2006 (2) TMI 158 - HC - Income Tax

Court sets aside Tribunal order, rules in favor of Revenue on rectification under Income-tax Act

The High Court allowed the Revenue's appeal, setting aside the Tribunal's order that recalled the original appellate decision. The Court ruled in favor of ... Tribunal allowed assessee’s ROM application - power to rectify the mistake is confined to only those errors which are apparent from record – power u/s 254 (2) can’t be exercised unless a grave error from records is apparent - Mere mention that there is an error, the Tribunal did not assume jurisdiction to recall their well reasoned order passed in favour of revenue - Tribunal, while hearing the application u/s 254(2), cannot act as an appellate court – Tribunal’s order set aside Issues involved:1. Interpretation of provisions under section 80HH and 80-I of the Income-tax Act, 1961.2. Jurisdiction of the Tribunal to entertain applications for rectification under section 254(2) of the Act.Issue 1: Interpretation of provisions under section 80HH and 80-I:The case involved a dispute regarding the treatment of voluntarily surrendered income by an assessee engaged in ginning business for the assessment year 1992-93. The key question was whether the surrendered income could be considered as derived from the industrial undertaking, making the assessee eligible for deductions under sections 80HH and 80-I of the Act. The Assessing Officer initially denied the benefit, but the Commissioner of Income-tax (Appeals) ruled in favor of the assessee. However, the Tribunal, on appeal by the Revenue, held that the surrendered income did not qualify as income derived from the industrial undertaking. The Tribunal emphasized that the assessee was attempting to convert black money into white by claiming deductions not legitimately available. The Tribunal scrutinized the facts in detail, emphasizing the need for evidence that the concealed income was indeed derived from industrial activity to qualify for deductions under the relevant sections.Issue 2: Jurisdiction of the Tribunal to entertain rectification applications:The Tribunal entertained an application under section 254 of the Act for rectification of its earlier order, which resulted in the dismissal of the appeal initially allowed in favor of the Revenue. The Revenue contended that the Tribunal exceeded its jurisdiction by recalling the entire order and dismissing the appeal. The Tribunal's power to rectify mistakes is limited to errors apparent on the face of the record. The High Court emphasized that rectification powers cannot be used as a review or appellate mechanism to change a decision unless a grave error on facts or law is evident. In this case, the High Court found that the Tribunal's detailed order, spanning nine pages, had thoroughly considered all aspects, and there was no apparent error that warranted the order's recall. The High Court concluded that the rectification application did not meet the requirements of the law and should have been dismissed. The distinction between rectification powers and appellate powers was highlighted, emphasizing that the Tribunal should not act as an appellate court while deciding rectification applications.In conclusion, the High Court allowed the appeal filed by the Revenue, setting aside the Tribunal's order that had recalled the original appellate order. The High Court ruled in favor of the Revenue on the jurisdictional issue, emphasizing the need for errors to be apparent on the face of the record for rectification. The judgment clarified the limitations on the Tribunal's rectification powers and highlighted the importance of adhering to legal requirements when seeking rectification under the Income-tax Act.