2009 (5) TMI 580 - AT - Income Tax

Rectification of order - Held that issue of allowability of deduction under ss. 80-I and 80-IA on Gutka and whether the Gutka is a tobacco preparation has been dealt with elaborately in order of the Tribunal on merits on the basis of facts of the case and the law applicable thereto - no mistake has occurred in the impugned order of the Tribunal much less than the mistake apparent from the record and accordingly, the miscellaneous applications preferred by the assessee under s. 254(2) of the Act does not succeed and are accordingly dismissed.

Summary

Issues Involved:
1. Whether "Gutka" is considered a tobacco preparation under Item 2 of the Eleventh Schedule to the IT Act, 1961.
2. Eligibility of deduction under sections 80-I and 80-IA of the Act for profits derived from the undertaking producing "Gutka".
3. Alleged mistakes apparent from the record in the Tribunal's order.
4. Whether the Tribunal's observations and tests applied were appropriate and communicated to the assessee.
5. The relevance and impact of the Tribunal's general observations on tobacco's health effects.
6. The Tribunal's reference to Supreme Court decisions without prior notice to the assessee.
7. Jurisdiction and scope of the Tribunal under section 254(2) of the IT Act, 1961.

Issue-wise Detailed Analysis:

1. Whether "Gutka" is considered a tobacco preparation under Item 2 of the Eleventh Schedule to the IT Act, 1961:
The Tribunal held that "Gutka" retains all the qualities of tobacco, including the pharmacology of nicotine and its physiological and psychological effects. The Tribunal concluded that "Gutka" is a tobacco preparation because it contains tobacco, which is a dominant ingredient, and its properties dominate the preparation without undergoing any metamorphosis. The Tribunal's interpretation was based on the definition that any product containing tobacco, regardless of the quantity, falls under the category of tobacco preparation.

2. Eligibility of deduction under sections 80-I and 80-IA of the Act for profits derived from the undertaking producing "Gutka":
The Tribunal denied the deduction under sections 80-I and 80-IA of the Act, stating that "Gutka" is a tobacco preparation and, therefore, falls under Item 2 of the Eleventh Schedule, which disqualifies it from such deductions. The Tribunal emphasized that the prohibition in the Eleventh Schedule applies to both large-scale and small-scale industries concerning tobacco preparations.

3. Alleged mistakes apparent from the record in the Tribunal's order:
The assessee pointed out several alleged mistakes in the Tribunal's order, including the application of tests and principles that were not communicated to them, and the Tribunal's reliance on general observations about tobacco's health effects. The assessee argued that these issues were not part of the assessment or appellate order and that they had no chance to rebut them.

4. Whether the Tribunal's observations and tests applied were appropriate and communicated to the assessee:
The Tribunal clarified that the tests applied were suggested by the assessee's senior counsel and were relevant for judging whether "Gutka" falls under the expression "tobacco preparations." The Tribunal rejected the contention that these tests were invented by the Tribunal and not communicated to the assessee. The Tribunal also stated that its general observations on tobacco's health effects were not the basis for its decision.

5. The relevance and impact of the Tribunal's general observations on tobacco's health effects:
The Tribunal acknowledged that it made general observations about the harmful effects of tobacco on health, but these observations were not the basis for its decision to deny the deduction under sections 80-I and 80-IA. The Tribunal emphasized that its decision was based on the reasoning that "Gutka" is a tobacco preparation as per the law.

6. The Tribunal's reference to Supreme Court decisions without prior notice to the assessee:
The Tribunal cited two Supreme Court decisions (Royal Hatcheries vs. State of Andhra Pradesh and SIL Import USA vs. Exim Aides Silk Exporters) to support its interpretation of the law. The Tribunal held that citing Supreme Court decisions, which are the law of the land, does not constitute a mistake apparent from the record. The Tribunal emphasized that the parties are expected to be aware of the law as laid down by the Supreme Court.

7. Jurisdiction and scope of the Tribunal under section 254(2) of the IT Act, 1961:
The Tribunal reiterated that its jurisdiction under section 254(2) is limited to rectifying mistakes apparent from the record and does not extend to reviewing its own orders. The Tribunal emphasized that the mistakes sought to be rectified should be obvious and patent, not requiring elaborate discussion or arguments. The Tribunal concluded that no such mistakes were apparent in its order and dismissed the miscellaneous applications filed by the assessee.

Conclusion:
The Tribunal dismissed the assessee's miscellaneous applications, holding that no mistakes apparent from the record were found in its order. The Tribunal affirmed that "Gutka" is a tobacco preparation and, therefore, not eligible for deductions under sections 80-I and 80-IA of the IT Act, 1961. The Tribunal emphasized the limited scope of its jurisdiction under section 254(2) and rejected the contention that its observations and tests were inappropriate or not communicated to the assessee.