Case Law Details
ITO Vs Infantry Security And Facilities (Supreme Court of India)
The Supreme Court dismissed the Revenue’s Special Leave Petition (SLP) against the judgment of the Bombay High Court in a case concerning the scope of rectification powers under Section 254(2) of the Income Tax Act and the effect of subsequent judicial decisions on concluded Tribunal orders. The Supreme Court condoned the delay in filing the SLP but found no ground to interfere with the High Court’s decision. Consequently, the SLP was dismissed and all pending applications stood disposed of.
The dispute arose from Assessment Years 2017-18, 2018-19, and 2019-20, where the assessee had claimed deductions in respect of employees’ contributions towards Provident Fund (PF) and Employees’ State Insurance (ESI). The Assessing Officer disallowed the expenditure under Section 36(1)(va) of the Income Tax Act on the ground that the payments had been made beyond the due dates prescribed under the relevant welfare statutes.
The assessee challenged the additions before the Commissioner of Income Tax (Appeals) [CIT(A)], who partly allowed the appeals. Thereafter, the assessee approached the Income Tax Appellate Tribunal (ITAT), which, by its order dated 26 July 2022, allowed the assessee’s appeals and deleted the additions.
Subsequently, the Revenue filed Miscellaneous Applications under Section 254(2) of the Income Tax Act seeking rectification of the Tribunal’s order. The Revenue relied upon the Supreme Court’s later decision in Checkmate Services Private Limited, rendered on 12 October 2022, which held that employees’ contributions to PF and ESI are deductible under Section 36(1)(va) only if deposited within the due dates specified under the respective statutes and not by the due date for filing returns under Section 139(1).
The Revenue argued that the Tribunal’s earlier order had become inconsistent with the law declared by the Supreme Court and, therefore, the order should be rectified. Accepting this contention, the Tribunal allowed the Miscellaneous Applications filed by the Revenue.
The assessee challenged the Tribunal’s rectification order before the Bombay High Court. It was contended that Section 254(2) only empowers the Tribunal to rectify mistakes apparent from the record and does not permit review or reconsideration of matters on the basis of subsequent judicial pronouncements. It was further argued that the Supreme Court’s decision in Checkmate Services Private Limited was delivered after the Tribunal’s original order and, therefore, could not constitute a mistake apparent from the record existing at the time of passing the original order.
Another contention raised by the assessee was that Section 254(2) prescribes a limitation period of six months from the end of the month in which the original order was passed. Since the Revenue had filed the Miscellaneous Applications with a delay of 92 days beyond the prescribed period, and there was neither any provision for condonation of delay nor any application seeking such condonation, the applications themselves were not maintainable.
The Bombay High Court accepted the assessee’s contentions. It held that the Tribunal’s power under Section 254(2) is confined to rectifying mistakes apparent from the record and is akin to the limited review jurisdiction available under Order XLVII Rule 1 of the Code of Civil Procedure. The Court observed that such jurisdiction is even narrower than that available under the CPC.
The High Court held that the Tribunal’s order dated 26 July 2022 was based on the legal position prevailing at that time. Since the Supreme Court’s decision in Checkmate Services Private Limited was rendered subsequently, it could not be said that the Tribunal had overlooked any binding precedent existing on the date of its original decision. Therefore, the subsequent judgment could not constitute a mistake apparent from the record justifying rectification under Section 254(2).
The Court further held that a change in law or a subsequent judicial decision cannot, by itself, form the basis for exercising review or rectification powers. In support of this principle, the High Court referred to decisions holding that a subsequent judgment of a coordinate or larger Bench is not a valid ground for review.
On the issue of limitation, the High Court held that Section 254(2) specifically prescribes a six-month period for filing rectification applications. The Revenue’s Miscellaneous Applications were admittedly filed beyond this period. The Court found no provision empowering the Tribunal to condone such delay and noted that no application for condonation had been filed. Consequently, the rectification proceedings were also held to be barred by limitation.
Holding that the Tribunal had committed a patent error in exercising jurisdiction under Section 254(2), the Bombay High Court set aside the Tribunal’s rectification orders and allowed the writ petitions.
The Supreme Court, after hearing the matter, found no reason to interfere with the judgment and order of the Bombay High Court. Accordingly, the Special Leave Petition filed by the Revenue was dismissed.
Read HC judgement in this case:- Tribunal Lacks Power to Review Orders based on subsequent decision of SC
FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER
1. Heard.
2. Delay condoned.
3. We see no ground to interfere with the impugned judgment and order of the High Court. The special leave petition is, accordingly, dismissed.
4. pending application(s), if any, shall stand disposed of.
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