2014 (7) TMI 305 - AT - Income Tax

ITAT Mumbai rejects appeal under Income Tax Act 154; allows exclusion of litigation period for limitation calculation.

M/s. Hargovinddas & Sons Versus ITO-25(2) (1), Mumbai

M/s. Hargovinddas & Sons Versus ITO-25(2) (1), Mumbai - TMI 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.