I filed my rectification application to the Tribunal within four years but it took years to decide it. Can the order be set aside because it was passed after the four years were up?
No. The Supreme Court held that section 254(2) has two parts. The first is the Tribunal's own power to rectify at any time within four years of its order. The second deals with rectification on an application by the assessee or the Assessing Officer pointing out a mistake apparent from the record. Where the application is made within four years, the Tribunal is bound to decide it on the merits, and the fact that it took its own time to dispose of it does not make the order bad. The High Court had erred in holding the application could not be entertained beyond four years. The Court agreed with the Rajasthan High Court in Harshvardhan Chemicals and Minerals Ltd.
Decided by the Supreme Court (Supreme Court of India, Civil Appellate Jurisdiction; S.H. Kapadia and B. Sudershan Reddy JJ) on 2008-05-01, reported as (2008) 301 ITR 434; (2008) 17 SCC 203; AIRONLINE 2008 SC 63; Civil Appeal No. 3246 of 2008 (arising out of SLP(C) No. 10576 of 2007). It bears on section 254(2), section 115J, section 260A, section 143(3) of the Income Tax Act 1961, in Appeals matters.
Miscellaneous applications under section 254(2) routinely sit before benches for years, and the department's answer is that the four-year limit had run before the order was made. This is the Supreme Court's short and complete answer: the limit attaches to the making of the application, not to the disposal of it, and an applicant is not to be penalised for the Tribunal's delay. The reasoning is the split of section 254(2) into a suo motu power exercisable within four years and a duty to act on an application which says the Tribunal 'shall make such amendment' when a mistake is brought to its notice. The decision is also a reminder that a successful limitation point on the applicant's side leaves the merits untouched: the Court restored the tax case appeal to the High Court and expressly kept open both whether the rectification application was maintainable at all and whether Apollo Tyres applied.
Binding on every court and authority in India.
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The assessee is a company manufacturing cotton and man-made fibre yarn. For assessment year 1989-90 the Deputy Commissioner of Income Tax, Madurai, made an assessment under section 143(3) on 27 February 1992 determining taxable total income for the 21 months ending 31 March 1989 at Rs 45,92,240, working from section 115J. The total income had been computed at Rs 42,98,019, but on scrutiny of the computation and the balance sheet the officer reworked the total profit at Rs 1,53,07,444 and took thirty per cent of it. In reworking the section 115J computation he added back excess depreciation debited to the profit and loss account, which arose because the assessee had changed its method of claiming depreciation on machinery from the straight line method to the written down value method, retrospectively from the year ending 30 June 1983. The assessee's case was that the profit had been computed correctly in accordance with the Companies Act, 1956, and that on Apollo Tyres Ltd v CIT, (2002) 255 ITR 273, the officer had no authority to go behind book profits so computed. The department contended that Apollo Tyres did not apply because there the question was the admissibility of extra shift depreciation for past years, whereas here the claim arose from the change in the rate of depreciation brought about by Schedule XIV to the Companies Act inserted with effect from 2 April 1987, and that the excess depreciation debited was attributable to the change of method. On 9 December 1996 the Tribunal, in ITA No. 719(MDS)/94, upheld the Commissioner (Appeals) on the section 115J computation and dismissed the assessee's appeal, holding that its profit and loss account did not reflect the correct picture. On 2 August 2000, within four years of that order, the assessee filed Miscellaneous Application No. 40/2000 seeking recall of it, relying mainly on Apollo Tyres. On 31 January 2003 the Tribunal allowed the rectification application following Apollo Tyres. The department appealed under section 260A, and the High Court held that the Tribunal could not have allowed rectification beyond four years, whether suo motu or on an application, and set aside its order on limitation alone without going into the merits.
