2017 (9) TMI 194 - HC - Income Tax

Rectification of mistake u/s 254 - Rejection of application on the ground of Doctrine of merger - addition made by AO u/s 40(a)(ia) - error apparent on face of the record had been committed- Held that - It appears that though the department had filed appeals before the High Court, these appeals did not concern the issue which the Tribunal had decided in the department s appeals in case of respondent assessee. The Tribunal therefore, erroneously concluded that the order of the Tribunal having merged with that of the High Court, Misc. Applications for rectification were rendered infructuous. We do not intend to give final answer to this question in the present petition though prima facie it may appear that even without any specific powers under the statute, for example, as referred to in subsection( 2) of section 254 for rectification, it would appear that any judicial or quasijudicial authority would have inherent powers to correct an error which is plainly that of clerical, typographical, arithmetical or factual. If the Tribunal had proceeded on factual basis which was wholly and concededly erroneous, the Tribunal perhaps even in absence of specific provision of subsection( 2) of section 254, had the power to recall the order. - ITAT has rejected the application is incorrect on factual premise - Matter restored before ITAT

Summary

Issues:
1. Dismissal of the department's rectification applications by the Tribunal.
2. Interpretation of the powers of rectification of the Tribunal under section 254 of the Income Tax Act.
3. Challenging the Tribunal's orders dated 13.5.2015 and 13.10.2016.

Analysis:
1. The case involved the dismissal of the income tax department's rectification applications by the Tribunal. The Tribunal initially dismissed the applications, stating that the order had merged with the High Court's order, rendering the rectification applications infructuous. However, the High Court found that the Tribunal had erred in concluding that the High Court's order was related to the issue decided by the Tribunal. The High Court set aside the Tribunal's order and revived the department's rectification applications for fresh consideration.

2. The interpretation of the powers of rectification of the Tribunal under section 254 of the Income Tax Act was also a key issue. The counsel for the assessee argued that rectification powers could only be exercised on the original order passed by the Tribunal. The High Court acknowledged this argument but did not provide a final answer in the present petition. It suggested that even without specific powers under the statute, the Tribunal could correct errors of clerical, typographical, or factual nature. The High Court emphasized that if an order was based on clearly incorrect factual premises, it must be set aside.

3. The High Court examined the challenge against the Tribunal's orders dated 13.5.2015 and 13.10.2016. It found that the Tribunal's initial order was based on incorrect factual premises and, therefore, set it aside. Both petitions were allowed, the Tribunal's order was quashed, and the rectification applications were revived for fresh consideration. The High Court did not delve into the argument regarding the tax effect in the appeals, leaving it for the Tribunal to address if raised during the revived rectification applications.