Core Issue:-Whether, while exercising revisionary jurisdiction under Section 264, the PCIT can refuse to follow a binding decision of the ITAT Special Bench and deny levy of tax at LTCG rate under Section 112 on capital gains computed under Section 50 in respect of long-term depreciable assets, merely because:

   •    the department has not accepted the ITAT decision, and

   •    an appeal against the Special Bench decision is pending before the High Court.

 

Facts in Brief:-The assessee transferred a long-term depreciable capital asset.

   •    Capital gains were computed under Section 50 (deeming fiction for STCG).

   •    The assessee sought tax rate under Section 112 (LTCG rate) relying on:

   •    ITAT Special Bench, Mumbai in SKF India Ltd. v. DCIT 2024 168 taxmann.com 328 (SB).

   •    The PCIT rejected the Section 264 application, holding that:

   •    the Special Bench decision is not final,

   •    the department has challenged it, and

   •    Section 50 deems not only computation but also nature of asset as short-term.

 

Findings of the Bombay High Court

1. Binding nature of ITAT Special Bench decisions

   •    A Special Bench decision of the ITAT is binding on all subordinate income-tax authorities within jurisdiction.

   •    The PCIT cannot sit in appeal over the correctness of the ITAT decision.

   •    Personal disagreement or departmental non-acceptance is irrelevant.

 

“It is not for the Commissioner to decide whether the ITAT was correct in its decision or otherwise.”

 

2. Pendency of appeal does not dilute precedential value

   •    Mere filing of an appeal against the ITAT order does not dilute its binding force, unless:

   •    the order is stayed or set aside by a competent court.

 

3. Judicial discipline is mandatory

The Court strongly reiterated the doctrine of judicial discipline, relying upon:

   •    Union of India v. Kamlakshi Finance Corporation Ltd. (1992 Supp (1) SCC 443)

   •    Om Siddhakala Associates v. DCIT

   •    Dipti Enterprises v. ADIT

   •    Godrej Sara Lee Ltd. v. Excise & Taxation Officer

 

The Court warned that permitting officers to disregard binding precedents would lead to:

“Complete chaos in the administration of tax laws and undue harassment of assessees.”

 

4. PCIT cannot refuse relief under Section 264 on interpretational disagreement

   •    Section 264 is a beneficial provision.

   •    Once a jurisdictional ITAT decision exists, the PCIT must:

   •    either follow it, or

   •    distinguish it on facts and law (which was not done here).

 

Final Decision:Impugned order dated 04.09.2025 quashed and set aside.

   •    Matter remanded to PCIT with a direction to pass a fresh order:

   •    strictly following the ITAT Special Bench decision in SKF India Ltd.

   •    Fresh order to be passed within 30 days.

   •    No order as to costs.

 

Important Clarification by the Court

The High Court did not adjudicate on the correctness of the Special Bench view on Section 50 vs Section 112.

The ruling is solely on judicial discipline and binding precedent, not on the substantive tax issue.