T.S. Sivagnanam, J.@mdashThis Tax Case Appeal is filed by the assessee questioning the Order dated 31.8.2006 passed by the income tax Appellate Tribunal Madras ''A'' Bench in I.T.A. No. 2662/Mds/2004 for the assessment year 1996-97 and the same was admitted on the following questions of law:
1. Whether on the facts and circumstances of the case, the Tribunal is right in law in holding that the Commissioner (Appeals) was not justified in cancelling the penalty levied u/s 271(1)(c) ?
2. Whether on the facts and circumstances of the case the Tribunal is right in law in stating that there was no mistake in the original order of the Commissioner (Appeals) apparent from record to be rectified u/s 154? and
3. Whether the Tribunal is right in law in holding that rectifying the order already passed following the decision of the Supreme Court in CIT v. Prithipal Singh & Co., amounts to review of order?
The assessee is engaged in the business of leasing and hire purchase finance and entered into a lease transaction with M/s. Bellary Steel and Alloys Limited, (BSAL) for steel rollers during January, 1995 for a sum of Rs. 20,96,900/-. The supplier of steel rollers was M/s. B.H. Enterprises, Mumbai and the assessee - company was the financier. The assessee for the assessment year 1995-96 claimed depreciation of Rs. 10,48,450/-. On steel rollers, the assessee was eligible for depreciation at 100%. As the assets were put to use after 30th September, 1994, 50% of depreciation amounting to Rs. 10,48,450/- was claimed in the assessment year 1995-96 and the balance was claimed in the assessment year 1996-97. In the course of survey conducted in the business premises of the assessee and subsequent investigation, it was found that the lease transactions were bogus and intended to enable BSAL to obtain finance and the assessee to claim 100% depreciation. It was found that there was no delivery of steel rollers by B.H. Enterprises, Mumbai and no use of steel rollers by BSAL. Subsequent to the Department having found that the lease transactions were bogus the assessee filed revised return for the assessment year 1995-96 and 1996-97 withdrawing the claim of depreciation. It is to be noted that initially the claim was allowed u/s 143(3) of the income tax Act (Act) before 23.5.2001. Since the assessee filed revised returns after completion of assessments, the returns were held to be invalid. The Assessing Officer initiated proceedings u/s 147 of the Act for the purpose of disallowing the depreciation on steel rollers on which the assessee has claimed depreciation for assessment years 1995-96 and 1996-97 and also after setting off a reduced unabsorbed brought forward depreciation in the assessment year 1997-98. The Assessing Officer while finalising the assessment by order dated 27.2.2003 declared the assessment as nil assessment consequent on the loss found and the loss was allowed to be carried forward. Separate proceedings were initiated for levy of penalty u/s 271(1)(c). The assessee contested the penalty proceedings by stating that they were not aware that the lease transactions were bogus. The Assessing Officer rejected the explanation offered by the assessee and imposed penalty of Rs. 5,00,000/-. Aggrieved by such order, the assessee preferred appeal before the Commissioner of income tax. The first appellate authority by Order dated 17.3.2004 held that the assessee is guilty of concealment of income and furnishing of inaccurate particulars of income so far as its claim for depreciation and the assessee has claimed bogus depreciation for the assessment years 1995-96 and 1996-97 and the claims have been subsequently withdrawn and treated as income and the particulars of which have been concealed in each of the assessment years. Therefore, the first appellate authority confirmed the order of penalty imposed u/s 271(1)(c) of the Act. After the appeal was disposed of, the assessee filed miscellaneous petition in M.P. No. 1 of 2004-05/A.III contending that the Honourable Supreme Court in the case of2. Before we proceed to consider the contentions raised by Mr. S. Kumar, learned counsel appearing for the assessee, it is to be pointed out that as against the order passed by the Tribunal relating to the assessment year 1995-96 confirming the order of levying penalty the assessee has come before this Court by way of Tax Case in T.C. (A) No. 124 of 2007 in the case of
3. As far as the present assessment year 1996-97 is concerned, learned counsel for the assessee submitted that the Tribunal ought to have followed the decision of the Honourable Supreme Court and failure on the part of the first appellate authority to take note of the decision of the Supreme Court is a mistake and an order passed without following the decision gives rise to a rectifiable mistake and it is not amount to a review. Further it is contended that the Tribunal has erroneously held that there was no mistake in the original order initially passed by the first appellate authority, which is apparent from record, to be rectified u/s 154 and the Tribunal ought to have noted that the authorities are bound by the law laid down by the Honourable Supreme Court. Therefore, it is contended that the Tribunal ought to have rejected the appeal filed by the revenue as against the order passed in the Miscellaneous Application and by applying the decision of the Honourable Supreme Court in the case of Prithipal Singh, (supra), the Tribunal should have deleted the penalty levied u/s 271(1)(c) confirming the order of the Commissioner based on the decision of the Honourable Supreme Court in the case of Prithipal Singh, (supra).
