The Tribunal decided against me without dealing with a coordinate bench decision I had cited. Can it put that right under section 254(2), or is that a review?
Yes, it can. The Supreme Court held that where the Tribunal overlooks material already on record, here a coordinate bench decision that had been cited before it, and prejudice results from that mistake, it is the Tribunal's duty to set the error right under section 254(2). That is not an exercise of any inherent power of review. The Delhi High Court had held the Tribunal's rectification order was a review in the guise of rectification; that judgment was set aside and the Tribunal's order allowing rectification restored, the appeal being allowed with no order as to costs.
Decided by the Supreme Court (Supreme Court of India; S.H. Kapadia and B. Sudershan Reddy JJ; judgment by Kapadia J) on 2007-11-26, reported as AIRONLINE 2007 SC 323; Civil Appeal No. 5412 of 2007. It bears on section 254(2), section 154 of the Income Tax Act 1961, in Appeals matters.
This is the case that keeps section 254(2) usable when the Tribunal has simply missed something. It reframes the power away from the sterile review versus rectification debate and onto a principle: no party should suffer on account of a mistake committed by the Tribunal, and atonement by the Tribunal for its own error has nothing to do with inherent power of review. The Court adds a second strand, that the rule of precedent is an aspect of legal certainty and is not obliterated by section 254(2), which matters where a coordinate bench decision has been cited and passed over. The limits are equally clear: the material must have been on record and before the Tribunal, and the omission must be a manifest error causing prejudice.
Binding on every court and authority in India.
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The assessee manufactured portable generator sets in collaboration with Honda Motor Company, Japan. For assessment year 1991-92 it had taken a foreign currency term loan to import machinery, and on exchange rate movement its rupee liability rose by Rs 7,10,910. Relying on section 43A it increased the written down value of the block and claimed depreciation accordingly. The Assessing Officer disallowed the revision in actual cost. The Commissioner (Appeals) allowed the claim. On the Department's appeals for assessment years 1990-91 and 1991-92, the Tribunal held on 2 April 2002 that actual payment was a condition precedent under section 43A and that there had been no payment after the fluctuation. On 9 December 2002 the assessee applied under section 254(2), pointing out among other things that a coordinate bench decision in Samtel Color Ltd dated 10 December 2001, which had been placed in the paper book and relied on, had not been referred to. On 10 September 2003 the Tribunal allowed the rectification, saying the coordinate bench judgment had escaped its attention. The Delhi High Court set that order aside on 11 October 2006 as a review dressed up as rectification.
The Tribunal was justified in exercising its power under section 254(2). It had been shown that the coordinate bench judgment was placed before it when the original order was passed and that it had made a mistake in not considering material already on record; it acknowledged the mistake and rectified its order. The High Court was not justified in interfering. The impugned judgment of the High Court was set aside and the order of the Tribunal allowing the rectification application was restored, the appeal being allowed with no order as to costs. The Court expressly said it was not proceeding on any doctrine or concept of inherent power, but on the basis that where prejudice results to a party from a manifest mistake, error or omission attributable to the Tribunal, the Tribunal is justified in rectifying it.
The expression rectification of any mistake apparent from the record appears both in section 154 and in section 254(2). The purpose behind section 254(2) rests on a fundamental principle, that no party appearing before the Tribunal, whether the assessee or the Department, should suffer on account of a mistake committed by the Tribunal. That principle has nothing to do with inherent powers. One of the important reasons for giving the Tribunal the power of rectification is to see that no prejudice is caused to either party by a decision resting on a mistake apparent from the record. The rule of precedent is an important aspect of legal certainty in the rule of law, and section 254(2) does not obliterate it; where prejudice results from an order attributable to the Tribunal's mistake, error or omission it is the Tribunal's duty to set it right, and making amends to the wronged party for a wrong the Tribunal itself committed is not review. On the facts the Tribunal had recorded a finding that Samtel Color Ltd was cited before it but was missed through oversight. The Court also noted, without expressing any opinion on it, that the Delhi High Court's later judgment in Woodward Governor India (P) Ltd had confirmed the view of the coordinate bench on section 43A, a circumstance relevant in deciding the rectification application.
When prejudice results from an order attributable to the Tribunal's mistake, error or omission, then it is the duty of the Tribunal to set it right.
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Handle my notice → Ask a CA on WhatsAppYes, it can. The Supreme Court held that where the Tribunal overlooks material already on record, here a coordinate bench decision that had been cited before it, and prejudice results from that mistake, it is the Tribunal's duty to set the error right under section 254(2). That is not an exercise of any inherent power of review. The Delhi High Court had held the Tribunal's rectification order was a review in the guise of rectification; that judgment was set aside and the Tribunal's order allowing rectification restored, the appeal being allowed with no order as to costs. This was decided by the Supreme Court (Supreme Court of India; S.H. Kapadia and B. Sudershan Reddy JJ; judgment by Kapadia J) and bears on section 254(2), section 154 of the Income Tax Act 1961. It is reported as AIRONLINE 2007 SC 323; Civil Appeal No. 5412 of 2007. This is the case that keeps section 254(2) usable when the Tribunal has simply missed something. It reframes the power away from the sterile review versus rectification debate and onto a principle: no party should suffer on account of a mistake committed by the Tribunal, and atonement by the Tribunal for its own error has nothing to do with inherent power of review. The Court adds a second strand, that the rule of precedent is an aspect of legal certainty and is not obliterated by section 254(2), which matters where a coordinate bench decision has been cited and passed over. The limits are equally clear: the material must have been on record and before the Tribunal, and the omission must be a manifest error causing prejudice. If it applies to you, the first step is this: Show in the rectification application exactly where the missed decision or material was placed before the Tribunal, with the paper book page references.
