2023 (8) TMI 1657 - AT - Income Tax

Section 254(2) permits only obvious record corrections, not re-hearing, reappraisal of facts, or correcting legal errors

The DCIT, Circle-3 (3), Surat. Versus Keshri Export and (Vice-Versa)

ITAT (Surat) held that section 254(2) permits only correction of mistakes that are ex facie and incapable of argument; it does not allow reappraisal of ... Mistake apparent from record within the meaning of section 254(2) - failure of the Tribunal to consider an argument advanced by either party for arriving at a conclusion - HELD THAT:- “Any mistake apparent from the record” can be rectified. 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. Therefore, amendment of an order u/s 254(2) of the Act, does not mean entire obliteration of order originally passed by the Tribunal and its substitution by a new order of Tribunal, this is not permissible under section 254(2) of the Act. Power to rectify an order, under section 254(2) of the Act is extremely limited and it does not extend to correcting errors of law, or re-appreciating factual findings. It is abundantly clear from the decision of Prem Colonisers Pvt. Ltd. [2013 (1) TMI 371 - ITAT DELHI] that failure of the Tribunal to consider an argument advanced by either party for arriving at a conclusion is not an error apparent on the record, although it may be an error of judgment. Review proceedings imply proceedings where a party, as of right, can apply for reconsideration of the matter, already decided upon, after a fresh hearing on the merits of the controversy between the parties, such remedy is certainly not provided by section 254(2) the Income Tax Act, 1961. In the garb of an application for rectification, the assessee cannot be permitted to reopen and re-argue the whole matter, which is beyond the scope of the section 254(2) of the Act. Therefore we are of the view that there is no mistake apparent in the order of the Tribunal hence we dismiss all miscellaneous application of the assessee. ISSUES PRESENTED AND CONSIDERED 1. Whether mistakes apparent from the record under section 254(2) of the Income Tax Act, 1961, exist in the Tribunal's order so as to permit rectification of (a) incorrectly quoted assessment years in the cause title and (b) substantive findings regarding benefit from bogus/accommodation-entry purchases? 2. Whether the Tribunal erred in confirming reopening of assessment under sections 147/148 where reasons were recorded prior to receipt of investigation-wing report and whether the AO applied mind or merely acted on 'borrowed satisfaction'? 3. Whether the Tribunal was obliged under section 254(2) to revisit or rectify its ratio (conclusions on merits) in light of arguments that the assessee was not a listed beneficiary, suppliers had attested supplies, failure to issue notice under section 129, or other grievances amounting to review of findings? 4. Whether additions disallowing purchases shown to have been made from entry providers are sustainable in whole or require restriction to a percentage of disputed purchases (and if so, what percentage), having regard to precedent and facts such as gross profit rates and documentary evidence? ISSUE-WISE DETAILED ANALYSIS Issue 1 - Rectification under section 254(2): scope and application to clerical versus substantive errors Legal framework: Section 254(2) permits the Tribunal, within the prescribed time, to amend its order to rectify any 'mistake apparent from the record'; however, such power is narrowly confined to patent, obvious errors and does not permit review or re-appreciation of contested facts or law that require argument, investigation or debate. Precedent treatment: The Tribunal relied on internal jurisprudence (coordinate bench decisions) and a line of High Court and Supreme Court authorities emphasising that rectification power is limited to mistakes apparent on face of record and cannot be used to substitute a new order or review the Tribunal's conclusions. Interpretation and reasoning: The Tribunal construed 'apparent' as meaning ex facie, obvious and not dependent on elaborate argument or fresh investigation. It held that rectification cannot be used to revisit the ratio of its decision or to re-examine factual findings or legal conclusions that are debatable. Ratio vs. Obiter: Ratio - rectification under section 254(2) is limited to patent errors on the face of the record and does not permit re-opening or re-hearing of issues decided on merits. Obiter - illustrative citations and discussion of various High Court decisions supporting the restricted scope. Conclusions: Correction of clerical errors in the cause title (assessment years) is permissible as a mistake apparent from record; however, substantive conclusions in the Tribunal's order are not open to rectification under section 254(2) absent an obvious patent error. Issue 2 - Correction of incorrectly quoted assessment years in the Tribunal's cause title Legal framework: Section 254(2) allows amendment of Tribunal orders to rectify mistakes apparent from the record. Precedent treatment: Applied the narrow interpretation of rectification; clerical/typographical errors that are ex facie are rectifiable. Interpretation and reasoning: The cause title contained incorrectly quoted assessment years; both parties agreed the title error was a mistake apparent from record. Such errors are non-controversial and do not involve re-appraisal of merits. Ratio vs. Obiter: Ratio - clerical mistakes in a cause title are rectifiable under section 254(2). Conclusions: The Tribunal allowed rectification of the assessment years in the cause title in favour of the Revenue to correct the apparent clerical mistake. Issue 3 - Validity of reopening under sections 147/148 where reasons pre-date investigation report; 'borrowed satisfaction' and application of mind Legal framework: Section 147 read with section 148 permits reopening where the AO has reason to believe income chargeable to tax has escaped assessment; reasons must be recorded and the AO must apply his mind to new information. Precedent treatment: The Tribunal relied on Supreme Court and High Court authorities holding that acquisition of specific, reliable subsequent information justifies reopening even if the information might have been obtainable earlier; absence of earlier investigation