Closements
1.1 Under the Income-tax Act (the Act), various provisions
are made for rectification of orders passed. S. 254(2) provides for
rectification of orders passed by the Income Tax Appellate Tribunals (Tribunal).
It is provided that the Tribunal may amend its order at any time within a period
of four years from the date of the order with a view to rectifying any mistake
apparent from the report and the Tribunal shall make such amendment if the
mistake is brought to its notice by the assessee or Assessing Officer.
Accordingly, S. 254(2) enables the Tribunal to rectify its own order suo moto
or when the mistake is brought to its notice by the concerned party.
1.2 The time limit for rectifying the orders u/s. 254(2) is
four years from the date of the order. In the past, the issue had come up as to
whether the Tribunal is empowered to pass rectification order even after the
expiry of the time limit of four years, in a case where the application for the
requisite rectification is made within the specified time limit of four years.
The Rajasthan High Court in the case of Harshwardhan Chemicals and Minerals
Limited (256 ITR 767) had taken a view that if the assessee has moved the
application within the specified period of four years, the Tribunal is bound to
decide the application on merit and not on the ground of limitation, and
accordingly held that the Tribunal can pass such rectification orders even after
the expiry of the specified period of four years, if the application is moved
within the specified period of four years. However, the Madras High Court had
dissented from this view.
1.3 In view of the above-referred conflicting judgments of
the High Court, the issue was under debate as to whether the Tribunal can pass
the rectification order u/s.254(2) after the specific period of four years in a
case where the application for rectification is made within the specified period
of four years.
1.4 S. 154(7) also provides for time limit of four years from
the end of the financial year in which the order sought to be amended was
passed. This enables the Income-tax authorities to rectify their orders within
the specified time limit. S. 154(8) also provides that the Income-tax
authorities shall pass such order of rectification within six months from the
end of the month in which the application is received by it. According to the
Courts, this time limit of six months is within the overall period of time limit
of four years.
1.5 Recently the Apex Court had an occasion to consider the
issue referred to in para 1.3 above in the case of Sree Ayyanar Spinning &
Weaving Mills Limited, and the issue is now resolved. Hence, considering the
importance of the issue in day-to-day practice, it is thought fit to consider
the same in this column.
CIT v. Sree Ayyanar Spinning & Weaving Mills Limited,
296 ITR 53 (Mad.) :
2.1 In the above case, an assessment was completed for the
A.Y. 1989-90 assessing income u/s. 115J. There was some dispute with regard to
the working of Book Profit on the issue of the adjustment of earlier years’
depreciation on account of change in the method of depreciation made by the
assessee in the relevant previous year. The order was confirmed by the First
Appellate authority and the matter came up before the Tribunal. It was remanded
back to the Assessing Officer with certain directions. Again the same order was
passed by the Assessing Officer and the same was also confirmed by the First
Appellate authority. In this second round of appeal, the Tribunal confirmed the
order of the Assessing Officer and took the view that the depreciation relating
to the earlier years should not be adjusted while computing the Book Profits. If
such an adjustment is made, the profit and loss account of the year in question
would not reflect the correct picture. It seems that this order was passed by
the Tribunal on 9-12-1996.
2.2 On 2-8-2000, the assessee moved miscellaneous application
for rectification of above order of the Tribunal u/s.254(2) and raised certain
points therein. Although at the time of making such application, a judgment of
the Apex Court in the case of Apollo Tyres Limited (255 ITR 273) was not
available, relying on the said judgment, the Tribunal finally passed the
rectification order dated 31-1-2003, recalling its earlier order and
subsequently, the consequential order was passed on 12-6-2003. In substance, it
appears that the Tribunal allowed the claim of the assessee in the rectification
proceedings relying on the judgment of the Apex Court in the case of Apollo
Tyres Limited (supra).
2.3 On the above facts, the rectification order passed by the
Tribunal was questioned by the Revenue before the Madras High Court. On behalf
of the Revenue, it was, inter alia, contended that the Tribunal was not
justified in passing the rectification order u/s.254(2) after the expiry of
specified period of four years, though the application for such rectification
was moved by the assessee within the specified period of four years; S. 254(2)
specifies the time limit for passing such an order and hence such order cannot
be passed beyond that specified period. The assessee further contended that in
the case of Income-tax authorities, the rectification of mistake is governed by
S. 154 and even though S. 154(8) provides that the rectification order shall be
passed within the specified period of six months, the same shall be read into
the total period of four years provided in S. 154(7). The statute provides the
specific outer time limit and it may not be proper for the Court to go beyond
the same.
