By its very nature, the power to rectify a mistake would not result in the recall and review of the order sought to be rectified.
Under section 254(2) of the Income-tax Act, 1961, the Tribunal has the power to rectify mistakes in its order. However, the power to rectify a mistake is not equivalent to a power to review or recall the order sought to be rectified.
Rectification is a species of the larger concept of review. Although it is possible that the prerequisite for exercise of either power may be similar to rectifying a mistake apparent from the record, by its very nature, the power to rectify a mistake would not result in the recall and review of the order sought to be rectified. This was held by the Delhi High Court in C.I.T. v Hindustan Coca Cola Beverages P Ltd (293 I.T.R. 163).
Tribunal approach faulted
In T. Jayabharathy v Assistant C.I.T. (294 I.T.R. 128), an assessment had been framed on the assessee pursuant to a search conducted at the assessees residence. The Assistant Commissioner determined the total undisclosed income by making certain additions. That assessment was challenged before the Tribunal questioning the correctness in respect of three additions. The Tribunal allowed the appeals pertaining to additions one and two. It, however, did not deal with the third addition.
As the non-consideration of the third addition was regarded as an error apparent on the face of the record, the assessee filed a petition under section 254(2) of the Act for reconsideration of the issue. The Tribunal entertained the application and upon hearing counsel on that application, decided the issue against the assessee.
The Madras High Court held that the way in which the third issue had been dealt with by the Tribunal at the stage of deciding the miscellaneous petition itself could not be regarded as a correct approach.
The assessee should have been given an opportunity to put forth her case in respect of the third issue, which had been left out of consideration in the original order passed by the Tribunal. Hence, the order was not valid and the matter was remanded to the Tribunal to consider the issue afresh.
Power of review
The Tribunal has no power to review its own order. Such power of review has to be specifically conferred; it cannot be inferred on the basis of a supposed inherent right. The order under section 254(2) need not be confined to arithmetical or clerical mistakes, nor only to correct substantive mistakes but can also rectify procedural mistakes. Where the Tribunal fails to decide some of the questions raised before it, the only method of correcting such mistake is to recall the order.
The Tribunal may rectify the mistake by setting aside its order and directing a rehearing of the appeal. However, it cannot totally recall its order and proceed to hear the matter on de novo arguments. Further, the Tribunal has inherent jurisdiction to rectify a wrong committed by itself, when that wrong causes prejudice to an innocent party and having decided an appeal on a preliminary issue, the Tribunal has implied jurisdiction to vacate the order in appropriate cases and hear the appeal on merits.
The Tribunal cannot entertain a miscellaneous application on grounds which were not the subject matter of appeal before it. The decision of the Tribunal cannot be rectified merely because a contrary judgment has been rendered by the jurisdictional High Court or other High Court. An order cannot be passed under this sub-section without giving the petitioner an opportunity of being heard.
The Tribunal may rectify any mistake apparent from the record at any time within four years from the date of the order, and once an application is moved within this period, the same cannot be rejected as time barred if the same is taken up for disposal after the period; the language of sub-section (2) appears directory and not mandatory in this regard.
A plain reading of the provision indicates that in order to exercise the power vested in it under section 254(2), the Tribunal has to ensure that the application is made within four years from the date of the order sought to be rectified. There is a mistake apparent from the record which is brought to its notice by either the assessee or the Assessing Officer. As regards the procedure to be followed, if the amendment sought has the effect of enhancing the assessment or reducing a refund or increasing the liability of the assessee, the Tribunal has to give prior notice to the assessee and also allow the assessee a reasonable opportunity of being heard.
In C.I.T. v Income-tax Appellate Tribunal (293 I.T.R. 118), the Delhi High Court held that the scope and ambit of application of section 254(2) is very limited. The same is restricted to rectification of mistakes apparent from the record. Power to recall an order is prescribed in terms of rule 24 of the Income-tax (Appellate Tribunal) Rules, 1963, and that too only in cases where the assessee shows that it had reasonable cause for being absent at a time when the appeal was taken up and was decided ex parte.
Amendment, not substitution
What is significant is that the section envisages amendment of the original order of the Tribunal and not a total substitution thereof. The order passed by the Tribunal under section 254(1) is the effective order so far as the appeal is concerned. Any order passed under section 254(2) either allowing the amendment or refusing to amend gets merged with the original order passed.
The order as amended or remaining unamended is the effective order for all practical purposes. The same continues to be an order under section 254(1). That is the final order in the appeal. An order under section 254(2) does not have existence de hors the order under section 254(1).
Thus, unless an appeal is filed under section 260-A, the Tribunals order must be regarded as final; and the Assessing Officer is bound to carry out the Tribunals directions, whether they are correct or not.
Since an appeal to the High Court lies only on a substantial question of law, the Tribunal is the final fact-finding authority.
It is necessary for judicial discipline that all the authorities below the Tribunal accept the judgment of the Tribunal as binding. The Assessing Officer and C.I.T. (Appeals), being inferior to the Tribunal in the judicial hierarchy, are bound by the judgment of the Tribunal and should not try to distinguish it on untenable grounds.
H.P. Ranina The author, a Mumbai-based advocate specialising in tax laws