Income Tax Appellate Tribunal - Hyderabad
M/S Bharath Biotech International ... vs Assessee on 4 April, 2014
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH 'B', HYDERABAD
BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT
MEMBER and SHRI SAKTIJIT DEY, JUDICIAL MEMBER
MA No. 07/Hyd/2014
In ITA No. 392/H/10 - A.Y. 2006-07
MA No. 08/Hyd/2014
In ITA No. 632/H/11 - A.Y. 2007-08
MA No. 09/Hyd/2014
In ITA No. 310/H/2 - A.Y. 2008-09
M/s. Bharat Biotech vs. The DCIT
International Ltd., Circle-1(3)
Hyderabad Hyderabad
PAN: AABCB3822B
Appellant Respondent
Applicant by: Sri Mohd. Afzal
Respondent by: Sri Solgy Jose T. Kottaram
Date of hearing: 04.04.2014
Date of pronouncement: 30.05.2014
ORDER
PER CHANDRA POOJARI, AM:
By the above Miscellaneous Applications (MAs) the assessee is seeking rectification/recall of the Tribunal order dated 31.07.2013 in ITA Nos. 392/Hyd/2010, 632/ Hyd/2011 and 310/Hyd/2012.
2. On earlier occasion, in this case, the Revenue came in appeal before this Tribunal. The Tribunal vide order dated 31.07.2013 allowed the appeals of the Revenue and rejected the claim of the assessee u/s. 35(1) of the Income-tax Act, 1961 by observing as follows:
2MA Nos. 7 to 9/Hyd/2014 M /s. Bharat Biotech International Ltd. ============================ "19. We have heard both the parties and perused the material on record and also gone through the case-law cited by the rival parties. The assessee in this case is engaged in the business of development of vaccines and bio pharmaceuticals. The assessee claimed deduction u/s. 35(2AB) of the Act and also deduction u/s. 35(1)(i) of the Act. The claim of deduction u/s. 35(2AB) was allowed by the Assessing Officer. However, the claim of deduction u/s. 35(1)(i) was disallowed on the reason that this relates to payment of interest on loan and cost of consumables. This is in the nature of capital expenditure and not relating to scientific research undertaken by the assessee and also the sam e was capitalised by the assessee in its books of account. It is true that entries in the books of account are not conclusive when it comes to computing income under the Income-tax Act, 1961 but it cannot be said that they are totally irrelevant. In the present case, the dispute is as to whether the assessee will get the benefit of deduction u/s. 35(1)(i) or not.
20. The learned counsel for the assessee also submitted that as per section 35(1)(iv) of the Act deduction in respect of any expenditure of a capital nature on scientific research relates to the business carried on by the assessee is to be allowed in the year in which such expenditure is incurred. The whole of the capital expenditure incurred in a previous year is allowable as deduction against the income, if any, for that previous year. The definition of the term "scientific research" as per section 43(4) of the Act is as follows:
"(i) "scientific research" means any activities for the extension of knowledge in the fields of natural or applied science including agriculture, animal husbandry or fisheries;
** ** **
(ii) references to scientific research related to a business or class of business include--
(a) any scientific research which may lead to or facilitate an extension of that business or, as the case may be, all businesses of that class;"
21. It is the plea of the assessee that even if the expenditure is considered as of capital nature the same should be allowed as deduction u/s. 35 provided such expenditure is incurred on scientific research.
3MA Nos. 7 to 9/Hyd/2014 M /s. Bharat Biotech International Ltd. ============================ According to the AR, if the expenditure is not allowable u/s. 35(1)(i) then the expenditure is nothing but scientific research and development expenditure and, therefore, allowable u/s. 35(1)(iv) of the Act. U/s. 35(1)(iv) deduction is to be allowed in respect of any expenditure of capital nature on scientific research relating to business carried on by the assessee. The business carried on by the assessee in the present case, cannot itself be considered as research and development. It is not the purpose of section 35(1)(iv) to allow such deduction. In the present case, the business of the assessee was developing vaccines and bio-pharmaceuticals. Any expenditure incurred in doing so cannot by itself fall within the parameters of section 35(1)(iv) of the Act. The allowability of such expenditure will be governed by the provisions of section 37(1) of the Act because there is no other provision under Chapter IV in section 28 to 44 of the Act under which allowability of the expenditure can be considered.
22. Further, we make it clear that u/s. 35(1)(i) any expenditure (not being in the nature of capital expenditure) laid out or expended on scientific research relating to the business of the assessee should be allowed as deduction. Explanation below section 35(1)(i) further provides for allowing even the expenditure on payment of salary and purchase of materials for use in scientific research, even if incurred prior to commencement of business. The provisions allow for deduction of scientific research expenditure if the assessee is engaged in the business of scientific research and carries out such research in connection with its business. However, in the instant case, the assessee-company was engaged in development of vaccines and bio-pharmaceuticals. Therefore, when an expenditure incurred on interest payment and consumables before completion of product development of a product and commercialisation of that product, the expenditure incurred on such development is to be treated as capital expenditure only.
23. Further, the plain reading of the above cl. (iv) of s. 35(1) reveals that the deduction shall be admissible under s. 35(2) when any expenditure is capital in nature; such capital expenditure is incurred on the scientific research; that scientific research must be related to the business; and that business must have 4 MA Nos. 7 to 9/Hyd/2014 M /s. Bharat Biotech International Ltd. ============================ been carried on by the assessee. Further, said clause presumes that there exist two distinct activities with the assessee such as: (a) business carried on by the assessee; and (b) conducting scientific research related to the said business. Both these activities must relate to each other. Further, the words 'carried on by the assessee' used in the said clause shall mean 'to continue by the assessee', or 'to engage in the activity' by the assessee. Therefore, effectively, these words indicate the engagement of the assessee in the business. What is the definition of 'scientific research' and what is 'scientific research related to a business' are defined, whereas the former one is an exhaustive definition, latter one is inclusive definition. As there is no dispute on the term 'scientific research', the present discussion restricted to 'scientific research related to a business', an area of dispute between the parties. 'Scientific research related to a business' when read in conjunction with the cl. (iv) of s. 35( 1), the words 'carried on by the assessee' assume importance. Consequently, the scientific research related to a business carried on by the assessee should be read to restrict the scope of the deductions. Consequently, the deduction is not available when the scientific research relates to a business not carried on by the assessee. The nexus between the scientific research on one side and its relationship with the business carried on by the assessee on the other side assumes great significance. The reference to 'scientific research related to a business' in s. 43(4)(iii)(a) is defined to include the cases of scientific research, which may 'lead to or to facilitate an extension of that business' and the words 'that business' refer to the business of the assessee. Further, we find that an assessee may be engaged in a particular business and may also undertake the scientific research activity relating to that business and incur capital expenditure on such research. Alternatively, an assessee, as may be engaged in the scientific research activity as its business and by that activity, assessee may be catering to the said research needs of the business carried on by the other assessees. Whether the deduction under s. 35 is available in all these cases. To resolve the same, we find that the Board's Circular No. 281, dt. 22nd September, 1980, para 10.2 in particular, mentions that the s. 35(1)(iv) provides for the deduction in respect of capital expenditure incurred on scientific research related to the assessee's business. Further, para 42 of the other Departmental Circular dt. 9th October, 1967 is 5 MA Nos. 7 to 9/Hyd/2014 M /s. Bharat Biotech International Ltd. ============================ categorical in stating that the said deductions are aimed at providing the incentives for encouraging the scientific research in India and the assessees who need the outputs of the scientific research for their business. Thus, the relationship of the said capital expenditure has to be in connection with the assessee's business. Further, we find that the said provisions of ss. 35(1)(iv) and 35(2)(iv) are unambiguous in matters of their language meaning and intention and there is no need to supply additional words. In our opinion, the deduction under s. 35 is not intended to the assessee, who does not develop the in-house scientific research activities. Further, the presence of specific references to 'related to business carried on by the assessee' in the provisions and the inclusive definition given to the same in s. 43(4)(iii)(a), convey that it is not a case of casus omissus too.
