2004 (7) TMI 40 - HC - Income Tax

Rectification - Income derived by the appellant-assessee by way of interest on debentures and securities - Whether the application for rectifying the mistakes apparent on the face of the record by rectification order can result in the revival of the order by recalling the order in its entirety enabling to pass a fresh order de novo on the issue? - order under appeal dated October 12, 2001 cannot be sustained. The direction to rehear the appeal on ground No. 1 and pass a fresh order, after the rectification application is allowed, cannot be sustained - There was a mistake apparent on the face of the record that the Tribunal intended to pass order on ground No. 1 only in terms of the order dated October 29,1998. However, a different conclusion has been communicated that needed to be corrected. That being so, the rectification application ought to have been allowed by the Tribunal by substituting para. 4 of its order dated February 22, 2000 with appropriate direction to bring it in conformity with order dated October 29, 1998, as per its conclusion in the order sought to be rectified - Accordingly, the appeals are allowed. The order passed by the Tribunal dated October 12, 2001 in each appeal is quashed.

Summary

Issues Involved:
1. Assessment of interest income on securities/debentures on an accrual basis.
2. Rectification of mistakes apparent on the face of the record under Section 254(2) of the Income-tax Act, 1961.
3. Scope and limitations of rectification proceedings under Section 254(2).

Issue-wise Detailed Analysis:

1. Assessment of Interest Income on Securities/Debentures on an Accrual Basis:
The appellant-assessee followed the mercantile system, accounting for interest income on an accrual basis. However, for tax computation, the assessee reduced the interest income by the amount not receivable during the relevant accounting year. The Assessing Officer disallowed this reduction, enhancing the declared income. The Tribunal, in its order dated October 29, 1998, for earlier assessment years, upheld the assessee's method, stating that the assessee had not acquired the right to receive the income during the assessment years in question. This method was consistent and did not result in any revenue loss as the interest was accounted for in subsequent years.

2. Rectification of Mistakes Apparent on the Face of the Record under Section 254(2):
The Tribunal's order dated February 22, 2000, intended to follow the earlier decision but erroneously referred to the "interest paid by the assessee" instead of "interest receivable by the assessee." The assessee filed a rectification application under Section 254(2) to correct this mistake. The Tribunal, on October 12, 2001, recalled the decision on ground No. 1 for rehearing, which the court found laconic and non-speaking, as it did not record the satisfaction of the Tribunal that there was a mistake apparent on the face of the record.

3. Scope and Limitations of Rectification Proceedings under Section 254(2):
The court emphasized that rectification under Section 254(2) is limited to correcting mistakes apparent on the face of the record and does not extend to revising or reviewing the order. The Tribunal's order dated October 12, 2001, recalling the decision for rehearing, was beyond the scope of rectification. The correct approach was to substitute the erroneous expression in the order dated February 22, 2000, with the appropriate directions from the order dated October 29, 1998.

Conclusion:
The court quashed the Tribunal's order dated October 12, 2001, and allowed the rectification application. The Tribunal was directed to correct its order dated February 22, 2000, to reflect the directions contained in the order dated October 29, 1998, regarding the exclusion of interest receivable by the assessee. The rectified order would be subject to appeal by the respondents in accordance with the law. No order as to costs was made.