Rectification of mistake — Non-consideration of material on record amounts to mistake apparent from record.

[Honda Siel Power Products Ltd. v. CIT, (2007) 295 ITR
466]

The assessee-company, engaged in the manufacture of portable
generator sets in technical collaboration with Honda Motor Company, Japan filed
its return of income for the A.Y. 1991-92 on December 30, 1991, declaring nil
income. During the relevant year, the assessee had taken a term loan in foreign
exchange for import of machinery. On account of fluctuation in the foreign
exchange rate, the liability of the assessee to repay the loan in terms of
rupees went up by Rs.7,10,910. By referring to the provisions of S. 43A, the
assessee enhanced the figure of WDV (written-down value) of the block of assets
and claimed depreciation accordingly. The Assessing Officer came to the
conclusion that such revision in the actual cost was not admissible as S. 43A
refers to adjustment qua the actual cost of the machinery on account of increase
or decrease in the liability of unpaid loans utilised for the purchase of
machinery. Aggrieved by the said decision, the matter was carried in appeal by
the assessee before the Commissioner of Income-tax (Appeals) who took the view
that the claim of the assessee was admissible in view of the fact that in the
year preceding the A.Y. 1991-92, increased depreciation was given to the
assessee. On this aspect, therefore, the Department carried the matter in appeal
to the Tribunal for both the A.Ys. 1990-91 and 1991-92. The Tribunal held that
the Commissioner of Income-tax (Appeals) had erred in allowing the enhanced
depreciation as u/s.43A. Actual payment was a condition precedent for availing
of the benefit under that Section. According to the Tribunal, if actual payment
was not made after fluctuation, then the value of the asset cannot be increased
by adding the increase on account of fluctuation. On the facts, the Tribunal
found that in the present case, there was no actual payment after the
fluctuation and, therefore, the assessee was not entitled to claim the benefit
u/s.43A. The assessee moved the Tribunal for rectification of mistake apparent
from its order. In the rectification application, the assessee pointed out the
earlier judgment of the Co-ordinate Bench of the Tribunal in the case of
Deputy CIT v. Samtel Color Limited, in which it was held that enhanced
depreciation was allowable even on notional increase in the cost of the asset on
account of exchange rate fluctuation and despite the fact that the additional
liability resulting from the said fluctuation had not been paid by the assessee.
It was held that the word ‘paid’ in S. 43(2) meant amount actually paid or
incurred according to the method of accounting. In this connection, reliance was
also placed by the Tribunal on Circular No. 5-P of the Central Board of Direct
Taxes, dated October 9, 1967. The Tribunal, allowed the rectification
application filed by the assessee stating that the judgment of the Co-ordinate
Bench in Samtel Color Limited (supra) had escaped its attention. Against
the said order, the Department carried the matter in appeal to the High Court.
The High Court came to the conclusion, relying on its earlier decision, that the
power to rectify any mistake was not equivalent to a power to review or recall
the order sought to be rectified. The High Court came to the conclusion that in
the guise of rectification, the Tribunal had, in fact, reviewed its earlier
order which fell outside the scope of S. 254(2) of the 1961 Act and,
consequently, the High Court set aside the order of the Tribunal passed in
Miscellaneous Application. On appeal, the Supreme Court held that the Tribunal
was justified in exercising its powers u/s.254(2) when it was pointed out to the
Tribunal when the original order came to be passed but it had committed a
mistake in not considering the material which was already on record. The
Tribunal has acknowledged its mistake, it has accordingly rectified its order.
According to the Supreme Court, the High Court was not justified in interfering
with the said order.