2018 (6) TMI 1466 - HC - Income Tax

Rectification of mistake u/s 154 - error apparent on the face of record - mistake in charging interest - Held that - The powers of rectification under section 154 and section 263 of the Act are different. Section 154 is not a power of review. An error being apparent on the face of record is sine qua non. The legal contours of an error apparent on the face of the record cannot be exactly identified. In other words an element of indefiniteness is inherent in its very nature and must be left to be determined judicially on the facts of each case As seen from the proviso to sub-section (2) of Section 220 evidently there can be variation in charging interest and such variation can be effected through correction under Section 154 of the Act. Therefore we fail to countenance the assessee s contention that Section 154 of the Act is unavailable for rectifying the mistakes committed under Section 220 of the Act. Even otherwise miscalculation of interest is at best an arithmetical error and it needs no elaborate cogitation or adjudication long drawn or otherwise to hold that there was an error committed. As to correcting a mistake committed by an authority in calculating interest on refund it is always open for the authorities to rectify that mistake. Again in our reckoning the reasons assigned to our interpretation of Section 220 apply here too - decided in favour of revenue

Issues Involved:
1. Calculation of interest under section 220(2) of the Income Tax Act.
2. Rectification of mistakes under section 154 of the Income Tax Act.
3. Authority of the Assessing Officer (AO) versus the Settlement Commission in levying interest.
4. Tribunal's jurisdiction in interfering with the AO's rectification order.

Detailed Analysis:

1. Calculation of Interest Under Section 220(2) of the Income Tax Act:
The AO initially calculated interest incorrectly from April 1988 to April 1991. The error was rectified to charge interest from April 1991 to June 1993, amounting to ?3,49,935/-. The assessee contended that further levy of interest under section 220(2) amounted to double levy since the Department had already levied interest under sections 245D(2C) and 245D(6A). The Court concluded that miscalculation of interest is an arithmetical error and can be corrected under section 154, thus supporting the AO's rectification.

2. Rectification of Mistakes Under Section 154 of the Income Tax Act:
The Court examined whether the mistake in calculating interest was apparent from the record and could be rectified under section 154. The Court noted that section 154 allows correction of any mistake apparent from the record, which includes arithmetical errors. The Court referenced several precedents, including the Supreme Court's interpretation in CTO v. Makkad Plastic Agencies and CIT v. Ralson Industries Ltd., to support the view that section 154 is not a power of review but a power to rectify obvious errors. The Court concluded that the AO was justified in invoking section 154 to correct the interest calculation.

3. Authority of the AO Versus the Settlement Commission in Levying Interest:
The assessee argued that once the Settlement Commission passes an order under section 245D(1), the regular assessment ceases to exist, and any further interest should be levied by the Settlement Commission. The Court, however, found that section 220(2) allows for variation in interest charging, and such variations can be corrected under section 154. The Court held that the AO was within his rights to rectify the mistakes under section 154, even in matters decided by the Settlement Commission.

4. Tribunal's Jurisdiction in Interfering with the AO's Rectification Order:
The Tribunal initially dismissed the appeal as not maintainable but later, on remand, allowed the assessee's appeal and canceled the AO's rectification order. The Court found the Tribunal's interference unjustified, noting that the AO's rectification was a straightforward correction of an arithmetical error. The Court emphasized that an error apparent on the face of the record does not require a long-drawn process of reasoning and upheld the AO's rectification under section 154.

Conclusion:
The Court answered the substantial questions of law in favor of the revenue, set aside the Tribunal's order, and restored the CIT(A)'s order. The judgment emphasized the AO's authority to rectify arithmetical errors under section 154 and the validity of interest calculations under section 220(2).

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