The assessee manufactured portable generator sets in collaboration with Honda Motor Company, Japan. For assessment year 1991-92 it had taken a foreign currency term loan to import machinery, and on exchange rate movement its rupee liability rose by Rs 7,10,910. Relying on section 43A it increased the written down value of the block and claimed depreciation accordingly. The Assessing Officer disallowed the revision in actual cost. The Commissioner (Appeals) allowed the claim. On the Department's appeals for assessment years 1990-91 and 1991-92, the Tribunal held on 2 April 2002 that actual payment was a condition precedent under section 43A and that there had been no payment after the fluctuation. On 9 December 2002 the assessee applied under section 254(2), pointing out among other things that a coordinate bench decision in Samtel Color Ltd dated 10 December 2001, which had been placed in the paper book and relied on, had not been referred to. On 10 September 2003 the Tribunal allowed the rectification, saying the coordinate bench judgment had escaped its attention. The Delhi High Court set that order aside on 11 October 2006 as a review dressed up as rectification. The matter was decided on 2007-11-26 by the Supreme Court (Supreme Court of India; S.H. Kapadia and B. Sudershan Reddy JJ; judgment by Kapadia J). On those facts the Supreme Court held as follows. The Tribunal was justified in exercising its power under section 254(2). It had been shown that the coordinate bench judgment was placed before it when the original order was passed and that it had made a mistake in not considering material already on record; it acknowledged the mistake and rectified its order. The High Court was not justified in interfering. The impugned judgment of the High Court was set aside and the order of the Tribunal allowing the rectification application was restored, the appeal being allowed with no order as to costs. The Court expressly said it was not proceeding on any doctrine or concept of inherent power, but on the basis that where prejudice results to a party from a manifest mistake, error or omission attributable to the Tribunal, the Tribunal is justified in rectifying it.
The expression rectification of any mistake apparent from the record appears both in section 154 and in section 254(2). The purpose behind section 254(2) rests on a fundamental principle, that no party appearing before the Tribunal, whether the assessee or the Department, should suffer on account of a mistake committed by the Tribunal. That principle has nothing to do with inherent powers. One of the important reasons for giving the Tribunal the power of rectification is to see that no prejudice is caused to either party by a decision resting on a mistake apparent from the record. The rule of precedent is an important aspect of legal certainty in the rule of law, and section 254(2) does not obliterate it; where prejudice results from an order attributable to the Tribunal's mistake, error or omission it is the Tribunal's duty to set it right, and making amends to the wronged party for a wrong the Tribunal itself committed is not review. On the facts the Tribunal had recorded a finding that Samtel Color Ltd was cited before it but was missed through oversight. The Court also noted, without expressing any opinion on it, that the Delhi High Court's later judgment in Woodward Governor India (P) Ltd had confirmed the view of the coordinate bench on section 43A, a circumstance relevant in deciding the rectification application. In the words reproduced by the source cited on this page: "When prejudice results from an order attributable to the Tribunal's mistake, error or omission, then it is the duty of the Tribunal to set it right."
It was decided by the Supreme Court on 2007-11-26 and is reported as AIRONLINE 2007 SC 323; Civil Appeal No. 5412 of 2007. Binding on every court and authority in India. A Supreme Court decision binds every assessing officer, every Commissioner (Appeals), every bench of the Income Tax Appellate Tribunal and every High Court in India. An officer who declines to follow it is acting contrary to law, and that refusal is itself a ground of appeal. On section 254(2), section 154, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The Tribunal was justified in exercising its power under section 254(2). It had been shown that the coordinate bench judgment was placed before it when the original order was passed and that it had made a mistake in not considering material already on record; it acknowledged the mistake and rectified its order. The High Court was not justified in interfering. The impugned judgment of the High Court was set aside and the order of the Tribunal allowing the rectification application was restored, the appeal being allowed with no order as to costs. The Court expressly said it was not proceeding on any doctrine or concept of inherent power, but on the basis that where prejudice results to a party from a manifest mistake, error or omission attributable to the Tribunal, the Tribunal is justified in rectifying it. It arises in Appeals matters, on section 254(2), section 154 of the Income Tax Act 1961, and was decided by Supreme Court of India; S.H. Kapadia and B. Sudershan Reddy JJ; judgment by Kapadia J. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Frame the ground as prejudice from the Tribunal's own omission of material already on record, not as a plea to reconsider the merits. Where a coordinate bench has taken a different view, say so at the hearing itself and ask for it to be dealt with or referred, so the point is on record. Check the time limit in section 254(2) as it now stands before filing, since this judgment does not address limitation.
Validity check could not be completed. I read only this judgment and checked nothing decided or enacted after 26 November 2007, including any later change to the time limit in section 254(2). No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The judgment does not decide the section 43A question on its merits, and expressly declines to express an opinion on the Delhi High Court's judgment in Woodward Governor. It says nothing about the limitation period for an application under section 254(2). The only citation carried by the batch line is an online reporter reference, so the case number is given as well. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The Tribunal was justified in exercising its power under section 254(2). It had been shown that the coordinate bench judgment was placed before it when the original order was passed and that it had made a mistake in not considering material already on record; it acknowledged the mistake and rectified its order. The High Court was not justified in interfering. The impugned judgment of the High Court was set aside and the order of the Tribunal allowing the rectification application was restored, the appeal being allowed with no order as to costs. The Court expressly said it was not proceeding on any doctrine or concept of inherent power, but on the basis that where prejudice results to a party from a manifest mistake, error or omission attributable to the Tribunal, the Tribunal is justified in rectifying it.
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