2014 (7) TMI 305 - AT - Income Tax

Rectification of mistake u/s 154 - Appeal against the order u/s 154 rejected by the CIT(A) Claim on inflated purchase Held that - The assessee may have a good case on merits, it is not a case of any mistake apparent on the record - a mistake is apparent on the record if no external help either on fact or in law is required to detect such mistake - If the mistakes require investigation into facts or determination of law or discussion of debatable points are involved or two opinions are possible on the issue then such pointed mistakes cannot be said to be mistakes apparent on record which can be rectified under section 154 of the Income Tax Act. - Decided against the assessee. Appeal before CIT(A) against order u/s 154 - condonation of delay - Held that - The assessee was under the bonafide belief that the finding of the AO could be corrected/rectified u/s 154 of the Act - if a litigant is found pursuing a remedy under the wrong provision of the Act or the law under bonafide belief, which the courts ultimately found to be not maintainable under that provision or law and that the assessee should have pursued his remedy under another provision of the law, then the period consumed in pursuing such litigation under bonafide belief should be excluded for the purpose of calculation of limitation period, if the litigation chooses to pursue the remedy under the correct provision of the law - assessee is at liberty to approach to CIT(A) accordingly present appeal dismissed - Decided against Assessee.

Issues Involved:
- Appeal against order of CIT(A) upholding AO's rejection of application under section 154 of the Income Tax Act.
- Disallowance of inflated purchase cost of Jadibuties and rose flowers.
- Claim for deduction of inflated purchase cost as embezzlement loss.
- Determination of mistake apparent from record.
- Exclusion of period consumed in pursuing litigation for calculation of limitation period.

Analysis:

1. Appeal Against Order of CIT(A) Upholding AO's Rejection of Application under Section 154:
The appellant, a partnership firm engaged in the business of manufacture of Indian Attars, Essential Oils, and Distillers, filed an appeal against the CIT(A)'s order upholding the AO's rejection of the application under section 154 of the Income Tax Act. The appellant contended that the AO's decision was incorrect, and the inflated purchase costs of Jadibuties and rose flowers should not have been disallowed. The CIT(A) observed that the assessment was completed based on the appellant's own letter requesting the disallowance of these items, and thus, it was not a mistake apparent from the record. The appeal was dismissed, leading the appellant to appeal to the ITAT Mumbai.

2. Disallowance of Inflated Purchase Cost of Jadibuties and Rose Flowers:
During the assessment proceedings, the AO disallowed the inflated purchase costs of Jadibuties and rose flowers, leading to additions in the total income of the appellant. The appellant argued that the inflated purchase of Jadibuties was already accounted for in the closing stock, and therefore, it should not affect the taxable income. Similarly, the appellant claimed that the inflated purchase price of rose flowers, attributed to an employee's actions, should be allowed as a deduction for embezzlement loss. However, the AO rejected the appellant's petition under section 154, stating that the mistakes were not apparent from the record.

3. Determination of Mistake Apparent from Record:
The ITAT Mumbai, after hearing arguments from both parties, held that although the appellant had a strong case on merits, there was no mistake apparent on the record that could be rectified under section 154 of the Income Tax Act. The tribunal emphasized that a mistake is considered apparent when it is glaring, obvious, or self-evident, without the need for external help to detect it. Since the alleged mistakes required further investigation into facts or legal interpretation, they did not qualify as mistakes apparent from the record. Therefore, the ITAT Mumbai upheld the lower authorities' decision to dismiss the appellant's application under section 154.

4. Exclusion of Period Consumed in Pursuing Litigation for Calculation of Limitation Period:
Despite dismissing the appeal, the ITAT Mumbai acknowledged that the appellant genuinely believed that the AO's findings could be corrected under section 154. The tribunal highlighted that if a litigant pursues a remedy under a wrong provision of the law in good faith, the time spent in such pursuit should be excluded from the calculation of the limitation period if the litigant later chooses to pursue the correct remedy. Therefore, the ITAT Mumbai allowed the exclusion of the period consumed in the present litigation for calculating the limitation period if the appellant decides to file an appeal before the CIT(A) against the assessment order.

In conclusion, while the ITAT Mumbai dismissed the appeal due to the absence of a mistake apparent from the record, it provided guidance on the exclusion of time spent in pursuing litigation under a mistaken belief when calculating the limitation period for filing an appeal before the appropriate authority.

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