M/s Bharath Biotech International Ltd., Hyderabad V. DCIT, Circle - 1(3), Hyderabad

MA 7/HYD/2014

• Counselvise Citation: [2014] 124 COUNSELVISE.COM (IT) 1850 (ITAT-HYDERABAD)
• Duration Of Justice: 5 month(s) 4 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 30-05-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 26-12-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Rectification of order; Opportunity of being heard; Retrospective amendment; Question of law; Right to appeal; Capital expenditure
• Section: 234B; 37(1); 28; 144; 154

Judgement Text

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 INTERNATIONAL LTD., HYDERABAD PAN: AABCB3822B VS. THE DCIT CIRCLE-1(3) HYDERABAD APPELLANT RESPONDENT APPLICANT BY: SRI MOHD. AFZAL RESPONDENT BY: SRI SOLGY JOSE T. KOTTARAM DATE OF HEARING: 04 .0 4 .201 4 DATE OF PRONOUNCEMENT: 30.05.2014 O R D E R PER CHANDRA POOJARI, AM: BY THE ABOVE MISCELLANEOUS APPLICATIONS (MAS) THE ASSESSEE IS SEEKING RECTIFICATION/RECALL OF THE TRI BUNAL ORDER DATED 31.07.2013 IN ITA NOS. 392/HYD/2010, 63 2/ 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 TH E INCOME-TAX ACT, 1961 BY OBSERVING AS FOLLOWS: MA NOS. 7 TO 9/HYD/2014 M /S. BHARAT BIOTECH INTERNATIONAL LTD. ============================ 2 '19. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD AND ALSO GONE THROUGH THE CASE-L AW CITED BY THE RIVAL PARTIES. THE ASSESSEE IN THIS C ASE IS ENGAGED IN THE BUSINESS OF DEVELOPMENT OF VACCINES AND BIO PHARMACEUTICALS. THE ASSESSEE CLAIMED DEDUCTIO N 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) WA S ALLOWED BY THE ASSESSING OFFICER. HOWEVER, THE CLA IM OF DEDUCTION U/S. 35(1)(I) WAS DISALLOWED ON THE RE ASON THAT THIS RELATES TO PAYMENT OF INTEREST ON LOAN AN D 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 D ISPUTE 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 SUBMI TTED 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 ALLOWABL E AS DEDUCTION AGAINST THE INCOME, IF ANY, FOR THAT PREV IOUS YEAR. THE DEFINITION OF THE TERM 'SCIENTIFIC RESEA RCH' 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 HUSBA NDRY 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 SUC H EXPENDITURE IS INCURRED ON SCIENTIFIC RESEARCH. MA NOS. 7 TO 9/HYD/2014 M /S. BHARAT BIOTECH INTERNATIONAL LTD. ============================ 3 ACCORDING TO THE AR, IF THE EXPENDITURE IS NOT ALLO WABLE 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 RESEARC H RELATING TO BUSINESS CARRIED ON BY THE ASSESSEE. T HE 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 AN D BIO-PHARMACEUTICALS. ANY EXPENDITURE INCURRED IN DO ING SO CANNOT BY ITSELF FALL WITHIN THE PARAMETERS OF S ECTION 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 T HE ACT UNDER WHICH ALLOWABILITY OF THE EXPENDITURE CAN BE CONSIDERED. 22. FURTHER, WE MAKE IT CLEAR THAT U/S. 35(1)(I) AN Y EXPENDITURE (NOT BEING IN THE NATURE OF CAPITAL EXPENDITURE) LAID OUT OR EXPENDED ON SCIENTIFIC RES EARCH 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 I NCURRED PRIOR TO COMMENCEMENT OF BUSINESS. THE PROVISIONS ALLOW FOR DEDUCTION OF SCIENTIFIC RESEARCH EXPENDIT URE IF THE ASSESSEE IS ENGAGED IN THE BUSINESS OF SCIENTIF IC RESEARCH AND CARRIES OUT SUCH RESEARCH IN CONNECTIO N WITH ITS BUSINESS. HOWEVER, IN THE INSTANT CASE, T HE 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 DEVELOPMEN T 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 ADMISSIBL E 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 HAV E MA NOS. 7 TO 9/HYD/2014 M /S. BHARAT BIOTECH INTERNATIONAL LTD. ============================ 4 BEEN CARRIED ON BY THE ASSESSEE. FURTHER, SAID CLAU SE PRESUMES THAT THERE EXIST TWO DISTINCT ACTIVITIES W ITH THE ASSESSEE SUCH AS: (A) BUSINESS CARRIED ON BY THE ASSESSEE; AND (B) CONDUCTING SCIENTIFIC RESEARCH RE LATED TO THE SAID BUSINESS. BOTH THESE ACTIVITIES MUST RE LATE TO EACH OTHER. FURTHER, THE WORDS 'CARRIED ON BY THE ASSESSEE' USED IN THE SAID CLAUSE SHALL MEAN 'TO CO NTINUE BY THE ASSESSEE', OR 'TO ENGAGE IN THE ACTIVITY' BY THE ASSESSEE. THEREFORE, EFFECTIVELY, THESE WORDS INDIC ATE THE ENGAGEMENT OF THE ASSESSEE IN THE BUSINESS. WHAT IS THE DEFINITION OF 'SCIENTIFIC RESEARCH' AND WHAT IS 'SC IENTIFIC RESEARCH RELATED TO A BUSINESS' ARE DEFINED, WHEREA S 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 RESTR ICTED TO 'SCIENTIFIC RESEARCH RELATED TO A BUSINESS', AN ARE A OF DISPUTE BETWEEN THE PARTIES. 