2022 (10) TMI 723 - HC - Income Tax

Rectification of mistake u/s 254 - effect of subsequent decision - whether the subsequent decision of the Supreme Court which had overruled its earlier two decisions which formed the substratum of the decision of the Tribunal can be the basis of rectification under sub-section (2) of Section 254 of the Act? - HELD THAT - A Division Bench of this Court in B.V.K.Seshavataram s case 1994 (4) TMI 64 - ANDHRA PRADESH HIGH COURT was confronted with a similar situation. In that case, this Court was examining the provision of Section 154 of the Act. As submitted by learned counsel for the appellant, Section 154 of the Act provides for rectification of mistake by an income tax authority. As per sub-section (1) thereof, with a view to rectify any mistake apparent from the record, an income tax authority referred to in Section 116 of the Act may amend the order passed by it; amend any intimation or deemed intimation under Section 143(1) of the Act; amend any intimation under sub-section (1) of Section 200A of the Act; and amend any intimation under sub-section (1) of Section 206CB of the Act. In the facts of that case, this Court held that subsequent decision can validly form the basis for rectifying an order of assessment under Section 154 of the Act. We respectfully agree with the reasonings given by a coordinate Bench of this Court in B.V.K.Seshavataram (supra); rather we are bound by it. If this position is applicable to Section 154 of the Act, we are of the view that it is equally applicable to Section 254(2) of the Act. Summation of our above discussion is that the Tribunal was not justified in rejecting the rectification application of the appellant. We answer question No.1 so framed above in the negative and in favour of the assessee. Resultantly, we set aside the order.

Summary

Issues Involved:
1. Whether the Tribunal was correct in holding that it cannot rectify its earlier appellate order based on a subsequent Supreme Court judgment as a mistake apparent from the record.
2. Whether amending an earlier order to conform with a subsequent Supreme Court judgment amounts to review rather than rectification under Section 254(2) of the Income Tax Act and Section 27 of the Interest Tax Act.
3. Maintainability of an appeal under Section 260A of the Income Tax Act against an order rejecting a rectification application under Section 254(2).

Issue-wise Detailed Analysis:

1. Rectification Based on Subsequent Supreme Court Judgment:
The Tribunal initially reversed the Commissioner of Income Tax (Appeals) decision, following two Supreme Court decisions. The assessee later sought rectification under Section 254(2) of the Income Tax Act, citing a subsequent Supreme Court judgment in UCO Bank v. CIT that overruled the earlier decisions. The Tribunal dismissed the rectification application, stating that the subsequent judgment was not available at the time of its original order and that allowing rectification would amount to an impermissible review. The High Court found that the Tribunal's refusal to rectify was unjustified, emphasizing that subsequent judicial decisions are retrospective and should be considered as the law from the beginning.

2. Review vs. Rectification:
The High Court examined whether amending an order to align with a subsequent Supreme Court ruling constitutes a review rather than rectification. It referred to the Supreme Court's decision in Saurashtra Kutch Stock Exchange Ltd., which held that non-consideration of a jurisdictional High Court or Supreme Court decision is a mistake apparent from the record. The High Court concluded that rectification stems from the principle that justice is paramount and is intended to correct errors to uphold justice, not to conduct a review.

3. Maintainability of Appeal under Section 260A:
The respondent argued that an appeal under Section 260A of the Income Tax Act against an order rejecting a rectification application is not maintainable. The High Court disagreed, interpreting "appeal" in Section 260A broadly to include orders on rectification applications. It reasoned that if rectification is allowed, the original order is amended, making it appealable. Therefore, denying an appeal for rejected rectification would be paradoxical. The High Court also noted the long duration since the appeal's admission, making it unjust to dismiss it on maintainability grounds at this stage.

Conclusion:
The High Court set aside the Tribunal's order rejecting the rectification application and remanded the matter for fresh hearing and decision. It held that the Tribunal was not justified in its refusal, emphasizing that subsequent Supreme Court decisions are retrospective and should correct earlier errors. The appeal was allowed, and the Tribunal was directed to reconsider the rectification application in light of the Supreme Court's subsequent ruling.