24. In the light of the above scope of the provisions, we examined the facts of the case and the arguments of the assessee's counsel that conducting scientific research is the business of the assessee and thus, the said research is related to the business carried on by the assessee. In the present case, the expenditure claimed by the assessee as deduction has nothing to do scientific research. On the other hand, it was incurred for setting up of facilities for commercial production of a new product. In such circumstances, the assessee, in our considered opinion, cannot be said to have carried on scientific research activity. Further, it is also not the case of the assessee that he is covered by s. 43(4)(iii)(a) i.e., the cases of scientific research which may 'lead to or to facilitate an extension of that business'. Thus, by incurring this expenditure the assessee generates a marketable product or stock-in-trade. In these circumstances, we are of the opinion that the provisions of s. 35(1)(i) or (iv) have no application to assessee's case and accordingly the argument of the assessee's counsel is dismissed."
3. The learned AR now submitted that in respect of claim of deduction u/s 35 (l)(i) the Tribunal in para 22 of its order wrongly observed the expenditure as capital expenditure.
6MA Nos. 7 to 9/Hyd/2014 M /s. Bharat Biotech International Ltd. ============================
4. The AR submitted that the Tribunal held that the expenditure is in the nature of capital expenditure. The CIT(A) has held that the assessee is a company carrying on scientific research and development expenditure in question relates to scientific research and therefore, assessee is eligible for deduction u/s 35(1)(i) r.w.s. 43(4)(iii). The learned CIT(A) further held that even assuming that the expenditure is capital in nature as assumed by the Assessing Officer, the claim is still covered by clause-(iv) of sub-section-l of section 35 r.w.s 2 (ia) of section 35 which specifically allows any expenditure of capital nature on scientific research carried on by the assessee. Therefore, it is respectfully submitted that the learned Commissioner adjudicated the issue of allowability of expenditure, even assuming that the same is capital expenditure in nature, as the assessee's activity of developing the product from the stage of molecule to the stage of vaccine by undertaking the process of development at various stages, is scientific research related to the business carried on by the assessee. Against this adjudication the Tribunal wrongly observed in para 24 of its order as under:
"in the present case, the expenditure claimed by the assessee as deduction has nothing to do scientific research. On the other hand, it was incurred for setting up of facilities for commercial production of a new product. On the other hand, it was incurred for setting up of facilities for commercial production of a new product. In such circumstances, the assessee, in our considered opinion, cannot be said to have carried on scientific research activity. Further, it is also not the case of assessee that he is covered by s 43(4)(iii)(a) i.e. the case of scientific research which may lead to facilitate an extension of business. Thus, by incurring this expenditure the assessee generates a marketable product or stock in trade. In these circumstances, we 7 MA Nos. 7 to 9/Hyd/2014 M /s. Bharat Biotech International Ltd. ============================ are of the opinion that the provisions of section 35 (l)(i) or (iv) have no application to assessee's case and accordingly the argument of the assessee's counsel is dismissed."
5. The AR submitted that, with the above assumptions the Tribunal held that the assessee is not eligible for deduction u/ s 35 (1) (vi) of the IT Act also, as the assessee is not carrying scientific research activity. In this regard it is respectfully submitted that the assumption of the Tribunal with regard to not carrying of scientific research activity is factually incorrect and not germinated either from the orders of the Assessing Officer or subsequent presentation by the Department before the Tribunal. It is submitted that the process of isolation and characterization of virus/bacteria from the affected humans/ animals is the first step for development of new vaccines or bio-therapeutics, subsequent to this, the same need to be tested and further developed in a highly controlled environment, which is normally not available in the laboratory who isolates the basic virus/bacteria. In many occasions such isolated bacteria/virus will not be either active or grow in pilot scale or if it grows, the growth media used may not be commercially viable media for commercial exploitation of the intended product. To avoid any failures this activity has to be taken up in a specially created atmosphere/ environment, which is normally attached to the manufacturing unit. The molecule/virus which has been obtained by separating from the human/ animal cells in a laboratory, which is recognized for such process, is developed/multiplied by feeding the appropriate feed. A favourable environment is to be created/facilitated for the multiplication of the molecule. The growth of the molecule which is being 8 MA Nos. 7 to 9/Hyd/2014 M /s. Bharat Biotech International Ltd. ============================ developed is embedded with impurities; the purification process is most important part of the development process. There is a possibility of losing the entire developed product in the process of purification which is to be done in a proprietary and scientific process being developed during product development stage which is very crucial for commercial success; otherwise there is a possibility that the entire developed strain may go waste. In the process the Scientists involved has to improve the expression level to the maximum, to ensure that the level of growth is viable for commercialization. At each level of the development process, the assessee is required to obtain permission from the Appropriate Authorities. When it is assured that the growth of bacteria/virus is optimized and time tested product process is documented, this molecule is exploited commercially and further processed to ensure at the commercial level also the growth is optimum. After this stage clinical trials of the developed product starts, under the protocols developed scientific team who are involved in product development by a specifically trained Medical Personnel. On successful completion of phase-l clinical trials, phase-2 clinical trials are conducted at the allotted hospitals to check the efficacy of the product after obtaining permission from the Appropriate Authorities. Once the product is successful in Phase-2 trial, the same is taken for Phase-3 trial, being conducted on a larger group of volunteers. On successful trials and rectifications at appropriate stages the product would be commercialized if it is feasible to produce the same commercially. It is pertinent to submit that the product may prove to be a failure at any stage including the stage of commercialization. Therefore, it is submitted 9 MA Nos. 7 to 9/Hyd/2014 M /s. Bharat Biotech International Ltd. ============================ that the entire process of development from the stage of isolation of virus / molecule and establishing the same as fit for further development of product at pilot scale to commercial scale involves very long and in-depth scientific research.
6. The AR submitted that the Assessing Officer has not alleged that the activity of development from the stage of virus / molecule to the stage of vaccine is not Scientific Research. The CIT(A) after observing the entire process, mentioned various stages of product development in Para 4.0 of his order and held that the product development expenditure is related to scientific research by way of research and development of the new products which could facilitate the extension of the business of the assessee to develop new vaccines. It is further submitted that the scientific research of the assessee is in connection to facilitate the extension of business of the assessee which is manufacturing of vaccines. The assessee is not doing scientific research for others who are in the manufacturing activity. The scientific research of the assessee is purely related to the extension of its business.
