1. In this appeal, filed u/s 260A of the Income Tax Act, 1961 ("the IT Act" for short), the Revenue has challenged the correctness of the order dated 23.10.2002 passed u/s 234(2) of the IT Act by the Income Tax Appellate Tribunal ("the Tribunal" for short) In Misc. Petition No. 92/Bang/2001 reversing its earlier common order dated 25.9.2000 passed in ITA Nos. 390/Bang/1997 and 422/Bang/1997 and thereby directing the Assessing Officer to allow the deduction of about Rs. 3.67 crores treating the same as revenue expenditure which deduction was disallowed by the Assessing Officer and was confirmed by the Commissioner of Income Tax (Appeals) [for short "CIT(A)"] and also the Tribunal itself.
2. Stated in nutshell the facts leading to the present appeal are as under;
a) The assessee namely Mc Dowell Company Ltd. which is respondent herein, has been manufacturing and selling Indian made foreign liquor. For the assessment year 1993-94 this assessee filed its return of income on 31.12.1993 and thereafter it also filed a revised return on 18.9.1995. In the said returns the assessee claimed several items of deductions. The Assessing Officer passed his Assessment Order dated 29.3.19% allowing some of the items of deductions and disallowing some others of them. One of the deductions disallowed by the Assessing Officer was a sum of Rs. 3,82,03,140/- which was claimed by the assessee as ''revenue expenditure''.
b) Aggrieved by the said order of assessment the assessee company filed its appeal before the CIT(A) and the same came to be allowed in part and some of the items of deductions claimed by the assessee but disallowed by the Assessing Officer were allowed by the learned CIT(A). However, the learned CIT(A) did not allow the deduction of the said amount of Rs. 3.82 crores holding that the game was not revenue expenditure but it was ''capital expenditure'' and thereby confirmed the order of assessment so far as it related to this disallowance.
c) Aggrieved by the said order of CIT(A) the Assessee and also this Revenue both filed their respective appeals before the Tribunal. After hearing both the parties in the said appeals the Tribunal, by passing its order dated 25.92000 dismissed the appeal of the Revenue and allowed that of the Assessee Company in part and thereby allowed certain other deductions which were not allowed by the CIT(A). However, the Tribunal confirmed the order of CIT(A) so far as it related to the disallowance of the deductions of the said amount of Rs. 3.82 crores holding that the same was ''capital expenditure'' but not ''revenue expenditure as claimed by the assessee company.
(d) Thereafter, the assessee company filed Misc. Petition No. 92/Bang/2001 u/s 254(2) of the IT Act contending that a ''mistake apparent from the record'' had arisen in the common order of the Tribunal dated 25.9.2000 passed in the said appeals and the same needed correction. The said miscellaneous petition was seriously opposed by the Revenue. After hearing both the sides the Tribunal allowed the said miscellaneous petition by passing its impugned order dated 23.10.2002 and modified para No. 14 of its common order dated 25.9.2000 that was passed by it on merits in the said appeals filed by the assessee and also the Revenue. The Tribunal allowed in its impugned order the deduction of a sum of Rs. 3,67,34,886/- holding that the same was ''revenue expenditure'' but not ''capital expenditure'' as was held by it in the said common order. It is the legality and correctness of this order which is challenged by the appellant Revenue in the present appeal.
3. We have heard the arguments of the learned Counsel for both sides and perused the grounds of appeal urged and the substantial questions of law framed by the appellant-revenue. Though it has framed three substantial questions of law, in our opinion, only one substantial question of law emerges for our consideration and decision which reads as under:
Whether the Tribunal was justified in passing the impugned order dated 23.10.2002 in exercise of its jurisdiction u/s 254(2) of the IT Act modifying para No. 14 of its earlier common order dated 25.9.2000 passed in the appeals filed by the assesses and the revenue and thereby reversing its findings therein and directing the Assessing Officer to allow deduction of Rs. 3,67,34,886/- treating the same as ''revenue expenditure'' which deduction was disallowed by the Assessing Officer and confirmed by the CIT( A) treating the same as capital expenditure.''
