2011 (2) TMI 804 - AT - Income Tax

Rectification of order u/s 254(2) - Block assessment- Levy of surcharge u/s 113 to assessment years prior to introduction of it- Revenue challenging the relief granted in levy of surcharge in light of judgment of superior Court at later date through rectification. Held that - Retrospective operation of the Supreme Court pronouncement on the interpretation of law can be made applicable only in the cases which have not been decided finally and the same is pending for adjudication. One cannot take advantage of the subsequent pronouncement of a superior Court in a closed and settled matter particularly in the matter decided and settled long back in the guise of rectification. Decided against the Revenue.

Issues involved:
1. Application for rectification of order regarding levy of surcharge on undisclosed income.
2. Interpretation of provisions of section 113 of the IT Act.
3. Divergent views on the levy of surcharge in block assessment.
4. Applicability of judicial decisions on retrospective operation of law.

Analysis:

1. Rectification of order regarding levy of surcharge:
The Revenue filed an application seeking rectification of the Tribunal's order related to the levy of surcharge on undisclosed income for the block period. The Revenue argued that the surcharge should have been upheld based on the decision of the Hon'ble Supreme Court in the case of CIT v. Suresh N. Gupta. However, the Tribunal found that the issue was correctly remanded to the Assessing Officer (AO) for further consideration in accordance with the decision of the Special Bench. The Tribunal highlighted that at the time of its decision, there was no judgment from a superior court on the matter, and hence, the rectification was not warranted.

2. Interpretation of provisions of section 113 of the IT Act:
The dispute centered around the interpretation of section 113 of the IT Act regarding the levy of surcharge on undisclosed income. Various judicial decisions, including the Special Bench's ruling in the case of Merit Enterprises, were considered. The Tribunal noted the divergent views among different Benches on the issue of surcharge in block assessment. The application for rectification was dismissed based on the debatable nature of the matter, as highlighted by the judgments in cases like CIT v. Kirti Kumar Shah and CIT v. Vatika Township (P) Ltd.

3. Divergent views on the levy of surcharge in block assessment:
The Tribunal referenced the conflicting opinions among different Benches of the Tribunal regarding the levy of surcharge in block assessments. The matter was further complicated by the introduction of a proviso to section 113 of the IT Act. The Tribunal cited the decision of the Special Bench in the Merit Enterprises case, which deemed the levy of surcharge before the introduction of the proviso as unworkable and impossible to harmonize. The issue remained unresolved until the Supreme Court's judgment in the case of Suresh N. Gupta clarified the applicability of the surcharge.

4. Applicability of judicial decisions on retrospective operation of law:
The Tribunal considered various judicial pronouncements, including the decision of the Hon'ble Calcutta High Court in Smriti Properties (P) Ltd. v. Settlement Commission, regarding the retrospective operation of legal interpretations. The Tribunal emphasized that the subsequent pronouncement of a superior court cannot be applied to closed and settled matters. The application for rectification was dismissed based on the principle that retrospective operation of legal interpretations should only apply to pending cases, not to those already decided and settled.

In conclusion, the Tribunal dismissed the Revenue's application for rectification under section 254(2) of the IT Act, emphasizing the debatable nature of the issue and the settled nature of the matter based on previous judicial decisions.

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