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Ms. Karan & Co. v. Income Tax Appellate Tribunal
Structured Summary of the Opinion
Factual and Procedural Background
The petition under Articles 226 and 227 of the Constitution challenges an order dated 31.1.2001 passed by a Bench of the Income-tax Appellate Tribunal (the Tribunal) purporting to act under Section 254(2) of the Income-tax Act, 1961.
The assessed had appealed to the Tribunal against reopening of assessment under Section 147(a) for assessment year 1985-86. By an order dated 24.11.1993 a Bench of the Tribunal allowed the appeal. The Revenue filed an application for reference under Section 256(1) (RA 915/Del/1996). An application for rectification under Section 254(2) was filed on 20.10.1994 (MA 163-D/94), which the Tribunal dealt with by order dated 25.7.1995. That order stated, inter alia, that certain court proceedings were not before the Assessing Officer when the original assessment was framed, and that the Tribunal's observation giving the impression that such proceedings had been before the AO constituted a "mistake apparent from the record", and to that extent the ITAT's order would stand rectified.
Subsequent procedural steps included: a modified reference application by the Revenue under Section 256(1), another rectification application by the Revenue under Section 254(2) dated 10.4.1997 seeking recall/review of the Tribunal's order of 24.11.1993 in light of the 25.7.1995 observation, and interlocutory handling where one member did not sign an order leading the Vice President to direct that a judicial order be passed. Ultimately a Bench (UBC Bedi and Sikander Khan) passed the impugned order recalling the Tribunal's 24.11.1993 order and directing the Registry to post the appeal for fresh adjudication on the ground that there was a "mistake apparent from the record" in the earlier orders.
Legal Issues Presented
- Whether the Tribunal, by invoking Section 254(2) of the Income-tax Act, had the power to recall the entire earlier order (i.e., to review/rehear and substitute a fresh order) or whether Section 254(2) is limited to rectification of a "mistake apparent from the record".
- Whether the factual or legal error relied upon by the Tribunal in this case amounted to a "mistake apparent from the record" within the meaning of Section 254(2).
- Whether the writ petition was maintainable in view of the existence of statutory remedies (i.e., whether the petitioner was required to exhaust statutory remedies before approaching the High Court).
Arguments of the Parties
Assessed's Arguments (Mr P.N. Monga)
- The Tribunal's course of action in recalling the entire earlier order under Section 254(2) was unknown and legally impermissible.
- Section 254(2) permits only limited rectification of a "mistake apparent from the record" and does not confer power to recall and review the order or to rehear and re-adjudicate the appeal.
Revenue's Arguments (Shri R.C. Pandey)
- The impugned order was lawful and the writ petition should not be entertained.
- The order in MA/193/Delhi/94 should be given effect and the appropriate course was to recall the order and have a fresh hearing so the factual position could be properly considered and then a decision on the merits could be rendered in the appeal.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Master Construction Co (P) Ltd. v. State of Orissa [1966] 17 STC 360 | Definition of an error apparent on the face of the record — an error that should not depend for its discovery on elaborate argument on questions of fact or law. | Used to explain that a mistake rectifiable under Section 254(2) must be one plainly visible on the record and not one whose discovery requires elaborate argument or investigation. |
| Satanarayan Laxminarayan Hedge v. Millikarjun Bhavanappa Tirumale | Expressed a similar view to Master Construction regarding the nature of an apparent error. | Referred to as supporting the same principle that rectification is confined to patent mistakes, not debatable questions. |
| T.S. Balaram, ITO v. Volkart Brothers | Comparative observation about the language and scope of rectification provisions (CPC Order 47 Rule 1 v. Section 254(2)). | Used to note that the Tribunal's power under Section 254(2) is not greater than the High Court's power to entertain writs for an "error apparent on the face of the record". |
| Smt Baljeet Jolly v. CIT [2001] 250 ITR 113 | Illustration that decisions on debatable points of law or disputed questions of fact do not constitute mistakes apparent from the record. | Relied on to emphasize that rectification cannot be used to correct debatable or arguable errors; such matters require fuller adjudication, not Section 254(2) rectification. |
| {1992} 196 ITR 640 (decision referred to by one of the members) | The power to recall an order is governed by Rule 24 of the Income-tax (Appellate Tribunal) Rules, 1963, and is limited to specified circumstances (e.g., reasonable cause for absence leading to ex parte decision). | Applied to hold that recalling an entire order is not within Section 254(2) and that recall is separately regulated under Rule 24; accordingly the impugned recall was indefensible. |
Court's Reasoning and Analysis
The Court undertook a textual and purposive analysis of Section 254(2) of the Income-tax Act. It began by identifying the statutory phrase "mistake apparent from the record" as the threshold for invoking rectification. Two elements must be satisfied: (a) there must be a mistake; and (b) the mistake must be apparent from the record.
