Dr. Rakesh Gupta, FCA, FCS, AICWA, MBA, LLM, PhD
Ex-Member, Income Tax Appellate Tribunal
Somil Agarwal, ACA, ACS, ACMA, DISA, LLM (U.K.)
Income Tax Appellate Tribunal (hereinafter ‘Tribunal’) passes order on the strength of the power conferred by section 254(1). Power to rectify the apparent mistakes from record in such order is enshrined under sub section
(2) to section 254. Before we move further, it is expedient that sub section
(1) & (2) of Section 254 are reproduced hereunder:
Orders of Appellate Tribunal
254. (1) The Appellate Tribunal may, after giving both the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit.
(2) The Appellate Tribunal may, at any time within six months from the end of the month in which the order was passed, with a view to rectifying any mistake apparent from the record, amend any order passed by it under.
sub-section (1), and shall make such amendment if the mistake is brought to its notice by the assessee or the Assessing Officer:
Provided that an amendment which has the effect of enhancing an assessment or reducing a refund or otherwise increasing the liability of the assessee, shall not be made under this sub-section unless the Appellate Tribunal has given notice to the assessee of its intention to do so and has allowed the assessee a reasonable opportunity of being heard :
Provided further that any application filed by the assessee in this subsection on or after the 1st day of October, 1998, shall be accompanied by a fee of fifty rupees.
It is evident from the plain reading of sub section (1) above that Tribunal may on appeal pass such order thereon as it thinks fit. Elaborating the scope of power of the Tribunal, Hon’ble Supreme court in the case of Hukumchand Mills Limited vs. CIT (1967) 63 ITR 0232 (SC) pointed out that the word “thereon” restricts the jurisdiction of the tribunal to the subject matter of the appeal. The Court further held that the words “pass such orders as the tribunal thinks fit” include all such powers which are conferred upon the first appellate authority except the power of enhancement. Further, Hon’ble Supreme Court in CIT vs S. Chenniappa Mudaliar (1969) 74 ITR 0041 (SC) pointed out that there is no such power with the tribunal by which it can dismiss an appeal which has been properly filed, for default without making any order thereon on merit. Hon’ble Supreme Court thus held that the tribunal is bound to give a proper decision on questions of fact as well as law which can only be done if the appeal is disposed of on merits and not dismissed due to non-appearance of the appellant.
This has been followed by various courts in a number of judicial decisions including ones reported in 323 ITR 260 (MP), 302 ITR 243 (Gau) etc. There is string of such decisions and we do not want to burden the readers anymore. Rule 24 and 25 of the Appellate Tribunal Rules, 1963 also contemplate this position that the tribunal may dispose of the appeal on merits. Rule 24 and 25 of the Appellate Tribunal Rules, 1963 are reproduced as under:
Hearing of appeal ex parte for default by the appellant
24. Where, on the day fixed for hearing or on any other date to which the hearing may be adjourned, the appellant does not appear in person or through an authorised representative when the appeal is called on for hearing, the Tribunal may dispose of the appeal on merits after hearing the respondent ]
Provided that where an appeal has been disposed of as provided above and the appellant appears afterwards and satisfies the Tribunal that there was sufficient cause for his non-appearance, when the appeal was called on for hearing, the Tribunal shall make an order setting aside the ex parte order and restoring the appeal.]
Hearing of appeal ex parte for default by the respondent
25. Where, on the day fixed for hearing or any other day to which the hearing may be adjourned, the appellant appears and the respondent does not appear in person or through an authorised representative when the appeal is called on for hearing, the Tribunal may dispose of the appeal on merits after hearing the appellant :]
[Provided that where an appeal has been disposed of as provided above and the [respondent] appears afterwards and satisfies the Tribunal that there was sufficient cause for his non-appearance when the appeal was called on for hearing, the Tribunal shall make an order setting aside the ex parte order and restore the appeal].
In fact, position of law that the tribunal has to dispose an appeal on merit, is further clear from the difference in language of Rule 24 of Income Tax
Appellate Tribunal Rules, 1946, and the present Rule 24 of the Appellate Tribunal Rules, 1963. Rule 24 of Income Tax Appellate Tribunal Rules, 1946 read as under:
“Where on the day fixed for hearing or any other day to which the hearing may be adjourned, the appellant does not appear when the appeal is called on for hearing, the Tribunal may, in its discretion, either dismiss the appeal for default or may hear it ex parte.”
