2007 (9) TMI 357 - HC - Income Tax

Power of Appellate Tribunal- The scope of the proceedings under section 254(2) of the Income Tax Act, 1961, is limited and is narrower than proceedings for review. The power of rectification under section 254(2) of the Income Tax Act, 1961, does not apply. Held that- it was not disputed that on an application under section 254(2) of the Act having been filed, the Tribunal set aside its own order in its entirety for passing an order afresh. This was tantamount to reviewing the order and not rectifying it. Under these circumstances, the order of the Tribunal passed under the provisions of section 254(2) of the Act and the subsequent fresh order passed on April 23, 2004 could not be sustained.

Summary

Issues:
1. Entertaining and recalling orders under section 254 of the Income-tax Act.
2. Justification and jurisdiction of the Tribunal in recalling orders.
3. Scope and limitations of rectification under section 254(2) of the Income-tax Act.

Analysis:

Issue 1: Entertaining and Recalling Orders under Section 254 of the Income-tax Act
The Revenue challenged the Tribunal's order dated March 5, 2004, which was recalled for passing a fresh order upon the assessee's application under section 254(1) of the Income-tax Act. The Tribunal also passed an order dated April 23, 2004, in response to the application. Both appeals, I. T. A. No. 59 of 2004 and I. T. A. No. 76 of 2004, were admitted based on substantial questions of law regarding the Tribunal's actions in entertaining and recalling the original orders. The history of the case involved the Deputy Commissioner of Income-tax rejecting the assessee's account and proceeding under section 145 for a best judgment assessment due to doubts about the selling price indicated by the assessee.

Issue 2: Justification and Jurisdiction of the Tribunal in Recalling Orders
The Tribunal's actions were challenged on the grounds that the original order was non-speaking and that the subsequent order was a result of the assessee's application for rectification under section 254(2). The Tribunal set aside its own order entirely for passing a fresh order after allowing the rectification application. The court noted that rectification under section 254(2) implies amendment upon the identification of a mistake by the assessee or the Assessing Officer. However, the power of rectification does not extend to recalling or reviewing the order, as established in previous judgments cited during the proceedings.

Issue 3: Scope and Limitations of Rectification under Section 254(2) of the Income-tax Act
The court emphasized that the proceedings under section 254(2) are narrower than those for review, and rectification should only occur upon identifying a mistake in the order. The Tribunal's decision to set aside its original order for passing a fresh one was considered a review rather than a rectification. Consequently, the orders passed under section 254(2) and the subsequent fresh order were deemed unsustainable. As a result, the questions raised in both cases were answered in favor of the Revenue, leading to the setting aside of the impugned orders, with each party bearing its own costs.

In conclusion, the judgment highlighted the importance of distinguishing between rectification and review under section 254 of the Income-tax Act, ultimately leading to the setting aside of the Tribunal's orders due to the nature of the Tribunal's actions in recalling the original orders.