By TIOL News Service

MUMBAI, OCT 11, 2013: THE issues before the Bench are - Whether a mistake which entails evidences to proof itself is a mistake apparent from record; Whether an error of judgment can be corrected through a rectification application u/s 254(2); What is the remedy available for such an error; Whether an order admitting additional evidence can act as a precedent and Whether Tribunal can recall its order in entirety as per the provisions of law. And the verdict goes against the assessee.

Facts of the case

Assessee, a company, engaged in the business of Airline and Institutional catering, filed its return of income (ROI) declaring an income of Rs. 36.06 Crores. During assessment, income of the assessee was determined at Rs.44.07 Crores after making addition of Rs. 7.78 Crores on account of disallowance of depreciation on goodwill. In AY 2003-04 ROI was filed declaring loss of Rs. 10.91 Crores. In the COI, assessee had claimed depreciation of Rs. 18,43,62,335/- on goodwill @ 25%. AO disallowed the claim made by the assesee on the ground that the provisions of section 32(1) did not include goodwill. On appeal, the CIT(A) had upheld the order of the AO. On appeal before Tribunal, assessee had furnished a valuation report prepared by valuer M/s.Ernst & Young Pvt. Ltd., who had identified various intangible assets and made separate valuation for each of such assets. Valuation report was submitted as an additional evidence and assessee made a request that the said valuation report should be taken into consideration for deciding the issue of allowability or otherwise of claim of depreciation. DR had objected to the contention of the assessee and submitted that since the said valuation report was not furnished either before the AO or before the FAA, same should not be admitted. After considering the rival submissions Tribunal decided that additional evidence should be admitted and observed that the assessee’s additional evidence throws light on the valuation of each of the intangible assets. Such evidence goes into the root of the matter for the purpose of arriving at a decision as to whether the assessee was entitled for deduction u/s. 32(1)(ii). Thus, Tribunal had admitted the additional evidence and remit the matter back to the file of the AO.

During the course of fresh assessment proceedings, AO found that the assessee had acquired the catering business of Indian Hotels Co.Ltd. (IHCL) a joint venture between IHCL and Singapore Air Terminus Services Ltd. (SATS) vide business transfer agreement (BTA). AO held that the assessee had not brought in any other assets at the time of acquiring the business, that the assessee did not bring in any other assets in the said value during the course of assessment proceedings also, that it was not argued before him that various intangible assets were included in the value of Rs.73.74 crores, that any such argument was not advanced before the CIT(A) during the course of appellate proceedings. AO further noted that the purchase consideration as per BTA was 206.4 Crores that was apportioned under various heads. AO noticed that valuation was also carried out by M/s. Ernst & Young who had done the valuation on 23.03.09 of intangible assets. After analyzing various agreements, AO observed that question of valuing so called ‘intangible’ assets ‘in the hands of the assessee separately did not arise and that the valuation by M/s. Ernst & Young Pvt. Ltd. could not be accepted, that the whole exercise of breaking up and valuing the goodwill was an afterthought after losing the claim at the first appellate stage to defeat the revenue. So, AO had disallowed the claim of depreciation made by the assessee for the AY 2003-04. On the similar basis, assessment order was passed for AY 2006-07 also. Assessee preferred an appeal before CIT(A) for the A.Y. 2003-04, whereas appeal for AY 2006-07 was filed before the Tribunal as the order was passed in pursuance of the directions of DRP, Mumbai.

Before Tribunal, AR had submitted that assessee had valued the assets after took it over, that the earlier valuation was not done at the behest of the appellant though done by the same valuer, that valuation was not an afterthought, that bench should have followed earlier order, that since A.Y. 2003-04 (first year of business) depreciation was claimed regularly, that disclaimer clause was wrongly relied upon, that valuation of assets was always done by the purchaser, that tribunal erred in holding that no depreciation was allowable if no claim was made or allowed in previous years. In short, AR had submitted that following the earlier order passed for AY 2003-04, Tribunal should have allowed claim of depreciation and that disallowance of the said claim was a mistake apparent form record. On the other hand, DR had submitted that no mistake was apparent from the record, that by filing application u/s.254(2) assessee wanted the Tribunal to review its earlier order, that even if there was mistake of judgment by the earlier bench subsequent bench of the Tribunal was not empowered to rectify it, he relied upon the case of Ramesh Electric and Trading Co.

