2006 (2) TMI 242 - AT - Income Tax

Summary

Issues Involved:
1. Rectification of Mistake Apparent on Record under Section 254(2) of the Income-tax Act, 1961.
2. Admissibility of Sales-tax Deduction from Profit Computed by Applying Net Profit Rate.
3. Inclusion of Sales-tax Refund as Income under Section 41(1) of the Income-tax Act, 1961.
4. Restriction of Assessed Income to Returned Income after Appeal Effect.

Issue-wise Detailed Analysis:

1. Rectification of Mistake Apparent on Record under Section 254(2) of the Income-tax Act, 1961:
The appellant filed a miscellaneous application under Section 254(2) seeking rectification of a mistake in the Tribunal's order dated 28-5-2001 for the assessment year 1995-96. The appellant argued that there was a contradiction in the Tribunal's order. Specifically, while the Tribunal directed the deletion of an addition of Rs. 13,30,489 on account of sales-tax refund (as per para 24), it also directed that the assessed income should not fall below the returned income (as per para 28). The appellant contended that this direction led to double taxation and was a mistake apparent on the face of the record.

2. Admissibility of Sales-tax Deduction from Profit Computed by Applying Net Profit Rate:
The Tribunal examined whether sales-tax could be deducted separately from the profit estimated by applying the net profit rate. It was concluded that sales-tax, being a direct charge on certain purchases, formed part of the purchase cost and was a direct expense of the contract account. Therefore, it could not be considered separately for deduction from the income estimated by applying the net profit rate. The Tribunal upheld the CIT(A)'s order for the assessment year 1992-93 but reversed it for the assessment years 1994-95 and 1995-96.

3. Inclusion of Sales-tax Refund as Income under Section 41(1) of the Income-tax Act, 1961:
The Tribunal addressed the issue of whether the sales-tax refund of Rs. 13,30,489 received by the assessee should be treated as income under Section 41(1). The Tribunal held that the sales-tax refund could not be charged to tax as deemed income under Section 41(1) because the surplus amount deducted/collected by the Government was neither allowed nor treated as an expenditure in any year. Therefore, the refund in the subsequent year could not be charged to income-tax as income of that year. The Tribunal directed the deletion of the addition made by the Assessing Officer on this account.

4. Restriction of Assessed Income to Returned Income after Appeal Effect:
The Tribunal's order included a direction that if the assessed income for any of the years involved in the appeals fell below the returned income after giving effect to the order, the Assessing Officer should restrict the same to the income returned by the assessee. The appellant argued that this direction was a mistake apparent from the record, as it contradicted the deletion of the sales-tax refund addition. The Judicial Member agreed with the appellant, stating that there was no provision in law that mandated the assessed income could not fall below the returned income. The Judicial Member proposed rectifying the order to exclude the application of para 28 to the sales-tax refund for the assessment year 1995-96.

Third Member Decision:
The Third Member, after considering the facts and circumstances, concluded that there was no mistake apparent from the record that could be rectified under Section 254(2). The Third Member noted that the Tribunal had consciously and deliberately issued the direction in para 28, and it was a legally permissible view. The Third Member also highlighted that the Tribunal's order had merged with the High Court's decision, and thus, only the High Court had the power to consider and rectify any mistake. Consequently, the miscellaneous application filed by the assessee was dismissed, agreeing with the view of the Accountant Member.