2017 (5) TMI 158 - AT - Income Tax

Rectification of mistake - brought forward losses and depreciation rejected - Held that - We are of the opinion, that the F AA was not justified in rejecting the claim made by the assessee. He has also accepted that in the competition of income the assessee has shown income at Rs nil. As per the settled principles of taxation jurisprudence the Department is entitled to collect due taxes only and that due taxes arise from taxable income. In the case under consideration the assessee had inadvertently, in the return of income, disclosed some income that had not accrued/arisen to it. In the circumstances, after-the-fact was brought to the notice of the revenue authorities, there was no justification to levy any taxes. Claim made by the assessee before the FAA should have been allowed after verification. Therefore, in the interest of Justice, we are restoring that the issue to the file of the FAA, who would verify the veracity of the claim made by the assessee. If it is found that claim made by the assessee about brought forward losses and the depreciation was in order considering the earlier years returns of income, the appeal filed by the assessee should be allowed. The assessee is directed to extend full cooperation to the FAA. Effective ground of appeal is allowed in favour of the assessee, in part.

Issues involved:
1. Rectification application under section 154 of the Income Tax Act.
2. Correcting arithmetic mistakes in the income tax return.
3. Scope of rectification under section 154 of the Act.
4. Admissibility of fresh claims before appellate authorities.
5. Treatment of brought forward losses and depreciation in income computation.

Issue 1: Rectification application under section 154 of the Income Tax Act:
The assessee filed rectification applications under section 154 of the Act, contending that a technical error was made in the income return. The AO rejected the rectification, leading to an appeal before the First Appellate Authority (FAA).

Issue 2: Correcting arithmetic mistakes in the income tax return:
The FAA held that prior to April 1, 2008, there was no provision for correcting arithmetic mistakes or internal inconsistencies in the return. The FAA referred to the amendment by the Finance Act 2008, post which such corrections were allowed. The FAA found no merit in the appeal filed by the assessee.

Issue 3: Scope of rectification under section 154 of the Act:
During the hearing, the Authorized Representative argued that there was only a technical mistake in the return, emphasizing that the income declared by the assessee was nil. The Departmental Representative supported the FAA's order.

Issue 4: Admissibility of fresh claims before appellate authorities:
The Tribunal observed that appellate authorities are not barred from admitting fresh claims made for the first time. It referenced the case law of Prithvi Brokers and Shareholders Private Ltd. to support the admissibility of fresh claims.

Issue 5: Treatment of brought forward losses and depreciation in income computation:
The Tribunal noted that the assessee had inadvertently disclosed income in the return that had not accrued to it. Citing principles of taxation jurisprudence, the Tribunal emphasized that due taxes arise from taxable income. It highlighted the importance of not levying taxes when no income had accrued to the assessee.

In conclusion, the Tribunal found that the FAA was not justified in rejecting the claim made by the assessee. It directed the FAA to verify the veracity of the claim regarding brought forward losses and depreciation. If found in order, the appeal should be allowed. The Tribunal allowed the effective ground of appeal in favor of the assessee, partially.

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