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* IN THE HIGH COURT OF DELHI AT NEW DELHI
15.
+ W.P.(C) 3910/2015
PROMAIN LIMITED ..... Petitioner
Through: Mr Salil Aggarwal with Mr Ravi Pratap
Mall, Advocates.
versus
COMMISSIONER OF INCOME TAX ..... Respondent
Through: Mr Rahul Choudhary, Senior Standing
Counsel with Mr Raghvendra Singh, Junior
Standing Counsel and Mr Sharad Agarwal,
Advocates.
CORAM:
JUSTICE S.MURALIDHAR
JUSTICE VIBHU BAKHRU
ORDER
% 15.02.2016
Dr. S. Muralidhar, J:
1. This is a writ petition filed by the Petitioner challenging the order dated
19th December, 2014 passed by the Income Tax Appellate Tribunal (ITAT)
in M.A. No. 06/Del/2013 in ITA No. 427/Del/2010 under Section 254(2) of
the Income Tax Act, 1961 (`Act') for the Assessment Year (`AY') 2006-07.
2. The background facts are that the Petitioner is a public limited company
incorporated under the Companies Act, 1956 and is carrying on the business
of investment, finance and trading. From the details placed on record, it is
seen that from the Assessment Year (AY) 1999-2000 onwards, the Assessee
has been filing returns declaring its sources income as dividend income,
W.P.(C) 3910/2015 Page 1 of 9
rental income, interest income and "Vyaj Badla". In some AYs, the
Petitioner earned income from "Vyaj Badla". However, in all the AYs from
AY 1999-2000 onwards up to AY 2012-13, the Petitioner earned interest
income. The interest income earned by the Assessee, even in a particular AY
when it did not earn any income from the Vyaj Badla business, has been
treated as business income.
3. Aggrieved by the order of the Assessing Officer (AO) treating the interest
income earned during the AY 2006-07 as income from other sources and not
as business income, the Assessee filed an appeal before the Commissioner
of Income Tax (Appeals) [CIT(A)]. In the order dated 26th November 2009
dismissing the appeal, the CIT(A) did not specifically deal with the issue of
interest income being treated as business income.
4. Against the said order of the CIT(A), the Petitioner filed ITA
No.427/Del/2010 before the ITAT. By the order dated 12th October 2012,
the ITAT affirmed the order of the AO and the CIT(A). In para 6 of the said
order it was noted by the ITAT that the counsel for the Assessee was unable
to demonstrate "how the rental income, interest income or dividend income
of the Assessee is to be assessed as a business income." The ITAT also
noted that the order for the AY 2008-09, which was relied upon by the
Assessee "does not throw any light about the acceptance of business activity
of the Assessee".
5. The above order led the Assessee to file an application under Section
254(2) of the Act before the ITAT. It was urged by Mr Salil Aggarwal,
W.P.(C) 3910/2015 Page 2 of 9
learned counsel appearing for the Petitioner, that before the ITAT in the
rectification application the Petitioner urged the ground of applicability of
the principle of consistency and contended that the Revenue had treated the
interest income earned by the Petitioner as business income for the AYs
earlier to AY 2006-07, as well as in the AYs subsequent thereto. In short,
the Assessee case was that if in all the earlier AY as well as in subsequent
AYs the Revenue had accepted the stand of the Assessee that the interest
income earned by it should be treated as business income, there was no
reason to make a departure only for AY 2006-07.
6. By the impugned order dated 19th December, 2014, the ITAT dismissed
the application. In para 3.1 while rephrasing earlier order of the ITAT dated
12th October 2012, the ITAT observed that "admittedly, the rental income,
dividend income, income from long terms/short term capital gain cannot be
the business income. Now, only other interest was the interest income of Rs.
48,312/- which too was held by the Assessee by investment of own funds."
Therefore, the question before the ITAT was "whether the earning of the
interest was of Rs. 48,312/- by investing own funds can be said to carrying
on the business and consequently, allowance of a business
expenditure/business loss of Rs. 10,66,545/-." The ITAT then proceeded to
record in the impugned order that "admittedly in this year the Assessee did
not carry on the business of Vyaj Badla. Moreover, interest income was only
Rs. 48,312/-." The ITAT then came to the conclusion that in the above facts
it could not be said that there was any apparent mistake in the order dated
12th October, 2012.