7. The AR submitted that the claim of expenditure is related to scientific research which is carried on by the assessee for the extension of its business. The generation of marketable product is after undertaking the entire process which may also be a failure at times. It is respectfully submitted that the Tribunal confirmed the order of the Assessing Officer stating that the expenditure incurred is capital expenditure in nature, under a wrong 10 MA Nos. 7 to 9/Hyd/2014 M /s. Bharat Biotech International Ltd. ============================ assumption that the assessee is not carrying on any scientific research which may lead to or facilitate an extension of business. This assumption of the Tribunal is contrary to the finding given by the learned CIT (A), who has held that the assessee company is carrying on scientific research and the research and development expenditure incurred in question relates to scientific research which would facilitate extension of the appellants business to develop new vaccines. The Department also has not produced any material contrary to the findings of the Commissioner (Appeal). It is pertinent to mention here that in respect of fact of scientific research which would facilitate the appellants business the Assessing Officer has not disputed the fact. As the assessee is incurring the expenditure for the development of the virus which is a scientific process and research therefore, the assessee is eligible for the claim u/ s 35 (1) (iv). As submitted above the order of the Tribunal in rejecting the claim u/s 35 (l)(iv) is based on wrong presumption that the deduction has nothing to do scientific research and the assessee has not carried any scientific activity, this being the premise on which the order is passed, confirming the observation of the assessing officer, we respectfully submit that, the assessee is in the business of selling human vaccine developed through its extensive research and development work or collaborative research work, as this being the standard process adopted by various Biotech companies for commercialization of the each product to extent/ expand its line of business. At no point of time, the assessee is involved directly selling its research outcome to a third party as technology transfer, the assessee 11 MA Nos. 7 to 9/Hyd/2014 M /s. Bharat Biotech International Ltd. ============================ always used the outcome of Research and development for manufacturing and selling of human vaccines, therefore, the Tribunal is pleaded to recall the order in respect of allowability of deduction u/s 35 (1)(iv) of the IT Act and also pleaded to allow the claim of deduction u/s 35 (l)(iv) of the IT Act.
8. The AR further submitted that the learned Assessing Officer for the assessment year 2006-07 & 2007-08 observed as the assessee's contention that the expenditure incurred on specific product development is in the nature of research expenditure cannot be accepted. Subsequently the learned Assessing Officer also observed as the expenditure incurred by the assessee is towards new project under taken by the assessee and to set up facilities for the manufacture of new products. The expenditure on the product development results in obtaining patent rights for manufacturing new products and commercialization of the products accruing enduring benefit and advantage to the assessee.
9. The AR submitted that in the light of above observations of the learned Assessing Officer which are contrary to each other as, at one stage the learned Assessing Officer stated that the expenditure incurred is not in the nature of scientific expenditure and at other place of the order he has stated that the product development results in obtaining patent rights for manufacturing new products. In this regard it is submitted that the observation of the Assessing Officer at later stage is exactly correct, true and factual. Once the product which is being developed attains the stage of 12 MA Nos. 7 to 9/Hyd/2014 M /s. Bharat Biotech International Ltd. ============================ finality and proves its capacity/excellence the assessee will approach the Appropriate Authority for the patent of the product as observed by the learned Assessing Officer. A patent right in its usual significance means a privilege granted by the Government to first inventor of a new useful discovery or mode of manufacture that he shall be entitled during a limited period to the exclusive use and benefit thereof. Therefore, it is respectfully submitted that the learned Assessing Officer, after examining the material submitted in respect of development of the three products i.e., Human Pro insulin, Hepatitis A virus and Liso staphin, held that these molecules when successfully developed will yield patent rights to the assessee .i.e. in other words the Assessing Officer states that in respect of these products the assessee will be the inventor or first producer of the product. Therefore, it is submitted that the expenditure incurred for developing the product is towards invention of a new product i.e. the expenditure incurred is for scientific research therefore, eligible for deduction u/ s 35 of the IT Act. This fact of observation by the Assessing Officer is also recorded by the Tribunal in Para 3 of their order however, inadvertently no attention was paid in respect of this observation of the Assessing Officer regarding obtaining of patent rights.
10. The learned DR submitted that the above argument of the assessee's counsel is nothing but seeking review of earlier order of the Tribunal which power the Tribunal does not have. Being so, the same is to be rejected.
11. We have heard both the parties and perused the material on record. On examination of order of the 13 MA Nos. 7 to 9/Hyd/2014 M /s. Bharat Biotech International Ltd. ============================ Tribunal dated 31.7.2013, it is found that the Tribunal recorded the facts relating to the issue involved in the appeals of the Revenue as well as the case-law on which reliance was placed by the parties, have been duly considered. Hence no apparent mistake in relation to facts is found in the order of the Tribunal. The Tribunal, after clearly narrating the relevant facts in its order and also recording the submissions of both the parties and case-law on which reliance was placed by them, reached to the conclusion on the issues in favour of the Department and against the assessee. Hence, the allegation of assessee's counsel that the Tribunal omitted to deal with the contentions of the assessee and there was a mistake of facts, is not correct. The AR of the assessee has not been able to point out any material evidence which has been ignored or any other omission on the part of the Tribunal while deciding the issue relating to the treatment of deduction u/s. 35(1) of the Act. Thus, by making averments in the miscellaneous petition the assessee, in fact, is seeking review of findings recorded by this Tribunal. If this prayer of the assessee is considered and allowed then it amounts to review of earlier order of the Tribunal, for which the Tribunal have no power u/s. 254(2) of the Act. The provisions of section 254(2) of the Act are not similar to those of review under the Civil Procedure Code. The words used in section 254(2) are 'Shall make such amendments, if the mistake is brought to its notice. Clearly, if there is a mistake, then an amendment is required to be carried out in the original order to correct that particular mistake. The provision does not indicate that the Tribunal can recall the entire order and pass a fresh decision. That would amount to a 14 MA Nos. 7 to 9/Hyd/2014 M /s. Bharat Biotech International Ltd. ============================ review of the entire order and that is not permissible under the Income Tax Act. The power to rectify a mistake under section 254(2) cannot be used for recalling the entire order. No power of review has been given to the Tribunal under the Income-tax Act. Thus, what it could not do directly could not be allowed to be done indirectly. This proposition also finds support from proviso to rule 34A(3) of ITAT Rules, 1963 which prohibits even posting of miscellaneous application for hearing if it prima facie appears to be a petition for review. This proviso is as under:
"Provided, it shall not be necessary to post miscellaneous application for hearing if it prima facie appears to be petition for review."
12. It has to be pointed out that a power which has not been specifically granted under a statute cannot be implied. Reference in this regard may also be made to section 114 of Civil Procedure Code which specifically empowers the Civil Courts to review their orders. This provision is as under:
"114. Review - Subject as aforesaid, any person considering himself aggrieved-
(a) by a decree or order from which an appeal is allowed by this Code, but from which no appeal has been preferred,
(b) by a decree or order from which no appeal is allowed by this Code, or;
(c) by a decision on a reference from a court of Small Causes, may apply for a review of judgment to the court which passed the decree or made the order, and the court 15 MA Nos. 7 to 9/Hyd/2014 M /s. Bharat Biotech International Ltd.
