Clerical Error in Asset Balances Leads to Increased Capital Gain: ITAT Condones Delay and Restores Matter to CIT(A) [Read Order]

The Surat Bench of Income Tax Appellate Tribunal ( ITAT ) condoned the delay and restored the matter to the Commissioner of Income Tax (Appeals)[CIT(A)] in a case where a clerical error in carrying forward opening balances of land, building, and furniture led to an inflated capital gain of Rs.21,14,028/-.

Eagle Fashions Private Limited, appellant-assessee, filed its income tax return for the assessment year 2011-12 on 25.09.2011, declaring total income of Rs.17,72,659/-. In Schedule ‘DOA’ of the return, the opening written down value of land and building was shown as Rs.3,25,295/- instead of Rs.33,59,795/- from the previous year. Similarly, furniture was shown at Nil instead of Rs.79,528/-, creating a total discrepancy of Rs.21,14,028/-.

The return reported capital gain of Rs.2,45,918/-, but the assessing officer increased it by Rs.21,14,028/- to Rs.23,59,946/- in the intimation under section 143(1). The assessee became aware of this adjustment on 29.08.2018 when the refund was adjusted.

The assessee claimed that this was a clerical mistake in carrying forward the opening balances of assets and filed multiple rectification applications under section 154 on 15.01.2019, 25.01.2019, 24.01.2020, and 05.02.2020. The applications explained that the error led to an inflated capital gain and resulting demand of Rs.7,20,280/-.

As there was no response from the assessing officer (AO), the assessee submitted a grievance on 23.07.2020 through the e-Nivaran portal, which was dismissed on the ground that the ITR was processed based on the information provided.

The assessee then appealed to the CIT(A) on 11.08.2020 against the rectification order. The CIT(A) rejected the appeal on 19.02.2023, stating the section 154 application was time-barred, being filed after four years from the end of FY 2012-13. A belated appeal against the intimation under section 143(1) was also dismissed by the CIT(A) as barred by limitation. The appellant-assessee then approached the Tribunal.

The assessee counsel said the 812-day delay in filing the appeal before the CIT(A) happened because the assessee was trying to correct a mistake under section 154. He noted that the CIT(A) had counted 1,646 days, but the delay was 812 days after excluding the COVID period.

He argued the delay was not intentional and arose from a clerical error in the opening balances of building and furniture, which the assessing officer had treated as extra capital gain. He added that the assessee had a strong case on merit.

The departmental counsel relied on the CIT(A)’s findings.

The two member bench comprising Sanjay Garg (Judicial Member) and Bijayananda Pruseth (Accountant Member) considered the rival submissions and noted that the assessee was genuinely contesting the addition of Rs.21,14,028/- as capital gain.

The assessee maintained that the actual capital gain was Rs.2,45,918/-, which was correctly disclosed in the return. It was also submitted that a clerical error had occurred in carrying forward the opening balances of building and furniture.

The tribunal observed that tax authorities should charge only legitimate taxes and that bona fide mistakes should not be penalized. The assessee had pursued rectification under section 154 in good faith and had also filed a grievance petition, which was rejected. The delay in filing the appeal occurred because the assessee genuinely believed the clerical error would be corrected.

Considering the facts, circumstances, and interests of justice, the tribunal condoned the delay in filing the appeal and restored the matter to the CIT(A), directing that the assessee’s contentions be considered on merit and decided through a speaking order.

Accordingly,the appeal was allowed for statistical purposes.

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