2004 (9) TMI 293 - AT - Income Tax

Summary

Issues Involved:
1. Whether the additions made during the block assessment period for alleged bogus purchases were proper and just.
2. Whether the retrospective amendment to section 158B(b) by the Finance Act, 2002, effective from 1-7-1995, justified the additions in the block assessment.
3. Whether the ITAT's order could be rectified under section 254(2) of the IT Act due to the retrospective amendment.
4. Whether the ITAT's order merged with the High Court's order dismissing the appeal on the ground that no substantial question of law arises.

Issue-wise Detailed Analysis:

1. Additions During Block Assessment Period:
The ITAT initially decided that additions for bogus purchases could only be made during regular assessment proceedings and not during block assessment proceedings, referencing the Gujarat High Court's decision in N.R. Paper & Board Ltd. The ITAT observed that the purchases were recorded in the books of account and that excess stock was found during the search, which contradicted the claim of bogus purchases.

2. Retrospective Amendment to Section 158B(b):
The Finance Act, 2002, amended section 158B(b) with retrospective effect from 1-7-1995, to include any expense, deduction, or allowance claimed under the Act which is found to be false as "undisclosed income." The revenue argued that this amendment justified the additions made during the block assessment period.

3. Rectification Under Section 254(2):
The revenue filed a miscellaneous application for rectification of the ITAT's order under section 254(2), arguing that the retrospective amendment constituted a mistake apparent from the record. The ITAT examined whether the retrospective amendment amounted to an apparent mistake from the record and whether it had the power to rectify such a mistake.

4. Merger of ITAT's Order with High Court's Order:
The ITAT's order was challenged in the High Court, which dismissed the appeal on the ground that no substantial question of law arose. The ITAT had to determine whether its order had merged with the High Court's order, thereby losing its jurisdiction to rectify its own order. The High Court's dismissal was interpreted as not invoking its appellate jurisdiction, thus not resulting in a merger of the ITAT's order with the High Court's order.

Separate Judgments by the Judges:
- Accountant Member's View:
The Accountant Member held that the ITAT's order had merged with the High Court's order, and therefore, the ITAT had no power to entertain the miscellaneous application for rectification. He emphasized the doctrine of merger, citing various judgments, and concluded that the decision of the High Court was the operative decision in law.

- Judicial Member's View:
The Judicial Member disagreed, arguing that the High Court's dismissal of the appeal did not constitute an exercise of its appellate jurisdiction since it was based on the absence of a substantial question of law. He held that the ITAT's order did not merge with the High Court's order, and thus, the ITAT retained the power to rectify its order under section 254(2).

Third Member's Opinion:
The Third Member sided with the Judicial Member, stating that the High Court's dismissal of the appeal on the ground that no substantial question of law arose did not result in a merger of the ITAT's order with the High Court's order. Consequently, the ITAT retained the jurisdiction to rectify its order under section 254(2).

Conclusion:
The ITAT ultimately concluded that the retrospective amendment to section 158B(b) justified the additions made during the block assessment period and that the ITAT retained the power to rectify its order under section 254(2) despite the High Court's dismissal of the appeal. The miscellaneous applications filed by the revenue were allowed for statistical purposes.