Section 254(2)

Section 254(2) — the law in short

What the courts have decided on section 254(2), in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• CIT v Reliance Telecom Ltd Supreme CourtHelps department
  The Tribunal recalled its whole order on my miscellaneous application. Will that recall survive?
  No, where the recall amounts to rehearing the appeal on merits. Section 254(2) is a rectification power limited to a mistake apparent from the record; a Tribunal that reconsiders its own conclusions is sitting in appeal over itself. The remedy against an order said to be wrong on merits is an appeal to the High Court.
• Vijay Kumar Talwar v CIT Supreme CourtHelps departmentValidity unconfirmed
  The Tribunal decided the cash credit addition against me on the facts — can I take it to the High Court under section 260A by saying its findings are perverse?
  Only on a demonstrated perversity, and not here. The Supreme Court held on 6 December 2010 that the Tribunal is the final fact-finding authority and its findings cannot be reopened under section 260A unless they are shown to be perverse. A finding of fact can raise a substantial question of law where it rests on no evidence, or relevant admissible evidence was ignored, or inadmissible evidence was taken into account, or legal principles were not applied, or the evidence was misread. None of that was shown. The assessee had produced none of the fifteen creditors, so the section 68 addition of Rs.3,49,991 stood, and the appeals were dismissed with costs of Rs.20,000.
• Vijay Kumar Talwar v CIT — when a finding of fact does and does not raise a substantial question of law under section 260A Supreme CourtHelps departmentValidity unconfirmed
  The Tribunal has decided against my client on the evidence. Is there any route into the High Court under section 260A, and what exactly must I show?
  Only by showing that the finding is perverse in a defined sense. The Supreme Court held that an appeal to the High Court lies only where a substantial question of law is involved, and that a finding of fact gives rise to such a question only where it is based on no evidence, or where relevant admissible evidence was not taken into account, or inadmissible evidence was taken into account, or legal principles were not applied in appreciating the evidence, or the evidence was misread. Finding none of that, the Court upheld the Delhi High Court's dismissal and dismissed the assessee's appeals with costs of Rs 20,000.
• ACIT v Saurashtra Kutch Stock Exchange Ltd Supreme CourtHelps taxpayer
  A binding decision that covers my point was never considered when my order was passed. Is that a mistake apparent from the record?
  Yes. The Supreme Court held that non-consideration of a decision of the jurisdictional High Court or of the Supreme Court can be a mistake apparent from the record, and upheld the Tribunal recalling its own order on that ground. The section actually applied was s.254(2); the same test - patent, manifest and self-evident - is the one used under s.154.
• Sree Ayyanar Spinning & Weaving Mills Ltd v Commissioner of Income Tax Supreme CourtHelps taxpayer
  I filed my rectification application to the Tribunal within four years but it took years to decide it. Can the order be set aside because it was passed after the four years were up?
  No. The Supreme Court held that section 254(2) has two parts. The first is the Tribunal's own power to rectify at any time within four years of its order. The second deals with rectification on an application by the assessee or the Assessing Officer pointing out a mistake apparent from the record. Where the application is made within four years, the Tribunal is bound to decide it on the merits, and the fact that it took its own time to dispose of it does not make the order bad. The High Court had erred in holding the application could not be entertained beyond four years. The Court agreed with the Rajasthan High Court in Harshvardhan Chemicals and Minerals Ltd.
• Honda Siel Power Products Ltd v CIT Supreme CourtHelps taxpayer
  The Tribunal decided against me without dealing with a coordinate bench decision I had actually filed in the paper book. Can it recall that order under section 254(2), or is that a review it cannot do?
  It can. The Supreme Court held that where a coordinate bench decision was placed before the Tribunal and the Tribunal overlooked it, the resulting order carries a manifest error and section 254(2) permits the Tribunal to set it right. The purpose of the sub-section is that no party, assessee or Department, should suffer because of a mistake by the Tribunal. That is atonement for the Tribunal's own error, not the exercise of an inherent power of review, and the High Court was wrong to strike the rectification down as a disguised review.
