Facts of the Case

The Revenue preferred appeals before the Delhi High Court under Section 260A challenging the order dated 12 January 2016 passed by the Income Tax Appellate Tribunal in relation to Assessment Years 1996-97 and 1997-98.

Earlier, the ITAT by order dated 6 February 2009 had allowed the Revenue’s appeals and partly allowed the cross-objections filed by the assessee. Subsequently, the assessee filed Miscellaneous Applications under Section 254(2) seeking rectification/recall of the said order.

The ITAT allowed the Miscellaneous Applications by order dated 24 April 2009 and recalled its earlier order dated 6 February 2009, restoring the appeals and cross-objections for fresh hearing.

After rehearing, the ITAT passed a fresh order, which became the subject matter of challenge by the Revenue before the High Court.

Issues Involved

  1. Whether the ITAT was justified in exercising its powers under Section 254(2) to recall its earlier order?
  2. Whether the Revenue could challenge the legality of the ITAT’s recall order indirectly in appeal under Section 260A after failing to challenge the recall order directly?
  3. Whether an order under Section 254(2), once unchallenged, attains finality and bars reopening of that issue?

 Petitioner’s Arguments (Revenue’s Arguments)

  • The Revenue contended that the ITAT exceeded its jurisdiction under Section 254(2) by reviewing its earlier order dated 6 February 2009.
  • It was argued that Section 254(2) only permits rectification of mistakes apparent from the record and does not empower substantive review of an order.
  • Therefore, the subsequent recall and rehearing were argued to be beyond statutory jurisdiction.

 Respondent’s Arguments (Assessee’s Arguments)

  • The assessee relied upon the fact that the recall order dated 24 April 2009 had attained finality because it was never challenged by the Revenue.
  • It was argued that once the recall order had become final, the Revenue could not subsequently question its legality after participating in the restored proceedings.
  • The assessee maintained that the impugned fresh order was validly passed after restoration.

 Court Findings / Court Order

The Delhi High Court dismissed the Revenue’s appeals and held that:

  • The order dated 24 April 2009 passed under Section 254(2), whereby the ITAT recalled its earlier order, was never challenged by the Revenue.
  • Since the recall order remained unchallenged, it attained finality.
  • Once the restored appeals and cross-objections were reheard and disposed of afresh, the Revenue could not reopen the issue relating to the validity of the recall order in a later appeal.
  • Consequently, the question sought to be raised by the Revenue did not survive for adjudication.

 Sections Involved

  • Section 254(2), Income Tax Act, 1961 – Rectification of mistake apparent from the record by ITAT
  • Section 260A, Income Tax Act, 1961 – Appeal to High Court against orders of ITAT

 Important Clarification

This judgment clarifies that:

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