2024 (4) TMI 1246 - AT - Income Tax

Tribunal Rejects Revenue's Rectification Appeal; Upholds 6% Disallowance Rate Under Section 254(2) of Income Tax Act

The ITO, Ward – 2 (2) (1) Versus Late Bhimsen Darbarilal Arora, Surat

The ITO, Ward – 2 (2) (1) Versus Late Bhimsen Darbarilal Arora, Surat - TMI ISSUES PRESENTED and CONSIDEREDThe primary issue considered by the Appellate Tribunal was whether there was a 'mistake apparent from the record' in the Tribunal's previous order dated 22.02.2023, which warranted rectification under section 254(2) of the Income Tax Act, 1961. Specifically, the Revenue contended that the Tribunal's decision to restrict the addition for unaccounted purchases to 6% instead of 12.5% constituted such a mistake.ISSUE-WISE DETAILED ANALYSISRelevant Legal Framework and PrecedentsThe legal framework for this issue is governed by section 254(2) of the Income Tax Act, 1961, which allows the Appellate Tribunal to amend any order to rectify a mistake apparent from the record. The provision specifies that such a mistake must be evident and not subject to debate or requiring extensive investigation.The Revenue relied on the precedent set by the Hon'ble Gujarat High Court in CIT Vs. Bholanath Fab Pvt Ltd, which upheld a 12.5% addition for unaccounted purchases in the textile industry. The Tribunal, however, had relied on its own decision in the case of Pankaj K Chaudhary, which supported a 6% addition.Court's Interpretation and ReasoningThe Tribunal interpreted section 254(2) to mean that only mistakes that are apparent, meaning clear and obvious without requiring complex argumentation, can be rectified. The Tribunal emphasized that the power to rectify is limited and does not extend to errors of law or a re-evaluation of factual findings.Key Evidence and FindingsThe Tribunal noted that the Revenue argued for a higher disallowance rate based on industry norms and previous judgments. However, the Tribunal found that the issue was debatable and not a clear mistake apparent from the record. The Tribunal's original decision to apply a 6% rate was based on its prior judgment and was not an oversight or clerical error.Application of Law to FactsApplying section 254(2), the Tribunal concluded that the difference in the rate of disallowance (6% vs. 12.5%) was a matter of legal interpretation and not a mistake apparent from the record. The Tribunal's decision was based on its discretion and interpretation of relevant precedents, which does not qualify for rectification under the provision.Treatment of Competing ArgumentsThe Tribunal considered the Revenue's argument that the rate should be 12.5% based on industry standards and previous judgments. However, it also considered the argument from the assessee's counsel that the Tribunal's order was a reasoned decision and not an apparent mistake. The Tribunal found the assessee's argument more compelling, emphasizing the limited scope of section 254(2).ConclusionsThe Tribunal concluded that there was no mistake apparent from the record in its original order. The decision to apply a 6% disallowance rate was a deliberate and reasoned one, based on precedent and legal interpretation, and not subject to rectification under section 254(2).SIGNIFICANT HOLDINGSThe Tribunal held that:'The plain meaning of the word 'apparent' is that it must be something which appears to be ex-facie and incapable of argument and debate. Thus, section 254(2) of the Act does not cover any mistake which may be discovered by a complicated process of investigation, argument or proof.'This holding underscores the core principle that section 254(2) is intended for rectifying obvious errors, not for revisiting legal interpretations or factual findings.The final determination was that the miscellaneous application filed by the Revenue was dismissed, as the Tribunal found no apparent mistake in its original order.