The appeal was allowed with no order as to costs. The Court held that section 254(2) is in two parts: under the first the Tribunal may at any time within four years from the date of the order rectify a mistake apparent from the record and amend its order under sub-section (1), which is the suo motu exercise of the power; under the second, rectification and amendment follow an application by the assessee or the Assessing Officer pointing out the mistake. This case fell under the second part. The application for rectification had been made well within four years, and it was the Tribunal that took its own time to dispose of it. In those circumstances the High Court had erred in holding that the application could not have been entertained by the Tribunal beyond four years. The Court set aside the High Court's judgment and restored T.C.(A) No. 2/2004 to the file of the Madras High Court for fresh decision on the merits, expressly keeping all contentions on merits open and expressing no opinion on whether the rectification application was maintainable at all or whether Apollo Tyres applied to the facts.
The Court set out section 254(2) and read it as two limbs. The opening words, that the Appellate Tribunal may at any time within four years from the date of the order amend any order passed under sub-section (1) with a view to rectifying any mistake apparent from the record, govern the Tribunal acting of its own motion, and it is there that the four-year period bites. The concluding words, that it shall make such amendment if the mistake is brought to its notice by the assessee or the Assessing Officer, govern the case of an application, and they impose a duty rather than confer a discretion. Since the assessee's application was made within four years, the Tribunal was seized of it in time, and the delay thereafter was the Tribunal's own. On that reading the period cannot be applied to defeat an applicant who moved in time. The Court found the same view taken by the Rajasthan High Court in Harshvardhan Chemicals and Minerals Ltd v Union of India, (2002) 256 ITR 767, which held that once the assessee has moved the application within four years the Tribunal cannot reject it on the ground that four years have elapsed including the period during which the application was pending before it, and that the Tribunal is bound to decide such an application on the merits and not on limitation. The Court expressed its agreement with that view. It was careful to confine itself to the interpretation of section 254(2), recording the parties' rival submissions on Apollo Tyres and on the depreciation adjustment under section 115J but saying that it was not concerned with the merits, and it left both the maintainability of the rectification application and the applicability of Apollo Tyres to be decided by the High Court on the restored appeal.
application for rectification was made within four years. Application was well within four years. It is the Tribunal which took its own time to dispose of the application
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Handle my notice → Ask a CA on WhatsAppNo. The Supreme Court held that section 254(2) has two parts. The first is the Tribunal's own power to rectify at any time within four years of its order. The second deals with rectification on an application by the assessee or the Assessing Officer pointing out a mistake apparent from the record. Where the application is made within four years, the Tribunal is bound to decide it on the merits, and the fact that it took its own time to dispose of it does not make the order bad. The High Court had erred in holding the application could not be entertained beyond four years. The Court agreed with the Rajasthan High Court in Harshvardhan Chemicals and Minerals Ltd. This was decided by the Supreme Court (Supreme Court of India, Civil Appellate Jurisdiction; S.H. Kapadia and B. Sudershan Reddy JJ) and bears on section 254(2), section 115J, section 260A, section 143(3) of the Income Tax Act 1961. It is reported as (2008) 301 ITR 434; (2008) 17 SCC 203; AIRONLINE 2008 SC 63; Civil Appeal No. 3246 of 2008 (arising out of SLP(C) No. 10576 of 2007). Miscellaneous applications under section 254(2) routinely sit before benches for years, and the department's answer is that the four-year limit had run before the order was made. This is the Supreme Court's short and complete answer: the limit attaches to the making of the application, not to the disposal of it, and an applicant is not to be penalised for the Tribunal's delay. The reasoning is the split of section 254(2) into a suo motu power exercisable within four years and a duty to act on an application which says the Tribunal 'shall make such amendment' when a mistake is brought to its notice. The decision is also a reminder that a successful limitation point on the applicant's side leaves the merits untouched: the Court restored the tax case appeal to the High Court and expressly kept open both whether the rectification application was maintainable at all and whether Apollo Tyres applied. If it applies to you, the first step is this: Date-stamp the application and keep proof of filing; everything turns on the application having gone in within four years of the Tribunal's order.
