2014 (12) TMI 394 - HC - Income Tax

Rejection of application of rectification u/s 254(2) Addition u/s 68 - identity or capacity not accepted by Assessing Authority - genuineness of the transaction proved or not - Held that - The Tribunal rightly allowed the appeal of the assessee in part deleting additions pertaining to some of the firms/company however the Tribunal confirmed the addition relating to M/s Vardhman Trading Company - the identity of the creditor has not been proved on a prima facie basis by filing partnership deed or any other credible evidence - The existence of 17 partners stands falsified in view of the inquiries made by the AO which was communicated to the assessee - The creditor was not assessed in the relevant AY and its capacity has also not been proved on a prima facie basis - the genuineness of the transaction has obviously not been established assessee by means of the rectification application has attempted to re-adjudicate the factum of existence of the firm M/s Vardhman Trading Company which has already been held to be a fictitious and bogus firm - Thus the finding recorded by the authorities and the Tribunal attained finality regarding transaction pertaining to M/s Vardhman Trading Company - To invoke the provisions of Section 254(2) of the Act there must be an error apparent on the face of record the Tribunal has no power to review its own order - In exercise of the power under sub section (2) of Section 254 Tribunal can only rectify any mistake apparent from the record thus the order of the Tribunal is upheld Decided against assessee.

Summary

Issues:
Challenge to order of Income Tax Appellate Tribunal under section 254(2) of the Income Tax Act 1961 regarding addition made under section 68 in the hands of the petitioner for unsecured loan.

Analysis:
The petitioner challenged the order of the Income Tax Appellate Tribunal, Delhi Bench, regarding the addition made under section 68 of the Income Tax Act 1961 in relation to an unsecured loan. The petitioner had filed a return of income for assessment year 1986-1987, declaring total income of Rs. 24,970. However, during assessment proceedings for the same year, the Assessing Officer noticed an outstanding loan of Rs. 18,50,000 from a company, with discrepancies in the outstanding balance and lack of evidence regarding the transaction's genuineness. Consequently, an addition of Rs. 5,55,000 was made under section 68 of the Act in the petitioner's hands.

The petitioner appealed against the assessment order, which was partially allowed by the Commissioner of Income Tax (Appeals) and remanded to the Assessing Officer for fresh consideration. However, on remand, the Assessing Officer upheld the addition under section 68, considering the transaction as bogus. The petitioner then approached the Income Tax Appellate Tribunal, which partially allowed the appeal but confirmed the addition related to the specific company in question.

Subsequently, the petitioner filed an application under section 254(2) of the Act, seeking to recall a specific paragraph of the Tribunal's order and present additional evidence. However, the Tribunal dismissed this application, stating that there was no mistake apparent on the face of the record. The High Court, upon review, held that the Tribunal's finding regarding the fictitious nature of the company had attained finality, and there was no error apparent on the face of the record to invoke section 254(2) for rectification. The Court emphasized that the Tribunal lacked the power to review its own order and could only rectify mistakes apparent from the record.

In conclusion, the High Court found no infirmity in the Tribunal's order and dismissed the writ petition, stating it lacked merit. The judgment upholds the principle that the Tribunal's decision regarding the existence and nature of the firm in question was final, and there was no basis for rectification under section 254(2) of the Income Tax Act 1961.