Court Rejects Rectification Plea, Upholds Tax Tribunal's Decision

Case Name**: Thomas John Muthoot vs Assistant Commissioner of Income Tax and Another **Key Takeaways**: 1. The court upheld the ITAT's decision, finding no error apparent on the face of the record. 2. The amendment to Section 40(a)(ia) (of Income Tax Act, 1961), effective from April 1, 2013, cannot be applied retrospectively to previous assessment years. 3. The High Court emphasized the importance of following jurisdictional High Court decisions in tax matters. 4. The court highlighted the availability of appeal under Section 260A (of Income Tax Act, 1961) for substantial questions of law. **Issue**: Was there an error apparent on the face of the record in the Income Tax Appellate Tribunal's order that warranted rectification under Section 254(2) (of Income Tax Act, 1961)? **Facts**: 1. The case pertains to assessment years 2005-2006, 2006-2007, and 2007-2008. 2. The petitioner's assessment was finalized as per Exhibit P1 series orders. 3. The petitioner appealed these orders, but the appeals were dismissed by the ITAT on August 28, 2014 (Exhibit P2). 4. The petitioner then filed a rectification application (Exhibit P3) under Section 254(2) (of Income Tax Act, 1961). 5. The petitioner claimed that the ITAT had not considered a vital point raised in paragraph 12 of their written submissions. **Arguments**: Petitioner's Arguments: 1. The amendment to Section 40(a)(ia) (of Income Tax Act, 1961) has watered down the rigour of the provision regarding non-deduction of tax. 2. The petitioner's sister concern had already satisfied the entire tax, as evidenced by Exhibits P5 to P7. 3. The ITAT relied on decisions from Calcutta and Gujarat High Courts without considering the Allahabad High Court's decision. 4. If two views are available, the one favorable to the assessee should be adopted, citing the Supreme Court decision in Commissioner of Income Tax vs. Vegetable Products Ltd. (1973) 88 ITR 192 (SC). Respondent's Arguments: 1. All points raised by the assessee were considered in the ITAT's order (Exhibit P2). 2. The amendment to Section 40(a)(ia) (of Income Tax Act, 1961) came into effect on April 1, 2013, and cannot be applied retrospectively. 3. The Division Bench of the High Court had already ruled on this issue in Prudential Logistics and Transports (2014 (364) ITR 689). 4. There is no error apparent on the face of the record, and the petitioner still has the option to appeal under Section 260A (of Income Tax Act, 1961). **Key Legal Precedents**: 1. Prudential Logistics & Transports v. ITO [2014] 364 ITR 689/51 taxmann.com 426: This Division Bench decision held that the amendment to Section 40(a)(ia) (of Income Tax Act, 1961), effective from April 1, 2013, cannot be applied retrospectively to previous assessment years. 2. Commissioner of Income Tax vs. Vegetable Products Ltd. (1973) 88 ITR 192 (SC): This Supreme Court decision states that if two views are available, the one favorable to the assessee should be adopted. **Judgement**: 1. The High Court dismissed the petition for rectification. 2. The court found no error apparent on the face of the record in the ITAT's order. 3. The court held that the petitioner still has the remedy of appeal under Section 260A (of Income Tax Act, 1961) if there's a substantial question of law involved. 4. The court granted a two-week stay on coercive proceedings, provided the petitioner satisfies one-third of the balance liability within one week. **FAQs**: 1. Q: What is the significance of Section 254(2) (of Income Tax Act, 1961)? A: Section 254(2) (of Income Tax Act, 1961) allows for rectification of orders passed by the Income Tax Appellate Tribunal if there's an error apparent on the face of the record. 2. Q: Can the 2013 amendment to Section 40(a)(ia) (of Income Tax Act, 1961) be applied to previous assessment years? A: No, the High Court has ruled that this amendment cannot be applied retrospectively to assessment years before 2013-2014. 3. Q: What options does the petitioner have after this judgment? A: The petitioner can file an appeal under Section 260A (of Income Tax Act, 1961) if there's a substantial question of law involved. 4. Q: Why did the court grant a two-week stay on coercive proceedings? A: The court granted this stay to allow the petitioner time to pursue an appeal under Section 260A (of Income Tax Act, 1961), provided they satisfy one-third of the balance liability within one week. 5. Q: What is the importance of following jurisdictional High Court decisions in tax matters? A: Lower tribunals and courts are bound by the decisions of their jurisdictional High Court, ensuring consistency in the application of tax laws within a particular jurisdiction.

1. The petitioners have approached this Court seeking for a direction to be issued to the 2nd respondent to consider and pass appropriate orders on Ext.P3 petition filed under Section 254(2) (of Income Tax Act, 1961), mainly pointing out that the contention raised by the petitioner/assessee particularly in paragraph 12 of the written submissions of the note submitted before the said respondent has not been considered and as such, there is an error apparent on the face of the record, to be acted upon by this Court.

