2016 (6) TMI 944 - HC - Income Tax

Rectification of mistake - addition of interest - Held that - As mistake on page 3 of the order of the Tribunal as pointed out by the Ld. Sr. Counsel with regard to ground No.XII that the amount of interest has been mentioned as ₹ 36,09,016/- instead of the correct amount of ₹ 36,09,31,016/-. The Ld. D.R. to this contention had nothing to say in rebuttal. Accordingly, the said rectification is hereby allowed. As a result of the modified portion of the order, the interest amount will be treated as ₹ 88.86 crores for the financial year 2001-02 which has been offered to tax by the applicant-assessee in the assessment year 2004-05. The learned Tribunal was not shown to have been unjustified in rectifying its mistake. We as such are unable to hold that the learned Tribunal exceeded its jurisdiction under section 254(2) of the I.T. Act.

Issues:
1. Jurisdiction of the Income Tax Appellate Tribunal to modify an order under a miscellaneous application.
2. Taxability of interest income on loans and advances to the Government of West Bengal and interest on deposits with the Pay and Accounts Office, Kolkata.
3. Accrual basis of income recognition under the mercantile system of accounting.
4. Rectification of mistakes in the Tribunal's order.

Analysis:

1. Jurisdiction of the Tribunal:
The case involved a dispute regarding the jurisdiction of the Income Tax Appellate Tribunal to modify an order under a miscellaneous application. Initially, the Tribunal's order dated August 25, 2006, affirmed the addition of a certain sum, which was later corrected in a subsequent order dated September 21, 2007. The question raised was whether the Tribunal exceeded its jurisdiction under Section 254(2) of the Income Tax Act, 1961, by modifying the order. The Court held that the Tribunal rectified its mistake, and there was no evidence to suggest that it exceeded its jurisdiction. Consequently, the appeal was dismissed.

2. Taxability of Interest Income:
The Assessing Officer had made an addition to the total income of the assessee for interest income on loans and advances to the Government of West Bengal and interest on deposits with the Pay and Accounts Office, Kolkata. The issue revolved around the accrual basis of income recognition under the mercantile system of accounting. The CIT (Appeals) quantified the interest receivable on deposits based on government communications. The Tribunal initially affirmed the addition but later realized its mistake and deleted the sum from the total income. The rate of interest was subsequently agreed upon, and the income was offered for taxation in a later assessment year.

3. Accrual Basis of Income Recognition:
The dispute involved the application of the accrual basis for recognizing income under the mercantile system of accounting. The Assessing Officer and the CAG noted that non-recognition of interest income on accrual basis led to an understatement of profit. The Tribunal initially upheld the addition but later corrected the order, considering that the income did not accrue to the assessee without a finalized interest rate agreement. The correction was made under Section 254(2) of the I.T. Act, and the income was subsequently offered for taxation in a later assessment year.

4. Rectification of Mistakes:
The Tribunal rectified mistakes in its order, including errors in the amount of interest mentioned. The rectification was allowed, and the interest amount was adjusted accordingly. The Court found no basis to conclude that the Tribunal exceeded its jurisdiction in making these corrections. The rectification process was deemed appropriate, and the appeal was dismissed based on these findings.

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