• Dr T.A. Quereshi v CIT Supreme CourtHelps taxpayerValidity unconfirmed
  My stock in trade was seized and confiscated. The officer says the Explanation to section 37(1) blocks the deduction because the activity was an offence. Is he right?
  No. The Supreme Court set aside the Madhya Pradesh High Court's judgment and restored the Tribunal's order allowing a deduction of Rs 2 lakh. The Explanation to section 37 speaks only of expenditure incurred for a purpose which is an offence or prohibited by law. This was not expenditure but a business loss, and the Explanation has nothing to do with it. Once it was found as a fact that the seized heroin formed part of the assessee's stock in trade, the seizure and confiscation had to be allowed as a business loss on ordinary commercial principles. The Court held that the High Court had taken an emotional and moral approach rather than a legal one.
• Citizen Credit Co-operative Bank Ltd v ITO (TDS Ward), Mumbai High CourtHelps taxpayerValidity unconfirmed
  We are a co-operative bank. The TDS officer says we should have deducted tax under s.194A on fixed deposit interest paid to co-operative housing societies that are not our members, and has treated us as an assessee in default. Is he right?
  No, on the Bombay High Court's reading. Clause (v) of s.194A(3) has two limbs, and the words 'other than a co-operative bank' appear only in the first limb, which deals with interest paid by a society to its members; the second limb — interest 'credited or paid by a co-operative society to any other co-operative society' — carries no such exclusion, so a co-operative bank, which remains a co-operative society, is not obliged to deduct tax on interest paid to non-member co-operative societies. Paragraph 42.7 of CBDT Circular No. 19 of 2015 says the same thing in terms.
• Kamal Nayan Singh v DCIT High CourtHelps taxpayerValidity unconfirmed
  I filed my section 254(2) application in 2014 when four years were allowed. The Tribunal dismissed it in 2017 applying the new six months. Can it do that?
  No, on the Jharkhand High Court's view. The Tribunal must apply the law prevailing on the date the miscellaneous application was FILED, not the law prevailing on the date it happens to hear it. An application filed before 1 June 2016, within the then four-year period, cannot be thrown out by applying the six-month period substituted by the Finance Act 2016.
• Pradeep Kumar Jindal v PCIT High CourtHelps taxpayerValidity unconfirmed
  The Tribunal dismissed my appeal for non-appearance and now says my restoration application is barred by the six months in section 254(2). Is that right?
  No. The Delhi High Court held that Rule 24 of the Income Tax (Appellate Tribunal) Rules 1963 requires the Tribunal to decide an appeal on merits even if the appellant does not appear, that an ex parte dismissal for non-prosecution is void, and that an application under the proviso to Rule 24 to set aside such an order carries no period of limitation. The six-month limit in s.254(2) does not govern it.
• Indus Finance Corporation Ltd v CIT High CourtHelps departmentValidity unconfirmed
  The appeal has been decided against me. Can I now file a section 154 application raising the point I dropped in that appeal?
  No. Section 154(1A) permits rectification only in relation to a matter OTHER than one considered and decided in appeal or revision, and the Madras High Court held that what is excluded from rectification is what has already been the subject matter of appeal. A point that was raised in the appeal and then abandoned is a new plea dressed up as a rectification, not a mistake apparent from the record, and a section 154 application is not a second chance at a plea you gave up.
• CIT, Kanpur v M/s Motilal Duli Chand High CourtHelps taxpayerValidity unconfirmed
  The Supreme Court has since decided the point the other way. Can the Tribunal recall its order, or is that a review?
  The Allahabad High Court held it is not a review. Where the Tribunal decided on the strength of an earlier Supreme Court decision and the Supreme Court has since interpreted the law differently, the Tribunal's order suffers from a mistake apparent from the record and a rectification application under s.254(2) is maintainable. The Court relied on CBDT Circular No. 68 dated 17 November 1971 and on Saurashtra Kutch Stock Exchange.
• Lachman Dass Bhatia Hingwala (P) Ltd v ACIT High CourtCuts both ways
  The Tribunal has recalled its whole order on a rectification application. Does section 254(2) give it that power, or can it only amend the order?
