Subsequent Superior Court Ruling Is Not a 'Mistake Apparent From Record' for Rectification Under S. 254(2) of IT Act: Bombay High Court - 2025-09-12

Law, Judgments & Legal Insights.

Subsequent Change in Law Not Grounds to Rectify ITAT Orders, Rules Bombay High Court

Mumbai: The Bombay High Court, in a significant ruling, has held that a subsequent decision by a superior court that alters the legal landscape cannot be used to invoke Section 254(2) of the Income Tax Act, 1961, to rectify a "mistake apparent from the record." The division bench of Justice B.P. Colabawalla and Justice Firdosh Phiroze Pooniwalla quashed an order by the Income Tax Appellate Tribunal (ITAT) that had recalled its own decision based on a later Supreme Court judgment.

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Case Background

The case involved Mr. Vaibhav Maruti Dombale, who had initially succeeded before the ITAT on September 5, 2022. The ITAT, relying on existing precedents like Alom Extrusions Ltd. , allowed his appeal concerning the delayed deposit of employees' contributions to provident funds, provided they were deposited before the income tax return filing due date.

However, the legal position was later clarified by the Supreme Court in Checkmate Services P. Ltd. vs. CIT , which ruled in favour of the Revenue, holding that such deposits must be made within the statutory due dates under the respective fund acts. Citing this subsequent Supreme Court ruling, the Revenue filed a Miscellaneous Application before the ITAT, arguing that the Tribunal's original order now contained a "mistake apparent from the record."

The ITAT, relying on the Supreme Court's decision in Saurashtra Kutch Stock Exchange Ltd. , allowed the Revenue's application on September 17, 2024. It recalled its original order and dismissed Mr. Dombale's appeal. This prompted Mr. Dombale to file a writ petition before the Bombay High Court, challenging the ITAT's power to recall its order based on a subsequent change in law.

Arguments of the Parties

• Petitioner (Vaibhav Dombale): Argued that a decision that was correct based on the law prevailing at the time it was passed cannot become erroneous due to a subsequent judgment. A later ruling does not create a "mistake apparent from the record" retrospectively.
• Respondent (The Revenue): Contended that the Supreme Court's decision in Checkmate Services clarified the correct legal position, which, according to the principle laid down in Saurashtra Kutch Stock Exchange , applies retrospectively. Therefore, the ITAT's original order was a mistake that needed rectification.

Court's Analysis and Precedents

The High Court meticulously analyzed the scope of Section 254(2) of the IT Act, which allows the ITAT to rectify mistakes apparent from the record. The bench made several key observations:

1. Powers Akin to Civil Procedure Code: The Court cited the Supreme Court's decision in Reliance Telecom Ltd. , which established that the powers under Section 254(2) are akin to the power of review under Order 47 Rule 1 of the Code of Civil Procedure (CPC).
2. Express Bar on Review: The Court highlighted the Explanation to Order 47 Rule 1 of the CPC, which explicitly states that a judgment being reversed or modified by a subsequent decision of a superior court is not a ground for review.
3. Distinguishing Saurashtra Kutch Stock Exchange : The bench distinguished the facts of the Saurashtra Kutch case, noting that in that instance, the ITAT had failed to consider a binding judgment that existed at the time of its decision but was not brought to its attention. The High Court clarified that Saurashtra Kutch is not an authority for the proposition that a subsequent judgment can be a basis for rectification.

The judgment emphasized,

> "A judgment is an authority for what it decides and not what logically follows from it... a little difference in facts or additional facts may make a lot of difference in the precedential value of a decision."

Pivotal Excerpts from the Judgment

The Court firmly established its stance by quoting the Supreme Court's observations in Beghar Foundation and a three-judge bench decision in Government of NCT of Delhi vs. K.L. Rathi Steels Limited :

"We hold that no review is available upon a change or reversal of a proposition of law by a superior court or by a larger Bench of this Court overruling its earlier exposition of law whereon the judgement/order under review was based."

Applying this principle, the Bombay High Court concluded:

"On the date when the original order was passed by the ITAT on 5th September 2022, it followed the law as it stood then... Hence, we are of the view, that, on the date when the ITAT passed its original order... 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) of the IT Act."

Final Decision and Implications

The Bombay High Court allowed Mr. Dombale's writ petition, quashing and setting aside both the ITAT's order recalling its original decision and the subsequent order dismissing his appeal.

This judgment reinforces the principle of finality in legal proceedings and clarifies the limited scope of rectification under the Income Tax Act. It establishes that for a mistake to be "apparent from the record," it must be an error that was evident on the date the original order was passed, based on the law and facts then available. The ruling provides crucial clarity for both taxpayers and the Revenue, preventing the reopening of concluded matters due to subsequent changes in legal interpretation.

The Court, however, clarified that the Revenue is not precluded from challenging the ITAT's original order dated September 5, 2022, through a statutory appeal under Section 260A of the IT Act, if otherwise permissible in law.