2. The case of the petitioner is that, the assessment was finalised as per Ext.P1 series orders for the different assessment years 2005-2006, 2006-2007 and 2007-2008. On challenging the same by filing appeals, interference was declined and the appeals were dismissed as per Ext.P2 order dated 28.08.2014 passed by the 2nd respondent. Since the vital points raised by the petitioner has been stated as omitted to be considered, Ext.P3 application for rectification has been filed under Section 254(2) (of Income Tax Act, 1961) and has approached this Court by filing this writ petition against the coercive proceedings taken in the meanwhile.

3. Heard the learned Senior Counsel Sri. T.M Sreedharan , appearing for the petitioner, as well as the learned Standing Counsel appearing for the respondents as well.

4. The learned Senior Counsel appearing for the petitioner submits that, by virtue of the amendment of the statute, invoking the second proviso 2 of Section 40a(ia) (of Income Tax Act, 1961), the rigour of the provision as to effect of non-deduction of tax payable has been virtually watered down. It is stated that, the assessment was finalised in the case of the petitioner, disallowing the claim for interest paid by the petitioner to the sister concern, in connection with the borrowal of money in the course of transactions. It is stated that, the sister concern of the petitioner has already satisfied the entire tax and in the said circumstances, proceedings have been finalised in respect of the sister concern, as borne by Exts.P5 to P7 orders passed by the Deputy Commissioner of Income Tax(TDS) for the concerned assessment years. This being the position, there is absolutely no rhyme or reason to have proceeded against the petitioner and hence this writ petition, to cause Ext.P3 to be considered and disposed of. The learned counsel also points out that, the 2nd respondent has relied on the decision rendered by the Calcutta High Court as well as the Gujarat High Court, without any regard to the law declared by the Allehabad High Court. Referring to the decision rendered by the Madras Bench of the concerned Tribunal in C.O. No.155 (Mds) of 2013 in ITA No.2076 of 2012, the learned Senior Counsel points out that, if two views are available, the one which is favourable to the assessee has to be adopted, in view of the law declared by the Apex Court as per the law declared in (1973) 88 ITR 192 (SC) (Commissioner of Income Tax Vs. Vegetable Products Ltd.) (which in turn has been followed by the Madras Bench of the Tribunal).

5. The learned Standing Counsel appearing for the respondents submits that, the idea and understanding of the petitioner is quite wrong and misconceived. It is stated that, all the points raised from the part of the assessee have been considered as discernible from Ext.P2 order itself. The benefit of amendment watering down the rigour of Section 40a(ia) (of Income Tax Act, 1961) appeared in the statute book only by virtue of the amendment brought about with effect from 01.04.2013. The scope of the said provision has already been considered by the Division Bench of this Court as per the decision reported in Prudential Logistics and Transports (2014 (364) ITR 689. It has been categorically held by the Bench in the said decision, that the amendment brought about with effect from 01.04.2013 cannot come to the rescue of the assessee in respect of the assessment of the previous years. It is also pointed out that, the said decision rendered by this Court has been referred to by the 2nd respondent/Tribunal in Ext.P2 order. The Tribunal being bound by the verdict passed by the jurisdictional High Court, there is no error apparent on the face of the record. It is also pointed out that, the petition preferred by way of Ext.P3, stating that there is an error apparent on the face of the record, it is not labile to be entertained, as there is no error apparent on the face of the record at all. It is also brought to the notice of this Court that the petitioner is still having a remedy by way of appeal, as provided under Section 260A (of Income Tax Act, 1961), if any substantial question of law is involved.

6. The learned Senior Counsel appearing for the petitioner submits that, the petitioner is ready and willing to pursue the said remedy and seeks for some breathing time by way of 'two weeks' to pursue such proceedings and seeks to intercept the coercive proceedings being taken in the meanwhile. The learned counsel also points out that, in respect of WP(C) No.28582 of 2014, the petitioner has already satisfied liability to an extent of 81% and in respect of the other case, the payment effected is to the tune of nearly 66%.

7. After hearing both the sides, this Court holds that the remedy available to the petitioner, if at all aggrieved, is by way of Section 260A (of Income Tax Act, 1961). It is open for the petitioner to pursue such remedy in accordance with law and subject to available or valid and sustainable grounds. So as to enable the petitioner to pursue such exercise, coercive proceedings against the petitioner shall be kept in abeyance for a period of 'two weeks', on condition that the petitioner satisfies 1/3rd of the balance liability to be cleared in both the cases, which shall be effected within 'one week'. Both the writ petitions are disposed of.

P.R. RAMACHANDRA MENON,

JUDGE