2025 (10) TMI 43 - AT - Income Tax

Appeal allowed where original order deleting delayed ESI/EPF disallowances relied on prevailing law; s.254(2) not for later judicial change

ITAT DELHI - AT allowed the appeal, holding that the CIT(A)'s order deleting disallowances for delayed ESI/EPF payments (dated 10.09.2020) relied on ... Rectification of mistake - Disallowance of delayed payment of employees’ contribution towards the ESI/EPF - rectification on the basis of subsequent judgment of Hon’ble Supreme Court HELD THAT:- Admittedly in the instant case, when CIT(A) deleted the disallowances in the order passed on 10.09.2020, the judgments were in favour of the assessee of AIMIL Ltd. [2009 (12) TMI 38 - DELHI HIGH COURT] and Ld. CIT(A) followed the same. The judgment of Hon’ble Supreme Court in the case of Checkmate Services Pvt. Ltd. [2022 (10) TMI 617 - SUPREME COURT (LB)] is delivered much after the order passed by ld. CIT(A) on 10.9.2020 and is applicable prospectively. As in the case of Vaibhav Maruti Dombale [2025 (9) TMI 1037 - BOMBAY HIGH COURT] has held that subsequent ruling of a Court cannot be a ground for invoking the provisions of section 254(2) of the IT Act before the Tribunal. Specially, when the original order was passed by the ITAT as per law as it then stood. The said order of Hon’ble Mumbai High Court is upheld by the Hon’ble Supreme Court by dismissing the SLP filed by the Revenue. As the powers of the Tribunal in admitting the Misc. Application on account of mistake apparent on record as provided u/s 254(2) are pari-materia with the power provided in section 154 of the Act to AO and CIT(A) for rectifying any order, therefore, by respectfully following the aforesaid judgment of the Hon’ble Supreme court and of Hon’ble Mumbai High Court, we are of the view that when the order of Ld. CIT(A) was passed on 10.09.2022, the judgments were in favour of the assessee including the Hon’ble Jurisdictional High Court and the judgement of Hon’ble Supreme Court in the case of Checkmate Services Pvt. Ltd. (supra) was delivered at a later stage. Therefore, the order of Ld. CIT(A) cannot be rectified on the basis of subsequent judgment of Hon’ble Supreme Court. Appeal of the assessee is allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether an order of the Commissioner of Income Tax (Appeals) may be rectified under section 154 read with section 250 of the Income Tax Act on the basis of a subsequent decision of a superior court that was not available when the original appellate order was passed. 2. Whether a subsequent adverse ruling of the Supreme Court on the treatment of delayed payment of employees' contributions to ESI/EPF (and the consequent disallowance under section 36(1)(va)) constitutes a 'mistake apparent from the record' within the meaning of section 154 such as to permit rectification of an earlier appellate order that had correctly followed then-binding precedent. 3. Whether the disallowance of delayed deposit of employees' ESI/PF contributions under section 36(1)(va) was correctly sustained by the appellate authority when the earlier appellate order had been rendered in favour of the taxpayer following existing jurisdictional precedent. ISSUE-WISE DETAILED ANALYSIS Issue 1: Power to rectify an appellate order under section 154 read with section 250 based on subsequent superior court decisions Legal framework: Section 154 permits rectification of 'mistake apparent from the record' by the assessing authority; corresponding power exists for appellate authorities under section 250 and tribunals under the proviso (cited pari materia to section 254(2) for the Tribunal). The scope of 'mistake apparent' is narrowly construed. Precedent Treatment: The Tribunal relied on the principle affirmed by higher courts that powers to entertain miscellaneous/rectification applications for 'mistake apparent' are not available where the original order was correct according to the law as it stood at the time; subsequent adverse decisions do not constitute a mistake apparent. A recent high court decision to this effect, upheld by dismissal of Special Leave Petition, was followed. Interpretation and reasoning: The Court reasoned that rectification under section 154 is confined to clerical or manifest errors apparent on the face of the record and does not permit revisiting a deliberately taken view that correctly applied then-binding precedent. Where the appellate decision was rendered after applying the prevailing binding authority, a later change in law or later pronouncement by a superior court cannot be used to recast that earlier decision as a 'mistake apparent'. The Tribunal treated the powers under section 154 (for