It is thus more than evident that appeal cannot be dismissed by the tribunal without its disposal on merits in view of the discussion made hereinabove. However, Hon’ble Bombay High Court in the case of PCIT vs. ITA T in CWP No. 2858 of 2019 dated 24.1.2020 in para 16 interalia, observed differently
:16. On a conjoint reading of the two provisions, there appears to be no contradiction between Section 254(2) of the Act and Rule 24 of the Rules as extracted above. Both the provisions can be and should be read harmoniously to advance the objective that a decision on merit should be avoided in the absence of the aggrieved litigant. It is an established principle of natural justice that a litigant should be heard before a decision is taken.
However, instances are not uncommon in the day to day experience that orders are passed by the tribunal without disposal of appeal on merit and by applying decision in the case of CIT vs. Multiplan India (P) Limited 38 ITD 320 (Delhi) when the appellant does not appear before the Tribunal on the date of hearing. In such circumstances, Miscellaneous Applications are moved by the appellant for recalling such orders passed by the tribunal.
In such a situation, question arises as to whether such Miscellaneous Application is to be treated as application seeking rectification of the order u/s 254(2) and therefore, whether time limit of six months (earlier four years) as given in section 254(2) would govern such applications. Associated with this is the question that since appeal has not been disposed of on merits, whether application for recall would lie in terms of the proviso to Rule 24 of the Appellate Tribunal Rules, 1963.
At the outset, it needs to be appreciated that section 254(2) empowers tribunal to rectify mistake apparent from the record which has crept in the order passed by the tribunal under sub section (1) of 254. Therefore, the question is as to whether the order of the tribunal passed exparte qua the appellant due to his absence would itself be an apparent error in the order of the tribunal and whether the application seeking the recall of an exparte order is thus an application seeking rectification of any apparent error. Other question is as to whether such application for recall is an application for restoration of appeal simpliciter.
According to one view, it is an application seeking for restoration of an order passed exparte & is not an application seeking rectification of any apparent error. This was so held by Hon’ble Kerala High Court in case of Vijaya Hospitality and Resorts Limited vs CIT (2019) 180 DTR (Kerala) 305. Therefore, when such petition is not a petition under subsection (2) to section 254, the time limit of six months as prescribed under section 254(2) has got no bearing in disposal of such application seeking recall of the exparte order. In fact, application for recall of an exparte order vide which even appeal was not disposed on merit by the tribunal, was treated by Hon’ble Kerala High Court in the above referred judicial decision as having been made under Rule 24 of the Appellate Tribunal Rules, 1963 and the action of the tribunal in treating such application as an application u/s 254(2) and thus applying time limitation of six months was
The other view is that passing an exparte order without disposing the appeal on merit is in breach of explicit statutory provision of section 254(1) and Rule 24 of the Appellate Tribunal Rules, 1963 and thus, order so passed is patently erroneous order warranting rectification by way of recall of the order as such under section 254(2) and the time limit prescribed under section 254(2) would govern the limitation in this regard. This view was held by Hon’ble Bombay High Court in the case of Bharat Petroleum Corporation Ltd. vs. Income Tax Appellate Tribunal 359 ITR 371 (Bom).
Though the above referred decision of Hon’ble Kerala High Court in the case of Vijaya Hospitality and Resorts Limited vs CIT (2019) 180 DTR (Kerala) 305 is later in point of time but this decision of Hon’ble Bombay High Court was not cited before Hon’ble Kerala High Court. Therefore, both the judicial decisions are in conflict with each other to the extent of treating such application as application for restoration of appeal with no time limit, or application for rectification of an apparent error under section 254(2) with time limit of six months. Though the decision of Bombay High Court would be binding on the benches of the Tribunal located within the jurisdiction of Bombay High Court but all other benches of the Tribunal may be persuaded to follow the favourable view as canvassed before Hon’ble Kerala High Court on the basis of the well settled principle of law that where there are two views possible, view favourable to the tax payer may be adopted in terms of the decision of Hon’ble Supreme Court in the case of CIT vs. Vegetable Products Ltd. 88 ITR 192 (SC).
Therefore where the view of Bombay High Court is to be followed, it may not be necessary for the appellant-applicant to show that there was good and sufficient reason for his non-appearance on the date of hearing, as non-disposal of appeal on merit being beyond the power of the tribunal itself constitutes mistake apparent from record. All that has to be seen in such a situation is that application is filed within six months as prescribed under section 254(2). On the other hand, where view of the Kerala High Court is followed, appellant-applicant would have to show that there was good and sufficient reason for his absence on the date of hearing.