2.4 On behalf of the assessee, it was, inter alia,
contended that the Tribunal is bound to decide the application on merit and not
on the ground of limitation once the application is made within the specified
time limit of four years. For this, reliance was placed on the judgment of the
Rajasthan High Court in the case of Harshwardhan Chemicals and Minerals Limited
(supra). It was further contended that Circular No. 68, dated 17-11-1971
provides that a mistake arising as a result of subsequent interpretation of law
by the Supreme Court would constitute a mistake apparent from the record and
hence, the Tribunal was justified in relying on the judgment of the Apex Court
in the case of Apollo Tyres Limited (supra), though the said judgment was
not available at the time of passing the original order when the application for
rectification was moved.
2.5 After considering the arguments of both the sides and after referring to the provisions dealing with rectification contained in S. 254 as well as S. 154, the Court took the view that the authority is barred from passing the order of rectification be-yond the period of four years specified in S. 154(7) and likewise the Tribunal also should pass the order of rectification u/ s.254(2) only within the specified period of four years. The Court also did not agree with the view of the Rajasthan High Court in the case of Harshwardhan Chemicals and Minerals Limited (supra).
2.6 While deciding the issue in favour of the Rev-enue, the Court finally held as under (page 62) :
“…. it cannot be construed that the power of the Appellate Tribunal to rectify the mistake could be extended indefinitely beyond four years, which time is specifically spelled out by the Legislature in S. 254(2) itself for passing an order of rectification, either suo motu by the Tribunal or on application either by the assessee or by the Assess-ing Officer. The mere usage of ‘and’ between two limbs of S. 254(2) will not, in any way, enlarge the limitation prescribed for passing the order of amendment u/ s.254(2) of the Act. Consequently, any order of amendment that would be passed by the Appellate Tribunal beyond the period of four ( years would lack jurisdiction, assuming the Ap-pellate Tribunal has got a right to pass an order of rectification to rectify the mistake in the light of the subsequent interpretation of law by any Court, as per Circular No. 68, dated November 17, 1971 [see (1972) 83 ITR (ST.) 6]. Therefore, it follows that in any case of rectification, the Income-tax authorities and the Appellate Tribunal are within their power and jurisdiction to amend their respective orders u/ s.154 and u/ s.254, respectively, in the light of subsequent interpretation of law by the Courts, but such power and jurisdiction could be exercised statutorily only . within the time of four years, not beyond the period of four years.”
CIT v. Sree Ayyanar Spinning & Weaving Mills Limited, 301 ITR 434 (SC) :
3.1 The above-referred judgment of the Madras High Court came up for consideration before the Apex Court, wherein the only issue to be considered was whether the Tribunal can pass the order of rectification u/ s.254(2) beyond the specific period of four years when the application for such rectification is moved within the specified period of four years. To consider the issue, the Court noted the relevant facts and the issues raised before the High Court and the grounds on which the Tribunal had passed the order u/s.254(2). The Court also noted that in the appeal before it, the Court is not concerned with the merits of the case, i.e., reworking of computation made by the Assessing Officer. The Court also heard both the parties, wherein on behalf of the Revenue it was contended that on the facts of the c.aseof the assessee, the judgment of the Apex Court In the case of Apollo Tyres Limited (supra) was not applicable. However, the Court stated that though we have referred to the submissions of both the sides on merits, in this case, we are only conerned with the interpretation of S. 254(2) regarding the powers of the Tribunal in the matter of rectification of mistake apparent from the record.
3.2 Having clarified the issue under consideration the Court noted the controversy raised on account of the rectification order passed by the Tribunal in response to miscellaneous applications dated 2-8-2000 filed by the assessee and the order of the Tribunal dated 31-1-2003 recalling its order dated 9-12-1996. The Court also noted the conclusion of the High Court and also the fact that the High Court did not go into the merits of the case.
