Rectification Mistake apparent on record Limitation period Assessee filed return of income which was selected for scrutiny During scrutiny assessment, it was found that assessee had deposited money in his savings bank account Assessee submitted that he was doing business of used clothes on small scale basis and had invested an amount as his past profit, capital savings and capital received from his father In absence of further details to substantiate his contentions, AO held entire deposit as his unexplained investment and made addition u/s 69 in this regard AO found that assessee failed to file any justification of cash deposited in his bank account Assessee had nothing to say about penalty proceedings u/s 271(1)(c) Further, assessee had not filed any appeal against order passed u/s 143(3) before CIT(A) Thus, AO also imposed penalty u/s 271(1)(c) which was equivalent to 100% of tax sought to be evaded CIT(A) confirmed said penalty ITAT restricted penalty to 10% of tax payable on concealed income and held that penalty deserved to be confirmed at least to extent of reasonable profit on turnover of assessee reflecting by cash deposits PCIT filed a writ petition before High Court which was rejected However, High Court disapproved approach adopted by ITAT High Court held that statutory provisions contained in s. 271 envisage penalty which would be 100% of tax sought to be evaded and which might go upto 300% thereof ITAT, however, found a way to bypass this minimum limit by suggesting that profit element embedded in cash deposits could be subjected to penalty—When assessment proceedings in which additions in hands of assessee were made, ITAT could not have ignored such final conclusions by simply adopting difference mode or yardstick to judge amount of tax sought to be evaded by assessee Accordingly, AO sought to rectify mistake in impugned order passed by ITAT Held, s. 254(2) provides that ITAT might, at any time within 6 months from end of month in which order was passed, with a view to rectifying any mistake apparent from record, amend any order passed by it under sub-section (1), and should make such amendment if mistake was brought to its notice by assessee or AO Impugned order was passed on 22nd September 2017 while rectification petition was filed on 31st May 2018 Thus, rectification petition was filed beyond time limit set out in s. 254(2) There was neither any petition seeking condonation of delay, nor, in response to ITAT’s question, any powers were shown to have been conferred, by statute as in case of powers in respect of delay in filing of appeals, for condoning such a delay in filing of rectification petitions ITAT had no powers for condoning delay in filing of applications u/s 254(2), and that, in any event, there was not even a formal application on record seeking condonation of delay in filing of application u/s 254(2) Present application was thus time barred and same could not be dealt on merits—What could be rectified u/s 254(2) was a mistake in nature of “mistake apparent on record” Expression “mistake apparent on record” had limited connotations, and every mistake, appearing in an order, could not be covered by expression “mistake apparent on record” ITAT was of view that, so far as impugned addition was concerned, looking to undisputed past history of case and stand of DR, those bank deposits, could be treated as business receipts but then there was no explanation for assessee not disclosing income element embedded therein to extent of profits, which were taken @10% of turnover- as per past case history Conclusions arrived at by ITAT were purely factual and somewhat subjective in sense it was based on o perceptions of what was reasonable Observations of High Court, disapproving conclusions, were based on proposition that conclusion of ITAT was a way to bypass minimum limit That is, with respect, a wholly a highly subjective observation and all a matter of perception As regards observation that “When proceedings of assessment in which additions in hands of assessee were made, ITAT could not have ignored such final conclusions by simply adopting difference mode or yardstick to judge amount of tax sought to be evaded by assessee”, ITAT was under bonafide, but obviously incorrect impression, that penalty proceedings were distinct and separate proceedings and merely based on findings in assessment proceedings, penalty could not be levied—This approach was legally unsustainable, and thus incorrect, approach in present context but then it could not be said to be said to a glaring error—Even if rectification petition was to be treated as a petition filed well within time limit, same was to be dismissed on merits anyway in light of nature of mistake and limited scope of powers u/s 254(2)—Just as High Court, having noticed mistake in impugned order, declined to tinker with same, for larger causes of justice, and allow it to thus reach finality nevertheless, ITAT must also refrain from revisiting conclusions arrived at in impugned order, in garb of rectifying mistake apparent on record, as, howsoever desirable be ultimate objective, ends could not justify means; legal remedies could only be provided within framework of law—Revenue’s petition dismissed.

INCOME TAX OFFICER vs. DEVENDRA J KOTHARI

(2019) 55 CCH 0401 AhdTrib