2021 (3) TMI 905 - HC - Income Tax

Court Upholds Tribunal Decision on Partnership Firm's Tax Issue

M/s VRUNDAVAN GINNING AND OIL MILL THROUGH MADHUBHAI KALABHAI BHADAKRA Versus ASST. REGISTRAR / PRESIDENT & 3 OTHERS

The High Court upheld the Tribunal's decision to reject a partnership firm's Miscellaneous Application under Section 254(2) of the Income Tax Act. The ... Rectification u/s 254 - mistake apparent from the record or not? - specific ground raised in the appeal has not been taken into consideration by the Appellate Tribunal - HELD THAT:- While disposing of the application, the Tribunal took the view that the scope of sub­section (2) of Section 254 of the Act is restricted to rectify any mistake in the order apparent on the face of it and would not extend to review the order. We find it difficult to take the view that the ground No.3, which the writ applicant is talking about, has not been dealt with at all by the Appellate Tribunal. The Appellate Tribunal, in its own way, has discussed the said issue and recorded a particular finding. If the writ applicant is dissatisfied, then it is always open for him to prefer an appeal under Section 260A of the Act before this High Court and in the course of the appeal, it can be pointed out to the Court as regards the ground No.3 and if the Court is convinced, then it may remit the matter to the Tribunal for fresh consideration of the ground No.3, which the writ applicant is talking about. The power to rectify an order under Section 254(2) of the Act is extremely limited, as observed by the Delhi High Court in the case of Maruti Insurance[2012 (9) TMI 266 - DELHI HIGH COURT]. It does not extend to correcting the errors of law or re­appreciating the factual findings. Those properly fall within the appellate review of an order of Court of first instance. What legitimately falls for consideration are errors (mistakes) apparent from the record. We are of the view that we should not interfere with the impugned order passed by the Appellate Tribunal. Writ application fails and is hereby rejected. Issues Involved:1. Validity of the addition of Rs. 67,59,613/- for alleged suppression in the valuation of closing stock.2. Scope and applicability of Section 254(2) of the Income Tax Act, 1961.3. Power of the Tribunal to rectify mistakes apparent from the record.Detailed Analysis:1. Validity of the Addition of Rs. 67,59,613/- for Alleged Suppression in the Valuation of Closing Stock:The writ applicant, a partnership firm, contested the addition of Rs. 67,59,613/- made by the Assessing Officer (AO) for suppression in the valuation of closing stock. The AO's order was upheld by the CIT (Appeals), and the Appellate Tribunal also confirmed this addition. The Tribunal noted that the firm had not followed the standard method of valuation (either cost price or market price, whichever is lower) but had used an ad-hoc method without any basis. The Tribunal referenced the Supreme Court judgment in Hindustan Zinc Ltd, finding no infirmity in the lower authorities' orders. The firm argued that the Tribunal had not considered specific arguments and decisions regarding the valuation of closing stock, which led to the filing of a Miscellaneous Application under Section 254 of the Act.2. Scope and Applicability of Section 254(2) of the Income Tax Act, 1961:Section 254(2) allows the Tribunal to rectify any 'mistake apparent from the record.' The Tribunal's power under this section is limited to correcting patent, obvious mistakes that do not require elaborate arguments or investigation. The Tribunal cannot review or revise its order under the guise of rectification. The High Court emphasized that a mistake must be apparent and not one that requires a long-drawn process of reasoning. The Tribunal rejected the firm's Miscellaneous Application, stating that the issues raised were already discussed in the original order and that the firm was essentially seeking a review of the order, which is not permissible under Section 254(2).3. Power of the Tribunal to Rectify Mistakes Apparent from the Record:The High Court reiterated that the power to rectify under Section 254(2) is not equivalent to a power of review. The Tribunal can only amend its order to correct an apparent mistake, not to re-hear or re-adjudicate the matter. The Court cited several precedents, including decisions from the Supreme Court and the Delhi High Court, to underline that a mistake apparent from the record must be obvious and not subject to debate or detailed argument. The High Court found that the Tribunal had indeed discussed the ground related to the addition of Rs. 67,59,613/- and that the firm's dissatisfaction with the Tribunal's findings should be addressed through an appeal under Section 260A of the Act, not through a rectification application.Conclusion:The High Court concluded that the Tribunal had not erred in rejecting the Miscellaneous Application under Section 254(2). The Court held that the Tribunal had discussed the issue of the addition of Rs. 67,59,613/- and that the firm's remedy lay in filing an appeal under Section 260A if it was dissatisfied with the Tribunal's findings. The writ application was thus rejected, affirming the limited scope of rectification under Section 254(2) and the necessity for clear, patent mistakes to invoke this provision.