed the expenditure as capital expenditure. 4. The AR submitted that the Tribunal held that the expenditure is in the nature of capital expenditure. The CIT(A) has held that the assessee is a company carrying on scientific research and development expenditure in question relates to scientific research and therefore, assessee is e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the process of isolation and characterization of virus/bacteria from the affected humans/ animals is the first step for development of new vaccines or bio-therapeutics, subsequent to this, the same need to be tested and further developed in a highly controlled environment, which is normally not available in the laboratory who isolates the basic virus/bacteria. In many occasions such isolated bacteria/virus will not be either active or grow in pilot scale or if it grows, the growth media used may not be commercially viable media for commercial exploitation of the intended product. To avoid any failures this activity has to be taken up in a specially created atmosphere/ environment, which is normally attached to the manufacturing unit. The molecule/virus which has been obtained by separating from the human/ animal cells in a laboratory, which is recognized for such process, is developed/multiplied by feeding the appropriate feed. A favourable environment is to be created/facilitated for the multiplication of the molecule. The growth of the molecule which is being developed is embedded with impurities; the purification process is most important part of the development process. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the extension of the business of the assessee to develop new vaccines. It is further submitted that the scientific research of the assessee is in connection to facilitate the extension of business of the assessee which is manufacturing of vaccines. The assessee is not doing scientific research for others who are in the manufacturing activity. The scientific research of the assessee is purely related to the extension of its business. 7. The AR submitted that the claim of expenditure is related to scientific research which is carried on by the assessee for the extension of its business. The generation of marketable product is after undertaking the entire process which may also be a failure at times. It is respectfully submitted that the Tribunal confirmed the order of the Assessing Officer stating that the expenditure incurred is capital expenditure in nature, under a wrong assumption that the assessee is not carrying on any scientific research which may lead to or facilitate an extension of business. This assumption of the Tribunal is contrary to the finding given by the learned CIT (A), who has held that the assessee company is carrying on scientific research and the research ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fit and advantage to the assessee. 9. The AR submitted that in the light of above observations of the learned Assessing Officer which are contrary to each other as, at one stage the learned Assessing Officer stated that the expenditure incurred is not in the nature of scientific expenditure and at other place of the order he has stated that the product development results in obtaining patent rights for manufacturing new products. In this regard it is submitted that the observation of the Assessing Officer at later stage is exactly correct, true and factual. Once the product which is being developed attains the stage of finality and proves its capacity/excellence the assessee will approach the Appropriate Authority for the patent of the product as observed by the learned Assessing Officer. A patent right in its usual significance means a privilege granted by the Government to first inventor of a new useful discovery or mode of manufacture that he shall be entitled during a limited period to the exclusive use and benefit thereof. Therefore, it is respectfully submitted that the learned Assessing Officer, after examining the material submitted in respect of development of the three ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l have no power u/s. 254(2) of the Act. The provisions of section 254(2) of the Act are not similar to those of review under the Civil Procedure Code. The words used in section 254(2) are 'Shall make such amendments, if the mistake is brought to its notice. Clearly, if there is a mistake, then an amendment is required to be carried out in the original order to correct that particular mistake. The provision does not indicate that the Tribunal can recall the entire order and pass a fresh decision. That would amount to a review of the entire order and that is not permissible under the Income Tax Act. The power to rectify a mistake under section 254(2) cannot be used for recalling the entire order. No power of review has been given to the Tribunal under the Income-tax Act. Thus, what it could not do directly could not be allowed to be done indirectly. This proposition also finds support from proviso to rule 34A(3) of ITAT Rules, 1963 which prohibits even posting of miscellaneous application for hearing if it prima facie appears to be a petition for review. This proviso is as under: Provided, it shall not be necessary to post miscellaneous application for hearing if it prima ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n relates to any activity other than the activity specified in clause (a), whose decision shall be final. 16. The AR submitted that the section clearly states that when the Assessing Officer is not accepting the claim of the assessee in respect of the expenditure incurred for the development of strain/ molecule to the stage of vaccine/medicine is in the nature of scientific expenditure, the proper course to him is to follow the procedure laid down in section 35(3) of the IT Act. He is not a empowered to negative the claim. When the statue provides for a particular procedure the Authority has to follow the same and cannot be permitted to act in contravention of the same. Being the creations of the Act the learned Assessing Officer and the Tribunal cannot decide the claim against the assessee without following the procedure laid down in the Act. Reliance is placed on the Allahabad High Court decision in the case of CIT Vs Rajiv Sharma 336 ITR 678 (2010). In view of the above submissions it is submitted that there is a mistake apparent from record as provided in section 254(2) of the IT Act, which is to be cured by the Tribunal. 