The Bombay High Court recently ruled that Section 254(2) of the Income Tax Act can be invoked only with a view to rectifying any mistake apparent from the record, and a subsequent ruling of a Court cannot be a ground for invoking the provisions of Section 254(2). The Court therefore quashed the ITAT’s order passed under Section 254(2) as well as under Section 254(1), whereby it had denied relief of the employee’s contribution to the provident fund to the Petitioner under Section 36(1)(va) of the Income Tax Act.
The Court found that the original order passed by the ITAT followed the law as it stood then. Since the law was overruled subsequently by the Apex Court, it could not be said that there was any error or mistake apparent on the record, giving jurisdiction to the ITAT to invoke Section 254(2) for rectification of its original order.
The Division Bench comprising Justice B.P. Colabawalla and Justice Firdosh P. Pooniwalla observed that power under Section 254(2) of the Income Tax Act cannot be invoked on the ground of “mistake apparent from the record” based on a subsequent decision of the Superior Court.
Since powers under Section 254(2) of the Income Tax Act are akin to Order 47 Rule 1 of the CPC, the Bench referred to the Explanation to Order 47 Rule 1 of the CPC, which clearly provides that the fact that a decision on a question of law on which the judgement of the Court is based has been reversed or modified by a subsequent decision of a superior court in any other case was not a ground for review of such judgement.
The Explanation under Order 47 Rule 1 of the CPC expressly bars a review on the ground that there is a mistake apparent on the face of the record based on a subsequent decision of a Court. Therefore, the Bench clarified that the provisions of Section 254(2) cannot be invoked based on a subsequent ruling of a Court.
Briefly, in this case, the Petitioner/ an individual taxpayer, had filed his ITR declaring an income of Rs. 1.19 crores. The AO, however, disallowed a sum of Rs. 57.92 lacs and added to the total income, being the amount received from the employees as a contribution to any provident fund or superannuation fund and not paid within the due dates prescribed under Section 36(1)(va) of the Income Tax Act. On appeal, the CIT(A) also sustained the additions, opining that the amendment carried out in section 43B by inserting Explanation 5 vide Finance Act, 2021 w.e.f. 1st April, 2021, was retrospective in nature.
When the matter reached the ITAT, it was held that the insertion of Explanation 5 to Section 43B was prospective in nature. This was opposed by the Respondent Department by placing reliance on the judgment of the Apex Court in the case of Checkmate Services P. Ltd. vs. CIT [2022] 143 taxmann.com 178. Agreeing to such opposition, the ITAT recalled its order by invoking Section 254(2) and answered in favour of the Department, by making rectification based on a mistake apparent on record.
Case Distinguished:
Assistant Commissioner of Income Tax, Rajkot vs. Saurashtra Kutch Stock Exchange Ltd. (2008) 173 Taxman 322 (SC)
Appearances:
Advocates Dharan Gandhi and Anchal Vyas, for the Appellant/ Taxpayer
Advocate Vikas Khanchandani, for the Respondents/ Revenue