AO/CIT(A)) and section 254(2) (for the Tribunal) as pari materia and applied consistent limits on rectification. Ratio vs. Obiter: Ratio - A subsequent superior court decision cannot be invoked as a ground for rectification under section 154/section 250 where the original appellate order correctly applied the then-binding law; such invocation exceeds the scope of 'mistake apparent'. Conclusion: The rectification of the earlier appellate order solely on the basis of a subsequent Supreme Court decision was held impermissible; the rectification order is invalid to the extent it reopens an order that was correct when passed. Issue 2: Whether a subsequent Supreme Court decision constitutes a 'mistake apparent from the record' permitting rectification Legal framework: 'Mistake apparent from the record' is a narrow concept requiring an error that is self-evident and not requiring elaborate inquiry; it does not encompass change in law or an adverse judicial view delivered after the order. Precedent Treatment: The Tribunal followed recent judicial authority holding that a subsequent ruling cannot be treated as a ground for rectification under the concerned statutory provision(s), especially when the original decision conformed to then binding precedent. Interpretation and reasoning: The Tribunal found that the earlier appellate order had been rendered in accordance with controlling precedent of the jurisdictional High Court and therefore could not be said to contain any 'apparent' mistake. The subsequent Supreme Court decision, arriving later, alters the legal position prospectively but does not convert the earlier correct application of law into an apparent mistake. The Tribunal emphasized temporal correctness - correctness judged by the law as it stood when the order was made. Ratio vs. Obiter: Ratio - A later judicial pronouncement adverse to the view adopted in an earlier order does not retrospectively render the earlier order amenable to rectification under section 154 as a 'mistake apparent from the record'. Conclusion: The finding that rectification under section 154 could be invoked on the basis of the subsequent Supreme Court decision was held unsustainable; rectification was not permissible on that ground. Issue 3: Validity of disallowance under section 36(1)(va) for delayed deposit of ESI/EPF where the appellate order had previously deleted such disallowance following then-binding precedent Legal framework: Section 36(1)(va) permits disallowance of certain employer contributions where not deposited within specified time; judicial interpretation of the scope and applicability has evolved, with differing high court and Supreme Court pronouncements impacting the availability of deduction. Precedent Treatment: The earlier appellate order had deleted the disallowance by following authoritative decisions favorable to the taxpayer at that time. The revenue sought to revive the disallowance by relying on a later Supreme Court decision upholding such disallowance. Interpretation and reasoning: Applying the principle that an appellate order validly applying existing precedent cannot be undone by later adverse decisions via rectification, the Tribunal concluded that the deletion of the disallowance in the earlier order stood. The Tribunal observed that the AO's original adjustment under section 143(1) was challenged and successfully set aside by the appellate order which had properly applied the then-binding law; the subsequent change in judicial view could not be used to reopen that settled appellate result through section 154. Ratio vs. Obiter: Ratio - Where an appellate order deletes a disallowance after following binding precedent, that deletion cannot be reversed by administrative rectification on the basis of a later change in law; the disallowance cannot be reimposed under section 154 in such circumstances. Conclusion: The appellate authority's rectification reinstating the disallowance was set aside and the assessing officer was directed to delete the disallowance; the taxpayer's appeal on this point was allowed. Cross-references and Interaction of Issues All three issues are interlinked: the core legal principle applied across them is temporal correctness of judicial application - an order correctly made in accordance with prevailing authority cannot be recast as containing an apparent mistake by relying on a subsequent change of law. The Tribunal treated the powers under section 154/section 250 and the Tribunal's powers under section 254(2) as pari materia, applying uniform limits to rectification. The conclusion on rectification (Issues 1-2) directly determined the outcome on the substantive disallowance question (Issue 3).