Commissioner of Income Tax vs Chhabra Ginning Udhyog

A.M. Sapre, J.—This is an appeal filed by the Revenue (Commissioner of income tax) u/s 260A of the Income Tax Act, 1961, against an order dated February 4, 2003, passed by the Income Tax Appellate Tribunal (for brevity hereinafter referred to as "the Tribunal") in M.A. No. 47/Ind/2002 arising out of I.T.A. No. 1046/Ind/96. This appeal was admitted for final hearing on the following substantial questions of law:

Whether the Income Tax Appellate Tribunal was justified in entertaining the application made u/s 254 of the Income Tax Act and further erred in granting the relief to the assessee by holding that there was an error apparent on face of the record as required to be made out in rectification of an order dated September 30, 2002, passed in I.T.A. No. 1046 of 1996?

Whether the Income Tax Appellate Tribunal was justified in holding that the assessee is entitled to claim deduction under Sections 80HH and 80-I in respect of the miscellaneous income earned from other sources (and not derived from industrial undertaking) therebytaking a contrary view to the law laid down by the Supreme Court in the case reported in Commissioner of Income Tax, Karnataka Vs. Sterling Foods, Mangalore, ?

The respondent (assessee) is engaged in ginning business. The dispute in this case relates to the assessment year 1992-93. The question arose as towhether the assessee who has surrendered voluntarily a sum of Rs. 9 lakhs for being taxed can be treated as an income derived from their industrial undertaking for the purpose of claiming benefit of deduction available u/s 80HH/80-I of the Act. The Assessing Officer did not treat the surrendered income to be an income derived from the assessee''s industrial undertaking and accordingly, declined to grant the benefit to the assessee as provided u/s 80HH/80-I to the industrial undertaking. The Commissioner of Income Tax (Appeals), however, held in favour of the assessee on an appeal filed by the assessee against the order of the Assessing Officer who has declined to grant the benefit. However on an appeal filed by the Revenue before the Tribunal against the order of the Commissioner of Income Tax (Appeals), the appeal was allowed. The Tribunal, while setting aside the order of the Commissioner of Income Tax (Appeals), held that the surrendered income of the assessee does not amount to an income derived from the industrial undertaking. In the concluding para, the Tribunal was constrained to observe that it was a case where the assessee was making an attempt to somehow convert their black money (ill-gotten wealth) in white money by claiming deduction under Chapter VI-A which is otherwise not available to them under the twin sections. The issue on the facts was dealt with by the Tribunal in detail while negativing the claim of the assessee in the following words:

In view of this observation, it is not always correct to apply the ratio of different decisions to the similar facts of the case without going deep into details of the facts in hand. Even the hon''ble Supreme Court in Commissioner of Income Tax, West Bengal Vs. Brij Lal Lohia and Mahabir Prasad Khemka, has held that the fact that in the earlier proceedings, the Tribunal took a different view was not conclusive circumstances and the decision of the Tribunal reached in those proceedings did not operate as res judicata as there was a great deal more evidence before the Tribunal in the proceedings for the subsequent years. In the present year, we find that the assessee is also engaged in some trading activities though it is a fact that such trading activities were very little. On a specific query by the Bench that why the assessee had introduced cash in the balance-sheet for the assessment year 1992-93 when he could have declared this income by writing off the bogus credits shown in the name of agriculturists, the learned authorised representative could not explain this situation satisfactorily. This fact makes it clear that it is not necessary that the assessee had earned this undisclosed income from the industrial activity because in that case he would have simply written off the bogus credits and credited the concerned amount in the profit and loss account and not introduced fresh cash in the books of account. We also find that after the decision of ''the hon''ble Supreme Court in Commissioner of Income Tax, Karnataka Vs. Sterling Foods, Mangalore, which was rendered on April 15, 1999, which is after the decision rendered by the Tribunal for the assessment year 1991-92, i.e., on February 9, 1999, the assessee has to prove that income was derived from an industrial activity so as to make it entitle to deduction under Sections 80HH and 80-I. We find that the assessee has not brought any evidence to this effect that the so-called concealed income was derived for industrial activity. Decision regarding telescoping relied on by the learned authorised representative cannot be applied for allowing special deduction under Chapter VI-A. Telescoping what has been decided by various courts is that a particular item on which addition has been made can be treated to be a source for another item of expenditure. We have gone through our earlier orders and in order for the assessment year 1991-92 in I.T.A. No. 14/Ind/96 at paragraph 8 there is a finding that there is no iota of evidence wherefrom it can be interfered that the assessee has ever entered into trading activities with regard to raw cotton which was purchased from the agriculturists, whereas in the current year there are some trading activities, which were carried on by the assessee. We also find merit in the contention of the learned Departmental representative that purpose of deduction under Chapter VI-A was to engage industrial activities and not to encourage conversion of black money which is detected by the Department from detailed enquiries. In those circumstances, we set aside the order of the Commissioner of Income Tax (Appeals).

