ITAT’s Jurisdiction Under Section 254(2) of the Income Tax Act, 1961 – Set Aside for Exceeding Mandate – Remanded for Limited Adjudication

The High Court held that the ITAT exceeded its jurisdiction under Section 254(2) by reviewing its earlier order and reclassifying the income. The impugned order dated 2 September 2022 was set aside.

The ITAT’s powers under Section 254(2) are limited to rectifying mistakes and cannot be used for substantive review. The issue of income classification was pending in a separate appeal and could not be revisited by the ITAT. (Paras 9 to 15)

The matter was remanded to the ITAT to decide only on the application of the real income theory and the allowability of expenses (Grounds 1, 4, and 5). Parties were directed to appear before the ITAT on 8 March 2025. 

Relevant Acts and Sections:

• Income Tax Act, 1961 – Section 254(1) – Powers of the ITAT

• Income Tax Act, 1961 – Section 254(2) – Rectification of Mistakes

• Income Tax Act, 1961 – Section 260-A – Appeal to High Court

Subjects: Jurisdictional Overreach – Real Income Theory – Income Classification – House Property – Other Sources – Remand

Nature of the Litigation: Writ Petition challenging the Income Tax Appellate Tribunal’s (ITAT) order dated 2 September 2022.

Petitioner’s Remedy Sought: To set aside the ITAT’s order for exceeding its jurisdiction under Section 254(2) of the Income Tax Act, 1961.

Reason for Filing the Case: The ITAT re-adjudicated the classification of income from Procter & Gamble Hygiene and Healthcare Limited (PGHH) as "income from house property" despite a prior settled finding categorizing it as "income from other sources".

Previous Decisions:

• ITAT Order dated 6 June 2016 classified the income from PGHH as "income from other sources".

• High Court of Bombay’s Order dated 9 March 2018 affirmed the limited scope of remand to ITAT for adjudication on real income theory and expenses.

Issues:

1. Whether the ITAT exceeded its jurisdiction under Section 254(2) by reclassifying the income.

2. Whether the ITAT’s re-adjudication on income classification was contrary to the High Court’s earlier order.

Submissions/Arguments:

• Petitioner: The ITAT’s earlier finding on income classification had attained finality, and the only issue on remand was the application of real income theory.

• Respondent: The ITAT was justified in reconsidering the income classification due to pending appeals and the nature of the income.