Facts of the Case

The Revenue challenged an order passed by the Income Tax Appellate Tribunal (ITAT) whereby the Tribunal recalled its earlier order while exercising powers under Section 254(2) of the Income-tax Act, 1961. The matter reached the Delhi High Court for determination of the legality of the Tribunal's action.

The Tribunal had recalled its entire earlier order on an application purportedly filed under Section 254(2). The Revenue contended that the Tribunal had exceeded its statutory jurisdiction because the rectification power under Section 254(2) is limited to correcting mistakes apparent from the record and does not confer any power of review.

Issues Involved

  1. Whether the Income Tax Appellate Tribunal exceeded its jurisdiction by recalling its earlier order while exercising powers under Section 254(2) of the Income-tax Act, 1961?
  2. Whether the power to rectify a mistake apparent from the record can be used to recall an entire order?
  3. Whether Section 254(2) confers any power of review upon the Tribunal?

Petitioner’s Arguments (Revenue)

  • The Revenue argued that the Tribunal had acted beyond the scope of Section 254(2).
  • It was submitted that Section 254(2) only authorizes rectification of mistakes apparent from the record.
  • The Tribunal cannot recall its entire order under the guise of rectification.
  • The issue was already covered by the judgment of the Delhi High Court in Commissioner of Income Tax vs Vichitra Construction (P) Ltd. (269 ITR 371), wherein it was held that the Tribunal possesses no power of review under the Act.

Respondent’s Arguments (Assessee)

  • The respondent sought to sustain the Tribunal’s action and appeared before the Court through counsel.
  • The Tribunal's order recalling the earlier decision was defended as an exercise undertaken under Section 254(2).
  • However, no distinguishing feature was shown to take the matter outside the ratio already laid down in CIT vs Vichitra Construction (P) Ltd.

Court Order / Findings

The Delhi High Court held that the issue was fully covered by its earlier decision in Commissioner of Income Tax vs Vichitra Construction (P) Ltd. (269 ITR 371).

The Court reiterated that:

The power of rectification under Section 254(2) cannot be exercised for recalling the entire order of the Tribunal.

The Court observed that:

  • No power of review has been conferred upon the Tribunal under the Income-tax Act.
  • What the Tribunal cannot do directly cannot be permitted indirectly.
  • The rectification jurisdiction under Section 254(2) is confined to correcting mistakes apparent from the record.
  • Recalling the entire order amounts to reviewing the judgment, which is beyond the Tribunal's statutory powers.
  • If an assessee is aggrieved by an order, the proper remedy lies before the appropriate forum and not through a review disguised as rectification proceedings.

Accordingly, the question of law was answered in favour of the Revenue and against the assessee, and the appeal was allowed.

 Important Clarification

This judgment reaffirms the settled principle that:

  • Section 254(2) permits rectification of an apparent mistake only.
  • Section 254(2) does not confer review jurisdiction upon the ITAT.
  • The Tribunal cannot recall or reopen its entire order under the guise of rectification.
  • Any attempt to revisit the merits of the original decision amounts to an impermissible review.

The ruling strengthens the distinction between:

  • Rectification of mistakes apparent from the record; and
  • Review or reconsideration of the merits of the case.

Sections Involved

  • Section 254(2) of the Income-tax Act, 1961 – Rectification of mistakes apparent from the record.
  • Powers and jurisdiction of the Income Tax Appellate Tribunal (ITAT).

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2003:DHC:20100-DB/BCP21092003ITA1542003_161623.pdf

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