2021 (12) TMI 211 - SC - Income Tax

Power under Section 254(2) limited to correcting mistakes apparent on record, cannot re-decide merits; remedy is appeal.

SC held that ITAT's power under Section 254(2) is limited to correcting mistakes apparent on the record and does not permit re-deciding merits or issuing ... Powers under Section 254(2) of the Income Tax Act - mistake apparent from the record - rectification jurisdiction akin to Order XLVII Rule 1 CPC - re-hearing on merits not permissible under Section 254(2) - recall of tribunal order - functus officio - restoration of original appellate order - limitation bar waived for refiling of appealPowers under Section 254(2) of the Income Tax Act - mistake apparent from the record - re-hearing on merits not permissible under Section 254(2) - rectification jurisdiction akin to Order XLVII Rule 1 CPC - Validity of ITAT's order dated 18.11.2016 recalling its earlier order dated 06.09.2013 in exercise of powers under Section 254(2) of the Act. - HELD THAT: - The Court held that Section 254(2) empowers the Appellate Tribunal only to amend its order to rectify a mistake apparent from the record and does not permit re-hearing the appeal on merits. The ITAT's recall of its detailed earlier order of 06.09.2013 involved re-consideration on merits rather than correction of an apparent mistake; therefore the exercise exceeded the limited rectificatory jurisdiction under Section 254(2). The Tribunal could not, by invoking Section 254(2), set aside a detailed adjudicative order and substitute a fresh merits decision; if the order was erroneous on facts or law the remedy lay in appeal to the High Court. [Paras 3, 4, 7]Order dated 18.11.2016 passed by the ITAT recalling its earlier order dated 06.09.2013 in exercise of Section 254(2) was beyond scope of that provision and is quashed.Recall of tribunal order - functus officio - restoration of original appellate order - Whether the High Court was correct in dismissing the Revenue's writ petitions challenging the ITAT's recall order. - HELD THAT: - The Court found the High Court's reasons - including that parties had fully argued merits before the ITAT or that the ITAT could, within its powers, have passed an erroneous order - insufficient to sustain the recall under Section 254(2). The High Court ought to have recognised the limited scope of the rectificatory power and set aside the ITAT's recall; accordingly the High Court's dismissal of the writ petitions was unsustainable. [Paras 5, 6, 7]Impugned judgment and order of the High Court dismissing the Revenue's writ petitions is quashed and set aside; the original ITAT orders dated 06.09.2013 are restored.Limitation bar waived for refiling of appeal - restoration of original appellate order - Whether the assessee may be permitted to re file appeal(s) against the original ITAT order dated 06.09.2013 and on what terms. - HELD THAT: - In view of restoration of the original ITAT orders and the fact that the assessee had earlier filed and then withdrawn appeals before the High Court following the ITAT's recall, the Court permitted the assessee to prefer fresh appeal(s) against the original order within six weeks. Such appeal(s) are to be decided on merits in accordance with law and without raising limitation objections. [Paras 8]Assessee(s) permitted to prefer appeal(s) before the High Court against order dated 06.09.2013 within six weeks; such appeal(s) to be decided on merits and without objection as to limitation.Final Conclusion: Both appeals are allowed: the ITAT order dated 18.11.2016 recalling its earlier order and the High Court's dismissal of the Revenue's writ petitions are quashed; the ITAT original orders dated 06.09.2013 are restored; the assessee(s) may file appeal(s) before the High Court within six weeks, to be decided on merits without limitation objections. Issues:1. Validity of the order passed by the ITAT recalling its earlier order under Section 254(2) of the Income Tax Act.2. Jurisdiction of the ITAT to re-hear the appeal on merits while exercising powers under Section 254(2) of the Act.3. Applicability of the powers under Section 254(2) of the Act to rectify mistakes apparent from the record only.4. Review of the High Court's decision on the ITAT's order recall and the jurisdiction of the ITAT.Issue 1: Validity of the ITAT's Order RecallThe Supreme Court examined the ITAT's order recalling its earlier decision dated 06.09.2013 and concluded that the ITAT's action was beyond the scope of powers under Section 254(2) of the Act. The Court emphasized that the ITAT's powers under this provision are limited to rectifying mistakes apparent from the record and not to re-hear the entire appeal on merits. The Court held that the ITAT's recall of its earlier order was unsustainable and should have been set aside by the High Court.Issue 2: Jurisdiction of the ITAT to Re-Hear on MeritsThe Court reiterated that the ITAT's jurisdiction under Section 254(2) of the Act is akin to correcting mistakes apparent from the record and not to delve into the merits of the case afresh. It emphasized that if the ITAT's order was deemed erroneous, the appropriate remedy was to appeal to the High Court. The Court found that the ITAT's re-hearing of the appeal on merits was beyond its prescribed powers.Issue 3: Application of Section 254(2) of the ActThe Court clarified that the powers under Section 254(2) of the Act are intended to correct mistakes evident from the record and not to reassess the merits of the case. It highlighted that the ITAT's authority is akin to Order XLVII Rule 1 CPC, and it should not revisit its earlier order in detail while exercising these powers.Issue 4: Review of High Court's DecisionThe Supreme Court scrutinized the High Court's judgment, noting that the High Court's reasoning for dismissing the writ petitions was flawed. It held that detailed submissions and a thorough examination of the case before the ITAT did not empower the ITAT to pass an order beyond the scope of Section 254(2) of the Act. The Court quashed the High Court's decision and reinstated the original orders passed by the ITAT in favor of the Revenue.In conclusion, the Supreme Court allowed both appeals, setting aside the High Court's decision and the ITAT's order recalling its earlier decision. It directed the Assessee to refile appeals before the High Court against the original ITAT orders within six weeks for a fresh decision on merits, without objections on limitation.