W.P.(C) 3910/2015 Page 3 of 9
7. One course open to the Petitioner, if it was aggrieved by the ITAT's order
dated 12th October 2012, was to have filed an appeal before this Court under
Section 260A of the Act. However, Mr Salil Aggarwal, learned counsel for
the Petitioner states that in view of the enunciation of the law by the
Supreme Court in Honda Siel Power Products Ltd. v CIT (2007) 295 ITR
466 (SC), the Assessee decided to file a rectification application since there
was a fundamental legal error with the ITAT declining to apply the rule of
consistency and failing to appreciate that for all earlier AYs and even the
subsequent AYs, the Revenue itself had treated the interest income earned
by the Assessee as business income.
8. Mr Rahul Choudhary, learned Senior Standing counsel for the Revenue,
on the other hand submitted that by entertaining the present writ petition, the
Court would be virtually giving the Assessee another round of appeal before
the ITAT which would defeat the very object of Section 254(2) of the Act.
He submitted that it would be recognising a power of review of the ITAT
which clearly was not permissible within the scope of Section 254(2) of the
Act. Having failed to avail the remedy of filing an appeal against the
original order of the ITAT dated 12th October, 2012 the Petitioner could not
be permitted to indirectly seek the same relief.
9. What the scope of powers of the ITAT under Section 254(2) of the Act is,
was explained by this Court earlier in four decisions CIT v. K. L. Bhatia
(1990) 182 ITR 361 (Del), Ms. Deeksha Suri v. ITAT (1998) 232 ITR
395(Del), J. N. Sahni v. ITAT (2002) 257 ITR 16 (Delhi) and Baljeet Jolly
v. CIT (2001) 250 ITR 113 (Del). These were again explained in Honda
W.P.(C) 3910/2015 Page 4 of 9
Siel Power Products Ltd. v CIT (2007) 293 ITR 132 (Del). The last decision
was taken in appeal before the Supreme Court in Honda Siel Power
Products Ltd. v CIT (2007) 295 ITR 466 (SC). The following observations
in the said decision at para 13 are relevant:
"13. "Rule of precedent" is an important aspect of legal
certainty in rule of law. That principle is not obliterated by
section 254(2) of the Income-tax Act, 1961. When prejudice
results from an order attributable to the Tribunal's mistake,
error or omission, then it is the duty of the Tribunal to set it
right. Atonement to the wronged party by the court or the
Tribunal for the wrong committed by it has nothing to do with
the concept of inherent power to review. In the present case,
the Tribunal was justified in exercising its powers under
section 254(2) when it was pointed out to the Tribunal that the
judgment of the co-ordinate Bench was placed before the
Tribunal when the original order came to be passed but it had
committed a mistake in not considering the material which was
already on record. The Tribunal has acknowledged its
mistake, it has accordingly, rectified its order. In our view, the
High Court was not justified in interfering with the said order.
We are not going by the doctrine or concept of inherent power.
We are simply proceedings on the basis that if prejudice had
resulted to the party, which prejudice is attributable to the
Tribunal's mistake, error or omission and which error is a
manifest error then the Tribunal would be justified in
rectifying its mistake, which had been done in the present
case."
10. The above decision was followed by a Full Bench of this court in
Laxman Das v. ACIT (2011) 330 ITR 243 (Del). While, paraphrasing the
decision of the Supreme Court in Honda Siel Power Products Ltd. v CIT
(2007) 295 ITR 466 (SC), the Full Bench of this Court in Laxman Das
(supra) observed as under:
W.P.(C) 3910/2015 Page 5 of 9
"28. It has also been pronounced that the decision is only an
authority for what it actually decided and it is the duty to
ascertain the real concrete or ratio decidendi which has the
binding effect. While dealing with the principle of precedent, it
is to be borne in mind that a judgment is neither to be read as
Euclid's theorem nor is to be read out of context. Mechanical
application of a decision treating as a precedent without
appreciating the underlying principle is not allowable. In
Honda Siel Power Products Ltd., (supra), the Division Bench
of this court considered the stance of the counsel that the
decision in K.L. Bhatia [1990] 182 ITR 361 (Delhi) and the
other decisions that have followed it, forbids recall of the
Tribunal's entire decision on the basis that in the grab of
rectification, the order cannot be recalled. When the matter
travelled to the apex court, their Lordships as is evident from
the paragraphs quoted hereinbefore, took note of the fact that
the application for rectification was filed as the Tribunal had
not taken note of a binding precedent though the same was
cited before the Tribunal. In that factual background, their
Lordships have held that the power of rectification has been
conferred on the Tribunal to see that no prejudice is caused to
either of the parties appearing before it by its decision based
on a mistake apparent from the record. Their Lordships further
opined that atonement to the wronged party by the court or the
Tribunal for the wrong committed by it has nothing to do with
the concept of inherent power to review. Their Lordships
further took note of the fact that the Tribunal committed a
mistake in not considering the material which was already on
