2015 (1) TMI 1427 - HC - Income Tax

Rectification u/s 254 (2) - no satisfaction was recorded in respect of quantum and penalty which resulted in an error apparent on record warranting rectification - HELD THAT - The evidence of satisfaction being recorded is communication dated 21st August 2000 addressed by the AO of the person searched to the AO of the petitioner. The petitioner also does not dispute communication dated 21st August 2000 which is being relied upon by the revenue was a part of the record but submit that the same was considered by the Tribunal before passing the order dated 29th December 2010. No fault in the impugned order concluding that there was an error apparent on record in the order dated 29th December 2010 as it does not deal with/or consider the communication dated 21st August 2000 and deal with the revenue s contention that satisfaction in terms of section 158BD of the Act was recorded. A similar situation arose before the Supreme Court in HONDA SIEL POWER PRODUCTS LTD 2007 (11) TMI 8 - SUPREME COURT and SAURASHTRA KUTCH STOCK EXCHANGE LTD 2008 (9) TMI 11 - SUPREME COURT Tribunal had in exercise of its powers under section 254 (2) of the Act had recalled its earlier order as it had by mistake not considered a binding decision of the jurisdictional High Court. This recall by the Tribunal was upheld by the Apex Court on the fundamental principle of law that no prejudice should be caused to either of the parties appearing before the Tribunal by its decision based on a mistake apparent from the record. The Apex Court negatived the contention that such recall of an order would amount to review of its earlier orders. The Supreme Court held that mistake is a valid reason to recall an order. In the circumstances, the objections of the petitioner that the impugned order recalling the order dated 29th December 2010 is without jurisdiction is not sustainable. We find that the impugned order after correctly holding that there is an error apparent from the record recalling its earlier order dated 10th December 2010 proceeded further to make observations on the scope of the satisfaction dated 21st August 2000. In fact the concluding paragraph of the impugned order seeks to suggest that the issue of jurisdiction is decided and it is only on merits that the appeal is being placed before the regular bench of the Tribunal. This is impermissible as it would foreclose an issue which is to be heard and decided by the bench rehearing the appeal. Thus the impugned order is unsustainable to the extent it decides and/or makes observations on the satisfaction note dated 21st August 2000 is the context of jurisdiction. Tribunal would certainly be entitled to recall an order u/s 254 (2) of the Act as it suffers from mistakes apparent from record while recalling the order and placing it before a regular bench to adjudicate/decide the merits of the appeal it was not entitled/justified to observe on the merits of adjudication. Once an order is recalled and the appeal is to be placed before a regular bench for fresh consideration in a manner of speaking it restores status quo ante. At the hearing of the appeal all the issues are bound to be urged by the petitioner and considered by the Tribunal hearing the appeal. In this case the impugned order while recalling the order dated 29th December 2010 places the appeal before a regular bench to be decided on merits yet concludes that jurisdictional requirement to proceed against the petitioner is satisfied. The aforesaid decision and observations on the jurisdictional issue in the impugned order is unsustainable. While we uphold the impugned order to the extent it holds that there is an error apparent on the record in the order dated 29th December 2010 in not having considered the letter dated 21st August 2000 we do not uphold the other observations made by the Tribunal in the impugned order with regard to the exact nature scope effect and consequences of the communication dated 21st August 2000. The regular Bench of the Tribunal to whom the revenue s appeals both on quantum and penalty are restored for hearing would not be influenced in any manner by the observations made in the impugned order on the merits of the controversy. When the original order dated 29th December 2010 was passed the petitioner was allowed to make submissions under rule 27 of the Income Tax Rules in the absence of having filed a separate appeal. The benefit of the above direction of the Tribunal would be extended to the petitioner at the hearing of the appeal by the regular Bench of the Tribunal hearing the revenue s appeal consequent to the recall of the earlier order dated 10th December 2010. This is particularly so as the revenue had consented when the appeals were originally heard to the petitioner making its submissions under Rule 27 of the Income Tax Rules in the absence of having filed a substantial appeal.

Summary

Issues:
Challenge to the order of the Income Tax Appellate Tribunal under Article 226 of the Constitution of India regarding rectification of a common order dated 29th December 2010 on quantum and penalty for block period 1.4.1988 to 17.12.1988.

Analysis:

1. Jurisdictional Error and Rectification Application:
The Tribunal recalled the order dated 29th December 2010, which set aside proceedings against the petitioner due to the absence of recorded satisfaction under section 158 BD of the Income Tax Act. The Revenue filed rectification applications citing the recording of satisfaction by the Assessing Officer of the person searched, leading to an error apparent on record. The petitioner contended that the order was passed after considering the satisfaction issue and challenged the jurisdiction of the impugned order. The Revenue argued that rectification was necessary to correct the fundamental error in the earlier order.

2. Validity of Recalling Order and Observations on Merits:
The Tribunal's decision to recall the order was compared to similar situations before the Supreme Court, where recalling an order due to a mistake was upheld. However, the petitioner objected to the impugned order deciding on jurisdictional issues and making observations on merits before placing the matter before a regular bench. The Tribunal's observations on satisfaction notes were deemed impermissible as they could prejudice the subsequent hearing before the regular bench.

3. Concluding Directions and Upholding of Impugned Order:
The High Court upheld the impugned order's finding of an error in not considering the communication dated 21st August 2000 but rejected other observations on the nature and consequences of the communication. The regular bench was directed to consider the appeals on merits without being influenced by the impugned order's observations. Additionally, the petitioner was granted the benefit of making submissions under Rule 27 of the Income Tax Rules during the appeal hearing before the regular bench.

In conclusion, the High Court disposed of the petition, upholding the impugned order's rectification due to the error on record but rejecting certain observations on jurisdictional issues. The regular bench was tasked with reconsidering the appeals on merits, ensuring fairness and adherence to procedural rules during the hearing.