Rectification u/s 254(2) invalid when it merely changes interpretation of loans deduction u/s 84

HC held that the Tribunal had exceeded its jurisdiction under section 254(2) by rectifying its appellate order on the ground of an alleged "mistake apparent from the record." The Tribunal had earlier considered the relevant provisions, treated loans from a financial corporation as borrowed money and debt due, and deducted them in computing capital employed under section 84. The subsequent order, passed on the assessee's application, merely substituted a different interpretative view, which amounted to an impermissible review rather than rectification. HC therefore ruled that the rectification under section 254(2) was invalid and restored the original appellate order.

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Issues Involved:
1. Rectification of appellate order u/s 254(2) of the Income-tax Act, 1961.
2. Mistake apparent from the record u/s 154 of the Income-tax Act, 1961.

Summary:

Issue 1: Rectification of Appellate Order u/s 254(2) of the Income-tax Act, 1961
The Tribunal had initially dismissed the assessee's appeal, upholding the Income-tax Officer's (ITO) rectification order dated June 21, 1973, which deducted secured loans from the capital employed for relief computation u/s 84 of the Act. The assessee filed a miscellaneous application u/s 254(2) for rectification, arguing that the Tribunal failed to consider a debatable issue regarding the deduction of secured loans. The Tribunal accepted this application, citing the Calcutta High Court's decision in Century Enka Ltd. v. ITO [1977] 107 ITR 909, and concluded that the issue was debatable, thus not suitable for rectification u/s 154. Consequently, the Tribunal vacated the ITO's order dated June 21, 1973.

The High Court held that the Tribunal erred in rectifying its appellate order u/s 254(2). It emphasized that a mistake apparent from the record must be obvious and patent, not requiring elaborate reasoning or involving debatable issues. The Tribunal's subsequent order amounted to a review, which it had no jurisdiction to do. The High Court concluded that the Tribunal's initial interpretation was one of the possible views, and the subsequent change was not a rectification but a review.

Issue 2: Mistake Apparent from the Record u/s 154 of the Income-tax Act, 1961
Given the High Court's decision on the first issue, the second issue regarding the mistake apparent from the record u/s 154 became redundant and was returned unanswered.

Conclusion:
The High Court answered question No. 1 in the negative, holding that the Tribunal was not right in law in rectifying its appellate order u/s 254(2) of the Act. Consequently, question No. 2 was deemed redundant and returned unanswered. The judgment was in favor of the Revenue and against the assessee.

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