2021 (4) TMI 232 - HC - Income Tax

Rectification of mistake u/s 254 - Whether ITAT has exceeded its power of rectification under Section 254(2) of the Act by means of the impugned order, when the issue had been remanded to the file of the AO by the Hon ble ITAT vide its order dated 03.09.2019 - Whether ITAT was legally justified in holding the interest income added by the AO as notional whereas the outstanding balance in HSBC account was interest bearing and there was no materials before Ld. ITAT to hold such interest as notional? - HELD THAT - Tribunal exercised its powers, correctly, under Section 254(2) of the Act. Since the issue regarding notional interest is not adverted to in the order dated 03.09.2019, they were entitled to recall the order qua the said issue. Therefore, in our view, the first question of law does not arise for our consideration. The prayer made, in that behalf, is declined. Whether ITAT was legally justified in holding the interest income added by the AO as notional whereas the outstanding balance in HSBC account was interest bearing and there was no materials before Ld. ITAT to hold such interest as notional? - HELD THAT - We will consider the same along with assessee s appeal i.e. ITA No.612/2017 whereby the direction of remand qua the existence of the bank deposits has been assailed.

Summary

Issues:
1. Challenge to the common order passed by the Income Tax Appellate Tribunal for assessment years 2008-2009 to 2011-2012.
2. Whether the Tribunal exceeded its power of rectification under Section 254(2) of the Income Tax Act.
3. Legality of holding interest income added by the Assessing Officer as notional.

Analysis:
Issue 1:
The High Court dealt with appeals challenging the common order passed by the Income Tax Appellate Tribunal for assessment years 2008-2009 to 2011-2012. The Tribunal had earlier remanded the issue of maintaining a foreign bank account with HSBC for fresh consideration by the assessing officer. The Tribunal had not ruled on the addition of notional interest concerning the credits found in the account. The rectification application by the assessee was disposed of by the Tribunal through the impugned order dated 20.12.2019. The Tribunal decided in favor of the assessee by ruling that no material was available to add the notional interest to the taxable income.

Issue 2:
The revenue contended that the Tribunal had exceeded its power of rectification under Section 254(2) of the Act by reversing its earlier order concerning notional interest. The High Court, after perusing the Tribunal's order, found that the issue of notional interest did not pertain to the assessment year 2007-2008 but only to the years 2008-2009 to 2011-2012. The High Court held that the Tribunal correctly exercised its powers under Section 254(2) by recalling the order regarding the notional interest issue.

Issue 3:
The High Court addressed the legality of holding the interest income added by the Assessing Officer as notional. The revenue raised substantial questions of law on this issue. The High Court opined that since the issue of notional interest was not considered in the earlier order, the Tribunal was entitled to recall the order concerning this issue. The High Court declined to consider the first question of law raised by the revenue. However, it decided to consider the second question of law along with another appeal related to the existence of bank deposits, which was listed for a future date.

In conclusion, the High Court allowed the appeals subject to exceptions, issued notice to the respondent-assessee, and provided a detailed analysis of the issues raised by the revenue regarding the Tribunal's order on notional interest and the exercise of powers under Section 254(2) of the Income Tax Act.