2025 (6) TMI 1459 - AT - Income Tax

Rectification u/s 254 - Addition of cash deposited during demonetization period and taxed the same at enhanced rate of 60% u/s 115BBE - CIT(A) dismissed appeal of the assessee - ITAT allowed relief partly and directed AO to tax the remaining addition at normal rate of tax and applicable surcharges if any. HELD THAT - Hon ble Punjab Haryana High Court in case of Popular Engineering Co. 2001 (1) TMI 76 - PUNJAB AND HARYANA HIGH COURT held that absence of adequate reasons in an order passed u/s 254(1) cannot per se be regarded as a mistake apparent within the meaning of section 254(2) of the Act. Likewise the possibility of forming a different opinion than the one expressed in the order passed u/s 254(1) cannot be treated as a ground for entertaining an application u/s 254(2) of the Act. As in case of Ms. Deeksha Suri 1997 (11) TMI 295 - DELHI HIGH COURT held that the foundation for exercise of jurisdiction lies in the rectification of a mistake apparent from record which object is ensured by amending the order passed by the Tribunal. The said power does not however contemplate a re-hearing of appeal for disposal. Doing so would obliterate the distinction between power to rectify mistakes and the power to review the order made by the Tribunal. In the present case the appellant is canvassing for review of the order made by the Tribunal and not rectify any mistakes apparent from record. In view of the facts discussed above and the authoritative precedent we do not find any merit in the MA filed by the assessee. Therefore we do not find any mistake which could be said to be apparent within the meaning of section 254(2) of the Act. Accordingly MA is hereby dismissed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Appellate Tribunal (AT) in this Miscellaneous Application (MA) under section 254(2) of the Income-tax Act, 1961 (the Act) are:

• Whether the Tribunal committed any mistake apparent from the record in its earlier order dated 06.08.2023 in ITA No. 869/SRT/2023 for AY 2017-18, particularly regarding the applicability of section 115BBE of the Act for the assessment year 2017-18.
• Whether the enhanced tax rate of 60% under section 115BBE is applicable to the additions made on account of unexplained cash deposits during the demonetization period for AY 2017-18.
• Whether the Tribunal was justified in allowing partial relief to the assessee by reducing the addition and directing taxation of the remaining addition at normal rates instead of the enhanced rate under section 115BBE.
• Whether the revenue's MA seeking rectification of the Tribunal's order under section 254(2) of the Act is maintainable or amounts to a review of the order on merits.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Applicability of Section 115BBE for AY 2017-18

Relevant legal framework and precedents: Section 115BBE of the Act provides for an enhanced tax rate of 60% on income from undisclosed sources or unexplained cash credits. The amendment making this provision effective from 01.04.2017 (AY 2017-18) was relied upon by the revenue. The revenue cited authoritative decisions including CIT vs. Scindia Steam Navigation Co. Ltd., which held that tax liability is computed according to the law in force on the first day of the assessment year, and CIT vs. Vatika Township Pvt. Ltd., supporting retrospective or immediate applicability of amendments.

Court's interpretation and reasoning: The Tribunal examined precedents from various benches, including its own Division Bench decisions in Samir Shantilal Mehta, Arjunsinh Harisinh Thakor, and Jitendra Nemichand Gupta cases, as well as decisions from Indore and Jabalpur Benches, which uniformly held that the amended provisions of section 115BBE are not retrospective and do not apply to AY 2017-18. The Tribunal reasoned that despite the amendment's effective date, the enhanced tax rate could not be applied retrospectively to the assessment year in question.

Key evidence and findings: The Tribunal noted that the Assessing Officer (AO) had applied the enhanced tax rate of 60% on the entire addition of Rs. 13,30,000/- made on account of cash deposits during demonetization. The Tribunal found that the AO's application of section 115BBE for AY 2017-18 was contrary to the settled judicial precedents.

Application of law to facts: The Tribunal directed the AO to tax the addition at normal rates of tax and applicable surcharges, rejecting the revenue's contention for enhanced taxation under section 115BBE for AY 2017-18.

Treatment of competing arguments: The revenue argued for the applicability of section 115BBE based on the amendment's effective date and relevant Supreme Court precedents. The Tribunal distinguished these precedents based on the specific facts and held that the amendment was not retrospective. The assessee's submissions and supporting case law were accepted.

Conclusions: The Tribunal concluded that section 115BBE's enhanced rate was not applicable for AY 2017-18, and the addition must be taxed at normal rates.

