Allahabad High Court
The Commissioner Of Income Tax,Kanpur vs M/S Motilal Duli Chand on 3 July, 2014
Bench: Tarun Agarwala, Mahesh Chandra Tripathi
HIGH COURT OF JUDICATURE AT ALLAHABAD AFR Court No. - 33 Case :- INCOME TAX APPEAL No. - 127 of 2002 Appellant :- The Commissioner Of Income Tax,Kanpur Respondent :- M/S Motilal Duli Chand Counsel for Appellant :- A.N.Mahajan,S. Chopra Counsel for Respondent :- R.R. Agrawal,Suyash Agarwal Hon'ble Tarun Agarwala,J.
Hon'ble Mahesh Chandra Tripathi,J.
We have heard Sri Shambhu Chopra, the learned counsel for the department/appellant and Sri Suyash Agarwal, the learned counsel for the assessee.
In the assessment year 1990-91, the Tribunal while allowing the appeal of the department observed in paragraph no.14 as under:-
"In view of the above legal position, it is clear that whatsoever may be the mode of dissolution or closure of the business of the firm, the profits have to be ascertained only by taking the closing stock at market value. The accounts have to be worked out on that basis upto the date of dissolution or prior to it. The situation that the firm came to an end by way of liquidation or partners dissolved the firm for distributing the assets of the firm, or dissolved and closed the firm with a view to form a company or otherwise, are, in our view, not relevant because the accounts of the outgoing entity, i.e., the firm, are to be prepared properly, may be the business remains the same and stock is also taken over by the new entity i.e., the company. For tax purposes, the profit and loss of the outgoing entity, i.e., the firm has to be properly and separately worked out and is not to be mixed up with the new entity, i.e., the company. The plea of the Ld. counsel for the assess that in a case of conversion of a firm into a company, the business is not continued and, therefore, same method of valuation of closing stock should be applied, is not acceptable."
This view of the tribunal was made on the basis of the decision of the Supreme Court in A.L.A. Firm's Vs. Commissioner of Income Tax in 189 ITR 285, in which it was held that if the partnership is dissolved, the valuation of the closing stock has to be valued at market price.
The assessee being aggrieved filed an application under section 254(2) of the Income Tax Act for rectification of the mistake contending that there was apparent on the face of the record. During the pendency of this application, the Supreme Court delivered a decision in Sakthi Trading Co. Vs. Commissioner of Income Tax (2001) 250 ITR 0871 holding that where the business continued and the firm was reconstituted, the valuation of the closing stock would have to be determined at cost price or market price, whichever is lower. In the light of this decision, which was brought to the knowledge of the Tribunal, the application of the assessee under section 254(2) of the Income Tax Act was allowed and the necessary rectification was made.
The department being aggrieved has filed the present appeal under section 260-A of the Income Tax Act contending that a substantial question of law arises namely that since the Tribunal had passed the order on merits after considering the pros and cons of the matter, it had no jurisdiction to rectify its mistake under section 254(2) of the Act and in as much as the said rectification amounts to a review of its decision, which is not permissible under section 254(2) of the Act.
Having heard the learned counsel for the parties, we find that the Central Board of Direct Taxes has issued a Circular No. 68 [F. No. 245/17/71-A & PAC], dated 17.11.1971 explaining as to when a mistake apparent from the record could be corrected in the event of a subsequent decision delivered by the Supreme Court of India. For facility, the said Circular is extracted here in below:-
"Circular: No. 68 [F. No. 245/17/71-A & PAC], dated 17.11.1971.
897. Mistakes apparent from records - Whether can be treated as such on the basis of subsequent decision of Supreme Court.
1. The Board are advised that a mistake arising as a result of a subsequent interpretation of law by the Supreme Court would constitute "a mistake apparent from the records" and rectificatory action under section 35/154 of the 1922 Act/the 1961 Act would be in order. It has, therefore, been decided that where an assessee moves an application under section 154 pointing out that in the light of a later decision of the Supreme Court pronouncing the correct legal position, a mistake has occurred in any of the completed assessments in his case, the application shall be acted upon, provided the same has been filed within time and is otherwise in order. Where any such applications have already been rejected and the assessee files fresh applications within the statutory time limit, the same may also be treated on par with the applications which may either be pending or received after the issue of this circular.
2. The Board desire that any appeals or references pending on the point at issue may please be withdrawn."
In Assistant Commissioner of Income Tax Vs. Saurashtra Kutch Stock Exchange Ltd. [2008] 305 ITR 0227, the Supreme Court held that the rectification of an order stems from the fundamental principle that justice is above all and that it has to be exercised to remove the error and achieve the finality. The Supreme Court held that an error apparent on the record means an error which strikes one on mere looking and does not need a long drawn out process of reasoning on points on which there may be conceivably two opinions. The Supreme Court, in the said case, found that the decision of the Appellate Tribunal was rendered without noticing the decision of the High Court. The Supreme Court held that there was an error apparent on the record, which could be rectified by a miscellaneous application being filed under section 254(2) of the Income Tax Act 1961.
Similarly, in Shahbad Co-operative Sugar Mills Ltd. Vs. Deputy Commissioner of Income Tax [2011] 336 ITR 0222, the Punjab and Haryana High Court held that recourse to rectification proceedings would be taken once the Supreme Court rendered its decision clarifying the earlier decision passed by it and that such rectification was permissible under section 154 of the Income Tax Act.
We find that pursuant to the decision given by the Supreme Court in Sakthi Trading Co. (supra), as a result of subsequent interpretation of law by the Supreme Court, fairly indicating that where the business continued, the valuation of the closing stock would have to be determined either at cost price or market price, whichever is lower. Such decision passed by the Tribunal based on an earlier decision of the Supreme Court is a mistake apparent from the record and consequently a rectification application under section 254(2) is maintainable. We are of the opinion that the Tribunal was justified in passing the order under section 254(2) of the Act.
In view of the aforesaid, we do not find that any substantial question of law arises for consideration.
The appeal fails and accordingly dismissed.
Order Date :- 3.7.2014 VKG (M. C. Tripathi,J.) (Tarun Agarwala,J.)