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 characterization of income from a sister concern as either income from house property or income from other sources. The HC held that ITAT's jurisdiction under Section 254(2) is limited and not akin to substantial review. The tribunal could not review its earlier finding on the income classification issue, which was already pending before the HC in revenue's appeal under Section 260-A.

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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.

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