2006 (10) TMI 125 - HC - Income Tax

Income Tax Rectification Order Overturned: Limits of Section 254(2) Affirmed, No Indirect Review Allowed.

Commissioner of Income Tax Versus Hindustan Coca Cola Beverages (P) Ltd.

The HC set aside the ITAT's order of rectification under Section 254(2) of the Income Tax Act, 1961, deeming it legally unsustainable. The court ... Application u/s 254(2) - mistake apparent in the order passed by the Tribunal - Not adjudicated particular ground - HELD THAT:- Where it is shown to this court in appeal that a ground that has been specifically raised in the memo of appeal before the Tribunal has not been considered by it, that can persuade this court, if the circumstances so justify, to remand the case to the Tribunal for consideration of that ground. What clearly appears to have happened here is that having failed to urge this ground in the appeal before this court, the assessee took a chance by filing a rectification application on that very ground before the Tribunal after the dismissal of the appeal by this court and nearly two years after the Tribunal's first order. This, to our mind, was an attempt at doing indirectly what could not be done directly, i.e., seeking a review of an order of the Tribunal that had already attained finality. Since on the facts of the present case we are of the view that there was no mistake apparent from the record in respect of its earlier order dated July 12, 2002, warranting the exercise by the Tribunal of its power of rectification u/s 254(2) of the Act, we do not consider it necessary to discuss in detail the cases cited by the counsel for the assessee. We may nevertheless refer to the decision rendered by us today in CIT v. Honda Siel Power Products Ltd.[2006 (10) TMI 67 - HIGH COURT, DELHI] where we have given detailed reasons explaining the narrow scope of the power of rectification u/s 254(2). Thus, we are of the view that the impugned order of the Tribunal dated September 13, 2004, cannot be sustained in law and it is accordingly set aside. The appeal is allowed with no order as to costs. Issues:1. Rectification of order by Income Tax Appellate Tribunal (ITAT) under Section 254(2) of the Income Tax Act, 1961.2. Consideration of Ground 7 in the memo of appeal before the ITAT.3. Interpretation of the scope of rectification under Section 254(2) of the Act.4. Finality of ITAT's order and the permissibility of seeking rectification after dismissal of appeal.5. Comparison between rectification and review powers of the Tribunal.Analysis:1. The appeal challenged the ITAT's order recalling its earlier decision to adjudicate on Ground 7 raised by the respondent assessed. The ITAT allowed the rectification application under Section 254(2) of the Act, citing the missed consideration of the specific ground as a rectifiable mistake.2. The central issue revolved around Ground 7, where the respondent contended that the assessed was not liable to pay the short deduction of tax. The ITAT's initial order addressed this contention, emphasizing the assessed's obligation to deduct tax regardless of the payee's tax settlement status.3. The appellant argued that the ITAT erred in recalling its order, asserting that the point in Ground 7 was adequately addressed in the first decision. The appellant relied on precedents to support the argument that the recall was beyond the scope of Section 254(2) of the Act.4. The High Court noted that the ITAT's initial order had already attained finality after dismissal of the appeal. The respondent's attempt to rectify the order on Ground 7 post-appeal dismissal was deemed an indirect review, which was impermissible under the Act.5. The High Court clarified the distinction between rectification and review powers of the Tribunal. It emphasized that rectification is limited to correcting mistakes apparent from the record and cannot be used as a means to review or recall an order. The Court highlighted the risk of parties exploiting rectification for strategic advantages post-appeal deadlines.In conclusion, the High Court set aside the ITAT's order of rectification, finding it legally unsustainable. The appeal was allowed with no costs awarded.