Subsequent Judgments Cannot Resurrect Past Errors: Rectification Power Under Section 254(2) Cannot Be Used to Rewrite Finality – Bombay High Court Clarifies Legal Limits of ITAT’s Jurisdiction

"Rectification under Section 254(2) cannot be founded on a subsequent ruling of a court. The error must be apparent from the record as it existed on the date of the original decision." - Bombay High Court decisively ruled that the rectification powers of the Income Tax Appellate Tribunal under Section 254(2) of the Income Tax Act, 1961, cannot be exercised on the basis of a later Supreme Court judgment. In a significant pronouncement aimed at protecting judicial finality, the Division Bench of Justices B. P. Colabawalla and Firdosh P. Pooniwalla held that the Tribunal’s attempt to recall its final order by invoking a subsequent Supreme Court decision was beyond its jurisdiction and legally unsustainable.

The Court observed, “Section 254(2) of the Income Tax Act can be invoked with a view to rectify any mistake apparent from the record. Admittedly, on the date when the original order was passed by the ITAT, it followed the law as it stood then. This was overruled subsequently. Hence, there was no mistake apparent from the record.”

"You Cannot Rewrite Yesterday’s Judgment with Today’s Law" – Subsequent Ruling in Checkmate Services Cannot Justify Recall of ITAT’s Order Passed Earlier

In this case, the petitioner, Vaibhav Maruti Dombale, had filed his income tax return for AY 2019–20. The Centralized Processing Centre made an adjustment under Section 143(1)(a) and disallowed an amount of ₹57,92,151 under Section 36(1)(va) for delayed deposit of employees' contributions to welfare funds. Aggrieved, the petitioner filed an appeal before the CIT(A), who relied on Explanation 5 to Section 43B inserted by the Finance Act 2021 and held it retrospective in nature.

The petitioner challenged this finding before the ITAT. In its order dated 5th September 2022, the Tribunal allowed the appeal and held that Explanation 5 was prospective and could not be applied to AY 2019–20. It relied on the Supreme Court’s judgment in Alom Extrusions Ltd. and the Bombay High Court’s judgment in CIT v. Ghatge Patil Transport Ltd., both of which had supported such a view.

However, on 8th August 2023, the Revenue filed a miscellaneous application under Section 254(2), citing the Supreme Court’s later decision in Checkmate Services Pvt. Ltd. v. CIT (2022) and argued that the Tribunal’s earlier order had become erroneous in light of this subsequent ruling. The Tribunal agreed and recalled its earlier order, allowing the Revenue’s application and dismissing the petitioner’s appeal.

"Judicial Review Is Not a Time Machine" – High Court Reins In Tribunal’s Attempt to Reopen Final Orders Based on Subsequent Law

The High Court, however, saw no merit in the Tribunal’s reasoning. It drew a sharp distinction between a mistake apparent from the record and a subsequent development in law, holding that the two are not the same.

Justice Firdosh P. Pooniwalla, speaking for the Bench, stated, “The ITAT erred in treating a subsequent ruling as a mistake apparent from the record. On the date when the ITAT passed its original order, the Checkmate judgment had not even been delivered. Therefore, it cannot be said that there was an error apparent on the face of the record.”

The Court distinguished the Supreme Court’s decision in Saurashtra Kutch Stock Exchange Ltd., which had allowed rectification due to non-consideration of a binding precedent that already existed at the time the Tribunal’s order was passed. It was clarified that Saurashtra Kutch did not endorse the use of Section 254(2) to incorporate newly laid down law into previously decided cases.

As the judgment explained, “In Saurashtra Kutch, the Tribunal failed to apply an existing jurisdictional precedent which constituted a clear error at the time of the order. That is not the case here. Checkmate Services was delivered much after the original ITAT order. The two cases are factually and legally distinguishable.”

"Section 254(2) Powers Are Not a Gateway for Judicial Reconsideration" – Tribunal Cannot Act As An Appellate Court Under the Guise of Rectification

The Court reaffirmed that the powers conferred under Section 254(2) are narrowly confined to rectifying errors apparent from the record, akin to the powers under Order 47 Rule 1 of the Civil Procedure Code. It relied on the Supreme Court’s decision in CIT v. Reliance Telecom Ltd. to underscore that:

“The Appellate Tribunal may amend any order with a view to rectifying any mistake apparent from the record only. The Tribunal is not required to revisit its earlier order or go into detail on merits. Its power under Section 254(2) is akin to a limited review under Order 47 Rule 1 CPC.”

Crucially, the Court invoked the Explanation to Order 47 Rule 1 CPC, which explicitly bars review on the ground that a question of law has been subsequently reversed or modified by a superior court in another case.

The judgment quoted the Constitution Bench ruling in K.L. Rathi Steels Ltd. v. Government of NCT of Delhi (2024) 7 SCC 315, where it was held:

“No review is available upon a change or reversal of a proposition of law by a superior court or by a larger Bench of this Court overruling its earlier exposition of law.”

The Court also dismissed reliance on the Gujarat High Court’s judgment in Suhrid Geigy Ltd., which allowed rectification even based on subsequent rulings. The Bombay High Court rejected that proposition, holding:

“We are unable to agree with the conclusion of the Gujarat High Court. In light of binding judgments of the Supreme Court, rectification on the basis of subsequent law is impermissible.”

"Judgments Are Not Statutes; Context Is Key" – Court Cautions Against Literal Reading of Precedents

Invoking Sarva Shramik Sanghatana v. State of Maharashtra and Quinn v. Leathem, the Court reiterated the principle that:

“Every judgment must be read as applicable to the particular facts proved, or assumed to be proved. A case is only an authority for what it actually decides.”

Thus, the ITAT’s reliance on general observations from Saurashtra Kutch—without considering the factual distinction—was held to be legally flawed. The High Court emphasized the dangers of applying precedents mechanically, noting:

“There is always peril in treating the words of a judgment as though they are words in a legislative enactment. Judicial utterances are made in the setting of the facts of a particular case.”

Court Allows Writ Petition, Quashes Tribunal’s Orders, and Reinstates Earlier Relief to the Assessee

Allowing the writ petition, the Court quashed the ITAT’s orders passed under Sections 254(2) and 254(1) on 17th September 2024. It declared that the ITAT had no jurisdiction to recall its earlier final order merely because of a later Supreme Court ruling.

“The Tribunal’s original order dated 5th September 2022 was consistent with the law as it stood at that time. There was no mistake in that order. The invocation of Section 254(2) was wholly without jurisdiction.”

In consequence, the related Income Tax Appeal was dismissed as infructuous. The Court clarified, however, that the Revenue was not precluded from filing an appeal under Section 260A if it wished to challenge the ITAT’s 2022 order on merits.

This judgment serves as a landmark authority on the scope and limitations of the rectification powers under Section 254(2) of the Income Tax Act. It safeguards judicial finality and ensures that litigation is not endlessly reopened merely because the law evolves.

As the High Court aptly summarized the legal position: “Law must move forward, but not at the cost of unsettling final decisions based on the law as it existed at the time. Section 254(2) is not a revolving door to revisit concluded judgments on the whims of retrospective interpretations.”

Date of Decision: 12th September 2025