Income Tax Appellate Tribunal - DelhiAssistant Commissioner Of Income Tax vs Apollo Tyres Ltd. on 10 March, 2006Equivalent citations: (2006)102TTJ(DELHI)15ORDER1. This miscellaneous application has been moved by the Revenue seeking to rectify decision dt. 23rd March, 2004 given by the Special Bench.2. It is contended in the miscellaneous application that question of gain of Rs. 11,06,49,739 arising out of cancellation of contracts for forward cover attributed to proposed repayment of principal amount of loan was closely connected with deductibility of Rs. 2,30,67,615 claimed as roll over charges for extending the contracts for forward cover which were cancelled. The assessee in its return had claimed that gain of Rs. 11,06,49,739 was a capital receipt. The roll over charges were claimed to be expenditure of revenue nature. The following question was referred to the Special Bench:Whether, on facts and in law, the gains earned on cancellation of the foreign exchange forward contract are capital receipt or revenue receipts ? If it is capital receipt, whether the same should be reduced from the cost of plant and machinery in connection with which the forward contract was entered into ?3. After considering facts and circumstances of the case, the Special Bench held that gain arising from cancellation of forward cover contract was a capital receipt and not liable to tax and should be reduced from the cost of machinery in relation to which foreign contracts were entered into.4. In the miscellaneous application, the Revenue has stated that connected question relating to deductibility of roll over charges was also required to be considered, as roll over charges cannot have a character different from forward cover contracts and, therefore, if the amount received on cancellation of forward cover contract was of a capital nature, so was the roll over charges. In not deciding above question, according to the Revenue, the Special Bench committed a mistake apparent from the record.In this connection, it has been emphasized that aforesaid fact relating to treatment given to roll over charges by the AO and the CIT(A) was specifically brought to the notice of the Special Bench during the course of hearing of appeal in oral submissions. The fact was also brought to the notice of the Special Bench in writing in letter filed on 3rd March, 2004 wherein it had been stated as under:In view of the facts and circumstances as narrated above, the points for determination have to include, inter alia, that in case the receipt of Rs. 11.06 crores is held to be capital receipt, whether the related rolled over charges of Rs. 2,30,67,615 would still be allowable as revenue expense as the basis, on which AO allowed the same, would stand reversed. It is a related and linked issue and may require adjudication depending upon the way main issue is decided....The roll over charges of Rs. 2,30,67,615 allowed by the AO as the same was held to be paid in the course of earning taxable profit would also be required to be treated as capital expenditure and added to the cost of the asset.5. It is further contended by the Revenue that Tribunal having decided the issue, the Regular Bench, which is seized of the matter now, is not competent to make any alteration in the order of the Special Bench and the result is that assessee is taking benefit of roll over charges as a revenue expenditure in addition to the benefit of the gains being held as a capital receipt. Thus, the roll over expenditure directly connected with forward cover contracts, is being claimed as a revenue expenditure. This mistake, according to Revenue, has occurred as Special Bench failed to deal with the plea raised before it by the Revenue.6. A copy of above miscellaneous application was forwarded to the assessee for his objections. In response to above notice, Shri Anoop Sharma, the learned Counsel, appearing on behalf of the assessee, has opposed the request of the Department. He raised four objections to the entertainment of the application, these are summarized below:(i) That only one single question was referred to the. Special Bench noted earlier, and the Special Bench had no jurisdiction to consider any other issue. Therefore, there was no question- of Special Bench considering claim relating to roll over charges. As Special Bench had no jurisdiction to go into the question now being raised by the Revenue in the miscellaneous application, there is no question of involvement of any mistake, much less a mistake apparent from record in the order of the Special Bench.In this connection, Shri Sharma placed reliance on the decision of the Gauhati High Court inCIT v. Highway Construction Co. (P) Ltd..(ii) Even if it was assumed that there was a mistake in holding that roll over charges were revenue expenditure, the said mistake was committed not by the Special Bench but by the AO. He read out relevant portion of the assessment order where roll over charges were treated as revenue expenses. The Tribunal, therefore, had no jurisdiction to carry any rectification.(iii) It was submitted that order of Special Bench was passed underSection 255(3)of the IT Act. The Tribunal, according to Shri Sharma, could rectify a mistake apparent from record underSection 254(2)of the IT Act and said section covers only orders passed underSection 254(1)of the Act.Section 255(3)is not covered by provision ofSection 254(2)of the IT Act. It was, accordingly, submitted that the Tribunal has no power to rectify the mistake.