Subsequent Superior Court ruling no ground for ITAT to invoke Section 254(2); no mistake apparent in ITAT’s original order.

In the present case, initially, the Assessing Officer made a disallowance of Rs. 2,25,94,571/- in the intimation under Section 143(1) of the Income-tax Act on the ground that the assessee had deposited the employee’s share of provident fund, ESI, etc., belatedly and, hence, the assessee was not entitled to claim a deduction of this amount under Section 36(1)(va) of the Income-tax Act.

Being aggrieved by this disallowance, the assessee filed an appeal before the CIT(A), which was unsuccessful. Thereafter, the assessee approached the Income Tax Appellate Tribunal (ITAT). The ITAT, by its order dated 04.08.2022 passed under Section 254(1), observed that the employee’s share of provident fund and ESI, etc., was deposited prior to the due date of filing of the return under Section 139(1). Accordingly, the Tribunal held that the assessee was entitled to the deduction under Section 36(1)(va) of the Income-tax Act.

While arriving at this conclusion, the Tribunal relied upon the judgment of the Bombay High Court in CIT(C), Pune v. Ghatge Patil Transports Ltd. (2015) 53 taxmann.com 141 (Bom.), which in turn followed the decision of the Hon’ble Supreme Court in Commissioner of Income-tax v. Alom Extrusions Ltd. (2009) 319 ITR 306 (SC).

Subsequently, after the Tribunal passed its order dated 04.08.2022, the Hon’ble Supreme Court, in Checkmate Services (P) Ltd. v. CIT (2022) 448 ITR 518 (SC), overruled the proposition laid down in Ghatge Patil Transports Ltd. The Supreme Court held that the employee’s share of EPF and ESI can be allowed as a deduction under Section 36(1)(va) only if it is deposited within the time limits prescribed under the respective welfare statutes, and not merely before the due date of filing the return under Section 139(1).

On the basis of this subsequent Supreme Court judgment dated 12.10.2022, the Revenue filed a rectification application before the ITAT under Section 254(2) of the Income-tax Act. By the impugned order, the Tribunal allowed the Miscellaneous Application filed by the Revenue and sustained the disallowance made by the Assessing Officer, solely relying upon the judgment of the Supreme Court in Checkmate Services (P) Ltd.

The Bombay High Court held that a subsequent decision of a superior court cannot be a ground for invoking the provisions of Section 254(2). The High Court observed that rectification under Section 254(2) is confined to correcting patent, obvious, and self-evident mistakes apparent from the record as it existed on the date of the original order. A subsequent judicial pronouncement cannot retrospectively render an order erroneous or create a mistake apparent from record.

The High Court further held that the power under Section 254(2) is narrower than the power of review under Order XLVII Rule 1 of the Code of Civil Procedure, and even under review jurisdiction, a subsequent change in law is not a permissible ground. Reliance was placed on coordinate bench decisions including Infantry, Vaibhav Maruti Dombale v. Assistant Registrar, ITAT Mumbai and Others (W.P. No. 1489 of 2025, decided on 12.09.2025), and Prakash D. Koli v. Income Tax Appellate Tribunal (2025) 176 taxmann.com 451 (Bom.).

Accordingly, the Bombay High Court quashed the ITAT’s rectification order passed under Section 254(2) and clarified that the Revenue, if permissible in law, remains free to challenge the original order of the Tribunal before the High Court under Section 260A. The appeal of the assessee was allowed.

Case: Sila Solutions (P) Ltd. v. ITO
Citation: TS-1643-HC-2025 (BOM)
Date of Judgment: 09.12.2025
Court: Bombay High Court
Decision: In favour of the assessee