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2016 (2) TMI 525 - HC - Income TaxRectification of mistake - Interest income earned - income from other sources OR business income - Held that - In the present case, the Court finds that the order dated 12th October, 2012 merely records that the Assessee did not carry on the business of Vyaj Badla during AY 2006-07. As pointed out by Mr Aggarwal, although in the AY in question the Assessee may not have carried out the business of Vyaj Badla, it was necessary for the ITAT to examine, in light of the stand of the Revenue in the earlier and later AYs, whether the interest income earned by the Petitioner should be treated as business income. That plainly the ITAT failed to do in the order dated 12th October, 2012. The impugned order in the rectification application also failed to deal with this aspect. While, it is true that the Assessee could have challenged the order dated 12th October 2012 in an appeal before this Court, the Assessee cannot be faulted for approaching the ITAT under Section 254 (2) of the Act for rectification of the above order in view of the law explained by the Supreme Court in Honda Siel Power Products Ltd. v CIT (2007 (11) TMI 8 - Supreme Court of India ). In that view of the matter the impugned order dated 19th December, 2014 passed by the ITAT is set aside and the application for rectification filed by the Assessee before the ITAT under Section 254 (2) of the Act is treated as disposed of. However, this would require the restoration of the appeal to the file of the ITAT to examine the grounds urged by the Assessee on the rule of consistency as far as treatment of the interest income earned by the Assessee.
Issues Involved:
1. Treatment of interest income as business income or income from other sources. 2. Applicability of the principle of consistency in tax treatment across different assessment years. 3. Scope of powers of the Income Tax Appellate Tribunal (ITAT) under Section 254(2) of the Income Tax Act, 1961. Issue-wise Detailed Analysis: 1. Treatment of interest income as business income or income from other sources: The petitioner, a public limited company engaged in investment, finance, and trading, consistently declared its interest income as business income from AY 1999-2000 to AY 2012-13. However, for AY 2006-07, the Assessing Officer (AO) treated the interest income as income from other sources, which was upheld by the Commissioner of Income Tax (Appeals) [CIT(A)] and the ITAT. The ITAT noted that the petitioner failed to demonstrate how its rental, interest, or dividend income should be assessed as business income. The ITAT's order dated 12th October 2012 did not find any apparent mistake in treating the interest income of Rs. 48,312 as income from other sources, especially since the petitioner did not carry on the business of Vyaj Badla in that year. 2. Applicability of the principle of consistency in tax treatment across different assessment years: The petitioner argued that the principle of consistency should apply, as the Revenue had consistently treated the interest income as business income in earlier and subsequent assessment years. The ITAT, however, dismissed this argument, noting that the interest income in question was derived from the petitioner's own funds and not from any business activity. The High Court found that the ITAT failed to adequately address the principle of consistency, as highlighted by the petitioner, and did not consider the Revenue's treatment of interest income in other years. 3. Scope of powers of the Income Tax Appellate Tribunal (ITAT) under Section 254(2) of the Income Tax Act, 1961: The High Court examined the scope of ITAT's powers under Section 254(2), referencing several precedents, including CIT v. K. L. Bhatia, Ms. Deeksha Suri v. ITAT, J. N. Sahni v. ITAT, Baljeet Jolly v. CIT, and Honda Siel Power Products Ltd. v CIT. The Court emphasized that the ITAT has the authority to rectify mistakes apparent on the record, including errors of law, to prevent prejudice to any party. The Supreme Court in Honda Siel Power Products Ltd. underscored that the rule of precedent is crucial for legal certainty and that the ITAT must correct any manifest errors that cause prejudice. Conclusion: The High Court found that the ITAT's order dated 12th October 2012 did not properly address the principle of consistency regarding the treatment of the petitioner's interest income. Consequently, the ITAT's dismissal of the rectification application was also flawed. The Court set aside the ITAT's order dated 19th December 2014 and restored the appeal ITA No. 427/Del/2010 to the ITAT for reconsideration, focusing on the rule of consistency in the treatment of interest income for AY 2006-07. The writ petition was disposed of with directions for the ITAT to re-examine the issue on 14th March 2016.
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