  It has the power, in the right circumstances. A Full Bench of the Delhi High Court held that under section 254(2) the Tribunal can recall its order in its entirety where it is satisfied that prejudice has resulted to a party attributable to the Tribunal's own mistake, error or omission, and where that error is manifest. That has nothing to do with any inherent power of review. The Court held that its own earlier decisions in K.L. Bhatia, Deeksha Suri, Karan and Co, J.N. Sahni and Baljeet Jolly, which had laid down that the Tribunal can never recall an order in entirety, do not state the law correctly after the Supreme Court's decision in Honda Siel Power Products.
• CIT v Ramesh Electric and Trading Co. High CourtHelps department
  The Tribunal did not deal with some of my grounds. Can I get its order rectified under section 254(2) so it looks at them again?
  No, not on that ground alone. The Bombay High Court held that section 254(2) gives the Tribunal a power to amend, not to review. The mistake must be obvious and patent, not one that has to be established by a long process of reasoning on a point on which two views are possible. Failure to consider an argument advanced by a party is not an error apparent from the record, though it may be an error of judgment. The Tribunal, having decided on the merits that the commission was not genuine, had no jurisdiction to reopen the whole dispute and allow the deduction.
• DCIT v ANI Integrated Services Ltd ITATHelps taxpayerValidity unconfirmed
  My Tribunal order on employees' contributions became final before Checkmate and no appeal was filed. The department now wants it recalled under section 254(2). Is finality any answer?
  On this bench's view it is a complete answer. Once the order has attained finality between the parties and no lis is pending, a subsequent decision of a superior court cannot be a ground to recall or review it under section 254(2), and the Revenue's remedy was to have appealed to the High Court. The Revenue's miscellaneous application was dismissed.
• ITO v Kalpesh Synthetics Pvt Ltd (miscellaneous applications) ITATHelps departmentValidity unconfirmed
  I won my section 36(1)(va) appeal in the Tribunal before Checkmate. The department has now filed a miscellaneous application to recall the order. Can it do that?
  This bench held it can. Non-consideration of a Supreme Court decision is a mistake apparent from the record within section 254(2), and because a judicial decision operates retrospectively — the judge discovers the law rather than makes it — a decision handed down after the Tribunal's order can equally found a recall. Both favourable orders were recalled for a fresh hearing.
• Mahindra & Mahindra Limited v ACIT ITATHelps taxpayerValidity unconfirmed
  The Bench decided against me without dealing with the binding High Court decision I had cited. Is that a mistake apparent under section 254(2)?
  The Mumbai Tribunal held that it is. Non-consideration of a decision of the jurisdictional High Court constitutes a mistake apparent on the record warranting rectification under s.254(2). On the same application it also corrected a factual error, where its order had recorded a ground as not pressed although it had been given up only for a different assessment year.
• Trilok Chand Sain v ITO (M.A. No. 28/JP/2019) — the Jaipur order holding section 56(2)(vii)(b) applicable to agricultural land was RECALLED for not considering the definition of 'property' ITATHelps taxpayer
  The Assessing Officer has relied on the Jaipur Tribunal in Trilok Chand Sain to say section 56(2)(vii)(b) applies to agricultural land. Is that order still standing?
  It is not. On 21 June 2019 the same Bench allowed the assessee's miscellaneous application and recalled its order of 7 January 2019 in ITA No. 449/JP/2018, holding that its non-consideration of the meaning of 'property' in Explanation (d) to section 56(2)(vii) was an apparent mistake on a relevant and critical point. The Bench expressly declined to express any view at that stage on the applicability of that definition.
• DCIT v Hita Land Private Limited ITATHelps taxpayerValidity unconfirmed
  Can the Tribunal condone delay in a section 254(2) miscellaneous application, or extend the six months for an order passed before 1 June 2016?
  On this Mumbai Tribunal view, no on both counts. The section as amended draws no distinction between orders passed before and after 1 June 2016, and the Tribunal has no power to condone delay in a miscellaneous application — unlike s.253(5), which gives it that power for an appeal. Applications filed beyond six months from the date of the order were dismissed as time barred.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.