Section 254 of Income-tax Act, 1961

IN THE ITAT DELHI BENCH ‘G’ Silicon Graphics Systems (I) Ltd. v. Assistant Commissioner of Income-tax, Circle 8 (1), New Delhi R.V. EASWAR, VICE PRESIDENT AND K. D. RANJAN, ACCOUNTANT MEMBER MA NO. 406(DELHI) OF 2007 IN IT APPEAL NO. 5695 (DELHI) OF 2004 [Assessment year 2001-02] February 8, 2008 Section 254 of Income-tax Act, 1961 - Appellate Tribunal - Rectification of mistakes appellant from record - Assessment year 2001-02 - Whether order of Tribunal has to be read as a whole and not sentence by sentence in order to find out whether there is an omission or mistake committed by Tribunal, but at same time it is duty of Tribunal to record each and every contention raised before it and render its finding thereon - Held, yes - Tribunal, while deciding appeal, omitted to deal with crucial contentions of assessee and binding order of a co-ordinate bench of same Tribunal and had also given contradictory finding in respect of assessee’s claim in two paragraphs of its order - Whether it was a case of mistakes apparent from tribunal’s order, for which assessee should not be made to suffer - Held, yes - Whether therefore, impugned order passed by Tribunal required to be rectified - Held, yes FACTS The assessee claimed deduction of certain amount paid on account of customs duty on stock stating that it was included in the closing stock as on 31-3-2001. The Assessing Officer invoked the provisions of section 43B and, accordingly, disallowed the assessee’s claim. On appeal, the Commissioner (Appeals) deleted the disallowance made by the Assessing officer. On further appeal, the Tribunal held that the deduction on account of customs duty paid during the year was allowable to the assessee irrespective of the fact that the same had not been included in the valuation of the closing stock by the assessee. However, it restored the matter to the Assessing Officer on the ground that for deciding the allowability of deduction of customs duty separately which had not been included in the valuation of the closing stock, it was imperative to see that the valuation was done in accordance with law. The Tribunal thereafter noticed section 145A and held that the implication of this provision was not correctly applied by the lower authorities. The Tribunal, therefore, restored the issue to the file of the Assessing Officer for passing fresh order after considering section 145A. The assessee filed an application under section 254(2) before the Tribunal seeking rectification of its order on the grounds that the Tribunal having accepted the assessee’s contention after due scrutiny of the entries made in the profit & loss account and balance sheet that the customs duty had in fact been included in the closing stock, it committed an error apparent from the record when in paragraph 11 of the order it contradicted itself by saying that the customs duty had not been included in the valuation of the closing stock and, therefore, the effect of section 145A had to be examined by remitting the matter to the Assessing Officer, that the Tribunal had not dealt with a very crucial contention raised by it in the course of the hearing of the appeal to the effect that section 43B had overriding effect over section 145A, that the Tribunal had not followed the order of a co-ordinate bench of the Delhi Tribunal in the case of Maruit Udyog Ltd. v. Dy. CIT [2005] 92 ITD 120, which was cited before the Tribunal, and that the Tribunal completely over-looked its contention that its claim for deduction of the customs duty under section 43B for the subsequent years had been accepted by the Assessing Officer himself. HELD Earlier in the course of the hearing of the appeal the assessee was directed to explain the entries for customs duty payment in the profit and loss account and balance sheet. In response to the same, the assessee filed, a supplementary paper-book on 21-2-2007 explaining the entries made regarding the closing stock to show that the customs duty had been included therein, and had also explained in detail how the provisions of section 145A introduced with effect from 1-4-1999 would have no effect in view of the overriding provisions of section 43B. These submissions had been briefly adverted to in paragraph 8 of the order of the Tribunal as also paragraph 10. Paragraph 10 showed that the contention of the assessee that since inception from the assessment year 1994-95 till the assessment year 2006-2007 the assessee had been following the inclusive method of accounting for customs duty payment while valuing the stock was accepted by the Tribunal. Further the Tribunal even stated in this paragraph that this claim of the assessee was not contradicted even in the assessment order. In the same paragraph, the Tribunal also made an observation that in the year under appeal, the customs duty formed part of the closing stock, though the duty was not debited to the profit and loss account and also referred to the fact that the duty was separately claimed as deduction in the return of income. In paragraph 11, the Tribunal had accepted the assessee’s claim in principle and had observed that it was supported by the Special Bench order of the Tribunal in the case of Indian Communication Network (P.) Ltd. v. IAC [1994] 49 ITD 56 (Delhi), which was approved by the Supreme Court in Berger Paints India Ltd. v. CIT [2004] 266 ITR 99/135 Taxman 586. However, the observations made in the said paragraph showed that the Tribunal considered that the customs duty was not included in the valuation of the closing stock. This observation was at variance with and contradictory to its earlier finding of paragraph 10 to the effect that the duty had been included in the closing stock as per the consistent accounting practice adopted by the assessee and accepted in the assessment. It was only in view of the latter contradictory finding that the Tribunal thought it necessary to restore the matter to the Assessing Officer with the direction to him to examine the applicability of section 145A to the assessee’s case. Even if it was assumed for the sake of argument that the case would have had to be restored to the Assessing Officer to be processed with reference to section 145A notwithstanding the earlier finding of the Tribunal that the customs duty was included in the value of the closing stock, the fact that the assessee’s argument based on the order of the co-ordinate bench of the Tribunal in the case of Maruti Udyog Ltd. (supra) was not considered by the Tribunal showed that there was a mistake apparent from the record. In the case of Maruti Udyog Ltd. (supra), it was held that section 43B overrides section 145A. This decision was referred to by the Tribunal in its order while summarizing the contentions of the department but unfortunately the Tribunal omitted to deal with this decision and considered its applicability while taking a decision to remit the matter to the Assessing Officer with a direction to him to examine the applicability of section 145A. This omission had caused prejudice to the assessee in the sense that it had given rise to further proceedings before the Assessing Officer involving further delay in finalising the assessment proceedings, when the legal position already stood concluded by the binding order of the Tribunal in the case of Maruti Udyog Ltd. (supra). The other mistake committed by the Tribunal to the prejudice of the assessee was its omission to refer to the assessee’s plea that in the subsequent years, the Assessing Officer had accepted the assessee’s claim under section 43B and assessments had been completed accordingly. (Para 8) It is no doubt true that the order of the Tribunal has to be read as a whole and not sentence by sentence in order to find out whether there is an omission or mistake committed by the Tribunal. At the same time, it is equally true that it is the duty of Tribunal to record each and every contention raised before it and render its finding thereon. The omission to deal with crucial contentions of the assessee in the instant case, the omission to deal with the binding order of another co-ordinate bench and the contradictory findings given in paragraphs 10 and 11 of its order in respect of the inclusion of the customs duty in the valuation of the closing stock had given rise to mistakes apparent from Tribunal’s order and for such mistakes committed by the Tribunal, the party before it should not be made to suffer. Therefore, decision of the Tribunal in respect of ground No.1 taken by the department before it required to be recalled. (Para 9) CASE REVIEW: Honda Siel Power Products Ltd. v. CIT [2007] 295 ITR 466/165 Taxman 307 (SC) - followed Omar Salay Mohamed Sait v. CIT [1959] 37 ITR 151 (SC) - followed