Held that,

+ mistake apparent from record means a mistake that can be decided without taking help of external sources. A patent, manifest and self-evident error which does not require elaborate discussion of evidence or arguments to establish it, can be said to be an mistake apparent from the record and can be corrected while deciding application u/s.254(2). An error apparent on the record means an error which strikes one on mere looking and does not need a long drawn out process of reasoning on points on which there may be conceivably two opinions. To put it differently, it should be so manifest and clear that no court would permit it to remain on record;

+ in our opinion Tribunal has taken an informed decision after considering the material before it i.e. order of AO, directions of DRP, submissions of the assessee and above all the order admitting the additional evidences. Appellant is of the view that Tribunal should have decided the matter in a particular manner. The views of the assessee,however strong, cannot form basis for invoking Section 254(2).After appreciating the arguments of both the sides, if Tribunal arrives at a particular decision it cannot be termed as a mistake apparent from record. As stated earlier even if there is a error of judgment in the order of the Tribunal same cannot be rectified u/s. 254(2). Let us clarify that our observation does not mean that there was error of judgment on part of the Tribunal when it passed order for AY 2006- 07. What we want to say is that even if argument of the assessee for so called five errors/mistakes considered, it will be only an error of judgment or non consideration of arguments, but it cannot be termed a mistake apparent form record. In our opinion in such situation filing an appeal u/s. 260 A of the Act is the only remedy. We cannot rehear the matter considering the facts and circumstances in which the present matter was heard and decided by the Tribunal for the AY 2006-07. We are of the opinion that order admitting additional evidence is not an order of binding nature and does not act as precedent. Final order, passed by the Tribunal after appreciating the additional evidences/affidavit, decides the issue argued before it and such an order works as precedent;

+ we find that no order of coordinating bench was available to the ‘E’ Bench of Tribunal-what was available was an interim order passed in peculiar circumstances. Assessee for the first time before the Tribunal submitted some documents stating that same would have direct bearing on the appellate proceedings. Under Rule 29 of the ITAT, Rules, 1963 said documents were admitted by the Tribunal as “Additional evidence” and were forwarded to the AO. In our humble opinion admitting an additional evidence is and cannot be equated with passing an effective and substantive final order. Secondly, while passing the order E Bench did not ignore the order admitting the additional evidence-rather it is very much part of the order. In these circumstances, we are of the opinion that order of the E Bench of the Tribunal cannot be rectified u/s. 254(2) of the Act. There is no doubt that rule of precedence should be adhered to, as held by the SC in the case of Honda, but, such precedence is for final orders passed by the adjudicating authorities, not for the orders passed for admitting additional evidences;

+ Delhi HC has analysed the matter of Honda in the case of Lachman Dass Bhatia Hingwala (P.) Ltd..  In Honda Siel Power Products Ltd.the High Court considered the contention that the recall of the Tribunal's entire decision was prohibited on the basis that in the garb of rectification, the order cannot be recalled. The application for rectification was filed as the Tribunal had not taken note of a binding precedent though it was cited before the Tribunal. In that factual background, the SC held that the power of rectification has been conferred on the Tribunal to see that no prejudice is caused to either of the parties appearing before it by its decision based on a mistake apparent from the record and that atonement to the wronged party by the court or the Tribunal for the wrong committed by it has nothing to do with the concept of inherent power to review. The court took note of the fact that the Tribunal committed a mistake in not considering material which was already on record and the Tribunal acknowledged its mistake and accordingly rectified its order. The decision of the Supreme Court in Honda Siel Power Products Ltd. v. CIT (2007-TIOL-211-SC-IT) is an authority for the proposition that the Tribunal in certain circumstances can recall its own order and section 254(2) of the Act does not totally prohibit so. Decisions which lay down the principle that the Tribunal under no circumstances can recall its order in entirety do not lay down the correct statement of law. Having appreciated the material and evidence on record we have arrived at conclusion that application filed by the assessee deserves to be rejected.

(See 2013-TIOL-865-ITAT-MUM)