The assessee feeling aggrieved by this decision of the Tribunal, instead of filing a regular appeal u/s 260A of the Act to this Court made an application u/s 254 of the Act, seeking rectification of the aforesaid order of the Tribunal. It is this application which was allowed by the Tribunal by the impugned order resulting in dismissal of the appeal which was initially allowed by the Tribunal. In other words, the Tribunal by the impugned order which was passed u/s 254 of the Act recalled its earlier order passed by it in appeal and dismissed the appeal filed by the Revenue. As a consequence, the order passed by the Commissioner of Income Tax (Appeals) which was in favour of the assessee was upheld. It is against this order, passed by the Tribunal u/s 254 of the Act, the Revenue has come up in appeal. As observed supra, it was admitted for final hearing on the aforementioned two substantial questions of law.

Heard Shri R. L. Jain, learned senior counsel with Ku. V. Mandlik, learned Counsel for the Revenue/appellant and Shri G.M. Chafekar, learned senior counsel with Shri D.S. Kale, learned Counsel for the asses-see/respondent.

Learned Counsel for the appellant (Revenue) while assailing the legality of the impugned order in the first instance contended that the Tribunal exceeded their jurisdiction in entertaining the application; made u/s 254(2) of the Act by the assessee seeking rectification of the order earlier passed in the main appeal. According to learned Counsel, the Tribunal in the garb of seeking rectification as provided u/s 254(2) ibid, recalled the entire order passed in appeal and dismissed the appeal. This in the submission of learned Counsel was not permissible in law and ought not to have been done. In reply, learned Counsel for the respondent (assessee) supported the impugned order and contended that the rectification was properly done.

Having heard learned Counsel for the parties and having perused record of the case, we are inclined to allow the appeal and answer question No. 1 in favour of the appellant (Revenue) and against the respondent (assessee). As a necessary consequence, it is not necessary to answer the second question which in our humble view does not arise out of the impugned order.

In our considered opinion, law on the question of exercise of powers available u/s 254(2) ibid is fairly well-settled. A power to rectify the mistake in the order is confined to only those errors which are apparent from the record of the case. In other words, every error cannot give rise to seek rectification u/s 154 or 254, as the case may be, but only those errors which are apparent on the face can be made basis to invoke the powers u/s 254(2) ibid. Similarly, the powers u/s 254(2) ibid cannot be exercised as a review court or as an appellate court so as to virtually change the earlier decision from "dismissal to allow" and vis-a-vis unless and until grave error on facts/law from the record is pointed out which is apparent on its face causing apparent injustice to an aggrieved.