The assessee is a company manufacturing cotton and man-made fibre yarn. For assessment year 1989-90 the Deputy Commissioner of Income Tax, Madurai, made an assessment under section 143(3) on 27 February 1992 determining taxable total income for the 21 months ending 31 March 1989 at Rs 45,92,240, working from section 115J. The total income had been computed at Rs 42,98,019, but on scrutiny of the computation and the balance sheet the officer reworked the total profit at Rs 1,53,07,444 and took thirty per cent of it. In reworking the section 115J computation he added back excess depreciation debited to the profit and loss account, which arose because the assessee had changed its method of claiming depreciation on machinery from the straight line method to the written down value method, retrospectively from the year ending 30 June 1983. The assessee's case was that the profit had been computed correctly in accordance with the Companies Act, 1956, and that on Apollo Tyres Ltd v CIT, (2002) 255 ITR 273, the officer had no authority to go behind book profits so computed. The department contended that Apollo Tyres did not apply because there the question was the admissibility of extra shift depreciation for past years, whereas here the claim arose from the change in the rate of depreciation brought about by Schedule XIV to the Companies Act inserted with effect from 2 April 1987, and that the excess depreciation debited was attributable to the change of method. On 9 December 1996 the Tribunal, in ITA No. 719(MDS)/94, upheld the Commissioner (Appeals) on the section 115J computation and dismissed the assessee's appeal, holding that its profit and loss account did not reflect the correct picture. On 2 August 2000, within four years of that order, the assessee filed Miscellaneous Application No. 40/2000 seeking recall of it, relying mainly on Apollo Tyres. On 31 January 2003 the Tribunal allowed the rectification application following Apollo Tyres. The department appealed under section 260A, and the High Court held that the Tribunal could not have allowed rectification beyond four years, whether suo motu or on an application, and set aside its order on limitation alone without going into the merits. The matter was decided on 2008-05-01 by the Supreme Court (Supreme Court of India, Civil Appellate Jurisdiction; S.H. Kapadia and B. Sudershan Reddy JJ). On those facts the Supreme Court held as follows. The appeal was allowed with no order as to costs. The Court held that section 254(2) is in two parts: under the first the Tribunal may at any time within four years from the date of the order rectify a mistake apparent from the record and amend its order under sub-section (1), which is the suo motu exercise of the power; under the second, rectification and amendment follow an application by the assessee or the Assessing Officer pointing out the mistake. This case fell under the second part. The application for rectification had been made well within four years, and it was the Tribunal that took its own time to dispose of it. In those circumstances the High Court had erred in holding that the application could not have been entertained by the Tribunal beyond four years. The Court set aside the High Court's judgment and restored T.C.(A) No. 2/2004 to the file of the Madras High Court for fresh decision on the merits, expressly keeping all contentions on merits open and expressing no opinion on whether the rectification application was maintainable at all or whether Apollo Tyres applied to the facts.
The Court set out section 254(2) and read it as two limbs. The opening words, that the Appellate Tribunal may at any time within four years from the date of the order amend any order passed under sub-section (1) with a view to rectifying any mistake apparent from the record, govern the Tribunal acting of its own motion, and it is there that the four-year period bites. The concluding words, that it shall make such amendment if the mistake is brought to its notice by the assessee or the Assessing Officer, govern the case of an application, and they impose a duty rather than confer a discretion. Since the assessee's application was made within four years, the Tribunal was seized of it in time, and the delay thereafter was the Tribunal's own. On that reading the period cannot be applied to defeat an applicant who moved in time. The Court found the same view taken by the Rajasthan High Court in Harshvardhan Chemicals and Minerals Ltd v Union of India, (2002) 256 ITR 767, which held that once the assessee has moved the application within four years the Tribunal cannot reject it on the ground that four years have elapsed including the period during which the application was pending before it, and that the Tribunal is bound to decide such an application on the merits and not on limitation. The Court expressed its agreement with that view. It was careful to confine itself to the interpretation of section 254(2), recording the parties' rival submissions on Apollo Tyres and on the depreciation adjustment under section 115J but saying that it was not concerned with the merits, and it left both the maintainability of the rectification application and the applicability of Apollo Tyres to be decided by the High Court on the restored appeal. In the words reproduced by the source cited on this page: "application for rectification was made within four years. Application was well within four years. It is the Tribunal which took its own time to dispose of the application"