'SCIENTIFIC RESEARCH R ELATED 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 TH E DEDUCTIONS. CONSEQUENTLY, THE DEDUCTION IS NOT AVAI LABLE 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 RELATIONSHI P WITH THE BUSINESS CARRIED ON BY THE ASSESSEE ON THE OTHE R SIDE ASSUMES GREAT SIGNIFICANCE. THE REFERENCE TO 'SCIEN TIFIC 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 TH E BUSINESS OF THE ASSESSEE. FURTHER, WE FIND THAT AN ASSESSEE MAY BE ENGAGED IN A PARTICULAR BUSINESS AN D MAY ALSO UNDERTAKE THE SCIENTIFIC RESEARCH ACTIVITY RELATING TO THAT BUSINESS AND INCUR CAPITAL EXPENDI TURE ON SUCH RESEARCH. ALTERNATIVELY, AN ASSESSEE, AS MA Y BE ENGAGED IN THE SCIENTIFIC RESEARCH ACTIVITY AS ITS BUSINESS AND BY THAT ACTIVITY, ASSESSEE MAY BE CATE RING 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 SAM E, WE FIND THAT THE BOARD'S CIRCULAR NO. 281, DT. 22 ND SEPTEMBER, 1980, PARA 10.2 IN PARTICULAR, MENTIONS THAT THE S. 35(1)(IV) PROVIDES FOR THE DEDUCTION IN RESP ECT OF CAPITAL EXPENDITURE INCURRED ON SCIENTIFIC RESEARCH RELATED TO THE ASSESSEE'S BUSINESS. FURTHER, PARA 42 OF THE OTHER DEPARTMENTAL CIRCULAR DT. 9 TH OCTOBER, 1967 IS MA NOS. 7 TO 9/HYD/2014 M /S. BHARAT BIOTECH INTERNATIONAL LTD. ============================ 5 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 BU SINESS. THUS, THE RELATIONSHIP OF THE SAID CAPITAL EXPENDIT URE HAS TO BE IN CONNECTION WITH THE ASSESSEE'S BUSINES S. 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 DEDUCT ION UNDER S. 35 IS NOT INTENDED TO THE ASSESSEE, WHO DO ES NOT DEVELOP THE IN-HOUSE SCIENTIFIC RESEARCH ACTIVITIES . FURTHER, THE PRESENCE OF SPECIFIC REFERENCES TO 'RE LATED TO BUSINESS CARRIED ON BY THE ASSESSEE' IN THE PROV ISIONS AND THE INCLUSIVE DEFINITION GIVEN TO THE SAME IN S . 43(4)(III)(A), CONVEY THAT IT IS NOT A CASE OF CASU S OMISSUS TOO. 24. IN THE LIGHT OF THE ABOVE SCOPE OF THE PROVISIO NS, WE EXAMINED THE FACTS OF THE CASE AND THE ARGUMENTS OF THE ASSESSEE'S COUNSEL THAT CONDUCTING SCIENTIFIC RESEA RCH IS THE BUSINESS OF THE ASSESSEE AND THUS, THE SAID RES EARCH IS RELATED TO THE BUSINESS CARRIED ON BY THE ASSESS EE. 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 S ETTING UP OF FACILITIES FOR COMMERCIAL PRODUCTION OF A NEW PRODUCT. IN SUCH CIRCUMSTANCES, THE ASSESSEE, IN OU R 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 'L EAD TO OR TO FACILITATE AN EXTENSION OF THAT BUSINESS'. TH US, BY INCURRING THIS EXPENDITURE THE ASSESSEE GENERATES A MARKETABLE PRODUCT OR STOCK-IN-TRADE. IN THESE CIRCUMSTANCES, WE ARE OF THE OPINION THAT THE PROVI SIONS OF S. 35(1)(I) OR (IV) HAVE NO APPLICATION TO ASSES SEE'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 PA RA 22 OF ITS ORDER WRONGLY OBSERVED THE EXPENDITURE AS CAPIT AL EXPENDITURE. MA NOS. 7 TO 9/HYD/2014 M /S. BHARAT BIOTECH INTERNATIONAL LTD. ============================ 6 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 CARR YING ON SCIENTIFIC RESEARCH AND DEVELOPMENT EXPENDITURE IN QUESTION RELATES TO SCIENTIFIC RESEARCH AND THEREFO RE, ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S 35(1)(I) R.W .S. 43(4)(III). THE LEARNED CIT(A) FURTHER HELD THAT EV EN ASSUMING THAT THE EXPENDITURE IS CAPITAL IN NATURE AS ASSUMED BY THE ASSESSING OFFICER, THE CLAIM IS STIL L COVERED BY CLAUSE-(IV) OF SUB-SECTION-L OF SECTION 35 R.W.S 2 (IA) OF SECTION 35 WHICH SPECIFICALLY ALLOWS ANY EX PENDITURE OF CAPITAL NATURE ON SCIENTIFIC RESEARCH CARRIED ON BY THE ASSESSEE. THEREFORE, IT IS RESPECTFULLY SUBMITTED T HAT 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 MOLECUL E TO THE STAGE OF VACCINE BY UNDERTAKING THE PROCESS OF DEVELOPMENT AT VARIOUS STAGES, IS SCIENTIFIC RESEAR CH RELATED TO THE BUSINESS CARRIED ON BY THE ASSESSEE. AGAINST THIS ADJUDICATION THE TRIBUNAL WRONGLY OBSE RVED IN PARA 24 OF ITS ORDER AS UNDER: 'IN THE PRESENT CASE, THE EXPENDITURE CLAIMED BY TH E ASSESSEE AS DEDUCTION HAS NOTHING TO DO SCIENTIFIC RESEARCH. ON THE OTHER HAND, IT WAS INCURRED FOR SE TTING UP OF FACILITIES FOR COMMERCIAL PRODUCTION OF A NEW PRODUCT. ON THE OTHER HAND, IT WAS INCURRED FOR SET TING UP OF FACILITIES FOR COMMERCIAL PRODUCTION OF A NEW PRODUCT. IN SUCH CIRCUMSTANCES, THE ASSESSEE, IN OU R CONSIDERED OPINION, CANNOT BE SAID TO HAVE CARRIED ON SCIENTIFIC RESEARCH ACTIVITY. FURTHER, IT IS ALSO N OT 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 INCUR RING THIS EXPENDITURE THE ASSESSEE GENERATES A MARKETABL E PRODUCT OR STOCK IN TRADE. IN THESE CIRCUMSTANCES, WE MA NOS. 7 TO 9/HYD/2014 M /S. BHARAT BIOTECH INTERNATIONAL LTD. ============================ 7 ARE OF THE OPINION THAT THE PROVISIONS OF SECTION 3 5 (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 T HE ASSESSEE IS NOT CARRYING SCIENTIFIC RESEARCH ACTIVI TY. IN THIS REGARD IT IS RESPECTFULLY SUBMITTED THAT THE ASSUMP TION OF THE TRIBUNAL WITH REGARD TO NOT CARRYING OF SCIENTI FIC RESEARCH