1979 (3) TMI 24 - HC - Income Tax

Application For Rectification Income Tax Act Rectification Of Mistakes Reference To High Court Writ Petition

Issues Involved:
1. Challenge to the Tribunal's orders dated 5th October, 1972, and 29th March, 1975.
2. Whether the loss of Rs. 30,008 from contract business should be allowed as a deduction.
3. Rectification of mistakes in the Tribunal's order under Section 254(2) of the Income-tax Act.
4. Jurisdiction and scope of the Tribunal in rectification applications.
5. Alternative remedy and maintainability of the writ petition.

Detailed Analysis:

1. Challenge to the Tribunal's Orders:
The petitioner, a public limited company engaged in iron and structural steel materials, challenged the Tribunal's orders dated 5th October, 1972, and 29th March, 1975. The primary contention was the disallowance of a loss of Rs. 30,008 related to the contract business, which the Income-tax Officer (ITO) and the Appellate Assistant Commissioner (AAC) had added back, stating that the contract business was defunct and separate from the iron and steel business.

2. Deduction of Loss of Rs. 30,008:
The ITO found that the loss of Rs. 30,008 pertained to a contract business that had ceased operations two years prior, and no contract work was done during the relevant year. The AAC upheld this disallowance, and the Tribunal concurred, stating that no material was provided by the petitioner to show that the contract business and the iron and steel business were interconnected. The Tribunal noted that the contract business had not been active since the assessment year 1963-64.

3. Rectification of Mistakes Under Section 254(2):
The petitioner filed an application under Section 254(2) for rectification, arguing that the Tribunal's observation that no material was provided to show the businesses were interconnected was incorrect. The petitioner contended that the contract business was ongoing, and the losses should be allowed as deductions. The Tribunal dismissed this application, stating that the profit and loss accounts and balance sheets did not indicate any contract activity during the relevant year. The Tribunal maintained that the businesses were not interconnected based on the records.

4. Jurisdiction and Scope of the Tribunal in Rectification Applications:
The court found that the Tribunal had overstepped its jurisdiction by re-evaluating the merits of the appeal in the rectification application. The Tribunal's role under Section 254(2) is limited to correcting apparent mistakes from the record, not to rehear the appeal. The Tribunal failed to determine whether there was a mistake apparent from the record and instead justified its earlier order on merits, which was beyond its scope.

5. Alternative Remedy and Maintainability of the Writ Petition:
The respondents argued that the petitioner had an alternative remedy through a reference application under Section 256 of the Income-tax Act, and thus, the writ petition should not be entertained. However, the court held that the Tribunal acted without jurisdiction and failed to exercise its jurisdiction, making the writ petition maintainable despite the alternative remedy.

Conclusion:
The court allowed the writ petition to the extent of quashing the Tribunal's order on the rectification application dated 29th March, 1975. The rectification application was to be treated as pending, and the Tribunal was directed to dispose of it in accordance with law and the court's observations. The court did not interfere with the Tribunal's original order dated 5th October, 1972, at this stage, allowing the petitioner to challenge it in appropriate proceedings later. The interim order was vacated, and no order as to costs was made.

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