“Mistake apparent from the record” for the purpose of section 154 & 254(2)

Income Tax Appellate Tribunal (ITAT) is a quasi-judicial institution which specializes in dealing with appeals under the Direct Taxes Acts. According to Section 254, the Appellate Tribunal may, after giving both the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit. On a question of fact, the Appellate Tribunal order is a final order and no appeal can lie to High Court against this order. However, if the fact finding had not been done properly by the Appellate Tribunal, the assessee can file a writ petition to the High Court challenging the fact-finding process. If the High Court is satisfied that the claim of the assessee is correct then it will direct the Appellate Tribunal to conduct the fact finding as per the proper procedure.

Section 254(2) of the Income-tax Act, 1961, empowers the Tribunal to amend any order passed by it under sub-section (1) with a view to rectifying any mistake apparent from the record at any time within four years from the date of the order. Therefore, to attract the applicability of section 254(2), the mistake which is sought to be rectified must be apparent from the record and the same must be in any order passed under sub-section (1) of section 254. An order rejecting an application for rectification under section 254(2) is not an order passed under section 254(1) and it cannot be rectified under section 254(2).

In the case of ACIT v. Saurashtra Kutch Stock Exchange Ltd. (2008), there was an issue as to whether the Tribunal had committed a mistake apparent from record while deciding the appeal and hence the order of the Tribunal was subject to rectification u/s. 254(2) of the Act or not? The assessee, a stock exchange, was a company registered u/s. 25 of the Companies Act, 1956.As a ‘stock exchange’, it was a ‘charitable institution’ entitled to exemption under Section 11 and 12 of the Act.On application by the assessee, the registration u/s. 12A was granted to the assessee. The registration was granted with a condition that the same would be examined on a year-to-year basis. In the ITR filed, the assessee declared Nil taxable income claiming exemption u/s. 11 of the Act. The Return was initially processed u/s. 143(1)(a) of the Act. Later the assessee was served with a notice u/s. 154 of the Act proposing rectification in its case and withdrawing the exemption u/s. 11. The assessee replied to the notice that the exemption was claimed in accordance with section 12A and it was entitled to the exemption u/s. 11. The regular assessment in the case of the assessee was completed by order u/s. 143(3) of the Act rejecting the claim of exemption u/s. 11 of the Act.

The CIT (A) confirmed the order of the assessing officer and dismissed the appeal of the assessee. On appeal filed before ITAT, the Tribunal confirmed that the authorities were right in not granting exemption.The appeal of the assessee was accordingly dismissed by the Tribunal. Against this, a miscellaneous applcaiton was filed before ITAT. The Gujarat High Court in the case of Hiralal Bhagwati v. CIT (2000) had held that the Trust was entitled to exemption u/s. 11 of the Act on the facts similar to that of the assessee. Importantly, the aforesaid decision was rendered few months prior to the order of the Tribunal in the case of the appellant. However, unfortunately the said decision was not cited before the Tribunal at the time of hearing of the appeal. The appellant later on took a note of the aforesaid decision and thereafter filed a Miscellaneous Application before the Tribunal u/s. 254(2) of the Act. The Tribunal allowed the Miscellaneous Application and held that there was a ‘mistake apparent from the record’ which required rectification. Accordingly, it recalled its earlier order passed in appeal.

Aggrieved by the order of the ITAT, the Revenue filed a writ petition before the Gujarat High Court, which was dismissed by the High Court. It may be noted that the revenue also filed appeal against the said decision of the Gujarat High Court before the Supreme Court. The issue involved before SC was

1. Whether the Tribunal was right in exercising power under sub-s. (2) of s. 254 of the Act on the ground that there was a ‘mistake apparent from the record’ committed by the Tribunal while deciding the appeal and

2. whether it could have recalled the earlier order on that ground?.

3. Whether on merits, the assessee was entitled to exemption as claimed.

On above appeal, the SC has observed that by the order in the Miscellaneous Application, the Tribunal had merely recalled its earlier order in appeal and the same would be heard again. The appeal was filed by the revenue. The assessee had no grievance against the impugned order and therefore, it would not be appropriate for the SC to decide on the merits of the matter. The SC accordingly refrained from expressing any opinion on the question relating to the merits of the matter. Thereafter SC took cognizance of the provisions of section 254. SC observed that sub-section (2) of the section covers two distinct situations as under:

1. It enables the Tribunal at any time within four years from the date of the order to amend any order passed under sub-section (1) with a view to rectify any mistake apparent from the record; and

2. It requires the Tribunal to make such amendment, if the mistake is brought to its notice by the assessee or the AO.

There was, however, no dispute by and between the parties that if there was a ‘mistake apparent from the record’ and the assessee brought it to the notice of the Tribunal, it must exercise power under sub-section (2) of section 254 of the Act. SC appreciated that though the power to review the order (as contended to have been done by the revenue) was not available to the Tribunal under section 254, the power to rectify the mistake apparent from the record (as contended to have been done by the assessee) was certainly available under section 254 of the Act.

Accordingly, the SC observed that the main question was as to what constituted a mistake apparent from the record for the purpose of section 254(2) of the Act? SC held as under:

1. A patent, manifest and self-evident error which did not require elaborate discussion of evidence or argument to establish it, could be said to be an error apparent on the face of the record and could be corrected while exercising certiorari jurisdiction (rectification).

2. Such error should not require any extraneous matter to show its incorrectness.

3. An error could not be said to be apparent on the face of the record, if one had to travel beyond the record to see whether the judgment was correct or not.

4. An error apparent on the face of the record meant an error which strikes on mere looking and did not need long drawn-out process of reasoning on points where there may conceivably be two opinions.

5. It should be so manifest and clear that no Court would permit it to remain on record.

6. If the view accepted by the Court in the original judgment was one of the possible views, the case could not be said to be covered by an error apparent on the face of the record.

Finally, Hon’ble SC held that non-consideration of a decision of jurisdictional Court or of the SC could be said to be a “mistake apparent from the record”. In view of these observations, the Supreme Court concluded that the Tribunal has not committed any error of law or of jurisdiction in exercising power under subsection (2) of section 254 of the Act and in rectifying “mistake apparent from the record”.

Since no error was committed by the Tribunal in rectifying the mistake, the High Court was not wrong in confirming the said order. Both the orders were held to be strictly in consonance with law and no interference was called for.

With above observation, the SC decided the matter in favour of the assessee and against the revenue.