ACTIVITY IS FACTUALLY INCORRECT AND NOT GE RMINATED EITHER FROM THE ORDERS OF THE ASSESSING OFFICER OR SUBSEQUENT PRESENTATION BY THE DEPARTMENT BEFORE TH E TRIBUNAL. IT IS SUBMITTED THAT THE PROCESS OF ISOLA TION AND CHARACTERIZATION OF VIRUS/BACTERIA FROM THE AFFECTE D HUMANS/ ANIMALS IS THE FIRST STEP FOR DEVELOPMENT O F NEW VACCINES OR BIO-THERAPEUTICS, SUBSEQUENT TO THIS, T HE SAME NEED TO BE TESTED AND FURTHER DEVELOPED IN A HIGHLY CONTROLLED ENVIRONMENT, WHICH IS NORMALLY NOT AVAIL ABLE IN THE LABORATORY WHO ISOLATES THE BASIC VIRUS/BACTERI A. IN MANY OCCASIONS SUCH ISOLATED BACTERIA/VIRUS WILL NO T BE EITHER ACTIVE OR GROW IN PILOT SCALE OR IF IT GROWS , THE GROWTH MEDIA USED MAY NOT BE COMMERCIALLY VIABLE ME DIA 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 SEPARATIN G FROM THE HUMAN/ ANIMAL CELLS IN A LABORATORY, WHICH IS RECOGNIZED FOR SUCH PROCESS, IS DEVELOPED/MULTIPLIE D BY FEEDING THE APPROPRIATE FEED. A FAVOURABLE ENVIRONM ENT IS TO BE CREATED/FACILITATED FOR THE MULTIPLICATION OF THE MOLECULE. THE GROWTH OF THE MOLECULE WHICH IS BEING MA NOS. 7 TO 9/HYD/2014 M /S. BHARAT BIOTECH INTERNATIONAL LTD. ============================ 8 DEVELOPED IS EMBEDDED WITH IMPURITIES; THE PURIFICA TION PROCESS IS MOST IMPORTANT PART OF THE DEVELOPMENT PROCESS. THERE IS A POSSIBILITY OF LOSING THE ENTIR E DEVELOPED PRODUCT IN THE PROCESS OF PURIFICATION WH ICH 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 IMPRO VE 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 T O 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 PROC ESSED TO ENSURE AT THE COMMERCIAL LEVEL ALSO THE GROWTH I S OPTIMUM. AFTER THIS STAGE CLINICAL TRIALS OF THE DE VELOPED PRODUCT STARTS, UNDER THE PROTOCOLS DEVELOPED SCIEN TIFIC TEAM WHO ARE INVOLVED IN PRODUCT DEVELOPMENT BY A SPECIFICALLY TRAINED MEDICAL PERSONNEL. ON SUCCESS FUL COMPLETION OF PHASE-L CLINICAL TRIALS, PHASE-2 CLIN ICAL TRIALS ARE CONDUCTED AT THE ALLOTTED HOSPITALS TO CHECK TH E EFFICACY OF THE PRODUCT AFTER OBTAINING PERMISSION FROM THE APPROPRIATE AUTHORITIES. ONCE THE PRODUCT IS SUCCES SFUL IN PHASE-2 TRIAL, THE SAME IS TAKEN FOR PHASE-3 TRIAL, BEING CONDUCTED ON A LARGER GROUP OF VOLUNTEERS. ON SUCCE SSFUL TRIALS AND RECTIFICATIONS AT APPROPRIATE STAGES THE PRODUCT WOULD BE COMMERCIALIZED IF IT IS FEASIBLE TO PRODUC E THE SAME COMMERCIALLY. IT IS PERTINENT TO SUBMIT THAT T HE PRODUCT MAY PROVE TO BE A FAILURE AT ANY STAGE INCL UDING THE STAGE OF COMMERCIALIZATION. THEREFORE, IT IS SU BMITTED MA NOS. 7 TO 9/HYD/2014 M /S. BHARAT BIOTECH INTERNATIONAL LTD. ============================ 9 THAT THE ENTIRE PROCESS OF DEVELOPMENT FROM THE STA GE OF ISOLATION OF VIRUS / MOLECULE AND ESTABLISHING THE SAME AS FIT FOR FURTHER DEVELOPMENT OF PRODUCT AT PILOT SCA LE 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 T HE STAGE OF VIRUS / MOLECULE TO THE STAGE OF VACCINE IS NOT SCIENTIFIC RESEARCH. THE CIT(A) AFTER OBSERVING THE ENTIRE PR OCESS, MENTIONED VARIOUS STAGES OF PRODUCT DEVELOPMENT IN PARA 4.0 OF HIS ORDER AND HELD THAT THE PRODUCT DEVELOPM ENT EXPENDITURE IS RELATED TO SCIENTIFIC RESEARCH BY WA Y 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 MANUFACTURIN G OF VACCINES. THE ASSESSEE IS NOT DOING SCIENTIFIC RE SEARCH FOR OTHERS WHO ARE IN THE MANUFACTURING ACTIVITY. T HE SCIENTIFIC RESEARCH OF THE ASSESSEE IS PURELY RELAT ED 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 GEN ERATION OF MARKETABLE PRODUCT IS AFTER UNDERTAKING THE ENTI RE 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 EXP ENDITURE INCURRED IS CAPITAL EXPENDITURE IN NATURE, UNDER A WRONG MA NOS. 7 TO 9/HYD/2014 M /S. BHARAT BIOTECH INTERNATIONAL LTD. ============================ 10 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 TRIBU NAL 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 DEVELOPMEN T EXPENDITURE INCURRED IN QUESTION RELATES TO SCIENTI FIC RESEARCH WHICH WOULD FACILITATE EXTENSION OF THE APPELLANTS BUSINESS TO DEVELOP NEW VACCINES. THE DEPARTMENT ALSO HAS NOT PRODUCED ANY MATERIAL CONTR ARY TO THE FINDINGS OF THE COMMISSIONER (APPEAL). IT IS PERTINENT TO MENTION HERE THAT IN RESPECT OF FACT O F SCIENTIFIC RESEARCH WHICH WOULD FACILITATE THE APPE LLANTS BUSINESS THE ASSESSING OFFICER HAS NOT DISPUTED THE FACT. AS THE ASSESSEE IS INCURRING THE EXPENDITURE FOR TH E DEVELOPMENT OF THE VIRUS WHICH IS A SCIENTIFIC PROC ESS AND RESEARCH THEREFORE, THE ASSESSEE IS ELIGIBLE FOR TH E 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 W RONG PRESUMPTION THAT THE DEDUCTION HAS NOTHING TO DO SCIENTIFIC RESEARCH AND THE ASSESSEE HAS NOT CARRIE D ANY SCIENTIFIC ACTIVITY, THIS BEING THE PREMISE ON WHIC H THE ORDER IS