The powers under Section 254(2) of the Act are only to correct and rectify the mistake apparent from the record and not beyond that: SC

The powers under Section 254(2) of the Act are only to correct and rectify the mistake apparent from the record and not beyond that: SC

Issue  

Petition filed before the Supreme Court after feeling aggrieved and dissatisfied with the impugned common judgment and order dated 08.08.2017 passed by the High Court of Bombay in Writ Petition No. 1432/2017 and 1406/2017, in which the High Court has dismissed the aforesaid writ petitions preferred by the Commissioner of Income Tax (IT-4), Mumbai and has confirmed the order passed by the Income Tax Appellate Tribunal, Bench at Mumbai (ITAT) dated 18.11.2016 passed in Miscellaneous Application Nos. 261/M/2014 and 419/M/2013, by which the ITAT in exercise of powers under Section 254(2) of the Income Tax Act has recalled its earlier order dated 06.09.2013 passed in ITA No. 5096/Mum/2008 and ITA No. 837/Mum/2007. 

Facts

• The Assessee (Reliance Telecom Ltd) entered into Supply Contract dated 15.06.2004 with Ericsson A.B. Assessee filed an application under Section 195(2) of the Act before the Assessing Officer, to make payment to the nonresident company for purchase of software without TDS. 
• It was stated by the Assessee that it was for the purchase of software and Ericsson A.B. had no permanent establishment in India and in terms of the DTAA between India and Sweden & USA, the amount paid is not taxable in India. 
• The Assessing Officer passed an order dated 12.03.2007 rejecting the Assessee’s application holding that the consideration for software licensing constituted under Section 9(1)(vi) of the Act and under Article 12(3) of the DTAA is liable to be taxed in India and accordingly directed the assessee to deduct tax at the rate of 10% as royalty. 
• The Assessee appealed before the Commissioner of Income Tax (Appeals) after the deduction of tax.  CIT vide order dated 27.05.2008 held in Favour of the Assessee. 
• Revenue appealed before the ITAT and by a detailed judgment and order dated 06.09.2013, the ITAT allowed the Revenue’s appeal by relying upon the judgments/decisions of the Karnataka High Court and held that payments made for purchase of software are in the nature of royalty. Against the detailed judgment and order dated 06.09.2013 passed by the ITAT, the Assessee filed miscellaneous application for rectification under Section 254(2) of the Act. Simultaneously, the Assessee also filed the appeal before the High Court against the ITAT order dated 06.09.2013. 
• The ITAT allowed the Assessee’s miscellaneous application filed under Section 254(2) of the Act and recalled its original order dated 06.09.2013. Immediately the assessee withdraws the appeal filed before the High Court, which was against the original order dated 06.09.2013. 
• Feeling aggrieved and dissatisfied with the order passed by the ITAT allowing the miscellaneous application under Section 254(2) of the Act and recalling its earlier order dated 06.09.2013, the Revenue preferred writ petition before the High Court. The High Court has dismissed the said writ petition. Hence, the Revenue is before this Court by way of present appeal. 

Findings

The order passed by the ITAT dated 18.11.2016 recalling its earlier order dated 06.09.2013 is beyond the scope and ambit of the powers under Section 254(2) of the Act. While allowing the application under Section 254(2) of the Act and recalling its earlier order dated 06.09.2013, it appears that the ITAT has re-heard the entire appeal on merits as if the ITAT was deciding the appeal against the order passed by the C.I.T. In exercise of powers under Section 254(2) of the Act, the Appellate Tribunal may amend any order passed by it under sub-section (1) of Section 254 of the Act with a view to rectifying any mistake apparent from the record only. While considering the application under Section 254(2) of the Act, the Appellate Tribunal is not required to re-visit its earlier order and to go into detail on merits. The powers under Section 254(2) of the Act are only to rectify/correct any mistake apparent from the record. Therefore, the order passed by the ITAT recalling its earlier order dated 06.09.2013 which has been passed in exercise of powers under Section 254(2) of the Act is beyond the scope and ambit. Therefore, the order passed by the ITAT dated 18.11.2016 recalling its earlier order dated 06.09.2013 is unsustainable, which ought to have been set aside by the High Court. 

It appears that the High Court has dismissed the writ petitions by observing that  

(i) the Revenue itself had in detail gone into merits of the case before the ITAT and the parties filed detailed submissions based on which the ITAT passed its order recalling its earlier order;  

(ii) the Revenue had not contended that the ITAT had become functus officio after delivering its original order and that if it had to relook/revisit the order, it must be for limited purpose as permitted by Section 254(2) of the Act; and  

(iii) that the merits might have been decided erroneously and it may pass an erroneous order as ITAT had the jurisdiction and within its powers and that such objections had not been raised before ITAT. 

Merely because the Revenue might have in detail gone into the merits of the case before the ITAT and merely because the parties might have filed detailed submissions, it does not confer jurisdiction upon the ITAT to pass the order de hors Section 254(2) of the Act. None of the aforesaid grounds are tenable in law. 

Judgement

Supreme Court held that the impugned common judgment and order passed by the High Court as well as the common order passed by the ITAT dated 18.11.2016 recalling its earlier order dated 06.09.2013 deserve to be quashed and set aside and are accordingly quashed and set aside. The original orders passed by the ITAT dated 06.09.2013 passed in the respective appeals preferred by the Revenue has been restored.  

Also, if the Assessee prefer appeal before the High Court against the original order dated 06.09.2013 within a period of six weeks from today, the same may be decided and disposed of in accordance with law and on its their own merits and without raising any objection with respect to limitation. 

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