2006 (11) TMI 175 - HC - Income Tax

Rectification/ Recall of order u/s 254(2) - mistake apparent from the record - HELD THAT - From the order of the Tribunal we find that the Tribunal had drawn an adverse inference on the basis of the supplies made by the assessee-opposite party to some of the parties and giving one or two illustrations. It had rejected the application filed u/s 254(2) of the Act on the ground that the goods mentioned at serial Nos. 14 and 16 of the statement of sales were transported to Gorakhpur itself and the explanation of the assessee that the goods were sent to different places and the difference in the price was on account of difference in cost of cartage etc. is misleading and false. It had further held that the miscellaneous application was filed by the assessee on the misconceived notion and there was no mistake apparent on the face of the record in the order of the Tribunal. Having come to the conclusion that there was no mistake apparent in the order of the Tribunal and the application was filed on a misconceived notion it was not open to the Tribunal to entertain the second application which has been filed on the same set of facts and recalling the order on the alleged premise that there was an error apparent in the order. In the case of T.S. Balaram ITO v. Volkart Brothers 1971 (8) TMI 3 - SUPREME COURT the apex court has held that a mistake apparent on the record must be an obvious and patent mistake and not something which can be established by a long drawn process of reasoning on points on which there may be conceivably two opinions. A decision on a debatable point of law is not a mistake apparent from the record. Thus we are of the considered opinion that the Tribunal was not justified in reviewing its order in the garb of rectification proceedings as there was no error apparent on the record and it could be discovered only after a process of debate. We accordingly answer both the questions referred to us in the negative i.e. in favour of the Revenue and against the assessee. However there shall be no order as to costs.

Summary

Issues Involved:
1. Rectification under section 254(2) of the Income-tax Act, 1961
2. Justification for recalling the earlier order dated March 13, 1987

Analysis:

Issue 1: Rectification under section 254(2) of the Income-tax Act, 1961
The case involved the assessment year 1974-75 where the assessee, a registered firm, had shown deposits from various parties as trade deposits. However, the Income-tax Officer treated these deposits as undisclosed income, leading to an appeal by the assessee before the Commissioner of Income-tax (Appeals). The Commissioner deleted the addition, but the Revenue appealed to the Tribunal, which restored the assessment order based on discrepancies in the transactions. The assessee then moved an application pointing out factual errors in the Tribunal's observations, stating that the goods were supplied to different parties at different locations. The Tribunal, after considering the submissions, recalled its earlier order, noting the mistake in the record regarding the locations of the parties. The Revenue opposed the application, arguing that there was no mistake apparent. The Tribunal's decision was challenged, with the Revenue contending that the Tribunal had wrongly exercised the power of review instead of rectification, as the alleged mistake was debatable and not apparent on the face of the record.

Issue 2: Justification for recalling the earlier order dated March 13, 1987
The Tribunal had previously rejected a similar application by the assessee, stating that there was no mistake apparent in the order. However, upon a second application, the Tribunal recalled its order, emphasizing the factual errors in the earlier decision regarding the locations of the parties involved in the transactions. The Revenue argued that the Tribunal had erroneously reviewed its decision under the guise of rectification, citing legal precedents that a mistake apparent on the record must be obvious and not a debatable point of law. The assessee contended that the adverse inference drawn by the Tribunal was based on incorrect facts, which were rectified in the subsequent order. The Tribunal, after considering the arguments, held that there was no error apparent on the record justifying a review, as the alleged mistake required a process of debate to establish, contrary to the principles outlined in legal precedents. Consequently, both questions referred to the High Court were answered in favor of the Revenue and against the assessee.

In conclusion, the High Court's judgment highlighted the importance of distinguishing between rectification and review proceedings, emphasizing that a mistake apparent on the record must be evident without the need for extensive debate or interpretation. The decision underscored the legal principles governing the exercise of powers under the Income-tax Act, ultimately ruling in favor of the Revenue based on the lack of a clear error justifying the recall of the earlier order.