PASSED, CONFIRMING THE OBSERVATION OF THE ASSESSING OFFICER, WE RESPECTFULLY SUBMIT THAT, THE ASSESSEE IS IN THE BUSINESS OF SELLING HUMAN VACCIN E DEVELOPED THROUGH ITS EXTENSIVE RESEARCH AND DEVELO PMENT WORK OR COLLABORATIVE RESEARCH WORK, AS THIS BEING THE STANDARD PROCESS ADOPTED BY VARIOUS BIOTECH COMPANI ES FOR COMMERCIALIZATION OF THE EACH PRODUCT TO EXTENT / EXPAND ITS LINE OF BUSINESS. AT NO POINT OF TIME, T HE ASSESSEE IS INVOLVED DIRECTLY SELLING ITS RESEARCH OUTCOME TO A THIRD PARTY AS TECHNOLOGY TRANSFER, THE ASSESS EE MA NOS. 7 TO 9/HYD/2014 M /S. BHARAT BIOTECH INTERNATIONAL LTD. ============================ 11 ALWAYS USED THE OUTCOME OF RESEARCH AND DEVELOPMENT FOR MANUFACTURING AND SELLING OF HUMAN VACCINES, THEREF ORE, THE TRIBUNAL IS PLEADED TO RECALL THE ORDER IN RESP ECT 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 DEVELOPMEN T IS IN THE NATURE OF RESEARCH EXPENDITURE CANNOT BE ACC EPTED. SUBSEQUENTLY THE LEARNED ASSESSING OFFICER ALSO OBS ERVED AS THE EXPENDITURE INCURRED BY THE ASSESSEE IS TOWA RDS 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 PRODU CTS AND COMMERCIALIZATION OF THE PRODUCTS ACCRUING ENDU RING 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 INCUR RED 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 OFF ICER AT LATER STAGE IS EXACTLY CORRECT, TRUE AND FACTUAL. O NCE THE PRODUCT WHICH IS BEING DEVELOPED ATTAINS THE STAGE OF MA NOS. 7 TO 9/HYD/2014 M /S. BHARAT BIOTECH INTERNATIONAL LTD. ============================ 12 FINALITY AND PROVES ITS CAPACITY/EXCELLENCE THE ASS ESSEE WILL APPROACH THE APPROPRIATE AUTHORITY FOR THE PAT ENT OF THE PRODUCT AS OBSERVED BY THE LEARNED ASSESSING OF FICER. A PATENT RIGHT IN ITS USUAL SIGNIFICANCE MEANS A PR IVILEGE GRANTED BY THE GOVERNMENT TO FIRST INVENTOR OF A NE W USEFUL DISCOVERY OR MODE OF MANUFACTURE THAT HE SHA LL BE ENTITLED DURING A LIMITED PERIOD TO THE EXCLUSIVE U SE AND BENEFIT THEREOF. THEREFORE, IT IS RESPECTFULLY SUBM ITTED 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 SUCCES SFULLY DEVELOPED WILL YIELD PATENT RIGHTS TO THE ASSESSEE .I.E. IN OTHER WORDS THE ASSESSING OFFICER STATES THAT IN RE SPECT 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 EXPENDI TURE INCURRED IS FOR SCIENTIFIC RESEARCH THEREFORE, ELIG IBLE FOR DEDUCTION U/ S 35 OF THE IT ACT. THIS FACT OF OBSER VATION BY THE ASSESSING OFFICER IS ALSO RECORDED BY THE TR IBUNAL IN PARA 3 OF THEIR ORDER HOWEVER, INADVERTENTLY NO ATTENTION WAS PAID IN RESPECT OF THIS OBSERVATION O F THE ASSESSING OFFICER REGARDING OBTAINING OF PATENT RIG HTS. 10. THE LEARNED DR SUBMITTED THAT THE ABOVE ARGUMENT OF THE ASSESSEE'S COUNSEL IS NOTHING BUT SEEKING RE VIEW OF EARLIER ORDER OF THE TRIBUNAL WHICH POWER THE TRIBU NAL DOES NOT HAVE. BEING SO, THE SAME IS TO BE REJECTE D. 11. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. ON EXAMINATION OF ORDER OF THE MA NOS. 7 TO 9/HYD/2014 M /S. BHARAT BIOTECH INTERNATIONAL LTD. ============================ 13 TRIBUNAL DATED 31.7.2013, IT IS FOUND THAT THE TRIB UNAL RECORDED THE FACTS RELATING TO THE ISSUE INVOLVED I N THE APPEALS OF THE REVENUE AS WELL AS THE CASE-LAW ON W HICH 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 T RIBUNAL, AFTER CLEARLY NARRATING THE RELEVANT FACTS IN ITS O RDER AND ALSO RECORDING THE SUBMISSIONS OF BOTH THE PARTIES AND CASE-LAW ON WHICH RELIANCE WAS PLACED BY THEM, REAC HED 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 TH ERE WAS A MISTAKE OF FACTS, IS NOT CORRECT. THE AR OF THE ASSESSEE HAS NOT BEEN ABLE TO POINT OUT ANY MATERIAL EVIDENC E WHICH HAS BEEN IGNORED OR ANY OTHER OMISSION ON THE PART OF THE TRIBUNAL WHILE DECIDING THE ISSUE RELATING T O 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 RE CORDED BY THIS TRIBUNAL. IF THIS PRAYER OF THE ASSESSEE IS C ONSIDERED AND ALLOWED THEN IT AMOUNTS TO REVIEW OF EARLIER OR DER 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 CI VIL PROCEDURE CODE. THE WORDS USED IN SECTION 254(2) AR E 'SHALL MAKE SUCH AMENDMENTS, IF THE MISTAKE IS BROU GHT TO ITS NOTICE. CLEARLY, IF THERE IS A MISTAKE, THEN AN AMENDMENT IS REQUIRED TO BE CARRIED OUT IN THE ORIG INAL ORDER TO CORRECT THAT PARTICULAR MISTAKE. THE PROVI SION DOES NOT INDICATE THAT THE TRIBUNAL CAN RECALL THE ENTIRE ORDER AND PASS A FRESH DECISION. THAT WOULD AMOUNT TO A MA NOS. 7 TO 9/HYD/2014 M /S. BHARAT BIOTECH INTERNATIONAL LTD. ============================ 14 REVIEW OF THE ENTIRE ORDER AND THAT IS NOT PERMISSI BLE UNDER THE INCOME TAX ACT. THE POWER TO RECTIFY A MI STAKE UNDER SECTION 254(2) CANNOT BE USED FOR RECALLING T HE ENTIRE ORDER. NO POWER OF REVIEW HAS BEEN GIVEN TO THE TRIBUNAL UNDER THE INCOME-TAX