2016 (6) TMI 1313 - HC - Income Tax

Application for rectification under Section 254(2) - penalty under Section 221 - Held that - Tribunal in the impugned order has dealt with the issue of imposition of penalty being imposed under Section 221 of the Act even without service of demand notice under Section 156 of the Act upon an assessee. This the Tribunal could have only done while passing an order in appeal. The consequent order which would has been passed in appeal would enable the parties to challenge the same before this Court in an appeal under Section 260A of the Act. The procedure adopted by the Revenue in this case has deprived the right of statutory appeal to the petitioner. No appeal is entertained by this Court from an order dismissing the Miscellaneous Application for rectification under Section 254(2) of the Act (see Chem Amit (2004 (11) TMI 24 - BOMBAY HIGH COURT). Thus in the process of atoning for a mistake one should take utmost care to ensure no further prejudice is caused. The rejection on merits of the contentions of the parties by the Tribunal on a substantial question of law is subject to the statutory right of appeal under Section 260A of the Act. This right cannot be bypassed by dealing with the merits in an Miscellaneous Application for rectification. In the above view we set aside the impugned order dated 14th March 2008 of the Tribunal. We direct the Tribunal to recall its order dated 9th May 2006 to the extent it upheld the order of the Assessing Officer imposing penalty under Section 221 of the Act and post the appeal for hearing at a date convenient to it

Summary

Issues:
Challenge to order of Income Tax Appellate Tribunal under Article 226 of the Constitution of India regarding rectification application under Section 254(2) of the Income Tax Act, 1961 for Assessment Year 2001-02.

Analysis:
1. The petitioner filed a return of income in 2001, paying self-assessment tax but was deemed an assessee in default due to unpaid tax and interest. A penalty was imposed, later set aside by CIT(A) citing lack of proper demand notice. The Revenue appealed to the Tribunal, which upheld the penalty in 2006.
2. The petitioner filed a Miscellaneous Application under Section 254(2) in 2006, seeking rectification, which was dismissed in 2007. A writ petition challenging this was allowed by the High Court in 2007, directing the Tribunal to reconsider the application on merits.
3. The Tribunal dismissed the application in 2008, leading to the current challenge. The petitioner argued that the Tribunal erred in deciding the merits of the dispute instead of focusing on the apparent error on record, as directed by the High Court.
4. The Revenue contended that the Tribunal's decision to consider the merits was in line with the High Court's directive to dispose of the application on merits.
5. Referring to a Supreme Court judgment, the Court emphasized the duty of the Tribunal to rectify its mistakes. It noted that the High Court had found an apparent error in the Tribunal's 2006 order and directed reconsideration on merits.
6. The Court criticized the Tribunal for addressing the penalty issue in the rectification application, which should have been dealt with in an appeal under Section 260A. By bypassing the appeal process, the petitioner was deprived of the statutory right to appeal.
7. Consequently, the Court set aside the Tribunal's 2008 order, directing it to reconsider the penalty imposition issue after recalling its 2006 order. The appeal would be heard on this specific issue, while other matters would remain concluded.

This detailed analysis covers the issues raised in the legal judgment, providing a comprehensive understanding of the case and the Court's decision.