1989 (9) TMI 156 - AT - Income Tax

Summary

Issues Involved:
1. Rectification of Order under Section 254(2) of the Income-tax Act
2. Inclusion of Borrowed Capital under Section 80J of the Income-tax Act
3. Time Limitation for Filing Miscellaneous Application
4. Applicability of Case Law and Circulars

Detailed Analysis:

1. Rectification of Order under Section 254(2) of the Income-tax Act
The primary issue in this judgment revolves around the rectification of an order under Section 254(2) of the Income-tax Act. The Tribunal initially allowed the assessee's claim for relief under Section 80J, which included borrowed capital in the computation of capital employed. However, this was later found to be incorrect due to a retrospective amendment in the Finance Act No. 2 of 1980, which excluded borrowed capital. The Department filed a miscellaneous application to rectify this mistake, which was accepted by the Tribunal on 6-4-1985. The assessee later filed a new miscellaneous application arguing that the rectification order itself was barred by limitation.

2. Inclusion of Borrowed Capital under Section 80J of the Income-tax Act
Initially, the Tribunal allowed the inclusion of borrowed capital in computing the capital employed for the purpose of Section 80J. However, the Finance Act No. 2 of 1980 amended Section 80J with retrospective effect, excluding borrowed capital from the computation. The Tribunal acknowledged this amendment and rectified its earlier order to exclude borrowed capital, as pointed out by the Department's miscellaneous application.

3. Time Limitation for Filing Miscellaneous Application
The assessee's present miscellaneous application contended that the rectification order passed by the Tribunal on 6-4-1985 was barred by limitation, as it was beyond the four-year period from the original order dated 27-8-1980. The Tribunal clarified that the crucial date for considering the limitation period is the date of filing the application, not the date of passing the order. Since the Department's application was filed within the four-year period, the rectification was valid despite being disposed of after the period.

4. Applicability of Case Law and Circulars
The Tribunal examined various case laws and circulars to address the issue of limitation. The assessee relied on the Allahabad High Court's decision in Vithaldas v. ITO, which held that the ITO must rectify within the prescribed period, and if failed, the High Court could issue a writ to enforce rectification. However, the Tribunal found this case inapplicable as it dealt with different facts. The Tribunal also referred to the Supreme Court's decision in Kapurchand Shrimal v. CIT, which emphasized the appellate authority's duty to correct errors within the statutory period. Additionally, the Tribunal considered Circular No. 73 issued by the CBDT, which allowed disposal of valid applications filed within the statutory time limit even if disposed of later. This circular applied equally to both the assessee and the Department.

Conclusion
The Tribunal dismissed the assessee's miscellaneous application, holding that the rectification order passed on 6-4-1985 was not barred by limitation, as the Department's application was filed within the four-year period. The Tribunal emphasized that the law must apply equally to both the assessee and the Department, and the crucial date for limitation is the date of filing the application, not the date of the order's disposal.