The Court explained the ordinary meanings relied upon in the opinion: "mistake" encompasses an error, misunderstanding or misconception and is not limited to clerical or arithmetical errors; "apparent" means visible or obvious — something ex facie and incapable of argument or debate. A mistake rectifiable under Section 254(2) must therefore be patent and discoverable without elaborate argument or proof.
Drawing on authorities (Master Construction and others), the Court emphasized that when the discovery of an alleged error depends on extensive argument, investigation or adjudication of factual or legal disputes, it cannot be characterized as a mistake "apparent from the record". The Court noted that a decision on a debatable point of law or a disputed question of fact is not amenable to correction under Section 254(2).
The Court then addressed the specific remedial consequence claimed by the Tribunal: recall of the entire earlier order. It reasoned that an order under Section 254(1) is the effective and final order in an appeal; any order under Section 254(2) either amends that order or refuses amendment and merges with the original order. Rectification, the Court held, does not authorize obliteration of the original order and substitution by a new adjudication. Recalling an order in its entirety effectively requires rehearing and re-adjudication beyond the limited scope of rectification.
The Court pointed out that the statutory power to recall an order is specifically provided by Rule 24 of the Income-tax (Appellate Tribunal) Rules, 1963, in defined circumstances (for example, where an appellant had reasonable cause for being absent and the matter was decided ex parte). The impugned recall was not justified under Section 254(2) and the Tribunal's action was thus without jurisdiction in the absence of any statutory prescription permitting full recall and rehearing under Section 254(2).
On the procedural objection about maintainability of the writ petition where statutory remedies exist, the Court observed that the rule of exhausting statutory remedies is one of prudence rather than strict law and that exceptions exist—one key exception being lack of jurisdiction of the authority whose order is impugned. Since the Tribunal lacked jurisdiction under Section 254(2) to pass the impugned recall order, the petition was maintainable notwithstanding statutory remedies.
Applying the above principles to the facts, the Court concluded that the Tribunal's impugned order purporting to recall and direct fresh adjudication was indefensible and beyond the scope of rectification under Section 254(2).
Holding and Implications
Holding: The Court quashed the impugned order (referred to as Annexure A) passed by the Tribunal.
Implications:
- The direct legal consequence is that the Tribunal's order recalling its earlier decision and directing fresh adjudication is set aside.
- The Court directed that the applications filed under Section 256(1) shall be dealt with and disposed of by the Tribunal in accordance with law.
- The opinion restricts the use of Section 254(2) to true rectification of patent mistakes apparent from the record and clarifies that recall and full rehearing are not within Section 254(2)'s scope but are governed separately (e.g., by Rule 24 of the ITAT Rules, 1963) in defined circumstances.
The opinion does not discuss broader doctrinal consequences beyond these direct effects; it confines itself to the statutory interpretation and application to the facts of this case.
ORDER Arijit Pasayat, C.J.
1. By this petition under Article 226 and 227 of the Constitution of India, 1950 (in Short the Constitution), the petitioner, hereinafter referred to as the assessed, calls in question legality of order dated 31.1.2001 passed by the Bench on Income-tax Appellate Tribunal, New Delhi (in short the Tribunal) in purported exercise of powers under Section 254(2) of the Income-tax Act, 1961 (in short the Act).
2. Factual position which is almost undisputed is an follows:
The assessed had filed an appeal before the Tribunal primarily challenging the reopening of assessment under Section 147(a) for assessment year 1985-86. By order dated 24.11.1993, a Bench of the Tribunal consisting of the President Shri Ch.G. Krishnamurthy and Shri Vimal Gandhi, Member allowed the appeal We are not very much concerned with various issues which were examined by the Tribunal for allowing the appeal in view of certain factual aspects with which we shall deal infra. Subsequently, the Revenue filed an application for reference under section 256(1) of the Act praying for a reference to this Court which was numbered as RA 915/Del/ 1996. An application for rectification under Section 254(2) was also filed on 20.10.1994. assessed filed an objection to the prayer made in the said application on the ground that the nature of relief sought for cannot be granted in an application under Section 254(2) of the Act. The application was numbered as MA 163-D/94 and was disposed of by a Bench consisting of Shri MA Bakshi and Miss. Moksh Mahajan by order dated 25.7.1995. The relevant portion of the order reads as follows:
"Thus on verification of records it is clear that the Court proceedings which were held to be vital information in para 33 of the order were not filed by the assessed before the Assessing Officer at the time when original assessment was framed. Therefore as the court proceedings were not there before the Assessing Officer while framing the original assessment proceedings the finding/observation of the ITAT giving the impression that court proceedings contrary to record and thus constitute a mistake apparent from the record. To this extent the order of the ITAT would stand rectified."
