2025 (10) TMI 1310 - HC - Income Tax

Rectification under s.254(2) unavailable where only a subsequent overruling changes law, not a mistake on record

The HC held that rectification under s.254(2) cannot be invoked based solely on a subsequent SC ruling. Since the ITAT followed the law as it stood when ... Rectification of mistake based on subsequent ruling of Supreme court - error apparent on the face of record for the Tribunal to invoke the jurisdiction under Section 254(2) - disallowance in the intimation u/s 143 (1) on the ground that the Assessee had deposited the employee's share of provident fund, ESI etc., belatedly, and hence, they were not allowed to claim a deduction of this amount u/s 36 (1)(va) which was deleted by ITAT - only ground on which the Rectification is allowed is on the basis of the judgment of the Hon'ble Court in Checkmates Services [2022 (10) TMI 617 - SUPREME COURT (LB)] wherein deduction denied u/s 36(1)(va) HELD THAT:- As decided in Vaibhav Maruti Dombale [2025 (9) TMI 1037 - BOMBAY HIGH COURT] we hold that a subsequent ruling of a Court cannot be a ground for invoking the provisions of Section 254(2) of the IT Act. Section 254(2) of the IT Act can be invoked with a view to rectify any mistake apparent from the record. Admittedly, on the date when the original order was passed by the ITATit followed the law as it stood then. This was overruled subsequently by the Hon’ble Supreme Court in Checkmate Services (supra). Hence, we are of the view, that, on the date when the ITAT passed its original order it could not be said that there was any error or mistake apparent on the record, giving jurisdiction to the ITAT to invoke Section 254(2). 1. ISSUES PRESENTED AND CONSIDERED 1. Whether the Appellate Tribunal may invoke the power under Section 254(2) of the Income Tax Act to recall/rectify its earlier order on the ground that a subsequent judgment of a superior Court (rendered after the Tribunal's original order) has changed the law applied by the Tribunal. 2. The scope and limits of Section 254(2) - whether it is confined to correcting a 'mistake apparent from the record' as analogous to Order XLVII Rule 1 CPC, and whether a subsequent change or overruling of law constitutes such a mistake. 3. Whether earlier decisions permitting rectification based on binding decisions existing at the time of the Tribunal's order remain distinguishable from attempts to rectify based on later overruling judgments. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Power under Section 254(2): Whether subsequent superior court rulings can be a ground for rectification Legal framework: Section 254(2) permits the Appellate Tribunal to amend any order passed under sub-section (1) for the purpose of rectifying any mistake apparent from the record. The Tribunal's jurisdiction under s.254(2) is compared to the civil review mechanism in Order XLVII Rule 1 CPC (municipal equivalence invoked by precedent). Precedent Treatment: The Court relies on authoritative decisions treating s.254(2) as akin to Order XLVII Rule 1 CPC and establishing limits on review/rectification: the constitutional bench holdings that change in law or subsequent decisions do not by themselves constitute grounds for review (including cited Supreme Court authorities and decisions of coordinate benches and this Court). Decisions that allowed rectification where a binding precedent existing at the time of the Tribunal's order was not brought to its attention (and therefore constituted a mistake apparent) are distinguished. Interpretation and reasoning: The Tribunal's rectification relied solely on a superior court decision rendered after the Tribunal's original order. At the time the Tribunal made its original decision it had followed the then-existing legal position. A subsequent overruling cannot be retroactively characterised as a mistake apparent on the face of the record. The Explanation to Order XLVII Rule 1 CPC bars review on the ground that a decision on the question of law has been reversed or modified by a subsequent decision of a superior Court. Constitutional Bench authority confirms that a later change in law does not afford a ground for review and, by analogy, does not afford a ground for rectification under s.254(2). Ratio vs. Obiter: Ratio - s.254(2) cannot be invoked to recall/rectify an order on the basis of a subsequent ruling that changed the legal position after the Tribunal's order. Obiter - observations distinguishing rectification based on precedent existing but not considered at time of decision. Conclusion: The Tribunal erred in invoking s.254(2) to recall its order on the sole ground that a later superior-court decision overruled the precedent it had followed. Such rectification is impermissible. Issue 2 - Scope of 'mistake apparent from the record' under Section 254(2) Legal framework: s.254(2) permits amendment only to rectify mistakes apparent from the record; scope interpreted by higher courts as narrow and analogous (and in some respects more restricted) to review under Order XLVII Rule 1 CPC. Precedent Treatment: Authority confirms limited scope of s.254(2) - it is not a mechanism to re-open merits or to revisit a final decision merely because the law subsequently changed. Precedents permitting correction involve situations where a relevant binding decision pre-existed and was not considered by the Tribunal, creating a mistake apparent from the record. Interpretation and reasoning: A true 'mistake apparent' is limited to errors evident on the face of the Tribunal's record (e.g., clerical errors, manifest contradictions, or failure to consider binding law extant at the time). A subsequent judicial reversal does not make the original decision erroneous on its face at the time it was made. The Court emphasises that s.254(2) is not a tool for re-hearing or substituting the merits; reliance on subsequent law to undo a final order amounts to impermissible review. Ratio vs. Obiter: Ratio - the concept of 'mistake apparent from the record' under s.254(2) excludes subsequent change of law as a ground for rectification. Obiter - discussion of the narrower contours of s.254(2) vis-à-vis Order XLVII Rule 1 CPC. Conclusion: The Tribunal's exercise of s.254(2) jurisdiction based on later judicial pronouncements contravenes the statutory limitation that rectification be confined to mistakes apparent on the record as it stood at the time of the order. Issue 3 - Distinguishing rectification on account of pre-existing binding decisions vs. subsequent overruling Legal framework: Where a binding decision of a superior or jurisdictional court existed at the time of the Tribunal's order and was not considered, the omission may constitute a mistake apparent from the record justifying rectification. Conversely, a decision rendered after the Tribunal's order cannot be treated as demonstrating an earlier mistake. Precedent Treatment: The Court distinguishes cases where rectification was upheld because binding precedent pre-existed (and was overlooked) from cases where rectification was attempted on the basis of later overruling authorities. The latter category has been consistently disapproved by higher courts and by Division Bench decisions of this Court and Coordinate Tribunal judgments shown to be on the same issue. Interpretation and reasoning: The Tribunal's reliance on a judgment rendered after its decision cannot be equated with failure to consider a binding precedent available at the time; the former changes the law prospectively but does not retroactively expose a facial mistake in the Tribunal's contemporaneous reasoning. Accepting the latter would convert s.254(2) into an impermissible post-finality re-opening mechanism. Ratio vs. Obiter: Ratio - rectification is available where a binding decision existing at the time of the Tribunal's order was omitted; it is not available where the purported error arises solely because a later decision altered the law. Obiter - application to factual patterns where multiple precedents interact. Conclusion: Rectification must be predicated on pre-existing binding law omitted at the time; it cannot be grounded on subsequent overruling decisions. Final disposition and consequential observations Interpretation and reasoning: Applying the foregoing principles to the facts, the Tribunal's original order followed the law as it stood on the date of that order. The later superior-court decision relied upon by the Revenue was rendered after that order and therefore cannot furnish a basis for s.254(2) rectification. Ratio vs. Obiter: Ratio - the impugned rectification order is set aside as beyond jurisdiction; the original order is restored. Obiter - the Revenue remains free to pursue any remedy available in law (e.g., appeal under the statutory provision permitting challenge of Tribunal orders) if otherwise permissible. Conclusion: The Tribunal's order of rectification under Section 254(2) is quashed and the Tribunal's original order is restored. The Revenue is not precluded from challenging the original order by the appropriate appellate process if entitled in law.