Our findings on this substantial question of law is in the ''negative'' and in favour of the appellant - Revenue for the following
REASONS
4. The facts constituting assesse''s claim for deduction of Rs. 3.82 crores which came to be disallowed by the Assessing Officer, confirmed by the CIT(A) and allowed by the Tribunal in exercise of its power u/s 254(2) of the IT Act are: "The assessee incurred during the relevant year, an expenditure of Rs. 4,24,47,933/- in respect of issuance of shares with a view to increase its share capital. This expenditure was incurred towards refund of the money to the unsuccessful applicants as the issue was over subscribed by seven times. Therefore the assessee claimed deduction of the entire expenditure on the ground that the same is allowable u/s 37(1) of the IT Act as ''revenue expenditure''. But the Assessing Officer allowed u/s 35D of the IT Act only 1/10th of the said expenditure as allowable deduction and disallowed the balance of Rs. 3,82,03,140/- (being 9/10th of the said total expenditure) holding that the said entire expenditure was ''capital in nature''. Ibis finding of the Assessing Officer came to be confirmed by the CIT(A) in appeal, The Tribunal, though confirmed order of both the Assessing Officer and CIT(A) in its order dated 25.9.2000 by recording a finding that the said expenditure was ''capital in nature''. But subsequently, on the application of the assessee filed u/s 254(2) of the IT Act, it reversed its said finding and allowed the entire expenditure holding it as ''revenue expenditure'' and directed the Assessing Officer to allow deduction of a sum of Rs. 3,67,34,886/- by passing the impugned order.
5. As to the power of the Tribunal u/s 254(2) of the IT Act to rectify any mistake apparent from the records Sri D.L.N. Rao, the learned Counsel for the respondent asseses has placed his reliance on the decision of the Hon''ble Supreme Court in Honda Steel Power Products Ltd. v. CIT (Appeals), Delhi reported in 2007-TIOL-211-SC-IT. The facts in the said decision were; "The assessee company therein had taken a term loan in foreign exchange for the import of machinery. On account of fluctuations in foreign exchange rate the liability of the assesses to repay the loan in terms of rupees went up. By referring to the provisions of Section 43A of the IT Act the assessee enhanced the figure of return down value of the assets and claimed depreciation accordingly. The Assessing Officer held the same as not admissible. In appeal by the assessee the CIT(A) took the view that the claim of the assessee was admissible. In further appeal by the Department the Tribunal held that CIT(A) had erred in allowing the said depreciation as the assessee was not entitled to claim the said amount as depreciation, thereafter the assessee moved an application u/s 234(2) of the IT Act before the Tribunal seeking rectification of mistake on the ground that the Tribunal had arrived at the conclusion that the said amount was not allowable as depreciation by not considering the decision of its coordinate bench in the case of Samtel Colour Ltd. The Tribunal had not considered the said decision while disposing of the said appeal though it was cited and relied upon by the learned Counsel for the assessee therein, and therefore it considered the said judgment and then allowed the rectification application of the assessee by passing a considered order u/s 254(2) of the I.T. Act. Aggrieved by the said order, the Department filed its appeal before the High Court. The High Court came to the conclusion that the power to rectify any mistake was not equivalent of power to review or recall the order sought to be rectified and therefore in the guise of rectification the Tribunal, in fact, reviewed its earlier order which fell outside the scope of Section 254(2) of IT Act and consequently the High Court set aside the order of the Tribunal by allowing the appeal of the Department". On these facts, Hon''ble Supreme Court held at para 12 of its judgment as under:
The expression ''rectification of mistake from the records'' occurs in Section 154. It also finds place in Section 254(2). The purpose behind enactment of Section 254(2) is based on the fundamental principles that no party appearing before the Tribunal be it an assessee or the department, should suffer on account of any mistake committed by the Tribunal. This fundamental principle has nothing to do with the inherent powers of the Tribunal In the present case the ''Tribunal in its order dated 10.9.2003 allowing the rectification application has given a finding that Samtel Colour Ltd., supra, was cited before it by the assessee but through oversight it has missed out the said judgment while dismissing the appeal filed by the assessee on the question of admissibility allowability of the claim of the assessee for enhanced depreciation u/s 43A. One of the important reasons for giving power of rectification to the Tribunal is to see that no prejudice is caused to either of the party appearing before it by its decision based on a mistake apparent from the record.
