2016 (8) TMI 413 - HC - Income Tax

Rectification of mistake - Tribunal in its original judgment held that the assessee had not established a new power plant so as to qualify for deduction under section 80IA of the Act but recalled this order in exercise of powers of rectification on the ground that this view is not in consonance with in case of Gujarat Alkalies and Chemicals Ltd. (2012 (3) TMI 267 - GUJARAT HIGH COURT ) - Held that - High Court in case of Gujarat Alkalies and Chemicals Ltd. (supra) while laying down certain broad propositions for ascertaining whether a new industrial undertaking in the given set of facts was established, did not lay down ratio which can be straightway applied to the facts of the present case. In the present case, the view adopted by the Revenue authorities which was upheld by the Tribunal was that by mere installation of turbines, the assessee did not install a new industry, since turbines themselves would not be sufficient for power generation, without generation of steam. When the High Court in case of Gujarat Alkalies and Chemicals Ltd. (supra) referred to the issue depending on the nature of technology and mechanism of production, it left this question open to be judged case specific. This was therefore not a case where by virtue of the judgment of the case of High Court in case of Gujarat Alkalies and Chemicals Ltd. (supra), it can be stated that the Tribunal had committed an error apparent on record which needed rectification. At best, the High Court propounded that mere dependence of a new industry on an existing industry, would not disqualify itself from claiming deduction. Tribunal orders set aisde - Decided in favour of revenue

Issues Involved:
1. Justification of the ITAT in recalling its judgment based on a subsequent decision of the High Court.
2. Eligibility of the assessee for deduction under section 80IA of the Income Tax Act, 1961.
3. Definition and interpretation of a "new industrial undertaking" under section 80IA.
4. Scope of rectification powers under section 254(2) of the Income Tax Act.

Detailed Analysis:

1. Justification of the ITAT in recalling its judgment based on a subsequent decision of the High Court:
The primary issue was whether the Income Tax Appellate Tribunal (ITAT) was justified in recalling its earlier judgment by relying on a subsequent decision of the High Court in the case of Gujarat Alkalies and Chemicals Ltd. v. Commissioner of Income-tax. The Tribunal had initially rejected the assessee's claim for deduction under section 80IA, but later recalled this judgment citing an error apparent on the face of the record, influenced by the subsequent High Court decision.

2. Eligibility of the assessee for deduction under section 80IA of the Income Tax Act, 1961:
The assessee, a company, claimed deduction under section 80IA for setting up a new power generation plant. The Assessing Officer (AO) disallowed this claim, stating that the new turbine installed by the assessee could not independently generate power without the existing boiler, thus treating it as an expansion of the existing unit rather than a new undertaking. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld this view, emphasizing that no new industrial undertaking came into existence as per the provisions of section 80IA.

3. Definition and interpretation of a "new industrial undertaking" under section 80IA:
The Tribunal, in its original judgment, agreed with the AO and CIT(A), stating that the new turbine could not be considered an independent power generating unit. However, the High Court in the case of Gujarat Alkalies and Chemicals Ltd. had observed that the true test for a new industrial undertaking is not its independence from existing units but whether substantial fresh capital investment was made to enable profit generation attributable to that new capital. This interpretation led the Tribunal to reconsider its earlier judgment, believing it had committed an error apparent on the face of the record.

4. Scope of rectification powers under section 254(2) of the Income Tax Act:
The Tribunal has the power under section 254(2) to rectify any mistake apparent on the face of the record within four years from the date of the order. The Supreme Court in cases like T.S. Balram v. Volkart Brothers and Honda SIEL Power Products Ltd. v. Commissioner of Income-tax highlighted that rectification is meant to correct obvious and patent mistakes, not those requiring extensive reasoning. The Tribunal believed that the subsequent High Court decision constituted such an apparent mistake, justifying the recall of its earlier order.

Conclusion:
The High Court concluded that the Tribunal's action of recalling its judgment was not justified. The High Court noted that the decision in Gujarat Alkalies and Chemicals Ltd. did not lay down a ratio directly applicable to the present case. The High Court emphasized that the Tribunal's original judgment, which found that the installation of a new turbine did not constitute a new industrial undertaking, was not in direct conflict with the subsequent High Court decision. Therefore, the Tribunal's recall of its judgment was not based on an error apparent on the face of the record. Consequently, the orders of the Tribunal dated 11.05.2012 and 22.03.2013 were set aside, and the question was answered in favor of the Revenue, disposing of the tax appeals accordingly.

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