ACT. THUS, WHAT IT CO ULD NOT DO DIRECTLY COULD NOT BE ALLOWED TO BE DONE IND IRECTLY. THIS PROPOSITION ALSO FINDS SUPPORT FROM PROVISO TO RULE 34A(3) OF ITAT RULES, 1963 WHICH PROHIBITS EVEN POS TING OF MISCELLANEOUS APPLICATION FOR HEARING IF IT PRIM A FACIE APPEARS TO BE A PETITION FOR REVIEW. THIS PROVISO I S 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 SPECIFICA LLY EMPOWERS THE CIVIL COURTS TO REVIEW THEIR ORDERS. T HIS 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 MA NOS. 7 TO 9/HYD/2014 M /S. BHARAT BIOTECH INTERNATIONAL LTD. ============================ 15 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 O F THE ASSESSEE'S COUNSEL. ACCORDINGLY, THIS ARGUMENT OF THE ASSESSEE'S COUNSEL IS REJECTED SUBJECT TO OUR FINDI NG 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 SEC TION 35(3) WHILE DISALLOWING THE CLAIM. THE RELEVANT PAR T 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 REFE R 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 CO NSTITUTES OR CONSTITUTED OR ANY ASSET IS OR WAS BEING USED FO R, SCIENTIFIC RESEARCH, THE BOARD SHALL REFER THE QUES TION 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; MA NOS. 7 TO 9/HYD/2014 M /S. BHARAT BIOTECH INTERNATIONAL LTD. ============================ 16 (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 TH E CLAIM OF THE ASSESSEE IN RESPECT OF THE EXPENDITURE INCUR RED 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 STA TUE PROVIDES FOR A PARTICULAR PROCEDURE THE AUTHORITY H AS TO FOLLOW THE SAME AND CANNOT BE PERMITTED TO ACT IN CONTRAVENTION OF THE SAME. BEING THE CREATIONS OF T HE ACT THE LEARNED ASSESSING OFFICER AND THE TRIBUNAL CANN OT DECIDE THE CLAIM AGAINST THE ASSESSEE WITHOUT FOLLO WING THE PROCEDURE LAID DOWN IN THE ACT. RELIANCE IS PLA CED ON THE ALLAHABAD HIGH COURT DECISION IN THE CASE OF CI T VS RAJIV SHARMA 336 ITR 678 (2010). IN VIEW OF THE ABO VE 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 NOTHI NG 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 NO T AT ALL BEFORE THE LOWER AUTHORITIES AS WELL AS THE TRIBUNA L. BEING SO, IT CANNOT BE CONSIDERED BY THE TRIBUNAL AT THIS STAGE. THE DR SUBMITTED THAT THE ASSESSEE WAS NOT IN APPEA L MA NOS. 7 TO 9/HYD/2014 M /S. BHARAT BIOTECH INTERNATIONAL LTD. ============================ 17 BEFORE THE TRIBUNAL OR FILED ANY CROSS OBJECTION. AS SUCH THE ASSESSEE CANNOT SEEK THE ABOVE RELIEF AT THIS S TAGE. 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 CH ALLENGE 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 FILIN G A CROSS APPEAL OR CROSS OBJECTION. ON THIS ISSUE, THE PARTIES HAVE ADVANCED ARGUMENTS IN RELATION TO THE POWERS O F ITAT. IN THE CONTEXT OF CONTROVERSY RELATING TO POW ER OF THE TRIBUNAL, AS ARGUED BEFORE US, WE CONSIDER IT PROPE R TO REFER TO THE RELEVANT STATUTORY PROVISIONS CONTAINE D 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', REQUIR E INTERPRETATION IN THE CONTEXT OF LEGISLATIVE INTENT ION BEHIND INTRODUCING THESE WORDS, WHICH WAS TO CLOTHE THE TR IBUNAL WITH BROAD POWER AND NOT TO RESTRICT ITS POWER TO T HE MATTERS RAISED OR COMPLAINED BY THE ASSESSEE BUT TO MA NOS. 7 TO 9/HYD/2014 M /S. BHARAT BIOTECH INTERNATIONAL LTD. ============================ 18 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 BEFO RE 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 CONFE RS A RIGHT OF APPEAL AND PERMITS AN ORDER OF A TRIAL C OURT 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 CO URT 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 WIT H APPEALS ARE EXPRESSED IN SECTION 33(4) OF THE INCOM E MA NOS. 7 TO 9/HYD/2014 M /S. BHARAT BIOTECH INTERNATIONAL LTD. ============================ 19 TAX ACT IN THE WIDEST POSSIBLE TERMS. THE WORD 'THEREON' IN SECTION 33(4) RESTRICTS THE JURISDICTI ON OF THE TRIBUNAL TO THE SUBJECT-MATTER OF THE APPEAL. T HE WORDS 'PASS SUCH ORDER AS THE TRIBUNAL THINKS FIT' INCLUDE ALL THE POWERS (EXCEPT POSSIBLY THE POWER O F ENHANCEMENT) WHICH ARE CONFERRED ON THE APPELLATE ASSISTANT COMMISSIONER BY SECTION 31 CONSEQUENTLY, THE TRIBUNAL HAS AUTHORITY UNDER SECTION 33 TO DIRE CT THE APPELLATE ASSISTANT COMMISSIONER OR THE INCOME TAX OFFICER TO HOLD A FURTHER ENQUIRY AND DISPOSE O F 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 AUTHORIT Y 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 (199 0) 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 TH E ORIGINAL AUTHORITY MAY HAVE IN DECIDING THE QUESTIO N BEFORE IT SUBJECT TO THE RESTRICTIONS OR LIMITATION S, IF MA NOS. 7 TO 9/HYD/2014 M /S. BHARAT BIOTECH INTERNATIONAL LTD. ============================ 20 ANY, PRESCRIBED BY THE STATUTORY PROVISIONS. IN THE ABSENCE OF ANY