============================ may make such order thereon as it thinks fit."
13. In view of the above discussion, we are inclined to hold that there is no merit in the above argument of the assessee's counsel. Accordingly, this argument of the assessee's counsel is rejected subject to our finding hereunder with regard to application of provisions of section 35(3) of the Act.
14. Further, it is submitted by the AR that the AO has not followed the correct procedure laid down in section 35(3) while disallowing the claim. The relevant part of the section i.e. section 35(3) is produced here under:
"S. 35(3) If any question arises under this section as to whether, and if so, to what extent, any activity constitutes or constituted, or any asset is or was being used for, scientific research, the Board shall refer the question to--
(a) the Central Government, when such question relates to any activity under clauses (ii) and (iii) of sub-section (1), and its decision shall be final;
(b) the prescribed authority, when such question relates to any activity other than the activity specified in clause (a), whose decision shall be final.]"
15. If any question arises under this section as to whether, and if so, to what extent, any activity constitutes or constituted or any asset is or was being used for, scientific research, the Board shall refer the question to:
(a) the central Government, when such question relates to any activity under clauses (ii) and (iii) of sub-section (l) and its decision shall be final;16
MA Nos. 7 to 9/Hyd/2014 M /s. Bharat Biotech International Ltd. ============================
(b) the prescribed authority, when question relates to any activity other than the activity specified in clause (a), whose decision shall be final.
16. The AR submitted that the section clearly states that when the Assessing Officer is not accepting the claim of the assessee in respect of the expenditure incurred for the development of strain/ molecule to the stage of vaccine/medicine is in the nature of scientific expenditure, the proper course to him is to follow the procedure laid down in section 35(3) of the IT Act. He is not a empowered to negative the claim. When the statue provides for a particular procedure the Authority has to follow the same and cannot be permitted to act in contravention of the same. Being the creations of the Act the learned Assessing Officer and the Tribunal cannot decide the claim against the assessee without following the procedure laid down in the Act. Reliance is placed on the Allahabad High Court decision in the case of CIT Vs Rajiv Sharma 336 ITR 678 (2010). In view of the above submissions it is submitted that there is a mistake apparent from record as provided in section 254(2) of the IT Act, which is to be cured by the Tribunal.
17. The learned DR submitted that there is no mistake apparent on record in the order of the Tribunal and the present argument of the assessee's counsel is nothing but seeking review of the earlier order of the Tribunal which the Tribunal cannot do. Further, he submitted that the issue relating to provisions of section 35(3) is not at all before the lower authorities as well as the Tribunal. Being so, it cannot be considered by the Tribunal at this stage. The DR submitted that the assessee was not in appeal 17 MA Nos. 7 to 9/Hyd/2014 M /s. Bharat Biotech International Ltd. ============================ before the Tribunal or filed any Cross Objection. As such the assessee cannot seek the above relief at this stage.
18. We have heard both the parties and perused the material available on record. The crux of the issue before us is as to whether the right of the assessee to challenge the additions on merits can be maintained by the Tribunal despite the fact that the assessee failed to agitate and assert such rights before the Tribunal by filing a cross appeal or cross objection. On this issue, the parties have advanced arguments in relation to the powers of ITAT. In the context of controversy relating to power of the Tribunal, as argued before us, we consider it proper to refer to the relevant statutory provisions contained under section 254, which are as under:
"254(1) 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.
254(2) The Appellate Tribunal may, at any time within four years from the date of the order, with a view to rectifying any mistake apparent from the record, amend any order passed by it under sub-section (1), and shall make such amendment if the mistake is brought to its notice by the assessee or the assessing, officer."
19. So far as section 254(1) is concerned, for a proper understanding of this provision, the meaning of the words "pass such orders thereon as it thinks fit", require interpretation in the context of legislative intention behind introducing these words, which was to clothe the Tribunal with broad power and not to restrict its power to the matters raised or complained by the assessee but to 18 MA Nos. 7 to 9/Hyd/2014 M /s. Bharat Biotech International Ltd. ============================ consider all matters arising out of the proceedings which may have been considered and determined by the assessing officer in the course of the assessment, although such matters may not have been raised before him by the assessee. The power of the Tribunal has been examined with reference to the above terms in the following cases:
(a) In the case of Ramgopal Ganpatrai & Sons v. CEPT (1953) 24 ITR 362 (Bom.), while considering the scope of analogous provision in section 17 of the Excess Profits Tax Act, Hon'ble Chief Justice Shri Chagla, speaking for the Bench observed as under:
"it must be borne in mind that when a statute confers a right of appeal and permits an order of a trial court to be challenged, the appellate court has full jurisdiction to reverse or modify that order on any ground which is open to it in law. The appellate court may even reverse or modify the order on a point of law taken by itself suo motu without being asked to do so by the appellant."
(b) In the case of Hukumchand Mills Ltd. v. CIT (1967) 63 ITR 232 (SC), while discussing the power of Appellate Tribunal in dealing with appeals, as expressed in section 33(4) of the Income Tax Act, 1922, the Hon'ble Supreme Court observed that the powers of the Tribunal are expressed in widest possible terms. In that case the word "thereon" and the words "pass such orders as the Tribunal thinks fit", were explained by the Hon'ble Supreme Court by observing as under:
"The power of the Appellate Tribunal in dealing with appeals are expressed in section 33(4) of the Income 19 MA Nos. 7 to 9/Hyd/2014 M /s. Bharat Biotech International Ltd. ============================ Tax Act in the widest possible terms. The word "thereon" in section 33(4) restricts the jurisdiction of the Tribunal to the subject-matter of the appeal. The words "pass such order as the Tribunal thinks fit"
include all the powers (except possibly the power of enhancement) which are conferred on the Appellate Assistant Commissioner by section 31 consequently, the Tribunal has authority under section 33 to direct the Appellate Assistant Commissioner or the Income Tax Officer to hold a further enquiry and dispose of the case on the basis of such enquiry."
(c) The Hon'ble Supreme Court also explained the scope of Rules 12 and 27 by observing as under:
"Rules 12 and 27 of the Appellate Tribunal Rules, 1946, are not exhaustive of the powers of the Tribunal. They are merely procedural in character and do not, in any way, circumscribe or control the power of the Tribunal under section 33(4)."
(d) In the case of S.N. Swarnammal v. CED (1973) 88 ITR 366 (Mad), it was observed by the Hon'ble Madras High Court that an appeal before the Appellate Assistant Commissioner /Appellate Tribunal is of rehearing and the appellate authority has got all the powers of assessing authority.