does not vitiate jurisdiction where twin conditions under section 147 are satisfied. Interpretation and reasoning: The Tribunal examined the timeline and content of information received by the AO, including investigation-wing material and internal sharing. It concluded that credible new information existed and the AO applied his mind, recording reasoned belief that purchases were non-genuine. Authorities recognizing that reopening is permissible where later information falsifies a prior disclosure (and where the AO draws fresh inferences) were followed. Ratio vs. Obiter: Ratio - where specific and reliable post-assessment information comes into AO's possession and the AO applies his mind, reopening under section 147/148 is justified; mere timing of receipt of an investigation report (i.e., reasons recorded prior to formal receipt) does not automatically show borrowed satisfaction if the AO had independent credible information and applied mind. Conclusions: The Tribunal held the reassessment valid and dismissed the assessee's challenge that reopening was invalid on grounds of borrowed satisfaction or non-application of mind. Issue 4 - Scope of rectification request seeking change in finding that assessee was a beneficiary of accommodation entries (challenge to factual finding) Legal framework: Section 254(2) does not empower re-appreciation of facts or re-adjudication of contested findings that require debate; rectification is confined to patent errors apparent on record. Precedent treatment: Cited coordinate bench and High Court authorities holding that oversight of a fact or failure to consider an argument is not an apparent mistake; review is not available under section 254(2). Interpretation and reasoning: The assessee contended that it was not in the investigation's beneficiary list and suppliers had attested supplies; these are disputed factual points. The Tribunal noted it had considered the evidence and, following binding coordinate bench precedent, reached a finding that the assessee was a beneficiary; correcting such a factual conclusion would amount to review, which section 254(2) disallows. The Tribunal emphasised that mistakes requiring argument or investigation are not 'apparent'. Ratio vs. Obiter: Ratio - factual conclusions about beneficiary status are not rectifiable under section 254(2) unless the claimed mistake is patent on the face of the record. Conclusions: The assessee's rectification requests attacking the Tribunal's factual finding that it was a beneficiary were dismissed as impermissible review in the guise of rectification. Issue 5 - Effect of failure to issue notice under section 129 and related procedural objections raised as grounds for rectification Legal framework: Procedural defects can vitiate assessment if they amount to jurisdictional infirmity; however, rectification under section 254(2) is not a vehicle to re-argue procedural objections already considered by the Tribunal unless a patent error appears on record. Precedent treatment: Tribunal relied on authorities noting that oversight or failure to consider an argument is not an apparent mistake and that rectification cannot be used to re-argue issues of law or fact. Interpretation and reasoning: The Tribunal observed that issues such as non-issue of section 129 notice and related authorities were raised before it and addressed; attempting to revisit these via rectification would be tantamount to review. No obvious, patent error on the face of records regarding these procedural points was demonstrated. Ratio vs. Obiter: Ratio - procedural objections do not become a ground for rectification under section 254(2) unless the record discloses an obvious, patent mistake. Conclusions: Procedural grounds alleging fatal infirmity (e.g., failure to issue notice u/s 129) were not accepted as a basis for rectification and were dismissed. Issue 6 - Quantum of addition for bogus/accommodation-entry purchases (percentage to be applied) Legal framework: Taxation should focus on taxing the income component of a disputed transaction rather than taxing the whole transaction; precedent supports restricting additions to a percentage of disputed purchases where appropriate, guided by industry gross profit rates and factual matrix. Precedent treatment: The Tribunal followed coordinate bench precedent (group cases) and relevant High Court decisions that in similar entry-provider cases sustained partial disallowances (e.g., percentages like 5% or 12%) rather than 100% additions. Interpretation and reasoning: Having examined the assessee's gross profit rate (very low) and the surrounding facts, and following binding coordinate-bench authority, the Tribunal concluded that 6% of disputed purchases would be a reasonable disallowance to guard against revenue leakage while avoiding overreach. The Tribunal explicitly stated it was following the coordinate bench precedent and adjusted the percentage to 6% in the consolidated order. Ratio vs. Obiter: Ratio - in the facts of these entry-provider cases, additions on bogus purchases sustained at a nominal percentage (6% as applied) are appropriate and within Tribunal's authority when following binding precedents considering gross profit and industry norms. Conclusions: The Tribunal confirmed disallowances at 6% of disputed purchases (following binding coordinate-bench precedent) and refused to eliminate or further increase those additions via rectification proceedings. Overall Conclusions and Disposition 1. Rectification under section 254(2) permitted for clerical correction of assessment years in the cause title; the Revenue's miscellaneous applications to that limited extent were allowed. 2. All miscellaneous applications by the assessee seeking rectification of substantive findings (beneficiary status, validity of reopening on borrowed satisfaction grounds, procedural defects, or reduction/elimination of the 6% addition) were dismissed because they sought review/re-adjudication rather than correction of a patent clerical error apparent on the face of the record. 3. The Tribunal affirmed the validity of reopening under section 147/148 and sustained additions on bogus purchases at the rate applied in its order (6%), following binding coordinate-bench precedent and applicable authorities on reassessment and rectification scope.