By TIOL News Service

ALLAHABAD, APR 18, 2007 : THE Tribunal rectifies an order for an apparent record. Later the Tribunal finds that the rectification was wrong. Can the rectified order be rectified?

The petitioner was assessed in the status of Unregistered Firm ("URF") for the assessment year 1990-91 by the Assistant Commissioner of Income Tax. A sum of Rs.1,95,020/- had been added in the income of the petitioner as an unexplained investment, which were the deposits in the books of account of the petitioner in various names. Being aggrieved by the order of the Assistant Commissioner, petitioner filed appeal before the Commissioner of Income Tax (Appeals), who allowed the appeal in part. Appellate authority accepted the explanation of the petitioner in respect of some of the deposits but has not accepted the explanation in respect of some of the deposits and confirmed the addition. While confirming the addition, appellate authority observed that assessment has been framed in the status of URF. Appellate authority further observed that the assessee formed an AOP did not carry on any business in accounting year and the assessment has been framed in the status of URF. Under these circumstances, the onus to prove the nature and source of credit appearing in the books of account of the individual members of the AOP squarely lies upon the assessee.

Both the assessee and the Department filed appeal before the Tribunal.  Tribunal dismissed the appeal filed by the department and partly allowed the appeal of the assessee. Tribunal accepted the explanation of some of the deposits and confirmed some of the deposits.

With the view, that there was a patent mistake in the order of the Tribunal, petitioner filed Misc. application for the rectification of the order. The main plea raised in the application was that the petitioner was assessed to tax in the status of URF while Tribunal has held that the status of the firm as an AOP.

Tribunal vide order dated 31.10.2000 allowed the application in part. Tribunal has recalled the order dated 09.07.1998 in ITA No.2438 and 2367(A) of 1991 for fresh consideration and adjudication of the issues involved in the appeal. Tribunal was of the view that by mistake the status of the assessee was taken as an AOP.

Then Tribunal realized it made a mistake and issued a notice that the Tribunal seems to have passed the order on Misc. application on mistaken facts, ignoring the correct facts on record, which is liable to be rectified by passing fresh order after recalling the order. After hearing the parties on this issue, the Tribunal held that

1. the Tribunal has inherent powers to rectify any mistake committed by it in any of its order.

2. the Tribunal has clear powers to amend any order passed by it under sub-section (1) of section 254 of its own, i.e. suo moto.

3. the Tribunal's finding that the assessee's status was that of URF has been arrived at on the mistaken facts i.e. on the basis of facts which are not on record and, therefore, the findings arrived at are as a result of mistake of facts.

4. a mistake had crept in the order of the Tribunal dated 31.8.2000- so far as question of changing of assessee's status from URF to AOP is concerned i.e. whether it was changed by the CIT (A) or the Tribunal simply assumed the status as that of URF; the mistake being of facts and apparent from the record is liable to be rectified by virtue of powers vested with the Tribunal by the provisions of section 254 (2) of the Act.

The assessee is before the High Court challenging the Tribunal’s power to rectify its own orders suo moto.
The High Court observed,

1. Perusal of the assessment order reveals that the petitioner was assessed to tax in the status of URF. On the very first page of the assessment order in the column of status URF is mentioned and before the computation of the income "After discussion, the income is computed as U.R.F." is clearly mentioned.

2.  Perusal of the order passed by Commissioner of Income Tax (Appeals) shows that the status has not been changed.

3. The observation of the Commissioner of Income Tax (Appeals) that the assessee formed an AOP did not carry on any business in the accounting year and the assessment has been framed in the status of URF, can not be said that the Commissioner of Income Tax (Appeals) has taken the status as AOP.

4. Tribunal in its order dated 09.07.1998 in paragraph 9 has observed "the findings which is based on the facts narrated here-in-before that the status of the assessee was that of an AOP has not at all been challenged before us. The status of the assessee was never taken as an AOP.

5. on the facts of the case, the view of the Tribunal that Commissioner of Income Tax (Appeals) has changed the status to AOP is patently incorrect and erroneous.

What does the law say? Section 254 (2) of the Income Tax Act read as follows:

"254(2) : The Appellate Tribunal may, at any time within four years from the date of the order, 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 High Court observed that

1. The Act provides power to the Tribunal to rectify any mistake apparent form the record any order passed by it under sub-section (1) and no power is provided to the Appellate Tribunal to rectify the mistake in the order passed under section 254 (2)

2. Section 254 (2) of Income Tax Act Under the Statute of the Income Tax Act. When a specific power is given in the Statute to the Tribunal to rectify the order passed under section 254 (1) of the Income Tax Act only, the power to rectify the order under section 254 (2) of the Income Tax Act cannot be assumed.

3. By the impugned order Tribunal has purported to review its earlier order dated 31.08.2000 passed under section 254(2) of the Act. Under the Income Tax Act no power is provided to the Tribunal to review its order.

4. The Appellate Tribunal has no inherent power of reviewing its order on merits. It cannot, in the purported exercise of its inherent powers, rehear a case on its merits.

5. It is true that as an incidental or ancillary to the appellate power, for the furtherance of the statutory power which is conferred upon it, Tribunal can set aside the ex-parte order and can recall its earlier order or stay the realization of the tax in the absence of any specific provisions as held in various cases, but there is no inherent power with the Tribunal to deal with the matter on merits to review or modify its earlier order.

So the High Court quashed the Tribunal’s order on the following grounds :-

1) Commissioner of Income-Tax (Appeals) has not changed the status from URF to AOP. Assessing authority has taken the status as URF, which has not been disturbed by the Commissioner of Income-Tax (Appeals).

2) Tribunal has no power under the Income-Tax Act to review or rectify the order under section 254 (2) of the Act. It has only power to rectify the order passed under section 254(1) of the Act.

3) Tribunal has no power in the Act to review any order. The mistake which is sought to be rectified by the impugned order is not apparent and patent error. Tribunal sought to review/modify its earlier order, which is not permissible in law.

In the result, writ petition is allowed and the order of the Tribunal is quashed.

This would equally apply to CESTAT.

(See 2007-TIOL-193-HC-ALL-IT in 'Income Tax' + 2007-TIOL-193-HC-ALL-IT in 'Legal Corner')