2025 (2) TMI 1045 - HC - Income Tax

ITAT exceeded jurisdiction under Section 254(2) by reviewing income classification already pending in appeal

The Bombay HC set aside the ITAT's order where the tribunal exceeded its jurisdiction under Section 254(2) of the IT Act. The case involved ... Rectification u/s 254 - Characterization of income - nature of income derived by the petitioner from PGHH/sister concern of the petitioner - 'income from other sources' or 'income from house property' - HELD THAT:- ITAT’s jurisdiction under Section 254 [2] of the IT Act is limited. It is not akin to a substantial review. This Court clarified this position in an earlier round when the ITAT had similarly exceeded its jurisdiction. The issue of whether the income receivable by the petitioner from PGHH was income from house property or income from other sources was writ large before this Court in the Revenue’s pending appeal. ITAT, exercising powers u/s 254[2] of the IT Act, could not have reviewed its earlier finding on this issue. ITAT’s impugned order deserves to be set aside accordingly. However, we clarify that this judgment and order would in no way interfere with this Court deciding on whether the income receivable from PGHH should be classified as 'income from house property' or 'income from other sources' in revenue’s appeal under Section 260-A of the Act. ITAT exceeded its jurisdiction under Section 254 (2) in deciding such an issue. The issues presented and considered in this legal judgment are as follows:1. Whether the income receivable from Procter & Gamble Hygiene and Healthcare Company Limited (PGHH) by the petitioner should be classified as 'income from other sources' or 'income from house property' for the assessment year 2004-05.2. Whether the real income theory is applicable in determining the nature of the income received from PGHH.3. Whether the Income Tax Appellate Tribunal (ITAT) exceeded its jurisdiction in reviewing its earlier order and reclassifying the income as 'income from house property.'Issue-Wise Detailed Analysis:The petitioner, engaged in marketing and distributing consumer products, including letting out a building to third parties, had a cost-sharing agreement with PGHH. The ITAT initially classified the income receivable from PGHH as 'income from other sources' based on a previous order. The petitioner challenged this classification, leading to a series of appeals and remands. The ITAT, in the impugned order dated 2 September 2022, reclassified the income as 'income from house property,' disregarding the earlier classification. The petitioner contended that the ITAT exceeded its jurisdiction in reviewing its previous order.The Court found that the ITAT's reclassification was unwarranted as the issue had attained finality, and the ITAT lacked jurisdiction to revisit it. The Court emphasized that the ITAT's powers under Section 254(2) are not for substantive review but for specific purposes. The Court held that the ITAT's actions were beyond its scope and set aside the impugned order, remanding the matter to the ITAT for further consideration of specific grounds raised by the petitioner.Significant Holdings:The Court established that the ITAT's jurisdiction under Section 254(2) is limited and not meant for substantial review. The Court clarified that the issue of income classification was pending before the Court in the revenue's appeal, and the ITAT should not have reviewed its earlier finding. The Court set aside the ITAT's order, emphasizing that its decision was based on jurisdictional grounds rather than the merits of the case. The matter was remanded to the ITAT for further consideration of specific grounds raised by the petitioner.In conclusion, the Court found that the ITAT exceeded its jurisdiction in reclassifying the income receivable from PGHH and set aside the impugned order, remanding the matter for further consideration. The Court clarified that its decision did not interfere with the pending appeal on the classification issue before the Court.