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Facts
The assessee's return was processed under section 143(1) with a disallowance for delayed ESI/EPF payment. The CIT(A) initially allowed the appeal, but later rectified the order under section 154 to uphold the disallowance based on a subsequent Supreme Court judgment.
Held
The Tribunal held that the CIT(A)'s rectification order was bad in law as the Supreme Court judgment relied upon was delivered after the original CIT(A) order and cannot be applied retrospectively. The powers under section 154 are not for reviewing earlier orders based on subsequent judicial pronouncements.
Key Issues
Whether the CIT(A) can rectify an earlier order under Section 154 based on a subsequent judgment of a superior court, and if subsequent judgments can be applied retrospectively.
Sections Cited
154, 250, 143(1), 36(1)(va), 254(2)
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Income Tax Appellate Tribunal, DELHI BENCH ‘E’: NEW DELHI
(ASSESSMENT YEAR 2018-19) Linen Design Company ACIT/DCIT, Private Limited, Circle-13(1), Flat No.701, Tower-II, Vs. Delhi. Sohna Road, Vipul Greens, Sector-48, Gurgaon (Gurugram)-122018. PAN-AABCL7123P (Appellant) (Respondent) Assessee by Shri Ved Jain, Adv. and Ms. Uma Upadhyay, CA Department by Shri Shyam Manohar Singh, Sr. DR Date of Hearing 22/09/2025 Date of Pronouncement 26/09/2025 O R D E R
PER MANISH AGARWAL, AM:
This appeal is filed by the assessee against the order of Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi dated 27.03.2025 in DIN & Order No. ITBA/NFAC/154/2024-25/1075116153(1) passed u/s 154 r.w.s250 of the Income Tax Act, 1961 (the Act, in short) for Assessment Year 2018-19.
Brief facts of the case are that the return of income filed by the assessee was processed u/s 143(1) of the Act vide order dated 06.01.2020 for the captioned Linen Design Company Pvt. Ltd. vs. ACIT Assessment Year wherein disallowance of delayed payment of employees’ contribution towards the ESI/EPF of Rs.20,17,444/- was made.
Against such order, an appeal was filed by the assessee which was allowed by ld. Ld. CIT(A) in Appeal No. CIT(A), Delhi-5/10571/2019-20 vide order dated 10.09.2020 by following the judgment of Hon’ble Delhi High Court in the case of CIT vs. AIMIL Ltd. 321 ITR 508 and of Pro Interactive Service (India) Pvt. Ltd. in ITA No. 983/2018. Thereafter, Revenue filed an application u/s 154 of the Act before ld. CIT(A) for rectification of the aforesaid order based on the judgment of Hon’ble Supreme Court in the case of Checkmate Services Pvt. Ltd. vs. DCIT, [2022] 143 taxmann.com 178 (SC) wherein the hon’ble Supreme Court has confirmed the disallowance made towards delayed payment of employees contribution towards PF/ESI. The ld. CIT(A) vide impugned order dt. 27.3.2025 has rectified the order its earlier order dt. 10.9.2020 and uphold the disallowance vide order passed u/s 154 r.w.s 250 of the Act.
Aggrieved by the said order, the assessee is in appeal before the Tribunal by taking the following grounds of appeal:
1. On the facts and circumstances of the case, the order passed by the learned Commissioner of Income Tax (Appeals), Income Tax Department, National Faceless Appeal Centre (hereinafter referred to as CIT(A), ITD), under section 154 read with section 250 is bad both in the eye of law and on facts.
2. On the facts and circumstances of the case, the order passed by the learned CIT(A), ITD is illegal, invalid and without jurisdiction and hence liable to be quashed.
3. On the facts and circumstances of the case, the learned CIT(A), ITD has erred both on facts and in law in passing the order u/s 154 r.w.s 250 of the Income Tax Act rejecting the contention of the assessee that CIT(A) does not have power to review it's earlier order under section 154 of the Act.
4. On the facts and circumstances of the case, the Learned CIT(A), ITD has erred both on facts and in law in passing the order u/s 154 r.w.s 250 of the Income Tax Act despite the fact that there is no mistake apparent from the record in the order passed by him Linen Design Company Pvt. Ltd. vs. ACIT in respect of appeal filed against order passed under section 143(1) of the Act and hence the order passed by him u/s 154 r.w.s 250 is without jurisdiction and liable to be quashed. 5. (i) On the facts and circumstances of the case, the learned CIT(A), ITD has erred both on facts and in law in rejecting the contention of the assessee that the issue involved in the present appeal is of debatable in nature and outside the purview of section 154 of the Income Tax Act. (ii) That the CIT(A), ITD has erred both on facts and in law in rejecting the judicial precedent brought on record by the assessee in this regard.
