ITAT Cannot Recall Its Order By Invoking Power U/Sec 254(2) Income Tax Act : Supreme Court

The Supreme Court observed that the Income Tax Appellate Tribunal cannot recall orders passed by it invoking power under Section 254(2) of the Income Tax Act.

Section 254(2) power is only to correct and/or rectify the mistake apparent from the record and not beyond that, the bench comprising Justices MR Shah and BV Nagarathna said.

In this case, the ITAT allowed the Revenue's appeal and held that payments made for purchase of software are in the nature of royalty. The Assessee filed miscellaneous application for rectification under Section 254(2) of the Act. This miscellaneous application was allowed by ITAT by recalling its original order. This recall order was unsuccessfully challenged before the Bombay High Court

The bench noted that while allowing the application under Section 254(2) of the Act and recalling its earlier order, the ITAT has re-heard the entire appeal on merits as if the ITAT was deciding the appeal against the order passed by the C.I.T. I

"In exercise of powers under Section 254(2) of the Act, the Appellate Tribunal may amend any order passed by it under sub-section (1) of Section 254 of the Act with a view to rectifying any mistake apparent from the record only. Therefore, the powers under Section 254(2) of the Act are akin to Order XLVII Rule 1 CPC. While considering the application under Section 254(2) of the Act, the Appellate Tribunal is not required to re-visit its earlier order and to go into detail on merits. The powers under Section 254(2) of the Act are only to rectify/correct any mistake apparent from the record.", the court said.

The court observed that if the Assessee was of the opinion that the order passed by the ITAT was erroneous, either on facts or in law, in that case, the only remedy available to the Assessee was to prefer the appeal before the High Court. Setting aside the High Court judgment, the bench observed:

Merely because the Revenue might have in detail gone into the merits of the case before the ITAT and merely because the parties might have filed detailed submissions, it does not confer jurisdiction upon the ITAT to pass the order de hors Section 254(2) of the Act. As observed hereinabove, the powers under Section 254(2) of the Act are only to correct and/or rectify the mistake apparent from the record and not beyond that. Even the observations that the merits might have been decided erroneously and the ITAT had jurisdiction and within its powers it may pass an order recalling its earlier order which is an erroneous order, cannot be accepted. As observed hereinabove, if the order passed by the ITAT was erroneous on merits, in that case, the remedy available to the Assessee was to prefer an appeal before the High Court, which in fact was filed by the Assessee before the High Court, but later on the Assessee withdrew the same in the instant case

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