Commissioner of Income Tax and Another vs Income Tax Appellate Tribunal and Others

A. Pasayat, J.—The Commissioner of Income Tax, Orissa, in this writ application, questions the legality of the order passed by the Income Tax Appellate Tribunal, Cuttack Bench (in short "the Tribunal"), in purported exercise of the powers u/s 254(2) of the Income Tax Act, 1961 (in short "the Act").

The background facts are as under :

Prajatantra Prachar Samity (hereinafter referred to as "the assessee"), is a public charitable trust registered as such by the Commissioner of Income tax, Orissa, u/s 12A of the Act. For the assessment year 1985-86, it filed a return disclosing loss of Rs. 15,76,880, before the Income Tax Officer, Ward A, Circle II, Cuttack. The loss was arrived at after making provision for liabilities incurred, taking into account amounts receivable but not received. The Assessing Officer took the view that the assessee was doing business ; Section 11(4) of the Act was applicable, and the method of accounting is such that the income cannot properly be deduced therefrom. By adopting the first proviso to Section 145 of the Act, he determined the taxable income at Rs. 16,49,580. A sum of Rs. 30,91,093 which represented the amount receivable from sundry debtors was added to the figure of loss disclosed. The exclusion of this amount from the turnover was concluded to be improper. The assessee challenged the assessment in appeal before the Commissioner of Income Tax (Appeals), Orissa, who affirmed the addition. The matter was carried in further appeal before the Tribunal, By order dated January 19, 1990, the Tribunal upheld the assessment. An application was filed by the assessee purported to be one u/s 254(2) alleging that certain mistakes apparent from the record needed rectification. The primary grounds indicated in support of the application were that (i) the assessee was not engaged in any business in the commercial sense, and, therefore, the observation of the Tribunal that the assessee was running a business is patently erroneous; (ii) applicability of Section 11(4A) was not in issue before the Tribunal and, therefore, the Tribunal was wrong in invoking the provision and making out a new case which was not urged by any of the parties before the lower forums ; and even before framing the issue, the Tribunal had prejudged the matter ; and (iii) the assessee had pleaded its case with reference to the decision in Commissioner of Income Tax Vs. Ganga Charity Trust Fund, , which was not specifically dealt with by the Tribunal ; (iv) contentions relating to acceptability of the method of accounting followed by the assessee were not considered in their proper perspective. The motion for rectification was opposed by the Revenue. The Tribunal observed that the assessee''s grievance related to rejection of its method of accounting, and the Tribunal has applied the provisions of Section 11(4A) which were not raised before the authorities and, therefore, that was a clear and apparent error. Since the Tribunal applied the Section suo motu, it constituted a rectifiable mistake in terms of Section 254(2).

The stand of the Revenue in essence in this writ application is that the approach of the Tribunal was erroneous. What is rectifiable u/s 254(2) is a mistake apparent from the record and not any other mistake which may have crept into the Tribunal''s order. The question whether on the facts, Section 11(4A) had, application or not is not a mistake apparent from the record. Merely because the authorities below have not specifically dealt with the section, it cannot be held that they had not considered the case in the background of that section.

Mr. S. N. Rotho, learned counsel for the assessee, however, submitted that, while dealing with the rectification application, the Tribunal has recorded a categorical finding that the Tribunal had made out a case suo motu and, therefore, the rectification is justified.

For the resolution of the controversy, it is necessary to deal with the scope and ambit of rectification u/s 254(2). What is rectifiable is a mistake which is apparent, it must be one for the discovery of which no elaborate reasoning or enquiry is necessary. It must be visible and patent. In the instant case, we find that the Tribunal, while dealing with the appeal, observed that Section 11(4A) had application to the facts of the case. Even assuming that the Tribunal has committed an error of judgment, that would not be sufficient to exercise power u/s 254(2). A pure question of law, or a plea which could be considered on the evidence already on record, can, for the first time, be raised and pleaded before the Tribunal, If a question of law goes to the root of the matter and does not involve further investigation into facts, it can also be permitted to be urged. The Tribunal, in deciding the appeal, is not restricted to the grounds set forth in the memorandum of appeal or taken by leave of the Tribunal provided the party who is affected by the consideration of new issues is afforded sufficient opportunity of being heard in the matter. The Tribunal, in its wisdom, thought that, on the facts, this provision of law had application. Whether in reality it had application or not, cannot be decided in an application for rectification u/s 254(2). It involves a detailed analysis of factual aspects which is outside the scope of an application u/s 254(2). Where an issue has not been raised by the parties and yet the Tribunal has recorded a finding or a conclusion in respect thereof, a question of law referable u/s 256(1) arises. This position has been succinctly stated in Commissioner of Income Tax, Bombay Vs. Scindia Steam Navigation Co. Ltd., . Therefore, the exercise of power u/s 254(2) in such a case would be inappropriate. The so-called mistakes highlighted by the assessee in its application for rectification related to certain alleged erroneous conclusions. The conclusions may be inappropriate, but they per se do not constitute mistakes apparent from the record. They are not obvious, patent, but require detailed and critical appreciation of factual disputes. The Tribunal was, therefore, not justified in recalling its order. Consequently, we vacate the order dated December 13, 1990 (annexure-1). It is brought to our notice that as a sequel to the said impugned order, a fresh order has been passed by the Tribunal on May 10, 1991, vide annexure-2. In view of our conclusion that the order of recall is interdicted, the subsequent order dated May 10, 1991 (annexure-2) cannot also be maintained.

In the result, annexures-1 and 2 are quashed. Writ application is allowed. No costs.

S.K. Mohanty, J.

I agree.