(e) The issue relating to powers of Appellate Tribunal was again examined by the Hon'ble Supreme Court in the case of Jute Corpn. of India Ltd v. CIT (1990) 53 Taxman 85 (SC). In this case, reversing the decision of Hon'ble Calcutta High Court in the case of Jute Corpn. of India Ltd. v. CIT (1981) 131 ITR 412 (Cal), the Hon'ble Supreme Court observed as under:
"An appellate authority has all the powers which the original authority may have in deciding the question before it subject to the restrictions or limitations, if 20 MA Nos. 7 to 9/Hyd/2014 M /s. Bharat Biotech International Ltd. ============================ any, prescribed by the statutory provisions. In the absence of any statutory provision, the appellate authority is rested with all the plenary powers which the subordinate authority may have in the matter. There is no good reason to justify curtailment of the power of the Appellate Assistant Commissioner in entertaining an additional ground raised by the assessee in seeking modification of the order of assessment passed by the Income Tax Officer."
(f) In the case of Kerala Chemicals & Proteins Ltd. v. CIT (1999) 235 ITR 467 (Ker.), the assessment was completed on a total income of Rs. 19,94,620 and demanding a total sum of Rs. 11,18,460 towards income tax and interest etc. The learned Commissioner (Appeals) granted certain relief in appeal and consequently the advance tax paid by the assessee was found to be in excess of the advance tax paid by the assessee which resulted in a refund. Consequently, the assessee became entitled to interest in terms of section 214(1A). However, the assessing officer did not allow interest under section 214A. On appeal, the Commissioner (Appeals) directed the assessing officer to grant interest under section 214. On appeal by the revenue, the Tribunal held that the interest under section 214A is payable only up to the date of first assessment order under section 143 or under section 144 on the amount found to be in excess of the tax demand. The assessee filed miscellaneous application before the Tribunal and contended that it had committed a mistake in not referring to the provisions of sub-section (1A) of section 214. The Tribunal rejected the said petition by holding that no reference was made by the assessee in the 21 MA Nos. 7 to 9/Hyd/2014 M /s. Bharat Biotech International Ltd. ============================ course of hearing of revenue's appeal. However, in view of the submission of the assessee that it was the duty of Tribunal to make a reference to the provisions contained under section 214(1A) of the Act, the Tribunal made a reference on the question.
(g) While deciding the reference the Hon'ble Kerala High Court, after considering the decision of Hon'ble Supreme Court in the case of CIT v. Mahalaxmi Sugar Mills Co. Ltd. (1986) 160 ITR 920 (SC), observed as under:
"The only question is whether the Tribunal is bound to take note of the provision contained in sub-section (1A) of section 214 and to apply the same while deciding the quantum of interest. The said provision was there in the statute when the question came up for decision before the Tribunal. Even though the assessee did not specifically refer to sub-section (1A), we cannot say that the Tribunal can ignore the said provision when taking the decision. We are of the view that the Tribunal ought to have considered and referred to the said provision. It is the duty of the Tribunal to consider the law as it existed then even though the assessee failed to bring it to its notice.
The Supreme Court in CIT v. Mahalaxmi Sugar Mills Co. Ltd (1986) 160 ITR 920 (SC) observed thus:
"In the second place, there is a duty cast on the Income Tax Officer to apply the relevant provisions of the Indian Income Tax Act for the purpose of determining the true figure of the assessee's taxable income and the consequential tax liability. Merely because the assessee fails to claim the benefit of a set off, it cannot relieve the Income Tax Officer of his duty to apply section 24 in an appropriate case."
It is difficult for us to say that the principle emerging from the above decision cannot be extended to the cases before the other authorities under the Income Tax Act. We are of the view that the above principle can equally be applied to the cases coming before the 22 MA Nos. 7 to 9/Hyd/2014 M /s. Bharat Biotech International Ltd. ============================ Income Tax Appellate Tribunal. Also refer to the decision of this court in Parekh Brothers v. CIT (1984) 150 ITR 105. In the result, the question referred to us for decision is answered in the affirmative, that is to say, in favour of the assessee and against the revenue."
20. On the basis of the observations made in the aforesaid decision, it may be concluded that the powers of the Tribunal are co-extensive with the powers of the assessing officer and that of the first appellate authority and are, in fact, wider powers than those authorities, subject to the limitation that the Tribunal does not have the power to enhance the assessment which power has been specifically conferred upon the Commissioner (Appeals) under section 251(1)(a) of the Income Tax Act and which power has been specifically denied to ITAT under proviso to section 254, which is as under:
"Provided that an amendment which has the effect of enhancing an assessment or reducing a refund or otherwise increasing the liability of the assessee, shall not be made under this sub-section unless the Appellate Tribunal has given notice to the assessee of its intention to do so and has allowed the assessee a reasonable opportunity of being heard."
21. Thus, as the limitation on the jurisdiction of the ITAT having been specifically incorporated under a statutory provision, no further limitation can be implied or imposed in the exercise of appellate jurisdiction of the Tribunal for adjudicating the subject-matter in appeal before it. The scope of the jurisdiction and powers of the Appellate Tribunal came before the Hon'ble Supreme Court in the case of Union of India v. Paras Laminates (P) Ltd. (1990) 186 ITR 722 (SC). In that case the Hon'ble 23 MA Nos. 7 to 9/Hyd/2014 M /s. Bharat Biotech International Ltd. ============================ Supreme Court, while examining the powers of Customs, Excise & Gold (Control) Appellate Tribunal, observed as under:
"There is no doubt that the Tribunal functions as a court within the limits of its jurisdiction. It has all the powers conferred expressly by the statute. Furthermore, being a judicial body, it has all those incidental and ancillary powers which are necessary to make fully effective the express grant of statutory powers. Certain powers are recognized as incidental and ancillary, not because they are inherent in the Tribunal, nor because its jurisdiction is plenary, but because it is the legislative intent that the power which is expressly granted in the assigned field of jurisdictional is efficaciously and meaningfully exercised. The powers of the Tribunal are no doubt limited. Its area of jurisdiction is clearly defined but, within the bounds of its jurisdiction, it has all the powers expressly and impliedly granted. The implied grant is, of course, limited by the express grant and, therefore, it can only be of such powers as are truly incidental and ancillary for doing all such acts or employing all such means as are reasonably necessary to make the grant effective."
22. In view of the above decision, the doctrine of incidental or implied power has been recognized for the exercise of powers by the Appellate Tribunal. On the same logic it can be said that the Income Tax Appellate Tribunals which has wide powers in respect of the subject-matter of an appeal before it, can decide any question which is material to the subject matter even though it was not raised. Such proposition was also laid down in the case of CIT v. Mahalaxmi Textile Mills Ltd. (1967) 66 ITR 710 (SC).
24MA Nos. 7 to 9/Hyd/2014 M /s. Bharat Biotech International Ltd. ============================
23. In the case of Pokhraj Hirachand v. CIT(1963) 49 ITR 293 (Bom), it was held that the Tribunal in deciding the appeal, shall not be confined to the grounds set forth in the memo of appeal or taken by leave of Tribunal in rule 11 of ITAT Rules.
24. In the case of CIT v. Edward Kelventer (Successors) (P) Ltd. (1980) 123 ITR 200 (Del), it was held that the subject-matter of an appeal should be understood not in a narrow and unrealistic manner but should be so comprehended as to encompass the entire controversy between the parties which is sought to be got adjudicated upon by the Tribunal.