Issue 2: Validity of the addition and relief granted on unexplained cash deposits

Relevant legal framework and precedents: The addition was made under the principle that unexplained cash deposits during demonetization are taxable as income. The CBDT Circular No. 3/2017 allowed a certain exemption of Rs. 2.50 lakhs for individuals depositing demonetized notes.

Court's interpretation and reasoning: The Tribunal noted that the AO and CIT(A) had disbelieved the assessee's claim due to lack of documentary evidence substantiating the cash deposits. However, the Tribunal considered the CBDT Circular allowing Rs. 2.50 lakhs exemption and further allowed an additional relief of Rs. 2.00 lakhs on the basis that the assessee had offered more than Rs. 20 lakhs for taxation in total.

Key evidence and findings: The assessee failed to produce bank statements or credible evidence to explain the source of Rs. 3.50 lakhs of cash deposits. The Tribunal accepted that some relief was warranted considering the CBDT Circular and overall facts.

Application of law to facts: The Tribunal allowed relief of Rs. 4.50 lakhs (Rs. 2.50 lakhs as per CBDT Circular plus Rs. 2.00 lakhs additional relief) and upheld the balance addition of Rs. 8.80 lakhs.

Treatment of competing arguments: The revenue sought full addition, while the assessee sought complete relief. The Tribunal balanced these by granting partial relief in line with CBDT guidelines and overall tax offered.

Conclusions: The Tribunal partly allowed the appeal, reducing the addition by Rs. 4.50 lakhs and sustaining the remainder.

Issue 3: Maintainability of the Miscellaneous Application under section 254(2)

Relevant legal framework and precedents: Section 254(2) of the Act permits the Tribunal to rectify any mistake apparent from the record. The Supreme Court in CIT vs. Reliance Telecom Ltd. and ACIT vs. Saurashtra Kutch Stock Exchange Ltd. clarified that this power is limited to correcting errors apparent on the face of the record and does not permit re-hearing or review of the order on merits. The Calcutta High Court in Niranjan & Co. Ltd. and Punjab & Haryana High Court in Popular Engineering Co. reiterated that absence of adequate reasons or possibility of a different opinion does not constitute a mistake apparent from the record. The Delhi High Court in Ms. Deeksha Suri emphasized that rectification is not a substitute for review.

Court's interpretation and reasoning: The Tribunal analyzed the MA filed by the revenue and held that the MA was essentially a request for review of the Tribunal's earlier order rather than rectification of any mistake apparent on the record. The Tribunal found no error apparent on the face of the record that would justify interference under section 254(2).

Key evidence and findings: The Tribunal noted that the original order was reasoned and speaking, considering all relevant facts and legal submissions. The revenue's MA did not point to any error that was self-evident or required correction without detailed re-examination.

Application of law to facts: Applying the settled principles, the Tribunal dismissed the MA, holding that it was not maintainable as it sought to revisit the merits rather than rectify an apparent error.

Treatment of competing arguments: The revenue's reliance on the amendment date and case law was considered but found insufficient to establish a mistake apparent on the record. The Tribunal emphasized the distinction between rectification and review.

Conclusions: The MA was dismissed for lack of any mistake apparent from the record.

3. SIGNIFICANT HOLDINGS

"An error apparent on the record means an error which strikes one on mere looking and does not need a long-drawn-out process of reasoning on points on which there may be conceivably two opinions. Such error should not require any extraneous matter to show its correctness."

"The Tribunal is not required to revisit its original order and go into details on merits and completely recall its order as powers under provisions of section 254(2) of the Act are only to rectify/correct any mistake apparent from record."

"Applicability of amended provision of section 115BBE is not retrospective and thus not applicable for AY 2017-18."

"The Assessing Officer is directed to tax the addition on unexplained cash deposits at normal rate of tax and applicable surcharges and not at enhanced rate of 60% under section 115BBE for AY 2017-18."

"Partial relief on additions is allowed in line with CBDT Circular No. 3/2017 and considering the total income offered by the assessee."

"Miscellaneous Application filed under section 254(2) of the Act cannot be used as a device to re-open or review the Tribunal's earlier order on merits."

Final determinations:

• The MA filed by the revenue under section 254(2) seeking rectification of the Tribunal order dated 06.08.2023 is dismissed for lack of any mistake apparent from the record.
• The enhanced tax rate under section 115BBE is not applicable for AY 2017-18; additions on unexplained cash deposits must be taxed at normal rates.
• The Tribunal's order granting partial relief of Rs. 4.50 lakhs on additions is upheld.