2017 (12) TMI 1270 - HC - Income Tax

Power of tribunal u/s 254 to rectify an order - assessee company s claim of deduction of interest expenditure at all stages - Held that - We are of the view that the Tribunal committed a legal error in recalling its earlier detailed judgement. As noted, there was a raging controversy between the Revenue and the assessee regarding the assessee company s claim of deduction of interest expenditure at all stages before the Assessing Officer, Commissioner (Appeals) and the Tribunal. This issue received minute scrutiny. The relevant question could the Tribunal have exercised the power of rectification to recall such judgement? is to be answered being obvious, is in the negative. The powers of rectification flowing from Section 254(2) of the Act are for correcting apparent errors and not for re-examination of the issues already considered and concluded. It is well recognised that the powers of rectification cannot be equated to that of review. The Tribunal thus travelled far beyond its power of rectification in accepting the assessee s various contentions which were not confined to pure factual errors apparent on the record. Some of the contentions of the assessee were highly contentious legal issues. Once the Tribunal had taken a particular view, it was always open for the aggrieved party to challenge such views before the higher court. The Tribunal could not have been persuaded to re-examine the issues on the premise that there was an error apparent on the record - Decided in favour of revenue

Summary

Issues:
1. Whether the Income Tax Appellate Tribunal was right in law in exercising powers of rectification?

Analysis:
The tax appeal was filed by the Revenue challenging the order of the Income Tax Appellate Tribunal dated 28.10.2016. The Tribunal had recalled its judgment in response to an application for rectification filed by the assessee, leading to the main issue of whether the Tribunal was correct in exercising powers of rectification. The case involved the assessment year 1999-2000, where the assessee claimed interest expenditure on pre-mature redemption of Secured Premium Notes. The Assessing Officer and Commissioner (Appeals) had rejected the claim, leading to an appeal before the Tribunal. The Tribunal initially rejected the appeal in 2006 but later recalled its judgment in 2016 based on alleged errors pointed out by the assessee.

The Tribunal accepted the assessee's request for recall based on various factual and legal errors pointed out by the assessee in a Miscellaneous Application. The Tribunal acknowledged its errors and decided to recall its judgment, modifying the order and restoring a specific ground for re-adjudication. However, the Revenue challenged this decision, arguing that the Tribunal had committed a legal error in recalling its detailed judgment. The controversy revolved around the genuineness of the transaction leading to the interest expenditure claim by the assessee. The Tribunal's initial decision was based on detailed scrutiny and reasoning, ultimately upholding the decisions of the Revenue authorities.

The High Court held that the Tribunal had exceeded its powers of rectification by re-examining and recalling its earlier judgment. The powers of rectification under Section 254(2) are meant for correcting apparent errors, not for re-examining concluded issues. The Court emphasized that rectification powers are not equivalent to a review and cannot be used to re-evaluate contentious legal issues. The Tribunal's acceptance of the assessee's contentions went beyond rectification, as some issues were complex legal matters. The Court concluded in favor of the Revenue, setting aside the Tribunal's order from 2016 and restoring the original judgment from 2006. The tax appeal was disposed of accordingly.