25. In view of the above authorities, the word "thereon" is to be taken so as to refer to the subject-matter of the appeal and as held in the case of Ahmedabad Electricity Co. Ltd. v. CIT (1993) 199 ITR 351 (Bom) (FB), the subject-matter of appeal is the entire tax proceedings of the assessee which is before the Tribunal for consideration and this will cover the proceedings before the assessing officer, before the first appellate authority as well as before the Tribunal, including the grounds raised before the Tribunal, any additional grounds which may be allowed to be raised before the Tribunal as also cross-objections, if any, before the Tribunal. In view of the said decision it is clear that the view that Tribunal is confined only to issues arising out of the appeal before the first appellate authority is a narrow view.
26. The decision of the Full Bench of the Hon'ble Bombay High Court in the case of Ahmedabad Electricity Co. Ltd. (supra), has been followed and applied in the case 25 MA Nos. 7 to 9/Hyd/2014 M /s. Bharat Biotech International Ltd. ============================ of National Thermal Power Co. Ltd. v. CIT (1998) 229 ITR 383 (SC).
27. The Hon'ble Supreme Court in the case of National Thermal Power Co. Ltd. v. CIT (1998) 229 ITR 383 (SC), held that 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. The Hon'ble Supreme Court has held as under:
"Under section 254 of the Income Tax Act, 1961, 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. The power of the Tribunal in dealing with appeals is thus expressed in the widest possible terms. The purpose of the assessment proceedings before the taxing authorities is to assess correctly the tax liability of an assessee in accordance with law. If, for example, as a result of a judicial decision given while the appeal is pending before the Tribunal, it is found that a non-taxable item is taxed or a permissible deduction is denied, there is no reason why the assessee should be prevented from raising that question before the Tribunal for the first time, so long as the relevant facts are on record in respect of the item. There is no reason to restrict the power of the Tribunal under section 254 only to decide the grounds which arise from the order of the Commissioner (Appeals). Both the assessee as well as the department have a right to file an appeal/ cross-objections before the Tribunal. The Tribunal should not be prevented from considering questions of law arising in assessment proceedings, although not raised earlier. The view that the Tribunal is confined only to issues arising out of the appeal before the Commissioner (Appeals) is too narrow a view to take of the powers of the Tribunal."26
MA Nos. 7 to 9/Hyd/2014 M /s. Bharat Biotech International Ltd. ============================
28. In view of the observation of the Hon'ble Supreme Court, the Tribunal should decide relevant issues irrespective of the fact whether specific ground has been taken or not. The expression "as it thinks fit", occurring in section 254(1) has been explained by the Hon'ble Supreme Court in the case of CWT v. Sharbati Devi Jhalani (1994) 207 ITR 1 (SC). In that case it was held that assessment, appeal to the first appellate authority and further appeal to the Tribunal are parts of an integrated process. It was further held that the Tribunal has to consider the orders passed by the authorities below in the light of law application to those authorities.
29. The extent and scope of the powers of the Tribunal as well as the legal obligation cast upon it, has been elucidated in clear and categorical terms by the Hon'ble Madras High Court in the case of CIT v. Rayala Corpn. (P) Ltd. (1995)215 ITR 883 (Mad). The Hon'ble court has observed as under:
"The Appellate Tribunal is not a court. Its powers, however, are expressed in the widest possible terms under section 254 of the Income Tax Act, 1961. Its powers are almost similar to the powers of an appellate court under the Code of Civil Procedure. A wide power, however, is not such that it can be exercised in any manner. The Tribunal can interfere with the orders of the lower authorities, but can do so only on judicial considerations and on the basis of the reasons that suggest clearly that the lower authorities had committed an error of law or such facts that had vitiated its considerations. Its primary task is not to go into the return of the assessee and decide what amount of tax should be levied upon is income, but to see whether the taxing authorities, including the Appellate Assistant Commissioner, have committed any error of 27 MA Nos. 7 to 9/Hyd/2014 M /s. Bharat Biotech International Ltd. ============================ law or of fact and on account of such error, the assessee has suffered. The Tribunal has got to protect, on the one hand, the interest of the assessee in the sense that he is not subjected to any amount of tax in excess of what he is bound to pay, and, on the other hand, it has duty to protect the interests of the revenue and to see that no one dodged the revenue and escaped without paying the tax."
30. In view of the propositions laid down by the various Hon'ble Courts, as referred to above, it is the duty of the Tribunal to consider the subject-matter of the appeal and pass 'such orders' as are required to adjudicate the subject-matters before it. If for adjudicating various aspects of the subject-matter or matters incidental thereto, an order or direction is required to be issued, then, 'such order' or 'directions' are legally justified in view of the provisions contained under section 254(l) of the Income Tax Act.
31. It may also be pointed out that Rules 11, 27 and 28 of the Appellate Tribunal Rules also regulate power and procedure to be exercised by the Tribunal. Rule 28 of the Appellate Tribunal Rules also justifies directions for remanding the matter, if the same is called for. Thus, where particular issue has been omitted to be considered or has not been adjudicated properly or where perverse findings have been recorded in total disregard of the material on record, the Tribunal is competent enough to set aside the order of the lower appellate authority to that extent, although no specific ground is taken for that purpose by the concerned party. Thus, in a given situation, firstly, there is an obligation on the part of the Tribunal to consider the subject-matter of appeal and 28 MA Nos. 7 to 9/Hyd/2014 M /s. Bharat Biotech International Ltd. ============================ secondly to issue effective directions for adjudicating the subject-matter of appeal, which, as observed earlier, includes the entire process of assessment and which has been held to be an integrated process.
32. Now the next issue is as to whether a mistake can be pointed out on the part of ITAT even when the assessee did not seek any relief from the Tribunal. As observed earlier, in order to effectively adjudicating the issue and the subject-matter, such duty is cast upon the Tribunal. To conclude, direction should be issued to the authorities for deciding such issues, as such directions are essentially incidental to the subject-matter and mistake on the part of the Tribunal in not deciding the issue can be rectified by amending its earlier order. The power to amend being different to the power of review, can definitely be exercised in such a case.
33. A similar issue came up before the Hon'ble Gujarat High Court in the recent judgment in the case of Sheth Construction Co. v. ITO (2005) 274 ITR 304 (Guj). In that case in the assessment for assessment year 1994-95 the assessing officer made addition on account of bad debts of Rs. 70,025 and on account of disallowance of interest payment of Rs. 6,580. The assessee challenged these additions before the Commissioner (Appeals). A preliminary objection was also raised by the assessee on the ground that the assessment was not valid as it was not signed by the assessing officer. This plea was accepted by the learned Commissioner (Appeals) who set aside the assessment order. However, the CIT(A) did not adjudicate the original grounds of appeal which challenged the two 29 MA Nos. 7 to 9/Hyd/2014 M /s. Bharat Biotech International Ltd. ============================ additions referred to above. On appeal, the Tribunal found that there was a valid assessment order which bore the signatures of the assessing officer as two different pleas, hence the Tribunal allowed the department's appeal and restored the, order of assessing officer. On further appeal to the High Court the order of the Tribunal was supported by the revenue. It was also submitted that when the department had filed an appeal before the Tribunal, it was incumbent upon the assessee to have raised a cross objection challenging the decision of the Commissioner (Appeals) in having failed to decide the original grounds of appeal. The following question arose for the decision of the Hon'ble High Court:
"Whether, on the facts and in the circumstances of the case, the Tribunal having reversed the order of the Commissioner (Appeals) on preliminary point, was the Tribunal not required to restore the matter to the file of the Commissioner (Appeals) for deciding other grounds on merits, which had not been decided by the Commissioner (Appeals) in the first round?"
