Powers u/s 154 available for rectifying interest u/s 220 or 244 for miscalculation of interest which is, at best arithmetical error needing no elaborate or long drawn adjudication-High Court
ABCAUS Case Law Citation:
ABCAUS 2187 (2018) (01) HC
Important Case Laws Cited/relied upon by the parties:
Hindustan Lever Ltd v. CIT (2006) 3 CAL L T 466 (HC)
CTO v. Makkad Plastic Agencies (2011) 4 SCC 750
Kalabharati Advertising v. Hemant Vimalnath Narichania (2010) 9 SCC 437
CIT v. Ralson Industries Ltd (2007) 2 SCC 326 at p. 330
Satyanarayan Laxminarayan Hegde v. Malikarjun Bhavanappa Tirumul AIR 1960 SC 137
Brief Facts of the Case:
In the instant case the Assessing Officer (AO) had determined the assessment in pursuance of the two orders of the Settlement Commission passed under section 245D of the Income Tax Act, 1961 (Act) .
Subsequent thereto, the AO observing some arithmetical errors, issued notice under section 154 of the Act, to rectify the following mistakes:
(a) to charge interest under section 220 of the Act
(b); to levy interest under section 245D(6A) of the Act
(c) to withdraw interest earlier charged under section 244(1A) of the Act.
Later , the AO rectified the assessment by passing an order invoking jurisdiction u/s 154 of the Act.
Aggrieved, the assessee appealed to the CIT(A) but it was dismissed.
On the issues of charging interest under section 220 (2) and disallowing interest under section 244 (1A) of the Act, the assessee appealed before the Income Tax Appellate Tribunal (ITAT). The Tribunal, through dismissed the appeal as not maintainable. The order of the Tribunal was challenged before the High Court who set aside the order and remanded the matter to the Tribunal.
In the remanded proceedings, the Tribunal allowed the assessee’s appeal and cancelled the AO’s rectification order under section 154 of the Act.
Now it was the turn of the Income Tax Department (Revenue) to challenge the Tribunal’s order before the High Court.
Contention made on behalf of the Appellant Revenue:
It was contended that the rectification order had not involved a long-drawn process of reasoning on a point on which there may conceivably be two opinions. It was contended that the rectification was result of the AO’s correcting an arithmetical mistake in charging the interest. The mistakes noticed by the AO were patent, and were related to levy of interest under sections 220(2) and 245D(6A), and also withdrawal of interest under section 244(1A) of the Act.
Contentions made on behalf of the Respondent Assessee:
It was contended that once the Settlement Commission passes an order under section 245D (1) of the Act, the regular assessment under section 143(3) or 144 of the Act ceases to exist.
It was submitted that if at all interest under section 220 (2) has to be levied, it must be done only by the Settlement Commission, for it exercises exclusive jurisdiction once it admits a case under section 245-I of the Act. In other words, the AO is not empowered to levy interest u/s. 220(2) regarding a matter decided by the Settlement Commission.
Observations made by the High Court:
The Hon’ble High Court observed that the Hon’ble Supreme Court while interpreting an analogous provision of the Rajasthan Sales Tax Act had observed that power of correction is neither a power of review nor is a power of revision, but is only a power to rectify a mistake apparent on the face of the record. In the absence of any statutory provision for review, exercise of power of review under the garb of clarification/ modification/ correction is not permissible.
The Hon’ble High Court noted that Section 154 of the Act fall for interpretation by the Hon’ble Supreme Court and it was observed that the powers of rectification under section 154 and section 263 of the Act are different. Section 154 is not a power of review. An error being apparent on the face of record, according to the Supreme Court, is sine qua non.
Meaning of error apparent on the face of record?
The Hon’ble High Court clarified that a judgmental error is not a reviewable error, nor can it be termed an error on the face of record. Error in reasoning or, for that matter, in applying law to facts is an appealable error. And that power of appeal is the creation of a statute. An error apparent on the face of record, on the other hand, an error is that strikes one “on mere looking at the record and would not require any long-drawn process of reasoning on points where there may conceivably be two opinions.”
The Hon’ble High Court observed that the Courts have considered on numerous occasions what an error apparent on the face of record is. In this regard, the Hon’ble Supreme Court has held that an error which has to be established by a long-drawn process of reasoning on points where there may conceivably be two opinions can hardly be said to be an error apparent on the face of the record. Where an alleged error is far from self-evident and if it can be established, it has to be established, by lengthy and complicated arguments, such an error cannot be cured by a writ of certiorari according to the rule governing the powers of the superior Court to issue such a writ.
The Hon’ble High Court opined that the legal contours of an error apparent on the face of the record cannot be exactly identified. An element of indefiniteness is inherent in its very nature and must be left to be determined judicially on the facts of each case.
Power u/s 154 for making addition and deletion of Interest
The Hon’ble High Court observed that as seen from the proviso to sub-section (2) of Section 220, evidently, there can be variation in charging interest, and such variation can be effected through correction under Section 154 of the Act.
The Hon’ble High Court rejected the contention that Section 154 of the Act is unavailable for rectifying the mistakes committed under Section 220 of the Act. The Hon’ble High Court opined that even otherwise, miscalculation of interest is, at best, an arithmetical error and it needs no elaborate cogitation or adjudication, long drawn or otherwise, to hold that there was an error committed.
With regard to rectification of interest on refund, the Hon’ble High Court observed that as to correcting a mistake committed by an authority in calculating interest on refund, it is always open for the authorities to rectify that mistake and the reasons assigned to its interpretation of Section 220 apply to section 244 as well.
The substantial questions of law was answered in revenue’s favour.