5. Holding as above the Hon''ble Supreme Court set aside the judgment of the High Court and restored the order passed by the Tribunal allowing the rectification application of the assessee therein. However, principles laid down by the Hon''ble Supreme Court in the above case cannot be made applicable to the facts of the present case inasmuch as it was not the case of the assessee before the Tribunal in the said miscellaneous petition filed u/s 254(2) of the IT Act that the Tribunal, while disposing of its appeal, did not consider any of the decisions cited and relied upon by the learned Counsel for the appellant assessee nor was it is the case of the assessee that the Tribunal did not consider any of the facts on record constituting the assessee''s claim for deduction. On the other hand, on perusal of paragraph 14 of the earlier order of the Tribunal dated 25.9.2000 wherein it concurred with the findings of the Assessing Officer and CIT(A) as to the disallowance of the said claim of the assesses, it could be seen that only after considering the ratio in the decisions of Hon''ble Supreme Court in (i)
6. Though the failure to consider by the Tribunal a decision or a fact relied upon by a party to an appeal may amount to a mistake apparent from the record so as to attract the provisions of Section 254(2) of the IT Act, considering and discussing of such decision/fact by the Tribunal in its order and arriving at a conclusion based on the same cannot be said to be a mistake apparent from the record warranting any rectification by the Tribunal in exercise of its power under Sections 254(2) of the IT Act.
7. The learned Counsel for the respondent assessee has placed his reliance on the decision of the High Court of Himachal Pradesh in the case of
8. We are not concerned in this appeal with the question: "whether the said expenditure has to be treated as ''revenue in nature'' as contended by the assessee company or as ''capital in nature''" as contended by the revenue. But we are concerned only with the question "whether the Tribunal was justified in reversing its findings recorded in its earlier order dated 25.9.2000 in exercise of its power u/s 254(2) of the IT Act?" Therefore, we need not discuss in detail the principles laid down in the said three decisions.
9. In order to find answer to the question "whether the Tribunal was justified in passing the impugned order reversing its findings in its said earlier order in exercise of its power u/s 254(2) of the IT Act?" We have to see whether the impugned order dated 23.10.2002 passed by the Tribunal amounts to only a ''rectification of mistake apparent from the record'' as contended by the learned Counsel for the assessee company or it amounts to reviewing of its earlier said order by the Tribunal resulting in reversal of its finding therein.
10. As could be seen from the earlier order of the Tribunal dated 25.9.2000, at para Nos. 10 to 14 therein (from page Nos. 4 to 10 of the order) the Tribunal, after considering in detail the ground Nos. 9 and 10 urged by the Assessee company in its appeal before the Tribunal and discussing the principles laid down in various decisions relied upon by both the parties particularly the decisions in (i) (1989) 220 ITR 175 , (ii)
11. Further, on perusal of the impugned order dated 23.10.2002 passed by the Tribunal in the said miscellaneous petition in exercise of its power u/s 254(2) of the IT Act it could be seen that the Tribunal again considered the same ground Nos. 9 and 10 urged by the assessee company in its appeal before the Tribunal which were considered by it in detail in its earlier order dated 23.2.2000, it again considered the same decisions of the Hon''ble Supreme Court in
12. Application of the principles laid down by the superior courts, to the facts of the case before the Tribunal on erroneous understanding of such principles; recording of an erroneous finding by it based on the facts on record; arriving at a conclusion on erroneous application of provisions of taw to the facts of the case, etc., cannot be held to be ''a mistake apparent from the record'' warranting any rectification by the Tribunal in exercise of its power u/s 254(2) of the IT Act, by reconsidering the application of principles of superior courts to the facts of the case or by reconsidering its findings recorded, or by reconsidering the application of the relevant provisions of law to the facts of the case as is done by the Tribunal in the instant case. Such an exercise of power u/s 234(2) of the Act amounts to review of its earlier order on merits but not ''rectification of mistake apparent from the record'' and such review would certainly be beyond the scope of Section 254(2) of the IT Act.
13. Therefore, we are of the considered view that by passing the impugned order dated 23.10.2002 on the said miscellaneous petition of the assessee company, the Tribunal, in exercise of its power u/s 254(2) of the IT Act, whereunder it reviewed its earlier order dated 25.9.2000 and reversed its findings recorded under it. As such, the impugned order deserves to be set aside by allowing this appeal, therefore, substantial question of law that has emerged in this appeal for our consideration and decision is answered in the ''negative'' and in favour of the appellant-revenue.
14. In the result the present appeal is allowed and the impugned order dated 23.10.2002 passed u/s 254(2) of the IT Act by the Income tax Appellate Tribunal, Bangalore Bench, in Misc. Petition No. 29/Bang/2001 is hereby set aside. No order as to costs.