STATUTORY PROVISION, THE APPELLATE AUTHORITY IS RESTED WITH ALL THE PLENARY POWERS WHI CH THE SUBORDINATE AUTHORITY MAY HAVE IN THE MATTER. THERE IS NO GOOD REASON TO JUSTIFY CURTAILMENT OF T HE 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 INTERE ST 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 FIRS T 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 MA NOS. 7 TO 9/HYD/2014 M /S. BHARAT BIOTECH INTERNATIONAL LTD. ============================ 21 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-SECT ION (1A) OF SECTION 214 AND TO APPLY THE SAME WHILE DECIDING THE QUANTUM OF INTEREST. THE SAID PROVISIO N 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 T HE TRIBUNAL TO CONSIDER THE LAW AS IT EXISTED THEN EVE N THOUGH THE ASSESSEE FAILED TO BRING IT TO ITS NOTIC E. 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 TAXAB LE 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 O F HIS DUTY TO APPLY SECTION 24 IN AN APPROPRIATE CASE .' IT IS DIFFICULT FOR US TO SAY THAT THE PRINCIPLE EM ERGING 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 PRINCIPL E CAN EQUALLY BE APPLIED TO THE CASES COMING BEFORE T HE MA NOS. 7 TO 9/HYD/2014 M /S. BHARAT BIOTECH INTERNATIONAL LTD. ============================ 22 INCOME TAX APPELLATE TRIBUNAL. ALSO REFER TO THE DECISION OF THIS COURT IN PAREKH BROTHERS V. CIT (1 984) 150 ITR 105. IN THE RESULT, THE QUESTION REFERRED T O US FOR DECISION IS ANSWERED IN THE AFFIRMATIVE, THAT I S 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 PO WERS OF THE TRIBUNAL ARE CO-EXTENSIVE WITH THE POWERS OF TH E ASSESSING OFFICER AND THAT OF THE FIRST APPELLATE A UTHORITY AND ARE, IN FACT, WIDER POWERS THAN THOSE AUTHORITI ES, SUBJECT TO THE LIMITATION THAT THE TRIBUNAL DOES NO T 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 ITA T 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 I MPLIED OR IMPOSED IN THE EXERCISE OF APPELLATE JURISDICTIO N OF THE TRIBUNAL FOR ADJUDICATING THE SUBJECT-MATTER IN APP EAL 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 LAMINA TES (P) LTD. (1990) 186 ITR 722 (SC). IN THAT CASE THE HON' BLE MA NOS. 7 TO 9/HYD/2014 M /S. BHARAT BIOTECH INTERNATIONAL LTD. ============================ 23 SUPREME COURT, WHILE EXAMINING THE POWERS OF CUSTOM S, EXCISE & GOLD (CONTROL) APPELLATE TRIBUNAL, OBSERVE D AS UNDER: 'THERE IS NO DOUBT THAT THE TRIBUNAL FUNCTIONS AS A COURT WITHIN THE LIMITS OF ITS JURISDICTION. I T 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 TH E 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 A NY QUESTION WHICH IS MATERIAL TO THE SUBJECT MATTER EV EN 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). MA NOS. 7 TO 9/HYD/2014 M /S. BHARAT BIOTECH INTERNATIONAL LTD. ============================ 24 23. IN THE CASE OF POKHRAJ HIRACHAND V. CIT(1963) 49 ITR 293 (BOM), IT WAS HELD THAT THE TRIBUNAL IN DEC IDING THE APPEAL, SHALL NOT BE CONFINED TO THE GROUNDS SE T 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 NO T 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 ADJUD ICATED 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 ELECTRI CITY CO. LTD. V. CIT (1993) 199 ITR 351 (BOM) (FB), THE SUBJECT-MATTER OF APPEAL IS THE ENTIRE TAX PROCEEDI NGS OF THE ASSESSEE WHICH IS BEFORE THE TRIBUNAL FOR CONSIDERATION AND THIS WILL COVER THE PROCEEDINGS B EFORE THE ASSESSING OFFICER, BEFORE THE FIRST APPELLATE A UTHORITY AS WELL AS BEFORE THE TRIBUNAL, INCLUDING THE GROUN DS 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 V IEW OF THE SAID DECISION IT IS CLEAR THAT THE VIEW THAT TRIBUN AL IS CONFINED ONLY TO ISSUES ARISING OUT OF THE APPEAL B EFORE 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 ELECTRIC ITY CO. LTD. (SUPRA), HAS BEEN FOLLOWED AND APPLIED IN THE CASE MA NOS. 7 TO 9/HYD/2014 M /S. BHARAT BIOTECH INTERNATIONAL LTD. ============================ 25 OF NATIONAL THERMAL POWER CO. LTD. V. CIT (1998) 22 9 ITR 383 (SC). 27. THE HON'BLE SUPREME COURT IN THE CASE OF NATIONAL THERMAL POWER CO. LTD. V. CIT (1998) 229 ITR 383 (S C), 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 S UPREME 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.' MA NOS. 7 TO 9/HYD/2014 M /S. BHARAT BIOTECH INTERNATIONAL LTD. ============================ 26 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 HA S BEEN TAKEN OR NOT. THE EXPRESSION 'AS IT THINKS FIT', OC CURRING 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 AUTH ORITY AND FURTHER APPEAL TO THE TRIBUNAL ARE PARTS OF AN INTEGRATED PROCESS. IT WAS FURTHER HELD THAT THE TR IBUNAL HAS TO CONSIDER THE ORDERS PASSED BY THE AUTHORITIE S BELOW IN THE LIGHT OF LAW APPLICATION TO THOSE AUTHORITIE