4. In support of his contention as regards the jurisdiction of the Tribunal u/s 154 of the Act, learned counsel for the assessee placed reliance on a decision of the Honourable Supreme Court in
5. As regards the question regarding levy of penalty, the learned counsel for assessee would rest his argument by placing heavy reliance on the decision of the Honourable Supreme Court in the case of Prithipal Singh, (supra), the decision of the Honourable Division Bench of this Court in
6. Mr. Arun Kurian Joseph, learned Standing counsel appearing for the revenue contended that the reliance placed on the decision of the Honourable Supreme Court in the case of Prithipal Singh, (supra) and the decision of the Division Bench of this Court in CIT v. C.R. Niranjan (supra) are misconceived in the light of the recent decisions of the Honourable Supreme Court in the case of
7. We have heard the learned counsel for the parties and perused the material placed on record.
8. The first question to be considered is as to the scope and power of rectification u/s 154 of the Act. To decide this question, we may straight away refer to the decision of the Honourable Supreme Court in the case of Honda Siel Power Products Limited (supra). The said case arose before the Supreme Court out of an application u/s 254(2) of the 1961 Act. The expression "rectification of mistake from the record" occurs in Section 154 and it also finds place in Section 254(2). The Supreme court pointed out that the purpose behind the enactment of Section 254(2) is based on the fundamental principle that no party appearing before the Tribunal/authority, be it an assessee or the Department, should suffer on account of any mistake committed by the Tribunal/authority. This fundamental principle has nothing to do with the inherent powers of the Tribunal/authority. Further, it was held that the important reason for giving power of rectification is 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. Further, it was held that when prejudice results from an order attributable to the Tribunal/authority''s mistake error or omission then it is the duty of the Tribunal/authority to set it right. Atonement to the wronged party by the Court or the Tribunal or authority for the wrong committed by it has nothing to do with the concept of inherent power to review. In the said case, the Tribunal failed to consider the judgment of a Coordinate Bench, which was placed before it when the original order came to be passed but it had committed a mistake in not considering the material which was already on record and the Tribunal amended its mistake and accordingly rectified the order. This Order passed by the Tribunal was reversed by the High Court and the Honourable Supreme Court held that High Court was not justified in interfering with the said order and that they are not going with the doctrine or concept of inherent power but simply proceeding on the basis if prejudice had resulted to the party, which prejudice is attributable to the Tribunal''s mistake, error or omission and which error is a manifest error then the Tribunal/authority would be justified in rectifying its mistake.
9. Admittedly, the miscellaneous application filed u/s 154 of the Act to rectify the mistake in the order of the first appellate authority dated 17.3.2004 was based on the decision of the Supreme Court in the case of Prithipal Singh, (supra). It is not in dispute that on the date when the first appellate authority passed order dated 17.3.2004, the decision in the case of Prithipal Singh, (Supra), was very much available. Therefore, the first appellate authority rightly entertained the application u/s 154 and rectified the error solely on the ground that as per the law, which holds the land, at the relevant point of time, no penalty was imposable when a loss has been incurred by the assessee. In other words, the term "income" in Section 271(1)(c) was interpreted to mean "prospective income". As far as the present case is concerned, the assessment order disclose loss to be carried forward. Therefore, by applying the decision in Honda Siel Power Products Limited (supra), the Commissioner was justified in entertaining the application and rectifying the mistake. To that extent we agree with the submission made by the learned counsel for the assessee.
10. In the light of our discussion and considering the limited question raised in this Tax case Appeal as to the rectification of the order by the Commissioner of income tax (Appeals), we hold that in the light of the decision of the Apex Court in
