Facts of the Case

The petitioner, Shri J.N. Sahni, had filed appeals before the Income Tax Appellate Tribunal (ITAT) relating to assessment years 1973-74 and 1974-75. The appeals were decided in his favour.

Subsequently, both the assessee and the Revenue filed miscellaneous applications before the Tribunal alleging mistakes in the Tribunal’s earlier order. After hearing the parties, the Tribunal formed an opinion that there existed mistakes of fact and law in its earlier decision and, in the interest of justice, recalled its order dated 28 July 1978 and directed fresh hearing of the appeals.

Aggrieved by the recall order, the petitioner approached the Delhi High Court under Article 226 of the Constitution, contending that the Tribunal had exceeded its jurisdiction under Section 254(2) of the Income-tax Act.

The central question before the High Court was whether the Tribunal possessed the power to recall and rehear an appeal decided on merits while exercising powers of rectification under Section 254(2).

Issues Involved

  1. Whether the Income Tax Appellate Tribunal possesses the power to recall a final order passed on merits under Section 254(2) of the Income-tax Act.
  2. Whether rectification of mistakes apparent from the record under Section 254(2) includes the power to review or rehear an appeal.
  3. Whether the Tribunal can indirectly exercise a power of review under the guise of rectification.
  4. Whether an order recalling an earlier final order amounts to amendment or review.

Petitioner’s Arguments

The petitioner contended that:

  • Section 254(2) only authorizes rectification of mistakes apparent from the record.
  • The Tribunal has no statutory power of review.
  • Recalling a final order and directing a rehearing effectively amounts to reviewing the earlier decision.
  • A power of review can only be exercised when specifically conferred by statute.
  • The Tribunal exceeded its jurisdiction by setting aside its earlier order and reopening the matter on merits.

The petitioner relied upon several judicial precedents including:

  • Ms. Deeksha Suri & Others vs. Income Tax Appellate Tribunal & Others (232 ITR 395)
  • Commissioner of Income Tax vs. K.L. Bhatia (182 ITR 361)
  • Commissioner of Income Tax vs. Ideal Engineers (251 ITR 743)
  • Amrit Narain vs. Commissioner of Income Tax (190 ITR 644)

Respondent’s Arguments

The Revenue argued that:

  • Although Section 254(2) confers limited jurisdiction, the Tribunal is not completely powerless to recall an order in every circumstance.
  • The Tribunal possesses incidental and ancillary powers necessary to secure justice.
  • If a mistake apparent from the record is discovered, the Tribunal can recall its earlier order and rehear the matter to rectify the error.
  • Reliance was placed on the decision of the Rajasthan High Court in Commissioner of Income Tax vs. Ramesh Chand Modi, which recognized broader rectification powers in certain situations.

The Revenue therefore submitted that the Tribunal's recall order was legally justified.

Court Order / Findings

The Delhi High Court allowed the writ petition and set aside the Tribunal’s recall order.

The Court held that:

1. Section 254(2) Provides Only Rectification Power

The Tribunal is empowered only to rectify mistakes apparent from the record. The provision permits amendment of an order but does not authorize review of the order itself.

2. ITAT Has No Inherent Power of Review

The Tribunal is a statutory body and can exercise only such powers as are expressly conferred by the Income-tax Act or necessarily implied therefrom.

The Court observed that:

The power of review is not an inherent power and must be specifically conferred by law.

3. Recall of a Final Order Amounts to Review

The Court held that recalling a final order passed on merits obliterates the original decision and effectively reopens the entire appeal for reconsideration.

Such an exercise amounts to substantive review and not rectification.

4. Amendment Is Different from Recall

The Court emphasized the distinction between:

  • Amendment of an order to rectify an apparent mistake; and
  • Recall of an order resulting in a fresh hearing.

Section 254(2) authorizes only amendment and not recall.

5. What Cannot Be Done Directly Cannot Be Done Indirectly

The Court held that since the Tribunal lacks review jurisdiction, it cannot achieve the same result indirectly by invoking Section 254(2).

6. Jurisdiction Cannot Be Conferred by Consent

Even if parties jointly sought reconsideration of the matter, consent cannot confer jurisdiction where none exists under law.

Accordingly, the Tribunal's order recalling its earlier decision was declared without jurisdiction and was quashed.

Important Clarification

This judgment is a landmark authority on the scope of Section 254(2) of the Income-tax Act and clarifies that:

Rectification is not Review

Section 254(2) only permits correction of apparent mistakes and does not authorize rehearing of an appeal.

Recall of Final Order Is Impermissible

An order passed on merits cannot be recalled merely because the Tribunal believes another view is possible.

No Inherent Review Jurisdiction

The ITAT, being a creature of statute, cannot exercise review powers unless expressly provided by law.

Amendment vs. Recall

An amendment leaves the original order intact with corrections, whereas recall completely nullifies the original order and therefore amounts to review.

Jurisdictional Limitation

Even mutual agreement between parties cannot enlarge the Tribunal's statutory powers.

Sections Involved

  • Section 254(1) of the Income-tax Act, 1961
  • Section 254(2) of the Income-tax Act, 1961
  • Section 256(1) of the Income-tax Act, 1961
  • Article 226 of the Constitution of India

Link to download the order -

https://delhihighcourt.nic.in/app/case_number_pdf/2002:DHC:18063-DB/63031012002CW11051979_111814.pdf

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