Rectification under Section 254(2) restores appeal to decide whether interest on delayed service tax is compensatory under Section 37(1).

Application under Section 254(2) sought rectification of a Tribunal order that failed to adjudicate a distinct ground in a specific appeal concerning disallowance of interest paid for delayed payment of service tax. The Tribunal found a mistake apparent from the record, held that the interest issue-whether it is compensatory in nature for the purpose of deductibility under Section 37(1)-was not adjudicated, and allowed the rectification application, restoring the appeal for the limited purpose of deciding that ground.

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Issues: Whether the Tribunal should rectify its common order dated 07.12.2022 under Section 254(2) of the Income-tax Act, 1961 and restore ITA No. 4484/Mum/2018 for the limited purpose of adjudicating ground no. (iii) concerning deletion of disallowance of Rs. 56.43 crores being interest paid on delayed payment of service tax.

Analysis: The Revenue filed an application under Section 254(2) of the Income-tax Act, 1961 seeking rectification of a mistake apparent from the record in the Tribunal's common order dated 07.12.2022. The application alleged that paragraph 19 of the order incorrectly treated ground no. (iii) of ITA No. 4484/Mum/2018 as identical to the corresponding ground in ITA No. 4486/Mum/2018, resulting in non-adjudication of the distinct ground in ITA No. 4484/Mum/2018. The Tribunal examined the record and the parties' submissions, and found it undisputed that ground no. (iii) in ITA No. 4484/Mum/2018-relating to disallowance of interest paid for delayed payment of service tax amounting to Rs. 56.43 crores and the question whether such interest is compensatory in nature for the purposes of Section 37(1) of the Income-tax Act, 1961-was not identical to the ground in ITA No. 4486/Mum/2018 and therefore was not adjudicated. Applying the remedial scope of Section 254(2) to correct a mistake apparent from the record and to secure adjudication of a subsisting substantive issue, the Tribunal concluded that the proper course was to allow the rectification application and restore the specific appeal for the limited purpose of deciding the unadjudicated ground.

Conclusion: The application under Section 254(2) of the Income-tax Act, 1961 is allowed; ITA No. 4484/Mum/2018 is restored to the file for the limited purpose of deciding ground no. (iii) regarding the deletion of the disallowance of Rs. 56.43 crores being interest paid on account of delayed payment of service tax (whether such interest is compensatory in nature for the purposes of Section 37(1) of the Income-tax Act, 1961).

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