17. The learned DR submitted that there is no mist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned with reference to the above terms in the following cases: (a) In the case of Ramgopal Ganpatrai Sons v. CEPT (1953) 24 ITR 362 (Bom.), while considering the scope of analogous provision in section 17 of the Excess Profits Tax Act, Hon'ble Chief Justice Shri Chagla, speaking for the Bench observed as under: it must be borne in mind that when a statute confers a right of appeal and permits an order of a trial court to be challenged, the appellate court has full jurisdiction to reverse or modify that order on any ground which is open to it in law. The appellate court may even reverse or modify the order on a point of law taken by itself suo motu without being asked to do so by the appellant. (b) In the case of Hukumchand Mills Ltd. v. CIT (1967) 63 ITR 232 (SC), while discussing the power of Appellate Tribunal in dealing with appeals, as expressed in section 33(4) of the Income Tax Act, 1922, the Hon'ble Supreme Court observed that the powers of the Tribunal are expressed in widest possible terms. In that case the word thereon and the words pass such orders as the Tribunal thinks fit , were explained by the Hon'ble Supreme Court by obser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Proteins Ltd. v. CIT (1999) 235 ITR 467 (Ker.), the assessment was completed on a total income of Rs. 19,94,620 and demanding a total sum of Rs. 11,18,460 towards income tax and interest etc. The learned Commissioner (Appeals) granted certain relief in appeal and consequently the advance tax paid by the assessee was found to be in excess of the advance tax paid by the assessee which resulted in a refund. Consequently, the assessee became entitled to interest in terms of section 214(1A). However, the assessing officer did not allow interest under section 214A. On appeal, the Commissioner (Appeals) directed the assessing officer to grant interest under section 214. On appeal by the revenue, the Tribunal held that the interest under section 214A is payable only up to the date of first assessment order under section 143 or under section 144 on the amount found to be in excess of the tax demand. The assessee filed miscellaneous application before the Tribunal and contended that it had committed a mistake in not referring to the provisions of sub-section (1A) of section 214. The Tribunal rejected the said petition by holding that no reference was made by the assessee in the course of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the powers of the assessing officer and that of the first appellate authority and are, in fact, wider powers than those authorities, subject to the limitation that the Tribunal does not have the power to enhance the assessment which power has been specifically conferred upon the Commissioner (Appeals) under section 251(1)(a) of the Income Tax Act and which power has been specifically denied to ITAT under proviso to section 254, which is as under: Provided that an amendment which has the effect of enhancing an assessment or reducing a refund or otherwise increasing the liability of the assessee, shall not be made under this sub-section unless the Appellate Tribunal has given notice to the assessee of its intention to do so and has allowed the assessee a reasonable opportunity of being heard. 21. Thus, as the limitation on the jurisdiction of the ITAT having been specifically incorporated under a statutory provision, no further limitation can be implied or imposed in the exercise of appellate jurisdiction of the Tribunal for adjudicating the subject-matter in appeal before it. The scope of the jurisdiction and powers of the Appellate Tribunal came before the Hon'ble S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sought to be got adjudicated upon by the Tribunal. 25. In view of the above authorities, the word thereon is to be taken so as to refer to the subject-matter of the appeal and as held in the case of Ahmedabad Electricity Co. Ltd. v. CIT (1993) 199 ITR 351 (Bom) (FB), the subject-matter of appeal is the entire tax proceedings of the assessee which is before the Tribunal for consideration and this will cover the proceedings before the assessing officer, before the first appellate authority as well as before the Tribunal, including the grounds raised before the Tribunal, any additional grounds which may be allowed to be raised before the Tribunal as also cross-objections, if any, before the Tribunal. In view of the said decision it is clear that the view that Tribunal is confined only to issues arising out of the appeal before the first appellate authority is a narrow view. 26. The decision of the Full Bench of the Hon'ble Bombay High Court in the case of Ahmedabad Electricity Co. Ltd. (supra), has been followed and applied in the case of National Thermal Power Co. Ltd. v. CIT (1998) 229 ITR 383 (SC). 27. The Hon'ble Supreme Court in the case of National Thermal Pow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as the legal obligation cast upon it, has been elucidated in clear and categorical terms by the Hon'ble Madras High Court in the case of CIT v. Rayala Corpn. (P) Ltd. (1995)215 ITR 883 (Mad). The Hon'ble court has observed as under: The Appellate Tribunal is not a court. Its powers, however, are expressed in the widest possible terms under section 254 of the Income Tax Act, 1961. Its powers are almost similar to the powers of an appellate court under the Code of Civil Procedure. A wide power, however, is not such that it can be exercised in any manner. The Tribunal can interfere with the orders of the lower authorities, but can do so only on judicial considerations and on the basis of the reasons that suggest clearly that the lower authorities had committed an error of law or such facts that had vitiated its considerations. Its primary task is not to go into the return of the assessee and decide what amount of tax should be levied upon is income, but to see whether the taxing authorities, including the Appellate Assistant Commissioner, have committed any error of law or of fact and on account of such error, the