Revenue filed an application under Section 256(1) of the Act in respect of the said order passed in RA/915/Delhi/96. This was stated to be a modified reference application. assessed also filed an application for reference under Section 256(1) in respect of the order in misc. application 163/Del/94. Revenue again filed another application under Section 254(2) of the Act on 10.4.1997. Prayer, inter alia, was to recall/ review the original order dated 24.11.1993 passed in ITA 1356/Del/63 in the light of the aforesaid quoted portion of the order in MA 163/Del/94 Same was originally heard by a Bench consisting of M/S. Nathu Ram and UBS. Bedi. Though a copy of the order passed is available on record, one of the member Mr Bedi did not sign the order and noted as follows: "There are certain reservations and other member had since retired, it may be fixed before a bench". File was released on 1.6.99. Therefore, the D.R. placed the matter before the Vice President to consider whether it was to be treated as de-heard and fixed for fresh hearing or to be treated as a case of difference of opinion between the two members. Vice President observed that the Accountant Member to whom the case was allotted had dictated the order and if the Judicial Member had a difference of opinion on any point, he was to express it judicially and in a proper manner. He further observed that the remarks of the Judicial Member cannot be said to be judicial order in terms of Section 255(4) and therefore the case was not to be referred to President for disposal. The file was directed to be placed before Judicial Member for passing judicial order by him for taking necessary action. Finally the matter was heard by a bench consisting of M/s UBC Bedi and Sikander Khan and the impugned order was passed, by which the order passed in appeal has been recalled and registry has been directed to put up the appeal for fresh adjudication. Direction so far as relevant read as under :
"After considering the submissions made before us by both the sides, the materials on the file and various decisions cited by both the sides, we are of the view that there was mistake apparent from the record in both the order s dated 24.11.1993 in the appeal and order dated 25.7.95 in the first Misc. application passed by the Tribunal. After making observations in the order dated 25.7.95 in the first misc. application accepting the revenue's plea that there was mistake apparent from record in so far as the Tribunal's order dated 24.11.1993 in the appeal was concerned Tribunal should have recalled the order dated 24.11.1993 for fresh adjudication:
"Therefore, as the court proceeding were not there before the AO while passing the original assessment proceedings the findings/observations of the ITAT giving the impression that court proceedings were filed in the original assessment proceedings are contrary to record and thus constituted a mistake apparent from record. To this extent the order of the ITAT would stand rectified."
In the above view of the matter we recall the Tribunal's order dated 24.11.1993 in ITA No. 1356/Del/1992 for the assessment year 1985-86 and direct the Registry to post the appeal for fresh hearing and fresh adjudication."
3. Mr P.N. Monga, learned counsel for the assessed submitted that the course adopted by the Tribunal in unknown. Order purported to have been passed under Section 254(2) is clearly misconceived in law, considering the limited scope of rectification permissible. It is submitted that there is no power to recall and review the order which the Tribunal has done. Shri. R.C. Pandey, learned counsel for Revenue, on the other hand, contended that the order is perfectly in order and this petition should not be entertained. According to him, order in MA/193/Delhi/94 was to be given effect and only possible course to be adopted was to recall the order and to have a fresh hearing so that the factual position could be duty taken note of and then an order could be passed in the appeal itself on merit.