record and the Tribunal acknowledged its mistakes and
accordingly rectified its order. It is wrong nothing that their
Lordships have clearly stated that they are not going by the
doctrine or concept of inherent power but on the basis that if
prejudice has resulted to the party, which is attributable to the
Tribunal's mistake, error or omission and which error is a
manifest error, then the Tribunal would be justified in
rectifying its mistake, which had been done in the said case by
recalling the original order. Applying the principles which we
have enumerated hereinabove to understand the concept of
W.P.(C) 3910/2015 Page 6 of 9
precedent, it can safely be stated that the apex court was
dealing with a case which travelled from this court wherein it
had been held that the Tribunal had no power of recall of its
own order in entirety; that the court was not going by the
doctrine or concept of inherent power; that the "rule of
precedent" which is an important part of legal certainty in rule
of law is not obliterated by section 254(2) of the Act; that if
prejudice has resulted to the party due to the mistake, error or
omission which is attributable to the Tribunal and it is
manifest from the record, the mistake can be rectified. Thus
understood, it is clear as crystal that their Lordships have held
that the fundamental principle is that no party appearing before
the Tribunal should suffer on account of any mistake
committed by the Tribunal and no prejudice is caused to either
of the parties before the Tribunal which is attributable to the
Tribunal's mistake, omission or commission and if the same
error is a manifest error, then the Tribunal would be justified
to recall. The line of decisions which have been rendered by
this court have proceeded on the basis of review, the limited
power of recall as provided under rule 24 of the Income-tax
(Appellate Tribunal) Rules, 1963 as regards the exercise of
power which cannot be exercised directly or exercised
indirectly and that even if there is any irregularity caused, that
would not clothe the Tribunal with the power of review as it
may ultimately result in rehearing of the appeal. Thus, the
entire stream of decisions has gone by the concepts which are
fundamentally founded on the power of review, rehearing and
the limited concept of recall. But what has been stated by the
apex court in Honda Siel Power Products Ltd. [2007] 295 ITR
466 (SC) is based on the doctrine of prejudice. Their Lordships
have clarified that they were not proceeding on the doctrine or
concept of inherent power. Analyzed from this perspective,
there can be no trace or shadow of doubt that the said decision
is an authority for the proposition that the Tribunal in certain
circumstances can recall its own order and section 254(2) of
the Act does not totally prohibit so."
W.P.(C) 3910/2015 Page 7 of 9
11. Ultimately, the Full Bench of this Court in Laxman Das (supra)
overruled the earlier decisions in K. L. Bhatia (supra), J. N. Sahni (supra),
Baljeet Jolly (supra) and Deeksha Suri (supra) to be not laying down the
correct law.
12. The result of the above discussion of the legal position is that, it will be
open for the ITAT in application of Section 254(2) of the Act, to also
examine whether the order sought to be rectified has an apparent error of
law not limited to mistakes of fact apparent on the face of the record.
13. In the present case, the Court finds that the order dated 12 th October,
2012 merely records that the Assessee did not carry on the business of Vyaj
Badla during AY 2006-07. As pointed out by Mr Aggarwal, although in the
AY in question the Assessee may not have carried out the business of Vyaj
Badla, it was necessary for the ITAT to examine, in light of the stand of the
Revenue in the earlier and later AYs, whether the interest income earned by
the Petitioner should be treated as business income. That plainly the ITAT
failed to do in the order dated 12th October, 2012. The impugned order in the
rectification application also failed to deal with this aspect.
14. While, it is true that the Assessee could have challenged the order dated
12th October 2012 in an appeal before this Court, the Assessee cannot be
faulted for approaching the ITAT under Section 254 (2) of the Act for
rectification of the above order in view of the law explained by the Supreme
Court in Honda Siel Power Products Ltd. v CIT (supra).
W.P.(C) 3910/2015 Page 8 of 9
15. In that view of the matter the impugned order dated 19th December, 2014
passed by the ITAT is set aside and the application for rectification filed by
the Assessee before the ITAT under Section 254 (2) of the Act is treated as
disposed of. However, this would require the restoration of the appeal ITA
No.427/Del/2010 to the file of the ITAT to examine the grounds urged by
the Assessee on the rule of consistency as far as treatment of the interest
income earned by the Assessee.
16. Accordingly ITA No. 427/Del/2010 is directed to be listed before the
ITAT peremptorily on 14th March, 2016 for a fresh decision on the limited
ground of treatment of the interest income earned by the Petitioner during
AY 2006-07.
17. The writ petition is disposed of in the above terms. Order dasti.
S.MURALIDHAR, J
VIBHU BAKHRU, J
FEBRUARY 15, 2016
MK
W.P.(C) 3910/2015 Page 9 of 9
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