2004 (11) TMI 78 - HC - Income Tax

Review vis-avis rectification - Whether Tribunal was justified in dismissing the application under section 254(2) on the ground that it was virtually a review application? - Tribunal has upheld the disallowance of the amount of interest in question on the ground that the advances were made by the applicant for non-business purpose. The reference application filed u/s 256(1) in respect of the correctness of the aforesaid finding has already been rejected by the Tribunal, which order, has become final between the parties. The Tribunal having dealt with the matter in one way or the other, it cannot be said that on the basis of the decision rendered by the Madhya Pradesh High Court in the case of D and H Secheron Electrodes Pvt. Ltd. v. any mistake which is apparent on the record, has crept in the Tribunal s order. The Tribunal was justified in holding that there was no error apparent on the record in its order and, in fact, it was a case of review. - We answer the question referred to us in the affirmative, i.e, in favour of the Revenue and against the assessee.

Summary

Issues:
- Justification of dismissing application under section 254(2) as a review application.

Analysis:
The High Court of Allahabad was presented with a question of law referred by the Income-tax Appellate Tribunal regarding the dismissal of an application under section 254(2) of the Income-tax Act, 1961, on the grounds of being virtually a review application. The case involved an assessment year where the Income-tax Officer disallowed a sum of interest claimed by the applicant due to part of the borrowings not being utilized for business purposes. The Tribunal rejected the application seeking reference under section 256(1) of the Act. Subsequently, the applicant filed a miscellaneous application under section 254(2) contending that the Tribunal's order contained a mistake apparent on the record. The applicant argued that a finding was necessary to disallow interest on borrowed capital, citing a decision of the Madhya Pradesh High Court. However, the Tribunal rejected the application, stating it had no power to review its own order under section 254(2).

The court heard arguments from both parties, where the applicant's counsel relied on the Madhya Pradesh High Court decision to support rectification of the alleged mistake in the Tribunal's order. On the other hand, the standing counsel for the Revenue emphasized that the Tribunal's order was based on affirming previous decisions and that the Tribunal lacked the power of review. The court examined the facts and found that the Income-tax Officer and the Appellate Assistant Commissioner had already made findings regarding the disallowance of interest due to non-business purposes. The Tribunal upheld these findings after detailed consideration, concluding that the advances made by the applicant could not be considered as part of its business transactions.

The court cited legal precedents to establish that statutory authorities, including the Tribunal, do not possess the power of review unless specifically conferred by law. It referenced cases such as Patel Narshi Thakershi and Laxmi Electronic Corporation Ltd. to support this principle. Additionally, the court highlighted that the Tribunal's power is limited to rectification under section 254(2) of the Act. It further clarified that errors apparent on the record can be corrected through this provision, but review powers are not inherent to the Tribunal.

In applying the legal principles to the case at hand, the court found that the Tribunal's decision to disallow interest was based on valid grounds and not on any apparent error in the record. The court concluded that the Tribunal's order was not a case of rectification but rather a review, which the Tribunal was not empowered to conduct. The court distinguished the present case from previous judgments cited by the parties and answered the referred question in favor of the Revenue and against the assessee, with no order as to costs.