2009 (1) TMI 307 - AT - Income Tax

Summary

Issues Involved:
1. Levy of surcharge on undisclosed income for searches conducted prior to 1st June, 2002.
2. Scope of rectification under Section 154 of the IT Act.
3. Limitation period for filing an application under Section 154.
4. Whether the order sought to be rectified was the original assessment order or the order giving effect to the Settlement Commission's order.

Detailed Analysis:

1. Levy of Surcharge on Undisclosed Income for Searches Conducted Prior to 1st June, 2002:
The primary issue was whether surcharge could be levied on undisclosed income for searches initiated before 1st June, 2002. The CIT(A) had directed the AO to delete the surcharge, referencing the Tribunal's Special Bench decision in Merit Enterprises, which held that surcharge was not leviable for searches conducted before 1st June, 2002. The CIT(A) also cited the Punjab & Haryana High Court decision in CIT vs. Roshan Singh Makker, which concluded that the amendment for surcharge was prospective.

However, the Tribunal reversed the CIT(A)'s decision, relying on the Supreme Court's ruling in CIT vs. Suresh N. Gupta, which held that the proviso to Section 113, enabling the enhancement of tax by the amount of surcharge, is clarificatory and curative in nature, thus applicable retrospectively. Therefore, surcharge was deemed applicable even for searches conducted prior to 1st June, 2002.

2. Scope of Rectification under Section 154 of the IT Act:
The CIT(A) had held that the issue of surcharge was a mistake apparent from the record and could be rectified under Section 154. The AO, however, argued that the issue was debatable and not a clear mistake apparent from the record.

The Tribunal agreed with the AO, emphasizing that rectification under Section 154 is limited to obvious and patent mistakes, not those requiring a long-drawn process of reasoning or where two plausible interpretations exist. Given the Supreme Court's decision in Suresh N. Gupta, the Tribunal found no mistake in the original order regarding the surcharge, thus rectification under Section 154 was not justified.

3. Limitation Period for Filing an Application under Section 154:
The CIT(A) held that the rectification application was within the time limit, considering the order sought to be rectified was the one giving effect to the Settlement Commission's order dated 31st May, 2006, and not the original assessment order dated 31st August, 2001.

The Tribunal disagreed, stating that the limitation period should be counted from the date of the original assessment order (31st August, 2001), making the application filed on 26th June, 2006, beyond the permissible period. Therefore, the rectification application was barred by limitation.

4. Whether the Order Sought to be Rectified was the Original Assessment Order or the Order Giving Effect to the Settlement Commission's Order:
The CIT(A) considered the order giving effect to the Settlement Commission's order as the one to be rectified. The AO contended that the original assessment order was the relevant one.

The Tribunal supported the AO's view, noting that the Settlement Commission did not address the surcharge issue in its order. Thus, the original assessment order dated 31st August, 2001, was the relevant order for considering the limitation period for rectification.

Conclusion:
The Tribunal concluded that the levy of surcharge was justified based on the retrospective applicability of the proviso to Section 113, as clarified by the Supreme Court. Additionally, the Tribunal found no apparent mistake in the AO's original order, making rectification under Section 154 inappropriate. The rectification application was also deemed time-barred. Consequently, the Tribunal reversed the CIT(A)'s order and restored the AO's original order, allowing the Revenue's appeals.