S. 29. THE EXTENT AND SCOPE OF THE POWERS OF THE TRIBUNAL AS WELL AS THE LEGAL OBLIGATION CAST UPON IT, HAS B EEN ELUCIDATED IN CLEAR AND CATEGORICAL TERMS BY THE HO N'BLE MADRAS HIGH COURT IN THE CASE OF CIT V. RAYALA CORP N. (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 MA NOS. 7 TO 9/HYD/2014 M /S. BHARAT BIOTECH INTERNATIONAL LTD. ============================ 27 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 VARIOU S HON'BLE COURTS, AS REFERRED TO ABOVE, IT IS THE DUT Y OF THE TRIBUNAL TO CONSIDER THE SUBJECT-MATTER OF THE APPE AL AND PASS 'SUCH ORDERS' AS ARE REQUIRED TO ADJUDICATE TH E SUBJECT-MATTERS BEFORE IT. IF FOR ADJUDICATING VARI OUS ASPECTS OF THE SUBJECT-MATTER OR MATTERS INCIDENTAL THERETO, AN ORDER OR DIRECTION IS REQUIRED TO BE IS SUED, THEN, 'SUCH ORDER' OR 'DIRECTIONS' ARE LEGALLY JUST IFIED 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. TH US, WHERE PARTICULAR ISSUE HAS BEEN OMITTED TO BE CONSI DERED OR HAS NOT BEEN ADJUDICATED PROPERLY OR WHERE PERVE RSE FINDINGS HAVE BEEN RECORDED IN TOTAL DISREGARD OF T HE MATERIAL ON RECORD, THE TRIBUNAL IS COMPETENT ENOUG H TO SET ASIDE THE ORDER OF THE LOWER APPELLATE AUTHORIT Y TO THAT EXTENT, ALTHOUGH NO SPECIFIC GROUND IS TAKEN FOR TH AT PURPOSE BY THE CONCERNED PARTY. THUS, IN A GIVEN SITUATION, FIRSTLY, THERE IS AN OBLIGATION ON THE P ART OF THE TRIBUNAL TO CONSIDER THE SUBJECT-MATTER OF APPEAL A ND MA NOS. 7 TO 9/HYD/2014 M /S. BHARAT BIOTECH INTERNATIONAL LTD. ============================ 28 SECONDLY TO ISSUE EFFECTIVE DIRECTIONS FOR ADJUDICA TING THE SUBJECT-MATTER OF APPEAL, WHICH, AS OBSERVED EARLIE R, 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 AS SESSEE DID NOT SEEK ANY RELIEF FROM THE TRIBUNAL. AS OBSER VED EARLIER, IN ORDER TO EFFECTIVELY ADJUDICATING THE I SSUE AND THE SUBJECT-MATTER, SUCH DUTY IS CAST UPON THE TRIB UNAL. TO CONCLUDE, DIRECTION SHOULD BE ISSUED TO THE AUTH ORITIES FOR DECIDING SUCH ISSUES, AS SUCH DIRECTIONS ARE ESSENTIALLY INCIDENTAL TO THE SUBJECT-MATTER AND MI STAKE ON THE PART OF THE TRIBUNAL IN NOT DECIDING THE ISS UE CAN BE RECTIFIED BY AMENDING ITS EARLIER ORDER. THE PO WER 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 SH ETH CONSTRUCTION CO. V. ITO (2005) 274 ITR 304 (GUJ). I N THAT CASE IN THE ASSESSMENT FOR ASSESSMENT YEAR 1994-95 THE ASSESSING OFFICER MADE ADDITION ON ACCOUNT OF BAD D EBTS OF RS. 70,025 AND ON ACCOUNT OF DISALLOWANCE OF INTERE ST PAYMENT OF RS. 6,580. THE ASSESSEE CHALLENGED THESE ADDITIONS BEFORE THE COMMISSIONER (APPEALS). A PRELIMINARY OBJECTION WAS ALSO RAISED BY THE ASSESS EE 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 ADJUD ICATE THE ORIGINAL GROUNDS OF APPEAL WHICH CHALLENGED THE TWO MA NOS. 7 TO 9/HYD/2014 M /S. BHARAT BIOTECH INTERNATIONAL LTD. ============================ 29 ADDITIONS REFERRED TO ABOVE. ON APPEAL, THE TRIBUNA L FOUND THAT THERE WAS A VALID ASSESSMENT ORDER WHICH BORE THE SIGNATURES OF THE ASSESSING OFFICER AS TWO DIFFEREN T PLEAS, HENCE THE TRIBUNAL ALLOWED THE DEPARTMENT'S APPEAL AND RESTORED THE, ORDER OF ASSESSING OFFICER. ON FURTHE R APPEAL TO THE HIGH COURT THE ORDER OF THE TRIBUNAL WAS SUP PORTED 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 COMMISSIO NER (APPEALS) IN HAVING FAILED TO DECIDE THE ORIGINAL G ROUNDS OF APPEAL. THE FOLLOWING QUESTION AROSE FOR THE DECISI ON 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- MA NOS. 7 TO 9/HYD/2014 M /S. BHARAT BIOTECH INTERNATIONAL LTD. ============================ 30 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 RESTORE D 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 B EFORE HIM. 36. AS OBSERVED BY THE HON'BLE SUPREME COURT IN THE CASE OF NATIONAL THERMAL POWER CO. LTD. (SUPRA), TH E POWER OF THE TRIBUNAL IN DEALING WITH THE APPEALS I S VERY WIDE AND WHILE EXERCISING THE STATUTORY AUTHORITY A ND STATUTORY DUTY, IT HAS GOT ALL POWERS WHICH ARE REA SONABLY NECESSARY FOR THE ACCOMPLISHMENT OF THE OBJECT INTE NDED TO BE SECURED. HENCE, WHEREAS THE TRIBUNAL HAS NO P OWER TO RECALL AND REVIEW ITS ORDERS, IN VIEW OF THE DEC ISIONS OF JURISDICTIONAL HIGH COURT IN THE CASES OF VICHTRA CONSTRUCTION (P) LTD. (SUPRA) AND MAYUR RECREATIONA L & DEVELOPMENT LTD. (SUPRA), IT HAS GOT POWER TO AMEND THE ORDER IF THE PROPER ADJUDICATION OF THE SUBJECT-MAT TER SO WARRANTS. THUS, IN A GIVEN SITUATION, LIKE THE ONE BEFORE US, THE ORDER MAY NOT BE RECALLED BUT AT THE SAME T IME IT MAY REQUIRE AMENDMENT BY MAKING ADDITIONS. SUCH AN AMENDMENT OR ADDITION BEING DIFFERENT FROM REVIEW O F THE ORDER, IS VERY MUCH PERMISSIBLE WITHIN THE SCOPE OF POWERS UNDER SECTION 254(2) OF THE INCOME TAX ACT, 1961. MA NOS. 7 TO 9/HYD/2014 M /S. BHARAT BIOTECH INTERNATIONAL LTD. ============================ 31 37. THUS, ON PROPER EXAMINATION OF SECTION 254(2) OF THE INCOME TAX ACT, REPRODUCED IN PARA 18 OF THIS O RDER, IT IS CLEAR THAT THE TRIBUNAL IS UNDER LEGAL OBLIGATIO N 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 FAILE D 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 S UCH AMENDMENT' IN ITS ORDER AS ARE NECESSARY FOR CORREC TING SUCH MISTAKE. THUS, IN VIEW OF THE LANGUAGE ADOPTED IN SUB-CLAUSE (2), AS REFERRED TO ABOVE, IT IS MANDATO RY 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 AUTHORI TY 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 APPEA LS AND MISCELLANEOUS APPLICATIONS UNDER SECTIONS 254(1 ) AND 254(2) OF THE ACT AND ON THE ANALYTICAL APPRECIATIO N OF THE PROPOSITIONS LAID DOWN IN VARIOUS DECISIONS IN RELA TION TO MA NOS. 7 TO 9/HYD/2014 M /S. BHARAT BIOTECH INTERNATIONAL LTD. ============================ 32 THE POWERS OF THE TRIBUNAL REFERRED TO ABOVE, WE CA N 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 MA NOS. 7 TO 9/HYD/2014 M /S. BHARAT BIOTECH INTERNATIONAL LTD. ============================ 33 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. MA NOS. 7 TO 9/HYD/2014 M /S. BHARAT BIOTECH INTERNATIONAL LTD. ============================ 34 (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 TR IBUNAL 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 INS IST 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 APPE AL, THE TRIBUNAL HAS TO UNDERTAKE A MEANINGFUL AND EFFECTIV E EXERCISE OF ITS JURISDICTION TO ENSURE AND PROVIDE SUBSTANTIAL JUSTICE IN RELATION TO THE SUBJECT MATT ER UNDER ITS CONSIDERATION. FOR DOING SO, IT HAS THE POWER TO 'PASS SUCH ORDERS THEREON AS IT THINKS FIT', IN VIEW OF T HE 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 IN TO THE APPLICABILITY OF PROVISIONS OF S. 35(3) OF THE ACT. AS SUCH IT HAS NOT GIVEN FINDINGS ON THIS ISSUE. AS THE TRIBU NAL FAILED TO GIVE ANY DIRECTION ON APPLICABILITY OF SE CTION 35(3) ON ASSESSEE'S CASE IT AMOUNTS TO A MISTAKE ON THE P ART OF MA NOS. 7 TO 9/HYD/2014 M /S. BHARAT BIOTECH INTERNATIONAL LTD. ============================ 35 THE TRIBUNAL. THERE IS AN OBLIGATION AND IT IS THE DUTY OF THE TRIBUNAL TO CONSIDER APPLICATION OF ALL THE PRO VISIONS SO AS TO DISPENSE THE JUSTICE WHILE ADJUDICATING AN Y APPEAL BEFORE IT. THERE WAS AN OBLIGATION ON THE P ART OF THE TRIBUNAL TO GIVE FINDINGS ON THE APPLICABILITY OF S. 35(3) SO AS TO PREVENT MISCARRIAGE OF JUSTICE AND TO ENSU RE SUBSTANTIAL JUSTICE IN RELATION TO THE SUBJECT MATT ER OF APPEAL AS PRAYED BY THE ASSESSEE IN ITS SECOND GROU ND 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) A S 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 MA NOS. 7 TO 9/HYD/2014 M /S. BHARAT BIOTECH INTERNATIONAL LTD. ============================ 36 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 HONBLE MADHYA PRADESH HIGH COURT IN THE CASE OF PRITHVIRAJ CHOUHAN VS. CIT (267 ITR 450) HE LD 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 TRIBU NAL HAD RECTIFIED ITS MISTAKE. THIS WAS A MISTAKE APPARENT FROM THE RECORD AND THE TRIBUNAL WAS CORRECT IN RECTIFYING THE MISTAKE.' MA NOS. 7 TO 9/HYD/2014 M /S. BHARAT BIOTECH INTERNATIONAL LTD. ============================ 37 45. THE HONBLE KERALA HIGH COURT IN THE CASE OF CIT VS . QUILON MARINE PRODUCE CO. (157 ITR 448) HELD AS UND ER: '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 TH E 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 OU R ORDER ON THE MAIN ISSUE WITH REGARD TO ALLOWABILITY OF DE DUCTION U/S. 35(1), WE CONSIDER IT NECESSARY TO HEAR BOTH T HE PARTIES ON THE ISSUE RELATING TO APPLICABILITY OF P ROVISIONS OF SECTION 35(3) OF THE ACT. ACCORDINGLY, WE AMEND THE TRIBUNAL ORDER TO THAT EXTENT AND DIRECT THE REGIST RY OF THE TRIBUNAL TO POST THESE CASES FOR HEARING ON 6.10.20 14 FOR THE LIMITED PURPOSE OF DECIDING THE ISSUE ON APPLIC ABILITY OF PROVISIONS OF SECTION 35(3) OF THE ACT. THE FI NAL RESULT OF THE REVENUE APPEALS WOULD DEPEND UPON THE OUTCOM E OF ADJUDICATION OF ISSUE RELATING TO APPLICABILITY OF PROVISIONS OF SECTION 35(3) OF THE ACT BY THE TRIBU NAL. MA NOS. 7 TO 9/HYD/2014 M /S. BHARAT BIOTECH INTERNATIONAL LTD. ============================ 38 47. IN THE RESULT, ALL THE MAS FILED BY THE ASSESSEE AR E PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH MAY, 2014 SD/ - (SAKTIJIT DEY) JUDICIAL MEMBER SD/ - (CHANDRA POOJARI) ACCOUNTANT MEMBER HYDERABAD, DATED THE 30 TH 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, 4 TH FLOOR, AAYAKAR BHAVAN, HYDERABAD-500 004. 3. THE CIT(A)-II, HYDERABAD. 4. THE CIT-I, HYDERABAD. 5. THE DR 'B' BENCH, ITAT, HYDERABAD