2017 (2) TMI 1374 - HC - Income Tax

Income Tax Tribunal lacks authority to recall order under Section 254(2)

The court concluded that the Income Tax Appellate Tribunal (ITAT) lacked the authority to recall its order dated 21.09.2007 as the reasons did not align ... Rectification of mistake - application under Section 254(2) - alternate remedy of appeal under Section 260A - Held that:- We find that Court has clearly observed that an appeal under Section 260A does not lie merely on rejection of an application which does not decide substantial issue involved between the parties but pre-condition is that a substantial question of law must have arisen. If no substantial question of law arisen, no appeal would lie under Section 260A of Act, 1961. Referring to a Division Bench judgment of Bombay High Court in Chem Amit vs. Assistant Commissioner of Income Tax (2004 (11) TMI 24 - BOMBAY HIGH COURT), Court observed that if an application under Section 254(2) is allowed mistake is rectified in original order, it amounts to an order passed under Section 254(1) against which appeal would lie. Court, in para 15 of the judgment, in fact, has said that appeal under Section 260A would not lie where application for rectification under Section 254(2) is rejected for the reason that such order cannot be treated to be an order passed in appeal by Tribunal but where order passed in appeal is recalled, it is an order passed in appeal and, therefore, in our view, appeal would be maintainable. Aforesaid judgment of Madras High Court also does not help Assessee in this case. Aforesaid judgment shows that an appeal under Section 260A would lie against an order of Tribunal if a substantial question of law has arisen and for that purpose it would not be material whether it is a judgment deciding appeal or otherwise. Moreover, if an order is passed on an application under Section 254(2) so as to recall the judgment of Tribunal which is otherwise final and referable to Section 254(1) and (4), it would be an order where against appeal would lie under Section 260A but the pre-condition is that there must have been arisen a substantial question of law. In taking the above view we are fortified with some authorities, as may be referred, hereinbelow. In view of above discussion we are of the view that ITA filed against judgment and order dated 05.12.2008 passed under Section 254(2) recalling orders dated 18.07.2008 and 21.09.2007 is maintainable. Issues Involved:1. Whether the Income Tax Appellate Tribunal (ITAT) is empowered under Section 254(2) of the Income Tax Act, 1961 to recall its order for reasons other than those specified under Rules 24 and 25 of the Appellate Tribunal Rules, 1963.2. Whether the ITAT erred in law in recalling its order dated 21.09.2007 without appreciating that the issues raised in the Miscellaneous Applications are outside the scope of a mistake apparent from the record.3. Whether the ITAT erred in law in recalling its order dated 21.09.2007, necessitating rehearing, re-adjudication, and passing of a fresh order, which is not permissible within the parameters of a mistake apparent from the record.4. Whether the ITAT erred in law in upholding the order passed by the Commissioner of Income Tax (Appeals) allowing exemption under Section 11 of the Income Tax Act by holding that there has not been any infringement of Section 13 of the Act by the Assessee.Detailed Analysis:Issue I: Empowerment of ITAT under Section 254(2)The court examined whether ITAT has the authority to recall its order under Section 254(2) of the Income Tax Act, 1961. It was established that Section 254(2) allows the Tribunal to rectify any mistake apparent from the record. The court referred to the Supreme Court's interpretation in Assistant Commissioner, Income Tax, Rajkot Vs. Saurashta Kutch Stock Exchange Ltd., which clarified that the Tribunal can rectify mistakes that are manifest and self-evident. However, the court emphasized that this power does not extend to reviewing or re-evaluating the entire case, which would amount to a rehearing.Issue II: Scope of Mistake Apparent from RecordThe court scrutinized whether the ITAT's decision to recall its order dated 21.09.2007 was within the scope of a mistake apparent from the record. The court noted that the ITAT had already rejected a similar application on 18.07.2008. The subsequent application, which led to the order dated 05.12.2008, did not point out any new mistake apparent from the record but sought a rehearing. The court concluded that the recall was not justified as it did not meet the criteria of a mistake apparent from the record.Issue III: Rehearing and Re-adjudicationThe court addressed whether the ITAT's recall necessitated rehearing and re-adjudication, which is not permissible under Section 254(2). The court found that the ITAT's order dated 05.12.2008 effectively allowed a rehearing of the case, which is beyond the scope of rectification under Section 254(2). The court emphasized that the Tribunal's power under this section is limited to correcting obvious errors and does not include the authority to review or re-adjudicate.Issue IV: Exemption under Section 11 and Infringement of Section 13The court examined the ITAT's decision to uphold the CIT(A)'s order allowing exemption under Section 11 of the Income Tax Act. The ITAT had initially found a violation of Section 13, which led to the denial of exemption. However, upon rehearing, the ITAT reversed its decision. The court noted that since the recall of the original order was not justified, the subsequent order upholding the exemption also could not stand. Therefore, the court did not need to address the merits of the exemption claim separately.Conclusion:The court allowed ITA No. 35 of 2009, setting aside the ITAT's order dated 05.12.2008, and restored the original orders dated 21.09.2007 and 18.07.2008. Consequently, ITA No. 100 of 2009, which was based on the recalled order, was also allowed, and the ITAT's order dated 31.03.2009 was set aside.