Analysis of recent Supreme Court judgements

In this article an attempt has been made by author to deliberate upon ITAT powers of rectification as codified in section 254(2) of the Income Tax Act (‘Act’).

Introduction

Power to rectify ‘mistake apparent from record’ has been conferred on Income Tax Authorities and Income Tax Appellate Tribunal (‘ITAT’) respectively under sections 154 and section 254(2) of the Act. As regards ITAT power to rectify its mistake is concerned, it has been seen that there has been lot of litigation in the past revolving around recalling of an order in order to redress a mistake committed like non-consideration of cited case law etc. In this connection, Delhi High Court in its series of rulings has rejected the aforesaid practice of recalling an order by ITAT and held that ITAT is not empowered to do ‘review’ its order in guise of ‘rectification’. Very recently, SC while reversing the aforesaid orders of DHC, in the case of Honda Siel has held that power under section 254(2) is meant for atonement of wrong committed to a party at dispute by an action/inaction of ITAT.

Delhi High Court rulings on Section 254(2) – A snapshot

In first of its rulings, DHC in the case of Shakuntla Rajeshwar 160 ITR 840, which ruling has not been considered in subsequent DHC rulings, has while dismissing revenue’s appeal held that ITAT is justified to reconsider an issue afresh under powers conferred by section 254(2) of the Act, in case some assumption taken is found erroneous from records. But later on, DHC starting from the case of Deeksha Suri 232 ITR 395, not considering Shakuntla ruling (supra), where an interim application for admission of additional evidence stood unconsidered in original ITAT order, it was held by DHC that ITAT was justified in rejecting the assessee’s rectification application that no mistake emerged from records and only proper course on assessee’s part was to approach higher authority (i.e High Court) for redressal of prejudice.

This ruling of DHC has been followed in number of cases which are reported at 212 CTR 171, 204 CTR 349, 269 ITR 371, 257 ITR 16 etc to conclude that ITAT cannot recall (refresh) its order in order to redress the prejudice (if any) and only course available is to approach higher forum. Unfortunately, in all these rulings of DHC relying on Deeksha Suri, it never came to notice of the court that same has been since reversed by Supreme Court in 128 Taxman 33, holding that interim application remaining unconsidered by ITAT needs to be adjudicated first and assessee’s appeal were allowed..

Latestly, came the ruling of DHC in Honda Siel 293 ITR 132, where while allowing revenue’s appeal and placing reliance on Deeksha Suri (DHC), it was held that ITAT was not justified in recalling its order to consider a precedent cited which remained unconsidered by ITAT due to oversight. Further, SC on assessee’s appeal while allowing the same, has held that power to rectify given to ITAT is based on the legal maxim “no one should suffer due to mistake of court” and it is duty of ITAT to see that no one is prejudiced due to mistake attributable on its part. In this regard, it has been further emphasized that ‘rule of precedent’ is an important aspect of legal certainty, which is not obliterated by section 254(2).

Other High Court views – An overview

Madhya Pradesh High Court in Mithalal case 158 ITR 755 has held that ITAT can recall its order when it is brought to its notice that it has not considered certain material which is already on record and which has the effect of deciding the appeal on merits

Allahabad High Court in Laskhsmi Elect. 188 ITR 398 has held that the Tribunal fails or omits to deal with an important contention affecting the maintainability/merits of an appeal, it must be deemed to be a mistake apparent from the record which can be rectified by the Tribunal by its subsequent order.

Gujarat High Court in Suarashtra Stock Exchange 262 ITR 146 relying on the principle that “An act of the Tribunal should not prejudice a party so as to force the party into unwarranted litigation” has held that ITAT can reopen its concluded order in order to set right the mistake committed by it, in not considering important assessee’s contentions.

Rajasthan High Court in Ramesh Chand Modi case163 CTR 424 has held that ITAT is well powered to recall its order correcting procedural mistakes apart from arithmetic (sunstantive) mistakes. It has been illustrated by HC that if record transpires that one of the parties has not been heard in passing an order, going to the root of the matter, it is well powered to recall its order and pass fresh order after giving hearing opportunity.

SC observations in Krishnaswamy case 151 Taxman 286

In captioned ruling, SC has latestly recognized that “The maxim of equity, namely, actus curiae neminem gravabit – an act of court shall prejudice no man, is founded upon justice and good sense which serves a safe and certain guide for the administration of law.”

Conclusion

In view of above discussion, it may be concluded that power of rectification conferred on ITAT needs to be exercised for redressal of prejudice and for atonement of wrong committed to a party, resulting from mistake attributable to ITAT. Further, since new Direct Tax Code is in pipeline, FM may do well to clarify the above in order to save surmounting litigation costs on the issue.