34. The Hon'ble High Court after considering the relevant facts observed as under:
"Held, that it was apparent that the assessee had at no stage given up its right of appeal which was available under the statute. In fact the assessee had challenged the addition and disallowance made by the assessing officer on the merits before the Commissioner (Appeals). However, the Commissioner (Appeals) having entertained the additional ground regarding validity of the assessment order and upheld the same holding the assessment order to be non-existent in the eyes of law, there was no occasion for the assessee to file any cross-30
MA Nos. 7 to 9/Hyd/2014 M /s. Bharat Biotech International Ltd. ============================ objection in the revenue's appeal before the Tribunal. Once the Tribunal had come to the conclusion that the assessment order had been signed by the assessing officer and was valid in the eyes of law, it was incumbent upon the Tribunal to restore the matter to the file of the Commissioner (Appeals)."
35. Thus, in view of the decision of Hon'ble "Gujarat High Court also the matter should have been restored to the file of Commissioner (Appeals) so as to enable the Commissioner (Appeals) to decide the merits of the original grounds of appeal raised by the assessee before him.
36. As observed by the Hon'ble Supreme Court in the case of National Thermal Power Co. Ltd. (supra), the power of the Tribunal in dealing with the appeals is very wide and while exercising the statutory authority and statutory duty, it has got all powers which are reasonably necessary for the accomplishment of the object intended to be secured. Hence, whereas the Tribunal has no power to recall and review its orders, in view of the decisions of Jurisdictional High Court in the cases of Vichtra Construction (P) Ltd. (supra) and Mayur Recreational & Development Ltd. (supra), it has got power to amend the order if the proper adjudication of the subject-matter so warrants. Thus, in a given situation, like the one before us, the order may not be recalled but at the same time it may require amendment by making additions. Such an amendment or addition being different from review of the order, is very much permissible within the scope of powers under section 254(2) of the Income Tax Act, 1961.
31MA Nos. 7 to 9/Hyd/2014 M /s. Bharat Biotech International Ltd. ============================
37. Thus, on proper examination of section 254(2) of the Income Tax Act, reproduced in para 18 of this order, it is clear that the Tribunal is under legal obligation to amend its order, passed by it under sub-section (1) of section 254, if any mistake pointed out or is found apparent from the record. If the Tribunal has failed to issue directions or failed to pass such orders, as are required to be passed under section 254(l), then it shall amount to a mistake apparent from record and for rectifying such mistakes the Tribunal "shall make such amendment" in its order as are necessary for correcting such mistake. Thus, in view of the language adopted in sub-clause (2), as referred to above, it is mandatory obligation on the part of the Tribunal to amend its order if the mistake or error so requires.
38. In the case of Kapurchand Shrimal v. CIT (1981) 131 ITR 4511 (SC) the duty of the appellate authority has been explained and laid down by the Hon'ble Supreme Court by observing as under:
"It is well known that an appellate authority has the jurisdiction as well as the duty to correct all errors in the proceedings under appeal and to issue, if necessary, appropriate directions to the authority against whose decision the appeal is preferred to dispose of the whole or any part of the matter afresh, unless forbidden from doing so by statute."
39. On examination of the scope of jurisdiction of Income Tax Appellate Tribunal in deciding the appeals and miscellaneous applications under sections 254(1) and 254(2) of the Act and on the analytical appreciation of the propositions laid down in various decisions in relation to 32 MA Nos. 7 to 9/Hyd/2014 M /s. Bharat Biotech International Ltd. ============================ the powers of the Tribunal referred to above, we can cull out the following postulates :
(1) The power of Tribunal as defined under section 254(1) has been expressed in widest terms as the Tribunal can pass 'such orders as it thinks fit on the subject-matter of appeal before it.
(2) In hearing and deciding the appeal, the Tribunal is not prevented from considering questions of law arising in assessment proceedings although not raised earlier.
(3) The process of appeal before ITAT is part of integrated process of assessment and, therefore, the powers of Tribunal are co-
extensive with the powers of assessing officer and that of Commissioner (Appeals) subject to the limitation that ITAT cannot enhance the assessed income. Hukamchand Mills Ltd. v. CIT, 63 ITR 232 (SC) (4) The Tribunal has also incidental and ancillary powers for doing such acts as are reasonably necessary in exercise of Powers granted by the Act Union of India v. Paras Laminates (P) Ltd. (1990) 186 ITR 722 (SC).
(5) The subject-matter of an appeal before Income Tax Appellate Tribunal encompasses the entire controversy between parties which is sought to be got adjudicated upon by the Tribunal Ahmedabad Electricity Co. Ltd. v. CIT (1993) 199 ITR 351 (Bom) (FB).
(6) The subject-matter of appeal is the relief sought by the appellant and objected to by the respondent. It is not proper to circumscribe the subject-matter of appeal by taking into account the rival submissions or the reasons or grounds which are put forward by the parties. CIT v. Sundaram & Co. (P) Ltd. (1963) 50 ITR 35 (Mad.) (Sh. N).
(7) While exercising its rectificatory powers under section 254(2) of the Income Tax Act, the 33 MA Nos. 7 to 9/Hyd/2014 M /s. Bharat Biotech International Ltd. ============================ Tribunal has no power to review its earlier order (see proviso to rule 34A of Appellate Tribunal Rules, 1963 and decision of Hon'ble Delhi High Court in the case of CIT v. Vichtra Construction (P) Ltd. (2004) 269 ITR 371 (Del).
(8) The Tribunal can recall its order passed ex parte (See rule 24 of Appellate Tribunal Rules, 1963 and decision of Honble M.P. High Court in the case of Estate of Late Tukoji Rao Holkar v. CWT (1997) 223 ITR 480 (MP).
(9) The power to rectify mistake can be exercised suo motu by Tribunal or on the notice of parties.
(10) It is a mistake apparent on record, if the Tribunal has omitted to consider a ground of appeal taken before it or if it has failed to pass such order or to issue such directions which were necessary for proper adjudication of subject-matter of appeal, even if the assessee/or revenue has not requested for such a direction by filing cross appeal or cross- objections.
(11) Without recalling or reviewing the order, on issues already adjudicated by the Tribunal, the omission or error on the part of ITAT can be corrected or rectified by amending and adding something to it without subtracting anything from the main order.
(12) There is legal obligation on the part of ITAT to rectify errors committed by the authorities below even if neither party objects to such mistake. Such obligation can be discharged by exercising jurisdiction suo motu also. Kapurchand Shrimal v. CIT (1981) 131 ITR 451 (SC).
(13) If a mistake is found in the order of ITAT, then such mistake can be rectified by amending the order in the course of deciding the miscellaneous application itself and the order of ITAT need not be recalled for this purpose.
