The tax payers are put to lot of inconvenience when benches of the ITAT exercising their power under section 254(2) of the I-T Act recall in full the earlier order passed by them and then pass another order which on challenge by the tax department gets reversed on the ground that Section 254(2) does not give any power to the Tribunal to review their earlier order in the garb of correcting a mistake apparent from record. What is the legal position in this regard?

K L Somaiya, Advocate Cuttack

A bare perusal of Section 254 reveals that sub-section (1) confers ample powers on the Tribunal to pass such orders on any appeal filed before it as it thinks fit. Sub-section (2) postulates that the Tribunal may amend any order passed by it under Section 254(1) with a view to rectifying any mistake apparent from the record.

Thus, the power exercisable under Section 254(2) is subject to two limitations. Firstly, it has to be confined to rectifying any mistake apparent from the record and secondly, it has to be confined to an order passed under Section 254(1).

Hence, the power of the Tribunal conferred by Section 254(2) for rectifying any mistake apparent from the record cannot be exercised by the Tribunal to recall any order passed by it under Section 256. Further, reviewing and recalling an order is one thing and rectifying a mistake in the order which is apparent from the record is another.

In exercise of power to review and recall an order, even the whole result can be reversed whereas in exercise of power to rectify a mistake apparent from the record arithmetical or clerical mistakes can be corrected.

In this context a reference can be made to the SC's order in Patel Narsi Thakershiv v Pradyuman Singhji Arjun Singhji AIR 1970 SC 1273 where it has been held that the Tribunal has no power to review or recall its order.

The tendency to recall which became quite popular some few years back is now practically eliminated because of the inappropriateness and incorrectness of such a step has been well established even by ITAT's own decisions also.

I have come to know of a case where the minister of industry in a state government asked company dependent for its business on the government to meet expenses of a dinner hosted by him for the participants in a conference to discuss the industrial development of the state. Apart from questions of propriety and ethics, an issue that can arise in the above circumstances is about the admissibility of the expenditure on dinner in the income tax assessment of the firm. Will the AO allow this expenditure in computing the taxable income of the firm?

Gayatri Goel, Bhopal

Since the assessee was dependent for its business on the state government, it could be said that the expenditure is wholly and exclusively based on business considerations and business expediency. Support for this view can be had from the supreme court's decision in the case of M/S Srivenkata Satyanarayana Rice Mills Contractors Company v CIT A.P.II JT 1996 (9) SC 586. A similar view was taken by the Madhya Pradesh High Court in Addl. CIT v Kubersingh Bhagwandas (1979) 118 ITR 379 (MP) (FB) which now stands approved by the apex court.

For the year 1996, 500 diaries were purchased by the firm and supplied to the valued customers of the firm after getting their names embossed. The cost of each diary comes to Rs 80. The AO proposes to disallow the claim for deduction under Rule 6B of the IT Rules, 1962. Kindly advise, if he can do so?

Jalappa & Sons, Hyderabad

If the diaries did not contain any logo or advertisement material relating to assessee's firm, Rule 6B will not get attracted. The expenditure would be claimable u/s 37(1) on the principle of business expediency.

I am a partner in a firm doing wholesale business in cloth. In the beginning of the accounting year my capital account showed a debit balance of Rs 1,50,000. It was reduced to Rs 78,000 on the last day of the accounting year.

In the year, the firm paid a sum of Rs 39,000 to the bank on loans taken. The AO wants to disallow a part of the interest on the ground that borrowed funds have been utilized to confer benefit on a partner. Kindly give your opinion whether any portion from the interest can be disallowed keeping in view the fact that no disallowance was made in the past.

Ganga Prasad Pandey, Varanasi

No nexus between borrowed funds and amount utilized by the partner had been established. No fresh borrowings in the year under consideration were made as was evident from reduction in the debit balance. The borrowings up to the end of last year were held to be utilized for purposes of business and no disallowance was made when much higher debit balance existed in the account of the partner.

Therefore, disallowance proposed by the assessing officer is unjustified.

Whether declaration under the VDIS 1997 can be filed only before the jurisdictional commissioner or it can be filed any where with any commissioner in India.

`X' Kanpur

The advertisements regarding VDIS indicate that such declarations can be filed only before the jurisdictional commissioner of Income Tax. Para No 7 in circular No 753 also gives impression to this effect. It reads as under.

The declaration shall be filed before the commissioner of Income-Tax. Where a tax payer resides at a place other than the headquarters of the commissioner, the declaration along with the challan for payment should be sent to the office of the commissioner of Income-Tax, who in turn, would send the certificate of disclosure and payment of tax by post.

The firm where I am a partner is engaged in manufacturing and refining of edible oils. It has set up a new unit for refining of oils by taking loan from the bank on 18 per cent interest. For the financial year 1995-96, the interest on this loan amounts to Rs 90,000. The new unit in the year 1995-96 did not start production. During the course of the scrutiny of the case for the assessment year 1996-97, the AO is proposing to disallow this interest. Is his approach legally sound?

S S Rampouria, Calcutta.

No. The setting up of the new project is only an expansion of the existing business -- not a new business. Hence the AO is not justified in proposing to disallow the expenditure. The interest payment is merely a revenue expenditure, not a capital expenditure. Hence it is allowable.

How are the 182 days calculated for determining the period of stay under Section 6 of the I-T Act for ascertaining the residential status of the tax payer. Suppose a tax payer leaves at 01.00 hours from India and after few days stay arrives at 23.00 hours. Would the days of departure and arrival count for calculating 182 days stay in India?

Jaisinghani, Pune.

Yes. In view of the Ruling of Authority for Advance P No 7 of 1995 in re(1997) 223 ITR 462 (AAR) where it has been decided that days of departure and days of arrival would count for determining the period of 182 days.

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