Rectification under section 254(2): Tribunal may recall its own order when manifest error causes prejudice

The article addresses the scope of rectification under section 254(2), confirming that the appellate tribunal may recall its own order if it is satisfied a manifest error, attributable to the tribunal, caused prejudice to a party; such recall is an exercise of the rectification power and is not founded on inherent review. Earlier decisions denying any power to recall are treated as incorrect to the extent they preclude recall under these circumstances. When challenged writ-wise, the legality of recall must be tested against the standards established by binding higher-court precedents mentioned in the text.

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Issues: Whether the Income-tax Appellate Tribunal has power under Section 254(2) of the Income-tax Act, 1961 to recall or wholly amend an order passed by it where a mistake apparent from the record has caused prejudice to a party.

Analysis: Section 254(2) permits the Tribunal, within four years, to amend an order to rectify a mistake apparent from the record; the power is aimed at preventing prejudice to parties resulting from the Tribunal's mistake, error or omission. Earlier decisions of the High Court holding that the Tribunal cannot recall its order in entirety proceeded on the premise that such a power would amount to an impermissible review or rehearing and that recall is confined to limited grounds (including Rule 24 of the ITAT Rules). The Apex Court in Honda Siel (and subsequently in Saurashtra Kutch Stock Exchange) recognised that where a manifest mistake apparent on the record causes prejudice, rectification under section 254(2) is justified and does not rest on inherent review jurisdiction. Precedential principles require reading prior decisions in context and isolating the ratio; factual distinctions may govern applicability. Applying these principles, a Tribunal may, in appropriate circumstances, recall or amend its earlier order in entirety if satisfied that a manifest mistake attributable to it has caused prejudice and rectification is necessary to do justice.

Conclusion: The Tribunal has the power under Section 254(2) of the Income-tax Act, 1961 to recall or amend its order in entirety where it is satisfied that a manifest mistake apparent from the record attributable to the Tribunal has caused prejudice to a party; this does not invoke inherent review jurisdiction but is a statutory rectification power and is available to protect parties from such prejudice.

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