2017 (9) TMI 193 - HC - Income Tax

Tribunal limited power of rectification u/s 254 - AO had never made addition on the ground of disallowance of purchases made by the assessee but the addition was based on Section 69 on the ground that the assessee had made unexplained investment in the form of stock - lapse of 3 years by the department for filing rectification application - Tribunal limited power of rectification under section 254 - Held that - Under section 254 of the Act, an aggrieved party can approach the Tribunal within four years from the date of the order seeking rectification of an error apparent on the record. We may, therefore, not base our order on the Tribunal s first observation regarding the department having allowed a delay of nearly 3 years to lapse before filing application for rectification. If the department was within the limitation in applying for rectification and if otherwise had made out a good ground for rectification, the Tribunal ought to have considered the same. On the merits of the order of the Tribunal, we are broadly in agreement with the view of the Tribunal that its earlier order did not call for rectification. It is well settled that the power of rectification are limited to correcting errors apparent on the record and cannot be equated with review powers. In the first round, the Tribunal was apprised of the controversy, rival stands and the findings of the Assessing Officer and the CIT(Appeals). The Tribunal gave a certain verdict which may have aggrieved the department and may have also given rise to an arguable legal point. Nevertheless, that by itself would not enable the department to activate the rectification powers of the Tribunal. Such powers are etched with serious limitations and cannot be exercised by way of appellate or review powers. There was nothing in the application of the department to point out an error in the order of the Tribunal which could have been rectified under exercise of powers under section 254 of the Act. Petition dismissed.

Summary

Issues:
1. Rectification application filed by the Income Tax department challenging the Tribunal's order.
2. Whether the Tribunal committed an error apparent on the face of the record in deleting the addition under Section 69 of the Income Tax Act.
3. Whether the Tribunal's rejection of the rectification application by the department was justified.

Analysis:

Issue 1: Rectification Application by Income Tax Department
The Income Tax department filed a rectification application before the Tribunal nearly 3½ years after the original order, contending that the Tribunal had committed an error apparent on the face of the record. The department argued that the addition made by the Assessing Officer was based on Section 69 of the Act due to unexplained investment in stock, not on disallowance of purchases. The Tribunal rejected the application, emphasizing the delay in filing and the limited scope of rectification under section 254 of the Act.

Issue 2: Error in Tribunal's Order under Section 69 of the Act
The Tribunal, in its original judgment, set aside the addition made by the Assessing Officer regarding purchases of grey cloth, stating that the addition was not justified as the grey cloth was not consumed in the relevant year. The Tribunal directed a fresh decision by the Assessing Officer, considering the consumption of grey cloth in the year claimed by the assessee. The Income Tax department contended that the Tribunal erred in deleting the addition under Section 69 of the Act and failed to consider the reasoning of the CIT(A).

Issue 3: Tribunal's Rejection of Rectification Application
The Tribunal rejected the department's rectification application, stating that the power of rectification under section 254 of the Act is limited to correcting obvious mistakes apparent from the record. The Tribunal found no justification for the department's delay in filing the application and concluded that the original order did not warrant rectification. The Tribunal clarified that rectification powers are not review powers and cannot be used to challenge its earlier decision based on disagreement or legal arguments.

In conclusion, the High Court dismissed both petitions, noting the similarity in facts. The Court upheld the Tribunal's decision to reject the rectification application, emphasizing the limited scope of rectification powers and the absence of any apparent error in the Tribunal's original judgment.