It was decided by the Supreme Court on 2008-05-01 and is reported as (2008) 301 ITR 434; (2008) 17 SCC 203; AIRONLINE 2008 SC 63; Civil Appeal No. 3246 of 2008 (arising out of SLP(C) No. 10576 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 115J, section 260A, section 143(3), 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 appeal was allowed with no order as to costs. The Court held that section 254(2) is in two parts: under the first the Tribunal may at any time within four years from the date of the order rectify a mistake apparent from the record and amend its order under sub-section (1), which is the suo motu exercise of the power; under the second, rectification and amendment follow an application by the assessee or the Assessing Officer pointing out the mistake. This case fell under the second part. The application for rectification had been made well within four years, and it was the Tribunal that took its own time to dispose of it. In those circumstances the High Court had erred in holding that the application could not have been entertained by the Tribunal beyond four years. The Court set aside the High Court's judgment and restored T.C.(A) No. 2/2004 to the file of the Madras High Court for fresh decision on the merits, expressly keeping all contentions on merits open and expressing no opinion on whether the rectification application was maintainable at all or whether Apollo Tyres applied to the facts. It arises in Appeals matters, on section 254(2), section 115J, section 260A, section 143(3) of the Income Tax Act 1961, and was decided by Supreme Court of India, Civil Appellate Jurisdiction; S.H. Kapadia and B. Sudershan Reddy JJ. 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. Where the Tribunal or the department says the four years have run, point to the two limbs of section 254(2) and to the mandatory 'shall make such amendment' in the second limb. Do not assume that winning on limitation wins the rectification: whether a mistake apparent from the record exists, and whether a later judgment can found one, remains to be argued. Press for early listing of a miscellaneous application even so, since a long pendency leaves the underlying assessment unresolved and invites a fresh round of appeals.
Still good law. A judgment of a two-judge Bench of the Supreme Court dated 1 May 2008, reported at (2008) 301 ITR 434 and (2008) 17 SCC 203, approving the Rajasthan High Court in Harshvardhan Chemicals and Minerals Ltd v Union of India, (2002) 256 ITR 767. The source page records no case citing it, which is a limitation of that page rather than of the judgment. The four-year period in section 254(2) was reduced to six months by later amendment, which this judgment does not consider and which was not examined in this session; the reasoning about the date of the application as against the date of disposal is what survives. 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 settles only the limitation point and expressly decides nothing else: it does not say whether a rectification application founded on a later Supreme Court decision is maintainable under section 254(2) at all, or whether Apollo Tyres applied to a change from the straight line method to the written down value method, both of which it remitted. It records the excess depreciation debited as Rs 1,10,09,445 'which consisted of Rs 19,24,684', a figure the order does not explain, and then refers to the same amount as Rs 19,24,683. It describes the provision extracted as section 254(2) of 'the 1963 Act', plainly meaning the Income-tax Act, 1961. It gives the citation of Apollo Tyres as 225 ITR 273, which does not match the report commonly cited for that case, and this was not verified in this session. The judgment does not address what happens where an application is made in time but the Tribunal never disposes of it at all, nor the position of a rectification sought by the department after four years. The batch line gave the section as 254(2), which matches; sections 115J, 143(3) and 260A are the provisions in the background. The High Court's judgment under appeal and the Tribunal's orders were not read in this session. 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 appeal was allowed with no order as to costs. The Court held that section 254(2) is in two parts: under the first the Tribunal may at any time within four years from the date of the order rectify a mistake apparent from the record and amend its order under sub-section (1), which is the suo motu exercise of the power; under the second, rectification and amendment follow an application by the assessee or the Assessing Officer pointing out the mistake. This case fell under the second part. The application for rectification had been made well within four years, and it was the Tribunal that took its own time to dispose of it. In those circumstances the High Court had erred in holding that the application could not have been entertained by the Tribunal beyond four years. The Court set aside the High Court's judgment and restored T.C.(A) No. 2/2004 to the file of the Madras High Court for fresh decision on the merits, expressly keeping all contentions on merits open and expressing no opinion on whether the rectification application was maintainable at all or whether Apollo Tyres applied to the facts.
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