2012 (10) TMI 854 - AT - Income Tax

Rectification application u/s. 154 rejected - Short term capital - normal rate of 30% OR @ 10% as provided in Sec. 111A - Held that - In the present system of e-filing of return which is totally depended upon the usage of software, then is possible that some clerical errors may occur at the time of entering the data in the electronic form. The return is prepared electronically which is converted into an XML file either through the free down loaded software provided by the CBDT or by the softwares available in the market. In either of the case, there is every possibility of entering incorrect data without having the expert knowledge of preparing an XML file. As the assessee has claimed Short Term Capital Gains and has shown it in the revised e-return but the same figure did not appear under the item where the short term capital gain is to be taxed at special rate u/s. 111A i.e. internal page-19 of the return under Schedule CG Capital gains under item No. 7. However, at the same time under Schedule SI-income chargeable to income tax at special rates IB the assessee has shown STCG (iiia) special rate @ 10% which clearly establishes that the assessee has shown STCG liable to be taxed at special rate of 10%. Accordingly, reversing the finding of the CIT(A) AO is directed to allow credit subject to special rate of tax as per provisions of Sec. 111A and rectify the intimation u/s. 143(1) accordingly - in favour of assessee.

Summary

Issues:
- Correctness of rejecting application for rectification u/s. 154 of the I.T. Act, 1961
- Correctness of computing income tax payable on short term capital gain at normal rate instead of special rate

Analysis:
1. Issue 1 - Application for Rectification u/s. 154:
The assessee challenged the rejection of the application for rectification u/s. 154 of the I.T. Act, 1961. The assessee filed a revised e-return after receiving intimation u/s. 143(1) showing a difference in taxable income and tax calculation. The AO rejected the rectification application stating the Short Term Capital Gain was not shown as required under Sec. 111A. The AO suggested filing a revised return instead. The CIT(A) upheld the AO's decision. The assessee argued clerical errors in the e-return led to the mistake, deserving rectification. The Tribunal noted the e-filing system's reliance on software, acknowledging the possibility of clerical errors. It observed the assessee did show Short Term Capital Gains in the revised return but failed to reflect it where taxed at the special rate u/s. 111A. The Tribunal reversed the CIT(A)'s finding, directing the AO to allow credit for Short Term Capital gains at the special rate and rectify the intimation u/s. 143(1) accordingly.

2. Issue 2 - Computing Income Tax on Short Term Capital Gain:
The second ground of appeal questioned the computation of income tax on short term capital gain at the normal rate instead of the special rate per Sec. 111A. The assessee contended that clerical errors in the e-return led to the incorrect tax calculation. The Tribunal, after examining the revised e-return and relevant schedules, found that while the Short Term Capital Gains were shown, they were not reflected where taxed at the special rate. However, it noted that the assessee did correctly show the Short Term Capital Gains liable for tax at the special rate in another section of the return. Therefore, the Tribunal allowed the appeal, directing the AO to rectify the tax calculation and apply the special rate of tax as per Sec. 111A.

In conclusion, the Tribunal allowed the appeal filed by the assessee, directing the AO to rectify the tax calculation and intimation u/s. 143(1) to reflect the correct treatment of Short Term Capital Gains at the special rate as per the provisions of Sec. 111A of the I.T. Act, 1961.