(iv) Lastly, it was submitted that a highly controversial and debatable point was now being raised by the Revenue in the miscellaneous application which could hardly be called a mistake apparent from record. Shri Sharma submitted that there may be error of judgment in the order of the Special Bench but there was a distinction between error of judgment and a mistake apparent from record. It was well accepted principle that the Tribunal has no power to correct error of judgment. Shri Sharma submitted that Revenue, if they are so aggrieved, could challenge order of Special Bench through a writ petition before the High Court. He maintained that Tribunal underSection 254(2)of IT Act had no jurisdiction to rectify the mistake.7. In rebuttal, the learned Departmental Representative controverted various submissions made by Shri Sharma, the learned Counsel on behalf of the assessee. He argued that Tribunal has committed a mistake in not considering a material plea raised before the Tribunal relating to claim of roll over charges. Ii is settled law that no party could be made to suffer on account of mistake of a Court or a Tribunal. The assessee cannot take benefit of a reasonable view taken by the AO in allowing these charges in view of their proximate connection with the gains which were held taxable by him as a revenue receipt. The AO was consistent in his approach by holding both gains and roll over charges as revenue receipts. The Tribunal was duty bound to take a similar view. The learned Departmental Representative relied upon the decision of the Allahabad High Court in the case ofITO v. ITAT(1965) 58 ITR 634 (All). The learned Departmental Representative further submitted that Tribunal has inherent power to correct a mistake apparent from the record. He referred to and relied upon:(i) CIT v. J. Sundaram (1964) 52 FIR 474 (Mad), and(ii) ITO v. S.B. Singar Singh and Sons and Anr. (All).The learned Departmental Representative further submitted thatSection 254(2)would apply to any order passed by the Tribunal.8. We have given careful thought to the rival submissions of the parties. The AO had allowed roll over charges as a revenue deduction with the following observations:...In view of the relating facts, I hold that these expenses in the form of roll over charges are revenue in nature and are allowed against the income earned from cancellation of foreign exchange forward contracts.This expenditure has been allowed here on the premises that the income earned from forward contracts is taxable under theIT Actas held in earlier part of this order....9. On appeal, the CIT(A) agreed with the view of the AO and confirmed the assessment with following observations on the point raised now in the miscellaneous application:Another very vital aspect of the case is that though the roll over charges have got to be capitalized being the direct cost of plant and machinery as per the Accounting Standards and the appellant-company did, in fact, capitalize these in its accounts by debiting the amounts to the plant and machinery account. However, when it came to taxation, the company did make a claim that these were revenue expenses and should be allowed as such. Though the AO did not accept the claim in the earlier year, it was allowed by him during the year under appeal. The roll over charges represent the difference between the forward rate and the spot rate of the currency on the day the contracts are rolled over. If these are claimed as revenue expenses, the profits on cancellation of covers could not be treated otherwise by the appellant-company. On the other hand, the appellant-company has debited roll over charges and credited the profits on cancellation of contracts relating to the liability on account of interest. But in the case of liability relating to the principal amount, the roll over charges are being claimed as revenue expenses but the gains are being shown on capital account, This shows inherent contradiction in the stand of the company. The profits/losses arising on cancellation of contracts and the roll over charges represent the same nature of transactions and these have to be given the same treatment. Viewed from this angle also, the appellant-company was not justified in treating such gains as capital in nature.10. It is evident from above that question of deduction of roll over charges was intimately connected with nature and character of gains from cancellation of contract and its taxability under theIT Act. There is further no dispute that said question was raised by the Revenue during the course of arguments before the Special Bench. In their written submissions also, a part of which has been extracted above, the Revenue pleaded that above question be also examined along with the question of taxability of profit from cancellation of contracts. In not referring to the claim of the Revenue, the Special Bench, in our considered opinion, committed a mistake apparent from record. The aforesaid omission, in not referring to a material aspect of the case, is likely to cause serious prejudice to the case of the Department as rightly contended by the learned Departmental Representative. We are, therefore, inclined to rectify aforesaid order dt. 23rd March, 2004 of the Special Bench.11. We have also considered carefully objections raised by the learned Counsel of the assessee, Shri Anoop Sharma, but find no substance in them, regards the first argument that a specific question was referred to the Special Bench and that Special Bench had no jurisdiction to consider the claim relating to roll over charges, we have already extracted above the relevant findings of the AO and the CIT(A). We agree with Revenue