Subsequent Court Ruling Cannot be Ground for ITAT to Recall Order u/s 254(2): Bombay HC [Read Order]

In a recent ruling, the Bombay High Court held that a subsequent ruling of a Court cannot be a ground for the Income Tax Appellate Tribunal (ITAT) to recall its earlier order under Section 254(2) ofthe Income Tax Act, 1961.

Vaibhav Maruti Dombale, the petitioner, challenged the order passed by the ITAT, Pune Bench, on 17 September 2024, in which the Tribunal had recalled its earlier order dated 5 September 2022 and dismissed his appeal. The recall was based on the Supreme Court’s judgment in Checkmate Services Pvt. Ltd. v. CIT delivered after the ITAT’s 2022 order.

The petitioner’s counsel argued that Section 254(2) allows rectification only of mistakes apparent from the record, and that a subsequent ruling cannot create such a mistake. He relied on earlier decisions including ANI Integrated Services Ltd. and Infantry Security which had taken a similar view.

The department’s counsel argued that judicial decisions operate retrospectively, meaning the later judgment declared what the law always was. He submitted that the ITAT was correct in recalling its earlier order by applying the principle explained in Saurashtra Kutch Stock Exchange Ltd..

The Division Bench of Justice B. P. Colabawalla and Justice Firdosh P. Pooniwalla observed that Saurashtra Kutch was distinguishable because in that case the relevant decision had been delivered before the Tribunal’s order but was not noticed, whereas in the present matter the Supreme Court’s ruling in Checkmate Services came after the ITAT’s order.

The court explained that powers under Section 254(2) are akin to those under Order 47 Rule 1 of the Civil Procedure Code, and that provision expressly bars review on the ground of a subsequent judgment.

The court held that on the date the ITAT passed its original order on 5 September 2022, it had applied the law as it then stood, and no error or mistake apparent from the record could be said to exist.

The court set aside the ITAT’s order dated 17 September 2024, both under Section 254(2) and Section 254(1), and restored the Tribunal’s earlier order in favour of the petitioner. It clarified that the Revenue was free to challenge the 2022 ITAT order under Section 260A if permissible in law. The writ petition was accordingly allowed.

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