BY TIOL News Service

NEW DELHI, MAR 01, 2019: THE issue at hand before the bench is - Whether if assessee chooses favourable time to file rectification application after a long wait when Tribunal Members were not available to entertain its application, such conduct amounts to forum-shopping. YES is the answer.

The High Court also held that the authority of the Tribunal regarding rectification of mistakes, is limited to correcting any prima facie errors in its judgments, which are brought to notice either by the AO or the assessee. It was also held that an assessee's complaint that some of its grievances remain un-addressed is unsustainable where it did not immediately challenge the dismissal of its cross-objection & instead made the calculated decision of awaiting outcome of Revenue's appeal filed in the same matter. Thus it observed that conduct of waiting for the non-availability of those ITAT members who passed the order sought to be rectified, is tantamount to forum shopping.

Facts of the case

THE assessee-company filed returns for the relevant AY and assessment orders were passed. Thereafter, the AO issued notice of re-assessment, making certain disallowances u/s 68 of the Act. On appeal, the CIT(A) deleted the additions made. However, the CIT(A) also rejected the assessee's arguments regarding validity of re-assessment. The Tribunal then upheld such order on both aspects. The Revenue's appeal against such order was allowed and the additions made u/s 68 were restored. The assessee did not contest the rejection of its cross objection, but instead challenged the High Court's judgment through an SLP before the Apex Court.

Meanwhile, the assessee approached the Tribunal and filed application for rectification, claiming that since the rejection of its cross objection about the validity of reassessment notice was not on merits, it ought to consider that ground and revive the cross objections. Such application was allowed. The Revenue then sought to get rectification of such order, but its application was unsuccessful.

In writ, the High Court held that,

++ it appears that the assessee's claim for rectification is precluded by the doctrine of finality and not merely merger. Once the additions were upheld on merits, the second innings as it were before the tax authorities which have the effect of unsettling binding decisions of higher courts, cannot be countenanced. In that sense the issue of merger applies. In the facts of this case, this court is of opinion that the doctrine of finality applies as well. The assessee by conduct in not seeking remedy for the dismissal of its cross objection and speculatively waiting for the outcome of the Revenue's appeal, cannot be heard to complain that its grievance with respect to reassessment remained unaddressed. The court is conscious that it is not dealing with an uninformed litigant; instead it is advised by counsel. Furthermore, the court notices that the first ITAT order was by two members. The application made under Section 254 for rectification was heard and disposed by two others;

++ there is a difference in the structure of the power of rectification conferred upon tax authorities, such as the AO and the CIT on the one hand, and the ITAT, on the other. The AO- as well as lower revenue authorities have an overriding power to rectify, in Section 154(1A). However, such overriding power is absent, in the case of the ITAT, whose authority to amend or rectify its order is confined by the language (of Section 254 (2)), i.e. "...to with a view to rectifying any mistake apparent from the record, amend any order passed by it under sub-section (1), and shall make such amendment if the mistake is brought to its notice by the assessee or the Assessing Officer...";

++ the conduct of the assessee was speculative, to put it mildly. It is not an uninformed litigant; it calculatedly chose not to question the rejection of its cross objection (on grounds of its having been rendered infructuous). Having waited more than a year after the decision of this court (which was rendered on 21-12-2012), it approached the ITAT in 2014. It offered no explanation why it did not seek the rectification earlier, during the pendency of the Revenue's appeal- in that event, if the ITAT had rejected its application this court would have given suitable directions. Instead, waiting for the time till the two members who decided the first ITAT orders were not available and choosing to prefer the rectification application at a convenient time, the assessee no doubt technically was compliant, but stood exposed to the odium of forum shopping;

++ thus the rectification application filed by the assessee (MA 250/2014) was barred by the principle of finality, and to an extent the doctrine of merger. The ITAT entirely mis-appreciated its jurisdiction which, as held in Honda Siel Power Products Ltd Vs. Commissioner of Income Tax Delhi, is to correct an apparent mistake. That its previous decision to dismiss the cross appeal as infructuous was a mistake in the light of the subsequent reversal of its order on the merits of the addition, is not a mistake or error warranting rectification. This court deprecates in the strongest terms, the invocation of the power of rectification. Hence the present writ petition must succeed.

(See 2019-TIOL-502-HC-DEL-IT)