Appeal to Appellate Tribunal – Rectification of mistake u/s 254(2) – Powers of Tribunal – Jurisdiction limited to correcting ‘error apparent on face of record’ – Tribunal cannot review its earlier order or rectify error of law or re-appreciate facts – Assessee has remedy of appeal to High Court

Appeal to Appellate Tribunal – Rectification of mistake u/s 254(2) – Powers of Tribunal – Jurisdiction limited to correcting ‘error apparent on face of record’ – Tribunal cannot review its earlier order or rectify error of law or re-appreciate facts – Assessee has remedy of appeal to High Court

In the appeal filed by the assessee against the order passed by the A.O., the Commissioner (Appeals) granted relief to the assessee in respect of the addition on account of understatement of net profit by lowering the value of closing stock and confirmed the addition made by the A.O. The assessee filed a further appeal before the Tribunal on the grounds that the Commissioner (Appeals) erred in (a) confirming the addition made on account of purchases by holding that the purchases of raw cotton from the partners were bogus, (b) confirming the addition made on account of purchases of raw cotton from the relatives of the partners holding them to be unexplained / unsubstantiated, and (c) confirming the addition made on account of alleged suppression in value of closing stock by discarding / disregarding the method of valuation consistently followed and accepted in the past assessments.

The Tribunal held that the Commissioner (Appeals) rightly held that the assessee did not follow either of the methods of valuation of closing stock, i.e., either on the basis of cost price or market price, whichever was lower, rather the assessee followed net realisable value which was an ad hoc method and without any basis, that the net realisation method was neither based on cost price nor calculated on the basis of market price and there was no scientific method of calculation of the net realisable value, and that there was no infirmity in the orders of the authorities below.

Thereafter, the assessee filed a miscellaneous application u/s 254 contending that (a) the copies of returns filed in which agricultural income disclosed by the partners in the hands of the Hindu Undivided Family were furnished, (b) the partners in turn disclosed share in the HUF income in their individual returns and had claimed exemption u/s 10(2) and such exemption claimed was not disturbed by the A.O., (c) the purchases from the partners and relatives were made at market rate and comparable purchase vouchers along with a chart were furnished indicating no excess payment to the partners and relatives, (d) there was complete quantity tally on day-to-day basis, and (e) there was no rejection of book results and that 20% disallowance was sustained by the Tribunal while adjudicating ground Nos. 1 and 2 without taking into account the above stated facts, and therefore the order of the Tribunal needed to be rectified to such extent and consequential required relief was to be granted on ground No. 3 in respect of the addition on account of alleged suppression in value of closing stock.

The Tribunal held that the power of rectification u/s 254 could be exercised only when the mistake which was sought to be rectified was an obvious patent mistake and apparent from the record and not a mistake which was required to be established by arguments and a long-drawn process of reasoning on points on which there could conceivably be two opinions. It was further held that after a detailed discussion the disallowance was restricted to 20% of the purchase made from the partners and relatives of the partners and 80% of the purchases made by the assessee were allowed; and qua ground No. 3 relating to the addition made on account of suppression in the value of closing stock, the issue was discussed and thereafter it was concluded that the assessee adopted an ad hoc method for the valuation of closing stock without any basis and that the scope of sub-section (2) of section 254 was restricted to rectifying any mistake in the order which was apparent from record and did not extend to reviewing of the earlier order. The Tribunal rejected the miscellaneous application filed by the assessee.

The Gujarat High Court dismissed the writ petition filed by the assessee and held as under:

‘i) Section 254(2) makes it clear that a “mistake apparent from the record” is rectifiable. To attract the jurisdiction u/s 254(2), a mistake should exist and must be apparent from the record. The power to rectify the mistake, however, does not cover cases where a revision or review of the order is intended. A mistake which can be rectified under this section is one which is patent, obvious and whose discovery is not dependent on argument. The language used in section 254(2) is that rectification is permissible where it is brought to the notice of the Tribunal that there is any mistake apparent from the record. The amendment of an order, therefore, does not mean obliteration of the order originally passed and its substitution by a new order which is not permissible, under the provisions of this section. Further, where an error is far from self-evident, it ceases to be an “apparent” error. Undoubtedly, a “mistake” capable of rectification u/s 254(2) is not confined to clerical or arithmetical mistakes. It does not cover any mistake which may be discovered by a complicated process of investigation, argument or proof. An error “apparent on the face of the record” should be one which is not an error that depends for its discovery on an elaborate argument on questions of fact or law.

ii) The power to rectify an order u/s 254(2) is limited. It does not extend to correcting errors of law or re-appreciating factual findings. Those properly fall within the appellate review of an order of a court of first instance. What legitimately falls for consideration are errors (mistakes) apparent from the record.

iii) The language used in Order 47, Rule 1 of the Code of Civil Procedure, 1908 is different from the language used in section 254(2). Power is conferred upon various authorities to rectify any “mistake apparent from the record”. Though the expression “mistake” is of indefinite content and has a large subjective area of operation, yet, to attract the jurisdiction to rectify an order u/s 254(2) it is not sufficient if there is merely a mistake in the order sought to be rectified. The mistake to be rectified must be one apparent from the record. A decision on a debatable point of law or disputed question of fact is not a mistake apparent from the record.

iv) The Appellate Tribunal, in its own way, had discussed qua ground No. 3 the issue relating to the addition made on account of suppression in the value of closing stock and had recorded a particular finding. If the assessee was dissatisfied, then it had to prefer an appeal u/s 260A, and if the court was convinced, then it could remit the matter to the Tribunal for fresh consideration of ground No. 3. As regards the findings recorded by the Tribunal, so far as ground No. 3 was concerned, the assessee could seek appellate remedies. The power to rectify an order u/s 254(2) is limited.’