4. A bare look to section 254(2) of the Act makes it clear that a "mistake apparent from the record", is rectifiable. n order to attract the application of Section 254(2); a mistake must exist and the same must be apparent from the record. The power to rectify the mistake, however, does not cover cases where a revision or review of the order is intended. "Mistake" means to take an understand wrongly or inaccurately; to make an error in interpreting; it is an error: a fault, a misunderstanding, a misconception. "Apparent" means visible, capable of being seen, easily seen, obvious, plain. A mistake which can be rectified under Section 254(2) is one which is patent, which is obvious and whose discovery is not dependent on argument or elaboration. The language used in Section 254(2) makes it clear that only amendment to the order passed under Section 254(1) is permissible when it is brought to the notice of the Tribunal that there is a mistake apparent from the record. In our view amendment of an order does not mean obliteration of the order originally passed and its substitution by a new order. Where an error is far from self-evident, it ceases to be unapparent error. It is no doubt true that a mistake capable of being rectified under Section 254(2) is not confined to clerical or arithmetical mistakes. On the other hand, it does not cover any mistake which may be discovered by a complicated process of investigation, argument or proof. As observed by the Apex Court in Master Construction Co (P) Ltd. v. State of Orissa [1966] 17 STC 360, an error which is apparent on the face of the record should be one which is not an error which depends for its discovery on elaborate arguments on question of fact of law A similar view was also expressed in Satanarayan Laxminarayan Hedge v. Millikarjun Bhavanappa Tirumale, . It is to be noted that the language used in Order 47 rule 1 of the Code of Civil Procedure, 1908 (in short, the CPC), is different from the language used in Section 254(2) of the Act. Power is given to various authorities to rectify any mistake "apparent from record". In the Civil Procedure Code, the words are" an error apparent on the face of the record". The two provisions do not mean the same thing. The power of the Tribunal in Section 254(2) to rectify " any mistake apparent from the record" is undoubtedly not more than that of the High Court entertain a writ petition on the basis of "an error apparent on the face of the record". (See. T.S. Balaram, ITO v. Volkart Brothers ). Mistake is an ordinary word, but in taxation laws, it has a special significance. It is not an arithmetical or clerical error alone that comes within its purview. It comprehends errors which, after a judicious probe into the record from which it is supposed to emanate, are discerned. The word "mistake" is inherently indefinite in scope, as what may be a mistake for one may not be one for another. It is mostly subjective and the dividing line in border areas is thin and indiscernible. It is something which a duly and judiciously instructed mind can find out from the record. In rider to attract the power to rectify under Section 254(2) it is not sufficient if there is merely a mistake in the orders sought to be rectified. The mistake to be rectified must be one apparent from the record. A decision on a debatable point of law or disputed question of fact is not a mistake apparent from the record. The plain meaning of the word "apparent" is that it must be something which appears to be so ex facie and it is incapable of argument or debate. It, therefore, follows that a decision on a debatable point of law or fact or failure to apply the law to a set of facts which remains to be investigated cannot be corrected by way of rectification. This position was highlighted by us in Smt Baljeet Jolly vCIT, [2001] 250 ITR 113.
5. The scope and ambit of an application of Section 254(2) is very limited. The same is restricted to rectification of mistakes apparent from the record. We shall first deal with the question of the power of the Tribunal to recall an order in its entirely. Recalling the entire order obviously would mean passing of a fresh order. That does not appear to be the legislative intent. The order passed by the Tribunal under Section 254(1) is the effective order so far as the appeal is concerned. Any order passed under section 254(2) either allowing amendment or refusing to amend gets merged with the original order passed. The order as amended or remaining unamended is the effective order for all practical purposes. The same continues to be an order under Section 254(1). That is the final order in the appeal. An order under Section 254(2) does not have existence de hors the order under Section 254(1). Recalling of the order is not permissible under Section 254(2). Recalling of an order automatically necessitates rehearing and re-adjudication of the entire subject matter of appeal. The dispute no longer remains restricted to any mistake sought to be rectified. Power to recall an order is prescribed in terms of Rule 24 of the Income-tax (Appellate Tribunal) Rules, 1963 and that too only in cases where the assessed shows that it had a reasonable cause for being absent at a time when the appeal was taken up and was decided ex parte." This position was highlighted by one of us (Justice Arijit Pasayat, Chief Justice) in {1992} 196 ITR 640. Judged in the above background the order passed by the Tribunal is indefensible.
6. We may take note of the preliminary objection raised by Mr Pandey, learned counsel for Revenue, about the maintainability of the writ petition in the presence of statutory remedy. Rule relating to exhaustion of statutory remedy is essentially a rule of prudence and not one of law. There are several exception to the salutary requirement of the exhaustion of statutory remedy. One of them is lack of jurisdiction of the authority who has passed the order impugned. As indicated above, Tribunal had no jurisdiction to pass the impugned order in the absence of any statutory prescription. We find no substance in the plea of Mr Pandey that the assessed should have availed of the statutory remedy.
7. In the result, the impugned order, Annexure A is quashed. Needless to say that the applications filed under section 256(1) shall be dealt with and disposed of by the Tribunal in accordance with law.
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