34MA Nos. 7 to 9/Hyd/2014 M /s. Bharat Biotech International Ltd. ============================ (14) A mistake arising as a result of subsequent interpretation of law by Hon'ble Supreme Court and of Hon'ble Jurisdictional High Court, would constitute a mistake apparent from the records and rectifications action under section 254(2) of Income Tax Act would be in order.
40. On application of the above postulates, it is found that there was a legal obligation on the part of Tribunal to restore the subject-matter to learned Commissioner (Appeals) and failure to do so amounts to a mistake apparent on face of record which mistake has to be rectified by issuing directions and by amending the order of ITAT accordingly.
41. In the instant case, the contention of the learned DR is that the assessee has not filed any appeal or any Cross Objection, therefore, the assessee cannot insist on adjudication of the issue relating to section 35(3) of the Act. If we accept this contention of the DR, great prejudice shall be caused to the assessee and there shall be miscarriage of justice. While deciding the appeal, the Tribunal has to undertake a meaningful and effective exercise of its jurisdiction to ensure and provide substantial justice in relation to the subject matter under its consideration. For doing so, it has the power to "pass such orders thereon as it thinks fit", in view of the provisions contained in section 254 of the Act.
42. Admittedly, since there was no appeal or Cross Objection by the assessee, the Tribunal not gone into the applicability of provisions of s. 35(3) of the Act. As such it has not given findings on this issue. As the Tribunal failed to give any direction on applicability of section 35(3) on assessee's case it amounts to a mistake on the part of 35 MA Nos. 7 to 9/Hyd/2014 M /s. Bharat Biotech International Ltd. ============================ the Tribunal. There is an obligation and it is the duty of the Tribunal to consider application of all the provisions so as to dispense the justice while adjudicating any appeal before it. There was an obligation on the part of the Tribunal to give findings on the applicability of s. 35(3) so as to prevent miscarriage of justice and to ensure substantial justice in relation to the subject matter of appeal as prayed by the assessee in its second ground in the Miscellaneous Application.
43. It was held by the Calcutta High Court in the case of CIT vs. Ballabh Prasad Agarwalla (233 ITR 354) as under:
"Held It is not a case where the Tribunal has reviewed or intended to review the earlier order. It is not a case where there is any scope for change of the opinion or view already taken. It was a case where the Tribunal found that the Tribunal had not considered the effect of r. 6DD(j) which is a statutory rule and the circular of the Department in the matter of application of the provisions of s. 40A(3). It is also not a case where that power of rectification is sought to be made on the ground of subsequent amendment of the provisions of law with retrospective effect, but to correct a particular mistake or error in the order which in law may be required to be rectified. It is a case where the Tribunal sought to rectify the order so as to bring it in conformity with the law and the circular of the Department, which was not considered properly. This power of rectification of mistake is executed for the ends of justice. The provisions of s. 254(2) could not be construed in a manner which would produce an anomaly or otherwise produce an irrational or illogical result. The primary aim of legal policy is to do justice. It must be assumed that Parliament does not intend to do injustice or to allow a wrong thing to continue contrary to law or 36 MA Nos. 7 to 9/Hyd/2014 M /s. Bharat Biotech International Ltd. ============================ public policy. Accordingly, applying the above principles, it cannot be said that the Tribunal, in the instant case, wanted to exercise its power of review. No fresh material was sought to be considered and the Tribunal did not intend to change its view earlier taken. It is a case where the Tribunal was of the view that a particular statutory rule and the circular of the Department which is binding upon the Tribunal, had not been considered while disallowing a claim invoking the provisions of s. 40A(3). In other words, the Tribunal has recalled the earlier order which the Tribunal was of the view was passed in contravention and/or in ignorance of statutory provisions. It is one of the basic principles and a legal policy that when there is a provision for rectification of a mistake on the record, that power should be allowed to be exercised for correcting mistakes and/or error on the record and if the Tribunal feels that the Tribunal has committed an error of law, in that event, it would be against the concept of justice and fair play and also against the principle of legal policy not to allow the Tribunal to exercise such power. Considering the facts and circumstances of the case, the power that is sought to be exercised by the Tribunal comes within the scope and ambit of the provisions of s. 154 r/w s. 254(2) and accordingly no question of law arises out of the order of the Tribunal."
44. The Hon'ble Madhya Pradesh High Court in the case of Prithviraj Chouhan vs. CIT (267 ITR 450) held as under:
"Held, dismissing the appeal, that it was admitted that Explanation 1 substituted in section 234B of the Act was not brought to the notice of the Tribunal or due to oversight it escaped its notice. On this fact being brought to its notice, the Tribunal had rectified its mistake. This was a mistake apparent from the record and the Tribunal was correct in rectifying the mistake."37
MA Nos. 7 to 9/Hyd/2014 M /s. Bharat Biotech International Ltd. ============================
45. The Hon'ble Kerala High Court in the case of CIT vs. Quilon Marine Produce Co. (157 ITR 448) held as under:
"Held, Trading discount is not an expenditure within the meaning of s. 35B. Non-consideration of the said provision indisputably is a glaring, obvious and self-evident mistake apparent from the record and as such the AAC has ample jurisdiction to amend the order. The AAC, however, refused to exercise the said jurisdiction wrongly. The AAC should have amended the order and rectified the mistake. The Tribunal in confirming the order of the AAC has committed the same error.--M.K. Venkatachalam vs. Bombay Dyeing and Manufacturing Co. Ltd. (1958) 34 ITR 143 (SC):
TC53R.157 relied on."
46. Thus, the crux of the above judgements is that the effect of provisions of the Act was not noticed by the Tribunal. It is a mistake apparent from record, so that the order rectifying the mistake is valid. Further, where the Tribunal passes an order taking into account information not disclosed to the assessee, there is a mistake apparent from the order so that Tribunal is duty bound in rectifying the mistake when it is brought to the notice of the Tribunal. Thus, while maintaining our order on the main issue with regard to allowability of deduction u/s. 35(1), we consider it necessary to hear both the parties on the issue relating to applicability of provisions of section 35(3) of the Act. Accordingly, we amend the Tribunal order to that extent and direct the Registry of the Tribunal to post these cases for hearing on 6.10.2014 for the limited purpose of deciding the issue on applicability of provisions of section 35(3) of the Act. The final result of the Revenue appeals would depend upon the outcome of adjudication of issue relating to applicability of provisions of section 35(3) of the Act by the Tribunal.
38MA Nos. 7 to 9/Hyd/2014 M /s. Bharat Biotech International Ltd. ============================
47. In the result, all the MAs filed by the assessee are partly allowed.
Order pronounced in the open court on 30th May, 2014 Sd/- Sd/-
(SAKTIJIT DEY) (CHANDRA POOJARI)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Hyderabad, dated the 30th May, 2014
tprao
Copy forwarded to:
1. M/s. Bharat Biotech International Ltd., Genome Valley, Turkapally, Shameerpet, Hyderabad.
2. The DCIT, Circle-1(3), Room No. 413, 4th Floor, Aayakar Bhavan, Hyderabad-500 004.
3. The CIT(A)-II, Hyderabad.
4. The CIT-I, Hyderabad.
5. The DR - 'B' Bench, ITAT, Hyderabad