Case Note & Summary
The petitioner, M/s. I.G. Petrochemicals Ltd., an assessee under the Income Tax Act, 1961, filed a writ petition challenging the order dated 05.09.2022 passed by the Income Tax Appellate Tribunal (ITAT), 'C' Bench, Bangalore, in M.P. No.47/Bang/2018 (in ITA No.1317/Bang/2018) for the Assessment Year 2006-07. The assessee had taken term loans and working capital loans from banks and had claimed deduction of interest on borrowed capital under Section 36(1)(iii) of the Act. The Assessing Officer disallowed a portion of the interest on the ground that certain funds were diverted for non-business purposes. The Commissioner of Income Tax (Appeals) partly allowed the appeal. The Revenue appealed to the ITAT, which by order dated 21.01.2022 allowed the Revenue's appeal and restored the disallowance. The assessee filed a miscellaneous petition under Section 254(2) seeking rectification of the Tribunal's order, alleging that the Tribunal had erroneously held that the assessee had not placed evidence to show that the borrowed funds were used for business purposes. The Tribunal partly allowed the miscellaneous petition by deleting paragraphs 6, 7 and 8 of its original order and substituting them with fresh paragraphs. The assessee then filed the present writ petition contending that the Tribunal had exceeded its jurisdiction under Section 254(2) by reviewing its earlier decision. The High Court examined the scope of Section 254(2) and held that the power of rectification is limited to correcting mistakes apparent from the record and cannot be used to review the merits or substitute a different view. The Court found that the Tribunal's rectification order effectively reviewed its earlier decision by re-appreciating the evidence and substituting its own view, which was beyond the scope of Section 254(2). The Court set aside the impugned order dated 05.09.2022 and restored the original order dated 21.01.2022.
Headnote
A) Income Tax - Rectification of Mistake - Section 254(2) Income Tax Act, 1961 - Scope of Power - The power under Section 254(2) is confined to rectifying mistakes apparent from the record and cannot be used to review the merits or substitute a different view. The mistake must be obvious and patent, not requiring elaborate reasoning or re-appreciation of evidence. (Paras 10-15) B) Income Tax - Rectification of Mistake - Mistake Apparent from Record - The Tribunal's rectification order deleting paragraphs 6, 7 and 8 and substituting fresh paragraphs amounted to a review of its earlier decision, which is beyond the scope of Section 254(2). The alleged mistake was not apparent from the record but required re-examination of evidence. (Paras 16-20) C) Income Tax - Rectification of Mistake - Jurisdictional Error - The High Court, in exercise of its writ jurisdiction under Articles 226 and 227 of the Constitution of India, can set aside an order passed by the Tribunal under Section 254(2) if it suffers from jurisdictional error or exceeds the scope of the provision. (Paras 21-25)
Issue of Consideration
Whether the Income Tax Appellate Tribunal exceeded its jurisdiction under Section 254(2) of the Income Tax Act, 1961 by deleting and substituting paragraphs in its original order, thereby effectively reviewing its own decision.
Final Decision
The High Court allowed the writ petition, set aside the impugned order dated 05.09.2022 passed by the ITAT in M.P. No.47/Bang/2018, and restored the original order dated 21.01.2022 passed in ITA No.1317/Bang/2018.
Law Points
- Rectification under Section 254(2) of Income Tax Act
- 1961 is limited to mistakes apparent from the record
- cannot be used for review or re-appreciation of evidence
- mistake must be obvious and patent
- no scope for rehearing on merits
