Telangana HC Upholds ITAT Order Rectifying Contradiction That Allowed Both Taxpayer and Revenue Appeals

The Telangana High Court has upheld an Income Tax Appellate Tribunal (ITAT) order that corrected its own contradictory ruling after it had simultaneously allowed both the assessee's and the Revenue's appeals on the very same issue.

Holding that such an outcome was inherently inconsistent, a bench of Justice P. Sam Koshy and Justice Suddala Chalapathi Rao observed the tribunal was justified in stepping in to resolve the contradiction, especially when it had already decided the issue on merits in favour of the assessee.

“Once the issues have already been decided in favour of the assessee with clear reasoning, there was no justification for remitting the very same issues for reconsideration in the Revenue's appeals. This approach of the learned ITAT has resulted in an inherent contradiction in the order, which resulted in the assessee filing miscellaneous applications against the orders in the revenue appeals seeking rectification.”

The case arose from proceedings against Jaypeem Granites Pvt. Ltd., a granite manufacturer and exporter, where a survey under Section 133A of the Income Tax Act found that the company had advanced substantial sums to its sister concern, Odlings (Memorial) Pvt. Ltd., which had common shareholders.

The tax department treated these advances as 'deemed dividend' under Section 2(22)(e) and held that tax was required to be deducted at source. The company was consequently treated as an assessee-in-default under Sections 201(1) and 201(1A), with demands raised for multiple assessment years.

After the Commissioner of Income Tax (Appeals) partly allowed the assessee's case, both sides approached the Hyderabad bench of ITAT.

In a common order, the tribunal allowed the assessee's appeals on merits. However, it also allowed the Revenue's appeals for statistical purposes and remanded them to the Commissioner (Appeals), despite the issues being identical.

Pointing out that both sides could not succeed on the same issue arising from the same order, the assessee moved miscellaneous applications seeking rectification.

The ITAT, on examining its earlier order, found that different paragraphs recorded conflicting conclusions on identical issues. It therefore rectified the error by allowing the assessee's appeals and dismissing those of the Revenue.

The Revenue challenged this rectification before the High Court, arguing that the Tribunal had effectively reviewed its earlier decision and reappreciated evidence, which is not permissible.

Rejecting the contention, the High Court held that the tribunal had not undertaken any fresh evaluation of evidence but had merely brought the final conclusion in line with its own reasoning.

“A plain reading of the common order passed by the learned ITAT in four appeals, preferred by both the assessee and revenue, show that two different conclusions had been recorded on identical issues and it is thus, an apparent contradiction within the same order, and it does not require a fresh examination of evidence or reevaluation of the merits.”

The bench further clarified that such an internal inconsistency is an obvious and patent error that can be corrected without engaging in a fresh adjudication.

“the learned ITAT by the impugned order has only rectified the error apparent on the face of its earlier order by only rectifying the final conclusion consistent with the reasoning, which does not amount to reconsidering the evidence or taking a fresh view on the merits.”

The court also noted that the Revenue had chosen to challenge only one of the two connected rectification orders, while allowing the other to attain finality, which weakened its case.

Upholding the tribunal's action, the bench held, “the impugned order passed by the learned ITAT rectifying the mistakes apparent on face of the order, is just and proper, and well within the powers of the learned ITAT under Section 254(2) of the Act. Thus, the appeal lacks merit and is liable to be dismissed.”

Accordingly, the High Court dismissed the Revenue's appeal and answered the substantial question of law in favour of the assesse

For Appellant: Sri Raja Shekar Rao Salvaji, learned Senior Standing Counsel for Income Tax 

For Respondent: Sri Srinivasa Iyengar, learned counsel