Tribunal cannot deal with merits of case in order passed in Miscellaneous Application

The grievance of the petitioner as articulated by its counsel is that the Miscellaneous Application under Section 254(2) of the Act was for hearing before the Tribunal consequent to the order dated 31st July, 2007 of this Court. At this stage the Tribunal could not have decided the merits of the dispute namely the effect of non­service of a demand notice on penalty proceedings and dismissed the Miscellaneous Application. The scope of an application under Section 254(2) of the Act was only whether or not there was an error apparent on record. In view of the order of this Court dated 31 st July, 2007 (Writ Petition No.1517 of 2007) so far as the Tribunal is concerned, it was an concluded issue that the plea regarding non­service of the demand notice had been raised by the petitioner before the Tribunal during the hearing of its appeal under Section 252(1) of the Act. At the hearing of the Miscellaneous Application the Tribunal should have recalled the order of dismissal dated 9th May, 2006 and listed the appeal of the petitioner before it for hearing under Section 254(1) of the Act on the issue it had failed to to consider. Not following the above procedure has left the petitioner remedy­less. This is so as even though the petitioner is aggrieved by the order of the Tribunal holding on merits (while disposing of rectification application) that non­service of a demand notice would have no impact on penalty proceedings it cannot prefer an appeal under Section 260A of the Act. This for the reason that this Court in Chem Amit v/s. Assistant Commissioner of Income Tax 272 ITR 397 has held that no appeal can be filed from an order rejecting a Miscellaneous Application for rectification under Section 252(2) of the Act.

The Apex Court in Honda Siel Power Products Ltd. v/s. Commissioner of Income Tax 295 ITR 466 has observed as under:­

“When prejudice results from an order attributable to the Tribunal’s mistake, error or omission, then it is the duty of the Tribunal to set it right. Atonement to the wronged party by the Court or the Tribunal for the wrong committed by it has nothing to do with the concept of inherent power to review. In the present case, the Tribunal was justified in exercising its powers under Section 254(2) when it was pointed out to the Tribunal that the judgment of the co­ordinate Bench was placed before the Tribunal when the original order came to be passed but it had committed a mistake in not considering the material which was already on record. The Tribunal has acknowledged its mistake, it has accordingly rectified its order. In our view, the High Court was not justified in interfering with the said order.”

We note that this Court in its order dated 31st July, 2007 has while setting aside the order dated 7th March, 2007 of the Tribunal dismissing the petitioner’s Miscellaneous Application had held that there was an error apparent from the record in the order dated 9th May, 2006. The direction of the Court in its order dated 31st July, 2007 to the Tribunal to dispose of the Miscellaneous Application on merits as there is an error apparent on record in the order dated 9th May, 2006. This disposing of Miscellaneous Application could only be after recalling the conclusion in its order dated 9th May, 2006 allowing the Revenue’s appeal and hearing the petitioner on the issue of penalty being imposable even in the absence of a demand notice being served upon the assessee. This was for the reason that its conclusion was reached without having considered the petitioner’s contention that no penalty can be imposed in the absence of receipt of a demand notice by the petitioner. However, the Tribunal in the impugned order has dealt with the issue of imposition of penalty being imposed under Section 221 of the Act even without service of demand notice under Section 156 of the Act upon an assessee. This the Tribunal could have only done while passing an order in appeal. The consequent order which would has been passed in appeal would enable the parties to challenge the same before this Court in an appeal under Section 260A of the Act. The procedure adopted by the Revenue in this case has deprived the right of  statutory appeal to the petitioner. No appeal is entertained by this Court from an order dismissing the Miscellaneous Application for rectification under Section 254(2) of the Act (see Chem Amit (supra)). Thus in the process of atoning for a mistake, one should take utmost care to ensure no further prejudice is caused. The rejection on merits of the contentions of the parties by the Tribunal on a substantial question of law is subject to the statutory right of appeal under Section 260A of the Act. This right cannot be by­passed by dealing with the merits in an Miscellaneous Application for rectification.

In the above view, we set aside the impugned order dated 14 th March, 2008 of the Tribunal. We direct the Tribunal to recall its order dated 9 th May, 2006 to the extent it upheld the order of the Assessing Officer imposing penalty under Section 221 of the Act and post the appeal for hearing at a date convenient to it. Needless to state petitioner’s appeal in respect of only the above issue would be decided after hearing the parties. The other issues would not be re­decided as they stand concluded by the order dated 9th May, 2006.