3.3 The Court then referred to the provisions of S. 254(2) and observed as under (page 432) :
“Analysing the above provisions, we are of the view that S. 254(2) is in two parts. Under the first part, the Appellate Tribunal may, at any time, within four years from the date of the order, rectify any mistake apparent from the record and amend any order passed by it U / ss.(l). Under the second part of S. 254(2), the reference is to the amendment of the order passed by the Tribunal U/ss.(l) when the mistake is brought to its notice by the assessee or the Assessing Officer. Therefore, in short, the first part of S. 254(2) refers to the suo motu exercise of the power of rectification by the Tribunal, whereas the second part refers to rectification and amendment on an application being made by the Assessing Officer or the asseSSee pointing out the mistake apparent from the record. In this case, we are concerned with the second part of S. 254(2). As stated above, the application for rectification was made within four years. The application was well within four years. It is the Tribunal which took its own time to dispose of the application. Therefore, in the circumstances, the High Court had erred in holding that the application could not have been entertained by the Tribunal beyond four years.”
3.4 The Court then referred to the judgment of the Rajasthan High Court in the case of Harshwardhan Chemicals and Minerals Limited (supra), relied on by the counsel appearing on behalf of the assessee and noted the view of the Rajasthan High Court as appearing in the head notes of the said judgment as under (page 438) :
“Once the assessee has moved the application within four years from the date of appeal, the Tribunal cannot reject that application on the ground that four years have lapsed, which includes the period of pendency of the application before the Tribunal. If the assessee has moved the application within four years from the date of the order, the Tribunal is bound to decide the application on the merits and not on the ground of limitation. S. 254(2) of the Income-tax Act, 1961, lays down that the Appellate Tribunal may at any time within four years from the date of the order rectify the mistake apparent from the record, but that does not mean that if the application is moved within the period allowed, i.e., four years, and remains pending before the Tribunal, after the expiry of four years the Tribunal can reject the application on the ground of limitation.”
3.5 Having considered the above-referred view of the Rajasthan High Court, the Court decided the is-sue in favour of the assessee and held as under (page 438) :
“We are in agreement with the view expressed by the Rajasthan High Court in the case of Harshwardhan Chemicals and Minerals Limited (2002) 256 ITR 767.
For the aforesaid reasons, we set aside the impugned judgment of the High Court and restore T.e. (A) No. 2/2004 on the file of the Madras High Court for fresh decision on the merits of the matter as indicated here in above. All contentions on the merits are expressly kept open. We express no opinion on the merits of the case whether rectification application was at all maintainable or not and whether the judgment in the case of Apollo Tyres (2002) 255 ITR 273 was or was not applicable to the facts of this case. That question will have to be gone into by the High Court in the above T.e. (A) No. 2/2004.”
Conclusion:
4.1 In view of the above judgment of the Apex Court, now it is clear that once the application for rectification is moved within the specific period of four years, the Tribunal can pass order u/ s.254(2) even if such a period has expired.
4.2 The above position will also equally apply for passing rectification order u/s.154 by the Income-tax authorities. Therefore, once such a period is expired, it would not be correct for the Income-tax authorities to take a view that it has no power to pass the rectification order u/s.154, even if the application is made within the specified period of limitation.
4.3 So far as the powers of the Income-tax authorities to rectify their order are concerned, there is also time limit of six months provided in S. 154(8). In many cases, this time limit is not observed by the authorities. Even in such cases, it would not be correct for the Income-tax authorities to later on take a stand that since specified mandatory time limit of six months has expired, they have no power to pass the requisite rectification order. With the above judgment of the Apex Court, in our view, even this position becomes clear.
4.4 Interestingly, there is also time limit for passing order for refusing or granting registration to charitable trusts, etc. u/s.12AA, wherein it is provided that every order of granting or refusing the registration under the said provision shall be passed before the expiry of six months from the end of the month in which the relevant application is received – [Refer S. 12AA (2)]. In the context of these provisions, the Special Bench of the Tribunal (Delhi) in the case of Bhagwad Swarup Shri Shri Devraha Baba Memorial Shri Hari Parmarth Dham Trust [(2007) 17 SOT 281] has taken a view that if such an order u/s.12AA(2) is not passed within the specified period of six months, registration shall be deemed to have been granted.