assessee has suffered. The Tribunal has got to protect, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order. The power to amend being different to the power of review, can definitely be exercised in such a case. 33. A similar issue came up before the Hon'ble Gujarat High Court in the recent judgment in the case of Sheth Construction Co. v. ITO (2005) 274 ITR 304 (Guj). In that case in the assessment for assessment year 1994-95 the assessing officer made addition on account of bad debts of Rs. 70,025 and on account of disallowance of interest payment of Rs. 6,580. The assessee challenged these additions before the Commissioner (Appeals). A preliminary objection was also raised by the assessee on the ground that the assessment was not valid as it was not signed by the assessing officer. This plea was accepted by the learned Commissioner (Appeals) who set aside the assessment order. However, the CIT(A) did not adjudicate the original grounds of appeal which challenged the two additions referred to above. On appeal, the Tribunal found that there was a valid assessment order which bore the signatures of the assessing officer as two different pleas, hence the Tribunal allowed the department's appeal and restored the, order of assessing officer. On further appeal to the High Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o recall and review its orders, in view of the decisions of Jurisdictional High Court in the cases of Vichtra Construction (P) Ltd. (supra) and Mayur Recreational Development Ltd. (supra), it has got power to amend the order if the proper adjudication of the subject-matter so warrants. Thus, in a given situation, like the one before us, the order may not be recalled but at the same time it may require amendment by making additions. Such an amendment or addition being different from review of the order, is very much permissible within the scope of powers under section 254(2) of the Income Tax Act, 1961. 37. Thus, on proper examination of section 254(2) of the Income Tax Act, reproduced in para 18 of this order, it is clear that the Tribunal is under legal obligation to amend its order, passed by it under sub-section (1) of section 254, if any mistake pointed out or is found apparent from the record. If the Tribunal has failed to issue directions or failed to pass such orders, as are required to be passed under section 254(1), then it shall amount to a mistake apparent from record and for rectifying such mistakes the Tribunal shall make such amendment in its order as are neces ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lief sought by the appellant and objected to by the respondent. It is not proper to circumscribe the subject-matter of appeal by taking into account the rival submissions or the reasons or grounds which are put forward by the parties. CIT v. Sundaram Co. (P) Ltd. (1963) 50 ITR 35 (Mad.) (Sh. N). (7) While exercising its rectificatory powers under section 254(2) of the Income Tax Act, the Tribunal has no power to review its earlier order (see proviso to rule 34A of Appellate Tribunal Rules, 1963 and decision of Hon'ble Delhi High Court in the case of CIT v. Vichtra Construction (P) Ltd. (2004) 269 ITR 371 (Del). (8) The Tribunal can recall its order passed ex parte (See rule 24 of Appellate Tribunal Rules, 1963 and decision of Hon'ble M.P. High Court in the case of Estate of Late Tukoji Rao Holkar v. CWT (1997) 223 ITR 480 (MP). (9) The power to rectify mistake can be exercised suo motu by Tribunal or on the notice of parties. (10) It is a mistake apparent on record, if the Tribunal has omitted to consider a ground of appeal taken before it or if it has failed to pass such order or to issue such directions which were necessary for proper adjudic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne into the applicability of provisions of s. 35(3) of the Act. As such it has not given findings on this issue. As the Tribunal failed to give any direction on applicability of section 35(3) on assessee's case it amounts to a mistake on the part of the Tribunal. There is an obligation and it is the duty of the Tribunal to consider application of all the provisions so as to dispense the justice while adjudicating any appeal before it. There was an obligation on the part of the Tribunal to give findings on the applicability of s. 35(3) so as to prevent miscarriage of justice and to ensure substantial justice in relation to the subject matter of appeal as prayed by the assessee in its second ground in the Miscellaneous Application. 43. It was held by the Calcutta High Court in the case of CIT vs. Ballabh Prasad Agarwalla (233 ITR 354) as under: Held It is not a case where the Tribunal has reviewed or intended to review the earlier order. It is not a case where there is any scope for change of the opinion or view already taken. It was a case where the Tribunal found that the Tribunal had not considered the effect of r. 6DD(j) which is a statutory rule and the circular o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iraj Chouhan vs. CIT (267 ITR 450) held as under: Held, dismissing the appeal, that it was admitted that Explanation 1 substituted in section 234B of the Act was not brought to the notice of the Tribunal or due to oversight it escaped its notice. On this fact being brought to its notice, the Tribunal had rectified its mistake. This was a mistake apparent from the record and the Tribunal was correct in rectifying the mistake. 45. The Hon ble Kerala High Court in the case of CIT vs. Quilon Marine Produce Co. (157 ITR 448) held as under: Held, Trading discount is not an expenditure within the meaning of s. 35B. Non-consideration of the said provision indisputably is a glaring, obvious and self-evident mistake apparent from the record and as such the AAC has ample jurisdiction to amend the order. The AAC, however, refused to exercise the said jurisdiction wrongly. The AAC should have amended the order and rectified the mistake. The Tribunal in confirming the order of the AAC has committed the same error.- M.K. Venkatachalam vs. Bombay Dyeing and Manufacturing Co. Ltd. (1958) 34 ITR 143 (SC): TC53R.157 relied on. 46. Thus, the crux of the above judgements is that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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