Commissioner of Income Tax vs Aiswarya Trading Co.

C.N. Ramachandran Nair, J.—This appeal is filed against the order issued by the Tribunal refusing to entertain a rectification application filed by the Revenue u/s 254(2) of the income tax Act, 1961 to rectify the order issued by the Tribunal in an earlier rectification application filed by the Assessee to rectify the very same appellate order.

We have heard standing counsel appearing for the Appellant and Adv. Sri. A. Kumar appearing for the Respondent-Assessee.

The Respondent-Assessee contested its income tax assessment for the year 1994-95, in appeal before the Commissioner of income tax (Appeals) and later before the Tribunal, which remanded the matter to the Assessing Officer for reconsideration mainly on estimation of income from arrack business. The Assessing Officer issued a revised order, which was again taken up in appeal on second round before the Commissioner of income tax (Appeals), who enhanced the assessment, after notice to the Assessee. On second appeal filed by the Assessee, the Tribunal refixed the net income from arrack at Rs. 10 per litre. However, while deciding the appeal, the Tribunal did not consider one of the grounds raised by the Assessee pertaining to the levy of interest u/s 220(2) of the Act in the revised assessment after the first round. Therefore, the Assessee filed rectification application, M. P. No. 30 of 2001 before the Tribunal to rectify the appellate order, which was allowed by the Tribunal. The Tribunal allowed the asses-see''s rectification application by holding that interest could not be levied u/s 220(2) on the demand of tax pursuant to the first round of remand order by the Tribunal. The Department thereafter filed a rectification application M. P. No. 42/2003 for rectifying the order issued by the Tribunal in the Assessee''s rectification application, M. P. No. 30 of 2001. The Tribunal, however, held that the Department''s rectification application is on the very same issue agitated by the Assessee in their rectification application and allowed by the Tribunal and therefore it is not maintainable u/s 254(2) of the income tax Act. The Tribunal relied on the decision of the Orissa High Court in Commissioner of Income Tax and Another Vs. Income Tax Appellate Tribunal and Others, against which this appeal is filed. The standing counsel relied on another decision of the very same Bench of the Orissa High Court reported at page 6401 of the very same volume of the Income Tax Reports and contended that, by virtue of the merger of the rectification order in the appellate order, the application filed u/s 254(2) by the Revenue is still maintainable. According to the standing counsel, the rectification order issued u/s 254(2) merges with the original appellate order issued u/s 254(1) and so much so a further application u/s 254(2) is maintainable. Counsel appearing for the Assessee contended that, since the very same issue agitated by the Revenue in their rectification application is the one decided by the Tribunal in the application filed by the Assessee, it is not maintainable.

After hearing both sides and after going through the appellate order, we are of the view that the second application on the very same issue is not maintainable before the Tribunal. In fact, merger applies only on issues decided in rectification proceedings and the Tribunal''s order issued u/s 254(1) will remain unaffected on all matters other than those covered by the rectification order issued u/s 254(2). In other words, even after the Tribunal rectifies the appellate order u/s 254(2) on any issue raised, still the original order can be rectified on any other issue decided by the Tribunal. However, if the rectification application filed by one of the parties is allowed or rejected by the Tribunal, the very same issue cannot be agitated in another rectification application by the opposite party. If this is done and allowed to be entertained by the Tribunal, then what happens is that the Tribunal gets an opportunity to review its own order for which it has no powers under the statute. Therefore, once the rectification application filed by one of the parties is considered and decided by the Tribunal rightly or wrongly, another rectification application on the same issue is not maintainable against the order issued by the Tribunal u/s 254(2) of the Act. In this case, the question of liability for interest payable by the Assessee u/s 220(2) rightly or wrongly was decided by the Tribunal in the rectification application filed by the Assessee in their favor and so much so, the Department cannot seek to rectify the very same order again u/s 254(2) by filing another application. As already held, the second rectification application by either party is maintainable only on issues not decided by the Tribunal in any other rectification application filed by either of the parties. We, therefore, clarify that the appellate order issued u/s 254(1) gets merged in rectification orders only on the issues raised in the rectification application and on all other issues decided by the Tribunal in the appeal, the appellate order u/s 254(1) survives and is available for rectification again on any other issue on an application filed by either of the parties. Consequently, we uphold the order of the Tribunal and dismiss the Department''s appeal.