2019 (9) TMI 1002 - AT - Income Tax

Rectification u/s 254 - taxability of retention money - HELD THAT - After considering the application for rectification and arguments of both sides, we agree that a mistake apparent on record crept into the order of the ITAT which requires rectification on the issue of taxability of retention money for the AY 2008-09 and for AY 2009-10. The mistake was that the ITAT was under the wrong impression that this ground on taxability of retention money did not come in both these years. In view of the above the relief granted for AY 2007-08, on the issue of retention money being brought to tax has also to be granted for the AY 2008-09 and AY 2009-10. Retention money cannot be brought to tax in any of the years. Ordered accordingly.

Summary

Issues:
Rectification of mistakes in orders passed under section 254(2) and 254(1) of the Income Tax Act, 1961.

Analysis:
The judgment concerns two Miscellaneous Applications (M.A.s) filed for rectification of mistakes in orders passed under section 254(2) and 254(1) of the Income Tax Act, 1961. The primary issue was whether such rectification applications were maintainable. The High Court's interpretation emphasized that for a mistake to be rectified under section 254(2), it must be apparent from the record, visible, and not requiring an elaborate argument to establish. The Tribunal's decision on the applicability of a specific provision was scrutinized, highlighting the need for clarity in addressing factual aspects. The judgment clarified that the power to rectify under section 254(2) allows for amendments to the original order without recalling it entirely, maintaining the original order's effectiveness.

Regarding the scope of rectification, the judgment outlined that the Tribunal cannot recall an order under section 254(2) entirely unless there were procedural lapses or illegitimacy in the original order. It was emphasized that the order under section 254(2) merges with the original order under section 254(1) and does not exist independently. The judgment distinguished between rectification and passing a new order, highlighting that rectification does not grant the right for a reference or rehearing of the entire matter.

Furthermore, the judgment referenced previous cases to support the interpretation of the Tribunal's jurisdiction in rectification matters. The cases highlighted the Tribunal's competence to rectify mistakes apparent from the record in orders passed under section 254(1) and the limitations on invoking section 254(2) for rectification. The judgment concluded by allowing the Miscellaneous Applications of the assessee for rectification of the ITAT's order on the taxability issue for specific assessment years, rectifying the mistake apparent on record and granting the relief sought by the assessee.

In summary, the judgment provided a detailed analysis of the maintainability of rectification applications under sections 254(1) and 254(2) of the Income Tax Act, emphasizing the need for clarity, adherence to procedural requirements, and the limitations on recalling orders. The decision ultimately granted the relief sought by the assessee for rectification of the ITAT's order on the taxability issue for certain assessment years.