2025 (9) TMI 726 - HC - Income Tax

Petition challenging use of section 254(2) to correct procedural face-of-record error dismissed; 21-day window allowed

HC dismissed the petition challenging the ITAT's invocation of section 254(2) to correct a procedural error on the face of the record. The court found ... Revision u/s 254 - error of procedure apparent on the face of the record - Petition filed under Article 226 of the Constitution of India assailing the order passed by ITAT invoking the powers u/s 254(2) - ITAT has provided an opportunity of hearing to the other side but, the Petitioner/assessee has raised an objection that independent issues were involved in the cross Appeal and there is no mistake apparent on the face of the record - HELD THAT:- As on the date of hearing, there were two Appeals; one which was filed by the Petitioner/assessee and the other i.e. cross-Appeal filed by the Revenue, which have been heard together on 29.07.2022 and reserved for orders. A submission has been made by the Petitioner/assessee that as the tax effect involved in the Appeal of the Revenue is below the limit as per the CBDT circular, therefore, Appeal was not maintainable. As the Department has filed cross Appeal, therefore, as per the established judicial propriety, though both the Appeals are heard and also decided together, in order to avoid inconsistent or contradictory findings causing multiplicity of the proceedings and to uphold the principles of natural justice, it appears that no order has been passed in the cross Appeal of the Revenue while passing appellate the order dated 23.09.2023. Thus, owing to the well settled principle that if there is any error of procedure apparent on the face of the record, the same can be corrected invoking power u/s 254(2), this Court does not find any merit or substance in this Petition, which deserves to be and is hereby dismissed. As the Petitioner/assessee is inclined to prefer a Writ Appeal, therefore, it is directed that no further steps shall be taken against it for a period of 21 days from the date of passing of this order. ISSUES PRESENTED AND CONSIDERED 1. Whether the Appellate Tribunal may, under Section 254(2) of the Income Tax Act, 1961, recall/rectify its earlier order to correct a mistake apparent on the face of the record. 2. Whether invocation of Section 254(2) to recall an earlier order is impermissible where such recall would amount to rehearing the merits of the appeal. 3. Whether the existence of a pending cross-appeal (by Revenue) and the absence of an express order thereon when both appeals were heard together constitutes an error of procedure apparent on the face of the record justifyable under Section 254(2). ISSUE-WISE DETAILED ANALYSIS - Issue 1: Power under Section 254(2) to rectify mistakes apparent on the record Legal framework: Section 254(2) empowers the Appellate Tribunal to amend any order passed under sub-section (1) with a view to rectifying any mistake apparent from the record. The scope of this power is analogous to review/rectification limited to mistakes apparent on the record and not to rehear or re-decide issues on merits. Precedent Treatment: The Court relied on authoritative pronouncements explaining 'mistake/error apparent on the face of the record' (including principles in Hari Vishnu Kamath, T.S. Balaram/Volkart and Saurashtra Kutch Stock Exchange) and recent treatment in Reliance Telecom which held that Section 254(2) cannot be used to rehear appeals on merits and is akin to Order 47 Rule 1 CPC. Interpretation and reasoning: The Court reiterated that a mistake apparent on the record must be manifest, self-evident and not require lengthy argument or evidence appreciation; an error that needs detailed re-examination of facts or merits is outside the scope of correction under Section 254(2). The Tribunal's power is confined to rectifying procedural or patent errors that strike on mere looking at the record. Ratio vs. Obiter: Ratio - the statutory power under Section 254(2) is limited to correcting mistakes apparent on the record and cannot be used to revisit merits. Observations summarising the tests from precedents are treated as binding ratio on the scope of Section 254(2). Conclusion: Section 254(2) may lawfully be invoked only to rectify patent procedural or clerical mistakes apparent from the record and not to rehear or re-adjudicate the merits of an appeal. ISSUE-WISE DETAILED ANALYSIS - Issue 2: Whether recall amounted to re-appreciation of merits Legal framework: Distinction between rectification of a patent error and re-appreciation of evidence; procedural corrections permissible under Section 254(2) but not substantive rehearing. Precedent Treatment: Reliance Telecom and the authorities cited by the Petitioner emphasise that recalling an order to re-decide issues on merits is beyond Section 254(2) powers; such exercise would be akin to full rehearing and impermissible. Interpretation and reasoning: The Court examined the impugned order and surrounding record to determine whether the ITAT, in recalling its earlier order, embarked upon a merits re-hearing or merely corrected a procedural omission. The Court found that the impugned recall was directed to enable simultaneous decision of two interconnected appeals (the assessee's appeal and Revenue's cross-appeal) that had been heard together; the recall was to remedy a procedural omission (no express order recorded in the Revenue's cross-appeal) rather than to reopen factual adjudication of issues already decided. Ratio vs. Obiter: Ratio - where recall corrects a procedural omission and does not lead to re-appreciation of evidence, it falls within Section 254(2); obiter - general warnings about limits of Section 254(2) drawn from precedents. Conclusion: The recall in the present proceedings did not constitute impermissible re-appreciation of merits; instead it corrected a procedural lacuna and was therefore within the Appellate Tribunal's power under Section 254(2). ISSUE-WISE DETAILED ANALYSIS - Issue 3: Whether non-pronouncement on a cross-appeal when appeals are heard together is an error apparent on the face of the record Legal framework: Principles of orderly adjudication, avoidance of inconsistent or contradictory findings, and judicial propriety when interconnected appeals are heard together; Section 254(2) permits correction of procedural errors apparent on the record. Precedent Treatment: The Court relied on the doctrinal test for 'apparent error' (manifest, self-evident) and on authorities recognising that procedural errors may be corrected to prevent multiplicity or inconsistent orders; the Court treated the CBDT circulars and monetary limits as part of the litigation context but focused on procedural fairness. Interpretation and reasoning: The Court noted that both appeals were heard together and reserved; the assessee made a submission on maintainability of Revenue's cross-appeal based on tax-effect thresholds; while the assessee's appeal was decided, no order was recorded on the cross-appeal despite both being heard together. The Court characterised that omission as a procedural error apparent on the record - a failure to pass any order on an appeal that had been heard and reserved - and held correction by recall to be justified to avoid inconsistent outcomes and to allow simultaneous adjudication of interconnected issues. Ratio vs. Obiter: Ratio - an omission to pronounce any order on a cross-appeal that was heard together with the main appeal can amount to an apparent procedural error correctible under Section 254(2); obiter - discussion of CBDT circulars and maintainability thresholds as background to why the cross-appeal was contentious. Conclusion: The absence of an order on the cross-appeal when both appeals were heard together constituted a procedural error apparent from the record; the Tribunal was entitled to recall and post the matters for re-hearing to decide both appeals together. CONCLUSION / DISPOSITION The Court held that the ITAT's invocation of Section 254(2) to recall its earlier order was within its jurisdiction because it corrected an apparent procedural error (failure to record any decision on a cross-appeal heard and reserved together with the main appeal) and did not amount to impermissible rehearing on merits. The Petition challenging the recall order was dismissed. The Court granted a short protective interval (21 days) for lodging any writ appeal and restrained further steps during that period in accordance with the order.