2019 (3) TMI 167 - HC - Income Tax

Rectification of mistake - earlier ITAT dismissed the revenue appeal and cross objection of the assessee - Revenue went to HC, wherein HC restored the matter before ITAT - Status of the cross objection - doctrine of merger - validity of reassessment proceeding - HELD THAT - Assessee s claim for rectification is precluded by the doctrine of finality and not merely merger. Once the additions were upheld on merits, the second innings as it were before the tax authorities which have the effect of unsettling binding decisions of higher courts, cannot be countenanced. In that sense the issue of merger applies. This court is of opinion that the doctrine of finality applies as well. The assessee by conduct in not seeking remedy for the dismissal of its cross objection and speculatively waiting for the outcome of the revenue s appeal, cannot be heard to complain that its grievance with respect to reassessment remained unaddressed. The court is conscious that it is not dealing with an uninformed litigant; instead it is advised by counsel. ITAT had rejected its application this court would have given suitable directions. Instead, waiting for the time till the two members who decided the first ITAT orders were not available and choosing to prefer the rectification application at a convenient time, the assessee no doubt technically was compliant, but stood exposed to the odium of forum shopping. The court holds that the rectification application filed by the assessee was barred by the principle of finality, and to an extent the doctrine of merger. The ITAT, in the opinion of this court, entirely mis-appreciated its jurisdiction which, as held in Honda Siel, is to correct an apparent mistake. That its previous decision to dismiss the cross appeal as infructuous was a mistake in the light of the subsequent reversal of its order on the merits of the addition, is not in the considered view of this court, a mistake or error warranting rectification. This court deprecates in the strongest terms, the invocation of the power of rectification. W.P. succeed.

Summary

Issues Involved:
1. Validity of reassessment notice under Section 147/148 of the Income Tax Act.
2. Rectification of the ITAT order under Section 254(2) of the Income Tax Act.
3. Application of the doctrine of merger and finality.

Detailed Analysis:

1. Validity of Reassessment Notice under Section 147/148 of the Income Tax Act:
The assessee's returns were reassessed, and the Assessing Officer (AO) disallowed certain amounts under Section 68. The AO rejected the assessee's contentions regarding the validity of the reassessment notice. The assessee appealed, and the Commissioner of Appeals (CIT(A)) deleted the amounts added back but upheld the validity of the reassessment notice. The first ITAT order upheld the CIT(A)'s decision on both aspects. The Revenue appealed to the High Court, which allowed the appeal, adding back the amounts under Section 68. The assessee did not challenge the rejection of its cross objection at this stage but later sought rectification of the ITAT's order, arguing that the issue of reassessment notice validity was not adjudicated on its merits.

2. Rectification of the ITAT Order under Section 254(2) of the Income Tax Act:
The ITAT initially dismissed the assessee's cross objections as infructuous. After the High Court reversed the ITAT's decision on the merits of the additions, the assessee filed for rectification, arguing that the cross objections were no longer infructuous. The ITAT allowed this rectification, directing the registry to fix the cross objections for adjudication. The Revenue filed for rectification of this rectification order, which the ITAT rejected, stating that the cross objections were connected to the main appeal and thus required adjudication.

3. Application of the Doctrine of Merger and Finality:
The Revenue argued that the ITAT's first order merged with the High Court's judgment, attaining finality. Therefore, the ITAT could not entertain the rectification application. The assessee contended that the doctrine of merger had limited application and did not cover issues not decided on merits. The High Court analyzed relevant legal provisions and precedents, concluding that the doctrine of finality applied. The assessee's failure to seek remedy for the dismissal of its cross objections and its speculative conduct precluded it from seeking rectification. The ITAT's jurisdiction under Section 254(2) is limited to correcting apparent mistakes, and the reversal of its order on the merits of the addition did not constitute such a mistake.

Conclusion:
The High Court quashed the ITAT's order dated 26th March 2015, holding that the rectification application filed by the assessee was barred by the principle of finality and, to some extent, the doctrine of merger. The ITAT had misappreciated its jurisdiction, and the invocation of the power of rectification was strongly deprecated. The writ petition was allowed, and the assessee was ordered to bear the costs of the proceedings, quantified at ?1.5 lakhs.