6. On the facts and circumstances of the case, the learned CIT(A), ITD has erred both on facts and in law in confirming the adjustment of disallowance of late deposit of ESI/PF made in the order passed under section 143(1) of the Act despite the fact that the adjustment made by AO(CPC) itself is invalid, illegal, debatable and impermissible adjustment under section 143(1) of the Act. 7. (i) On the facts and circumstances of the case, learned CIT(A), ITD has erred both on facts and in law in ignoring the contention of the assessee that order passed by CIT(A), ITD u/s 143(1) r.w.s 250 of the Act cannot be recalled based on subsequent decision of a superior court and thus, the same is outside purview of the section 154 of the Act. (ii) That the learned CIT(A) has erred in ignoring the various judicial precedents relied upon by the assessee in this regard. 8. (1) On the facts and circumstances of the case, the learned CIT(A). ITD has erred both on facts and in law in confirming the disallowance of Rs.20,17,444/- made by the AO(CPC) on account of late deposit of ESI and PF invoking the provisions of section 36(1)(va) of the Income Tax Act. (ii) That the above said disallowance has been confirmed rejecting the submissions and explanations made by the assessee in this regard.
The appellant craves leave to add, amend or alter any of the grounds of appeal.”
5. Before us, Ld. AR of the assessee submits that appeal of the assessee was originally allowed in terms of the order passed by Ld. CIT(A) on 10.09.2020. Thereafter, an application u/s 154 for rectification of the said order was filed by the Revenue solely based on the judgment of the Hon’ble Supreme Court in the case of Checkmate Services Pvt. Ltd. (Supra). It is submitted by Ld. AR that when the order was passed by the Ld. CIT(A) allowing the appeal of the assessee, the judgements Linen Design Company Pvt. Ltd. vs. ACIT were in favour of the assessee and ld. CIT(A) followed the decision of Hon’ble Jurisdictional High Courtin the case of AMIL Ltd (supra) and deleted the disallowance made by AO. Since, the decision of Hon’ble Supreme Court in the case of Checkmate Services Pvt. Ltd. (supra) is given subsequently, therefore, the same cannot be applied retrospectively on the appeal which has already been decided. The Ld. AR in this regard placed reliance on the recent judgment of Hon’ble Bombay High Court in the case of Vaibhav Maruti Dombale Vs. T Assistant Registrar reported in 2025 (9) TMI 1037 wherein it is held that on the basis of subsequent decisions of Hon’ble Supreme Court, it cannot be held that there was a mistake apparent from the record. Accordingly, ld. AR requested for the deletion of the disallowance confirmed by the Ld. CIT(A) in the rectification order passed u/s 154 r.w.s. 250 of the Act.
6. On the other hand, Ld. Sr. DR supported the order of the lower authorities and submits that the disallowance was made after considering the judgment of Hon’ble Supreme Court, therefore, this order deserves to be upheld.
7. Heard both the parties and perused the materials available on record. Admittedly in the instant case, when Ld. CIT(A) deleted the disallowances in the order passed on 10.09.2020, the judgments were in favour of the assessee of the Hon’ble Jurisdictional High Court in the case of CIT vs. AIMIL Ltd. (supra) and Ld. CIT(A) followed the same. The judgment of Hon’ble Supreme Court in the case of Checkmate Services Pvt. Ltd. (supra) is delivered much after the order passed by ld. CIT(A) on 10.9.2020 and is applicable prospectively.
8. The Hon’ble Mumbai High Court in the case of Vaibhav Maruti Dombale Vs. the Assistant Registrar reported in 2025(9) TMI 1037 has held that subsequent ruling of a Court cannot be a ground for invoking the provisions of section 254(2) of the Linen Design Company Pvt. Ltd. vs. ACIT IT Act before the Tribunal. Specially, when the original order was passed by the ITAT as per law as it then stood. The said order of Hon’ble Mumbai High Court is upheld by the Hon’ble Supreme Court by dismissing the SLP filed by the Revenue as reported in 474 ITR 584.
9. As the powers of the Tribunal in admitting the Misc. Application on account of mistake apparent on record as provided u/s 254(2) are pari-materia with the power provided in section 154 of the Act to AO and CIT(A) for rectifying any order, therefore, by respectfully following the aforesaid judgment of the Hon’ble Supreme court and of Hon’ble Mumbai High Court, we are of the view that when the order of Ld. CIT(A) was passed on 10.09.2022, the judgments were in favour of the assessee including the Hon’ble Jurisdictional High Court and the judgement of Hon’ble Supreme Court in the case of Checkmate Services Pvt. Ltd. (supra) was delivered at a later stage. Therefore, the order of Ld. CIT(A) cannot be rectified on the basis of subsequent judgment of Hon’ble Supreme Court. In view of above facts, we direct the AO to delete the disallowance. Accordingly, all the grounds of appeal
of the assessee are allowed.
10. In the result, the appeal of the assessee is allowed. Order pronounced in the open Court on 26.09.2025.