AO cannot revise previously accepted investment source through Section 154 rectification order

ITAT Delhi held that AO's order u/s 154 attempting to revise previously accepted source of investment was invalid. The tribunal ruled that changing a view on source of funds, which was accepted in original assessment with proper documentary evidence, cannot be rectified u/s 154 as it's not a mistake apparent from record. Following SC precedent in Volkart Brothers case, the tribunal emphasized that rectifiable mistakes must be obvious and patent, not requiring lengthy reasoning or involving debatable points of law. The AO's attempt to change his earlier decision under garb of rectification was impermissible. Assessee's appeal was allowed and impugned order was quashed.

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Issues Involved:
The judgment involves issues related to the rectification of mistakes apparent from the assessment order under section 154 of the Income Tax Act, 1961. The key issues include the confirmation of the order passed under section 154, addition under section 68 of the Act, and the source of investment explained by the assessee.

Issue 1: Confirmation of Order under Section 154:
The appellant challenged the order passed by the Ld. CIT(A) confirming the order under section 154, contending that the issue in question was not a mistake apparent from the record and that the AO attempted to review his original order passed under section 143(3) of the Act. The appellant argued that a mistake which requires a long drawn process of reasoning cannot be considered a mistake apparent from the record.

The AO observed discrepancies in the source of investment and issued a notice under section 154 for rectification. Despite providing opportunities for explanation, the AO made an addition of Rs. 50,00,000 under section 68 as unexplained income. The appellant argued that the source of investment accepted in the original assessment cannot be revised under section 154 and relied on legal precedent to support this contention.

Issue 2: Addition under Section 68 of the Act:
The AO identified an undisclosed source of investment of Rs. 50,00,000 and added it to the assessee's income under section 68 of the Act. The AO's decision was based on the lack of proper explanation for the source of investment, despite the assessee's claim that the funds were generated from advance money taken by her late husband from relatives during the sale of agricultural land.

The AO provided opportunities for the assessee to explain the discrepancies, but no satisfactory explanation was offered. The addition was made under section 68, treating the amount as unexplained income. The Ld. CIT(A) upheld the AO's decision, leading to the appeal before the Tribunal.

Issue 3: Source of Investment Explanation:
The assessee explained that the investment amount was generated by her late husband as advance money taken from relatives during the sale of agricultural land. The AO, after considering documentary evidence and personal appearances, accepted the income returned as assessed and did not draw any adverse inference against the assessee. However, the AO later issued a notice under section 154, claiming a mistake in the explanation of the investment source.

The Tribunal found that the source of investment accepted in the original assessment could not be revised under section 154 as it was not a mistake apparent from the record. Citing legal precedent, the Tribunal held that a mistake requiring a long-drawn process of reasoning cannot be considered apparent from the record, leading to the quashing of the AO's order under section 154.

This judgment highlights the importance of distinguishing between mistakes apparent from the record and debatable points of law, especially in the context of rectification under section 154 of the Income Tax Act, 1961.

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