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2011 (12) TMI 296 - HC - Income TaxRectification of mistake - Assessee engaged in running educational institute - Advanced to P.V RAvi (Managing Trust) - Violation of Section 13 exemption denied under Sec 11 - Tribunal Assessee paid huge interest on borrowing amount and has given an interest free loan further in the absence of any agreement it has to be held that it was in violation of the said section - Tribunal reviewed its order under 254(2) considering it as mistake apparent from record - Revenue aggrieved by said order is in appeal - Held That - Section 254(2) of the Act has been enacted not only to safeguard the interest of the assessee but also to enable the Tribunal to rectify the error apparent on the face of the record. Therefore we see no reason to interfere with the order under challenge. Decided against revenue.
Issues Involved:
1. Mistake apparent from the records warranting rectification under section 254(2) of the Income Tax Act. 2. Non-consideration of the Supreme Court decision in Adithanar Educational Institution vs. Additional CIT. 3. Violation of the provisions of section 13(1)(c)(ii) of the Income Tax Act by the assessee trust. Detailed Analysis: 1. Mistake Apparent from the Records Warranting Rectification under Section 254(2) of the Income Tax Act: The Tribunal initially denied the exemption under section 11 of the Act to the assessee trust, citing a violation of section 13 due to an advance of Rs. 25 lakhs to the Managing Trustee. The assessee filed a rectification petition under section 254(2) of the Act, arguing that the Tribunal did not consider the Supreme Court decision in Aditanar Educational Institution vs. Addl. CIT. The Tribunal, upon review, found that there was indeed a mistake apparent from the record and rectified its earlier order. The High Court upheld this rectification, noting that section 254(2) allows for the amendment of orders to rectify mistakes apparent from the record within four years of the original order. 2. Non-Consideration of the Supreme Court Decision in Adithanar Educational Institution vs. Additional CIT: The Tribunal's initial order did not consider the Supreme Court's decision in Aditanar Educational Institution, which was relevant to the issue of section 13 violations. The Supreme Court has held that non-consideration of a decision of the jurisdictional court or the Supreme Court constitutes a mistake apparent from the record, which can be rectified under section 254(2). The High Court confirmed that the Tribunal was correct in rectifying its order based on this oversight. 3. Violation of the Provisions of Section 13(1)(c)(ii) of the Income Tax Act by the Assessee Trust: The Assessing Officer found that the assessee trust had advanced Rs. 25 lakhs to its Managing Trustee, which was seen as a violation of section 13, leading to the denial of exemption under section 11. The assessee argued that the transaction occurred in the previous year and was merely a journal entry in the current year. The Commissioner of Income Tax (Appeals) accepted this explanation and granted the exemption. However, the Tribunal initially reversed this decision, stating that the advance without interest or security was a violation of section 13(1)(c)(ii). Upon rectification, the Tribunal considered the Supreme Court's decision and concluded that there was no violation during the relevant assessment year, as the funds were not actually advanced in the current year. Conclusion: The High Court upheld the Tribunal's rectification of its earlier order, confirming that the non-consideration of the Supreme Court decision constituted a mistake apparent from the record. The substantial questions of law were answered in favor of the assessee, affirming that there was no violation of section 13(1)(c)(ii) during the relevant assessment year. The High Court emphasized that section 254(2) is designed to rectify apparent mistakes to prevent any party from suffering due to errors by the Tribunal.
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