Coming to the facts of this case, when we peruse the main order passed by the Tribunal in an appeal filed by the Revenue which was initially allowed by the Tribunal deciding the issue against the assessee, it becomes very clear that the Tribunal did go into the entire facts and legal position applicable to it. It is only then a detail and categorical finding was recorded on facts to the effect that the income surrendered by the assessee was not an income which could be regarded as income having been derived from the industrial undertaking. The Tribunal while thus accepting the contention of the Revenue both on facts and in law on the other hand and in our view rightly went to the extent of observing that the assessee was making efforts to convert their black money in white by taking recourse to the provisions of Section 80HH/80-I of the Act. Having thus examined the issue in such minute detail running in "9 pages" resulting in recording of categorical finding against the assessee, there was absolutely no scope for recalling such order by taking recourse to the provisions of Section 254(2) ibid. In other words, the appellate order, dated September 30, 2002, did not suffer any error much less apparent error on its face so as to entitle the Tribunal to recall the order just after few days by virtually changing its complexion from "allowing of the appeal" to that of "dismissal of appeal" in favour of the assessee. What the Tribunal did in 9 pages, the same was changed by writing one page order as if the so-called mistake could not be noticed while hearing the main argument in appeal. By mentioning the number of pages, we do not wish to say that it is not possible. All that we wish to observe is that in the facts of this case, a detail order taking into consideration each and every aspect of the case and with full application of mind, both on the facts and in law having been passed by the Tribunal, there was absolutely no scope for upturning such order in favour of the assessee just after few days by invoking the powers conferred u/s 254(2) of the Act.

In our considered view, mere perusal of the impugned order would show that it does not satisfy the rigour of Section 254(2) ibid. The Tribunal has again gone into the facts little realising the scope and ambit of Section 254(2) and proceeded to set aside the appellate order by "dismissing the appeal" which they had initially "allowed it". We are satisfied that the appellate order did not suffer from any mistake much less mistake/error apparent on its face so as to entitle the Tribunal to recall the same in its entirety. Indeed the Tribunal while allowing the application made u/s 254(2) read with Rule 34A did not advert to any of the requirement of these two provisions as to how and in what manner these two provisions are attracted. Mere mention that there is an error, the Tribunal did not assume jurisdiction to recall their well reasoned order passed in appeal.

A well reasoned decision which has gone in favour of the Revenue in regularly constituted appeal cannot be upturned by taking recourse to the provisions of Section 254(2) ibid like an appellate court. It can be done only by appellate court, i.e., by this Court u/s 260A ibid. The Tribunal, while hearing the application u/s 254(2) ibid, cannot act as an appellate court. In this case, the Tribunal has so acted and, hence, committed an error. In other words, the subtle distinction between the appellate powers and rectification powers were not kept in consideration by the Tribunal while deciding the rectification application.

In our considered opinion thus, the application made by the assessee (respondent herein) u/s 254(2) did not conform the requirement of Section 254(2) read with Rule 34A of the Income Tax (Appellate Tribunal) Rules and hence, the same should have been dismissed. In other words, the application did not contain the requisite ingredients necessary for invoking Section 254(2) read with Rule 34A ibid so as to recall the main order.

In view of the foregoing discussion, we answer question No. 1 in favour of the appellant (Revenue) and against the respondent (assessee). As a necessary consequence, it is not necessary to answer question No. 2 because, firstly, it has become academic and, secondly, it really does not arise out of the impugned order. In other words, so far as question No. 2 is concerned, it may be said to arise out of the main appellate order of the Tribunal and that too at the instance of the respondent (assessee) in case, if they file an appeal u/s 260A of the Act and that too if it satisfies the rigour of Section 260A ibid. It is for the reason that in the main appeal, the question is already answered in favour of the appellant and against the respondent by the Tribunal.

Accordingly and in view of the foregoing discussion, we allow the appeal and set aside the order, dated February 4, .2003, passed in M.A. No. 47/Ind/2002 which arise out of I.T.A. No. 1046/Ind/96. As a necessary consequence, the original appellate order, dated September 30, 2002, passed by the Tribunal in I.T.A. No. 1046/Ind/96 is restored.

No costs.