2017 (4) TMI 513 - AT - Income Tax

Rectification of mistake - commission paid to the directors not allowable u/s 36(1)(ii) of the Act - Held that - We are of the considered view that the revenue by filing the application seeking rectification of the order of the CIT(A), had made a futile attempt to undo the lapse on its part in not assailing the said order of the CIT(A) before the Tribunal. That our aforesaid view is further fortified from the very fact that we have been informed by the Ld. A.R that the revenue had even exhausted its efforts for seeking rectification of the orders passed by the Tribunal in the case of the assessee for A.Y. 2004-05 by filing a miscellaneous applications u/s 254(2), which however had been rejected. We strongly feel that such back door entry attempted by the revenue by filing the present application for rectification, instead of approaching the proper forum, needs to be deprecated. CIT(A) had rightly rejected the application of the revenue seeking rectification of the order passed by his predecessor, for the reason that the contrary view which was arrived at by the Special bench of the Tribunal in the case of the assessee for another year, viz. A.Y. 2006-07, was not in existence at the time when the order was passed by the CIT(A). The Ld. D.R had neither drawn our attention to any such mandate of law which requires rectification of a mistake on the basis of a subsequent order of a Tribunal, nor had placed on record any judicial pronouncement to support his aforesaid contention. - Decided against revenue

Summary

Issues:
1. Rectification of appellate order disallowing commission paid to directors under Sec. 36(1)(ii) of the Income-tax Act, 1961.

Detailed Analysis:

Issue 1: Rectification of Appellate Order
The appeal concerned the rejection of the application by the CIT(A)-10, Mumbai, seeking rectification of the appellate order dated 23.11.2010 disallowing the commission paid to directors under Sec. 36(1)(ii) of the Act. The revenue contended that a subsequent judgment by the Special Bench of the Mumbai Tribunal for A.Y. 2006-07 held that such commissions were not allowable. The CIT(A) had allowed the appeal based on earlier Tribunal orders for A.Y. 2004-05 and 2005-06. The subsequent Special Bench order for A.Y. 2006-07 led the AO to seek rectification, which was rejected by the CIT(A). The issue was whether the CIT(A) erred in rejecting the rectification application based on the subsequent Special Bench order. The Tribunal found that the Special Bench order was not available when the CIT(A) passed the order for A.Y. 2007-08, hence not a mistake apparent from the record. The revenue's attempt to rectify based on subsequent orders was deemed futile, and the appeal was dismissed, upholding the CIT(A)'s decision.

In conclusion, the Tribunal held that the CIT(A) rightly rejected the rectification application as the subsequent Special Bench order was not in existence when the CIT(A) passed the order. The revenue's attempt to rectify based on subsequent orders was considered improper, and the appeal was dismissed, affirming the CIT(A)'s decision.