authorities that the question of deducibility of roll over charges was intimately linked and the same could not be separately decided without considering nature and character of receipt of gains. Therefore, the Revenue authorities were justified in putting forth a submission relating to consideration of deductibility of the roll over charges. It being a material aspect of the case should have been referred to by the Tribunal and position should have been made clear as to who and at what stages the said closely connected issue was to be considered and decided. In not taking any note of the submissions made by the Revenue, the Tribunal did commit a mistake apparent from record. The issue raised by the Revenue cannot be treated to be totally foreign to the question raised before the Special Bench. We, therefore, find no force in the first submission made by Shri Anoop Sharma.12. The second submission of Shri Sharma that mistake, if any, was committed by the AO and not by the Tribunal, is also devoid of any substance. The AO, as noted earlier, had treated gains from cancellation of contract as a revenue receipt and, therefore, expenditure like roll over charges was also treated as revenue expenditure. This question was required to be considered by the Tribunal. However, no finding was recorded on the plea raised by the Revenue on the above claim. The said order was confirmed. It is only Special Bench of the Tribunal, which took a view contrary to the one taken by the Revenue authorities, and, therefore, it was imperative that reference should have been made to the connected issue. The order of the AO had merged with order of higher authorities and, therefore, the AO cannot rectify its order unless directions to the above effect are received from the superior authorities. We, therefore, reject above contention of Shri Sharma.13. The next contention of Shri Sharma that order passed by Special Bench was an order underSection 255(3)of IT Act, a provision not covered bySection 254(2)of the IT Act, is also without substance. It is clear from the plain language ofSection 255(3)of IT, Act, that power is vested with the President of the Tribunal to constitute a Special Bench for disposing of any case. In a case the. whole appeal is not referred to a Special Bench but a specific question is referred to such a Bench, then said question is considered and decided by the Special Bench in the process of "disposing" an appeal, Any order passed by the Special Bench is order underSection 254of the IT Act. It is part and parcel of the order disposing of appeal. Therefore, order passed by the Special Bench, if it contains mistake apparent from record, can be rectified underSection 254(2)of the IT Act. Having regard to the scheme of disposal of appeals by the Tribunal, we do not see any impediment in the Special Bench rectifying apparent mistake in its order.14. Lastly, Shri Anoop Sharma had argued that issue raised by the Revenue is a debatable issue and, therefore, Tribunal has no power to entertain request of the Revenue and carry rectification as prayed. We have already noted facts and circumstances of the case and relevant finding of the Revenue authorities and the case argued before the Special Bench. In our considered opinion, no debatable point is involved in the point raised by the Revenue. The claim raised before us is very simple; a material point was agitated by them during the course of hearing of the appeal but no reference to the said material point has been made by the Special Bench and above omission is likely to cause prejudice to the case of the Revenue. The assessee has got a double advantage. We find substance in this contention of the Revenue and are of the view that the matter involves no debate.15. In the light of above discussion, we rectify order of Special Bench dt. 23rd March, 2004 by inserting following para 25A after para 25 of the said order:25A. The learned Departmental Representative during the course of hearing of the appeal has argued that we should also consider the allowability of the roll over charges since it is related and linked to the issue of assessment of the gains as a revenue/capital receipt. In this connection, our attention was drawn to the written submissions filed on 3rd March, 2004 wherein the following prayer was made:In view of the facts and circumstances as narrated above, the points for determination has to include, inter alia, that in case the receipt of Rs. 11.06 crores is held to be capital receipt, whether the related rolled over charges of Rs. 2,30,67,615 would still be allowable as revenue expense as the basis, on which AO allowed the same, would stand reversed. It is a related and linked issue and may require adjudication depending upon the way main issue is decided....The roll over charges of Rs. 2,30,67,615 allowed by the AO as the same was held to be paid in the course of earning taxable profit would also be required to be treated as capital expenditure and added to the cost of the asset.In our opinion, this issue relating to the deductibility of roll over charges is intimately connected with the question of taxability of the gains, as rightly held by the IT authorities. However, having regard to the fact that this aspect of the matter has not been specifically referred to the Special Bench, we leave it open to the Department to raise this plea before the Division Bench for considering and deciding the question in accordance with law and in the light of answer given by us to the question referred to us.16. The rectification application is allowed in the terms stated above.