INCOME TAX ACT, 1961

Section 254(2) Rule 24

Appeal [Tribunal] - Rectification under section 254(2) - Recalling of an ex-parte order -

CIT(A) partly confirmed the order of AO and thus assessee filed appeal befoe ITAT, on 11-12-2014, which was heard on 30-8-2016 and later dismissed vide Order dated 18-10-2016. In the said order, the ITAT, while noting that no one was present on behalf of the assessee at the time of hearing, proceeded tod sipsoe of the appeal, observing that notice was sent to the assessee on 15-7-2016 at the address mentioned in the memo of appeal and despite that, the assedssee remained unrepresented. At the same time, the assessee was granted liberty to approach the ITAT for a recall of the order if it was able to show a reasonable cause for non-appearance. Thus, there was no adjudication on the merits of the appeal. Thereafter, on 8-3-2018, an application was filed for recall of the Order dated 18-10-2016. However, to the petitioner company's dismay, the same was dismissed vide Order dated 30-8-2019, on the ground that the same was barred by limitation under section 254(2).Held: There was no justification for dismissing the application for recall on the ground of limitation. Rule 24 of the ITAT Rules, enjoined the ITAT to decide the appeal on merits. Appeal filed in 2014, had ripened for final disposal only in 2016 and therefore, dismissal of the appeal without deciding the merits of the case, merely on the ground for non-prosecution, was certainly unwarranted. The ITAT cannot dismiss an appeal on acocunt of non-appearance of aprty without giving finding on merits. No attempt was made by the ITAT to ascertain the date of actual receipt of the order passed by the ITAT and the ITAT had proceeded to hold the application to be barred by limitation as provided under section 254(2). Section 254 (2) was amended by the Finance Act, 2016 with effect from 01-6-2016 and the words 'four years from the date of the order' were substituted by 'six months from the end of the month in which the order was passed'. The explanatory notes to the provisions of the Finance Act, 2016, do not throw much light for the purpose of the amendment, except for stating that the period of limitation has been shortened in order to bring certainty to the orders of the ITAT. The words 'six months from the end of the month in which the order was passed' therefore, cannot be given a narrow and restrictive interpretation. The limitation would begin to run when the affected person has the knowledge of the decision. The date when the order was passed cannot be solely determined by referring to the date when the same was signed by the ITAT. The date of communication or knowledge, actual or constructive, of the orders sought to be rectified or amended under section 254(2) becomes critical and determinative for the commencement of the period of limitation. The ITAT had not applied its mind on this aspect and had been swayed by the literal and mechanical construction of the words 'six months from the end of the month in which the order was passed'. The ITAT failed to even delve into the question whether the affected party, either actually or constructively, was in knowledge of the order passed by the ITAT. For the assessee to file an appeal under the provision of section 260A before this Court, it was required to satisfy that the case involves a substantial question of law. As the order was not touching upon the merits of the case, it deprives this Court to evaluate, if any, substantial question of law under section 260A arises on merits, thereby impinging upon assessee's right to get the issue decided by the final fact finding authority. Thus the approach adopted by the ITAT in dismissing the application for recall of an order, cannot be countenanced, particularly, since Rule 24 of the ITAT Rules, mandates the ITAT to decide the appeal on merits. In fact this approach has rendered the liberty granted in the order dated 18-10-2016 as nugatory. The sufficient cause for non-appearance of the petitioner company at the time of disposal of the appeal, as provided in the proviso to Rule 24 of the ITAT Rules had also lost its meaning because of the approach adopted by the ITAT, especially, when there is no limitation provided in Rule 24 of the ITAT Rules. It is the duty and obligation of the ITAT to dispose of the appeal on merits after giving both the parties an opportunity of being heard. The ITAT should have been conscious of the fact that the assessee was not afforded the opportunity to argue the case on merits and for this reason it had given the liberty to apply afresh, while dismissing the appeal for non-prosecution. There was thus no cogent reason for the Tribunal not to entertain the application for recall. For the foregoing reasons, the course adopted by the ITAT at the first instance, by dismissing the appeal for non-prosecution, and then compounding the same by refusing to entertain the application for recall of the order, cannot be sustained. Therefore, there was no hesitation in quashing the impugned order. Accordingly, the present petition was allowed. The Order dated 30-8-2019 was quashed and the matter was remanded back to the ITAT with a direction that they would hear and dispose of ITA No. 6739/De1/2014 on merits.

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