The Tribunal Cannot Re-Adjudicate Merits or Recall Orders Under Section 254(2) Beyond Rectifying Apparent Mistakes

The petitioner filed an income tax return for A.Y. 2007-08, which was later reopened under Section 147 of the Income-tax Act, 1961, resulting in an addition of Rs. 34,59,675/-

After the CIT(A) dismissed the first appeal, the Income Tax Appellate Tribunal (ITAT) allowed the petitioner's appeal on 27.06.2019, quashing the reassessment on merits and for lack of statutory sanction

The Revenue ત્યારબાદ filed a Miscellaneous Application under Section 254(2) of the Act seeking a recall of the order.

The ITAT allowed the Revenue’s application on 28.04.2021, recalling its earlier merit-based judgment on the grounds that certain factual narrations needed consideration in "proper perspective"

The petitioner challenged this recall order via the present writ petitions

1. Whether the Income Tax Appellate Tribunal exceeded its jurisdiction under Section 254(2) of the Income-tax Act by recalling a detailed order passed on merits under the guise of rectifying a mistake apparent from the record

Section 254(2) of the Income-tax Act, 1961, which empowers the Tribunal to amend its orders only to rectify "any mistake apparent from the record"

The powers under Section 254(2) are akin to Order XLVII Rule 1 of the CPC (Review) and do not permit the Tribunal to re-adjudicate or re-evaluate the merits of a case as established by the Supreme Court in CIT v. M/s. Reliance Telecom Limited [(2022) 440 ITR 1].

The High Court observed that the ITAT's original order dated 27.06.2019 was a comprehensive decision that addressed both jurisdictional defects (Section 151 sanction) and the merits of the "reasons to believe" under Section 147.

The Court found that the ITAT, in its recall order, failed to identify any specific "error apparent"; instead, it merely stated that facts needed to be considered in a "proper perspective".

Applying the Reliance Telecom doctrine, the Court reasoned that if the Revenue believed the original order was erroneous on facts or law, the only legal remedy was a Tax Appeal to the High Court.

The Tribunal cannot use Section 254(2) to revisit, re-hear, or set aside a merit-based order simply because a party argues the conclusion was incorrect.

The High Court allowed the writ petitions and quashed the ITAT’s recall order dated 28.04.2021, and the original order dated 27.06.2019 in favour of the assessee was restored.

The Court granted the Revenue liberty to file a formal Tax Appeal against the original order within six weeks.