2023 (8) TMI 1640 - AT - Income Tax

Rectification application - para 10 of the order of the Tribunal 2022 (11) TMI 239 - ITAT MUMBAI an inadvertent error of noting the sales in place of unrecorded sales as it has been clearly mentioned that percentage was to applied over the unrecorded sales but due to omission of the word unrecorded mistake has occurred in the order HELD THAT - In para 10 the Tribunal has given the finding for assessing 10% profit element on unrecorded sales after setoff of unrecorded expenses. However in last 3rd line of para inadvertently instead of mentioning unrecorded sales it is mentioned as sales . This being an apparent mistake on record accordingly we rectify the para No. 10 of the appeal. Miscellaneous Application of the assessee is allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal question considered by the Tribunal was whether there was an inadvertent error in the Tribunal's earlier order dated 28.10.2022 concerning the quantum of addition to be made on account of on-money related to unrecorded sales. Specifically, the issue was whether the direction to restrict the addition to 10% of "sales" instead of 10% of "unrecorded sales" (on-money) constituted a clerical or apparent mistake that warranted rectification under section 254(2) of the Income Tax Act.

Additionally, the Tribunal examined the correctness of the alternate plea advanced by the assessee that the addition should be restricted to the profit element embedded in the on-money after considering unrecorded expenses incurred on purchase of land, rather than adding the entire on-money amount as income.

2. ISSUE-WISE DETAILED ANALYSIS

Issue: Rectification of the Tribunal's order to correct the erroneous reference from "sales" to "unrecorded sales" (on-money) in the quantum of addition.

Relevant legal framework and precedents: The rectification of orders under section 254(2) of the Income Tax Act allows the Tribunal to correct any apparent mistake or clerical error in its order. The principle is that if an error is evident on the face of the record and does not require reappraisal of evidence or re-hearing, the Tribunal can rectify the order to reflect the true intention.

Court's interpretation and reasoning: The Tribunal examined the language of paragraph 10 of its earlier order and noted that the substantive finding was to restrict the addition to 10% of the unrecorded sales (on-money) after giving set-off for expenses incurred out of the on-money. However, the concluding line of paragraph 10 mistakenly referred to "10% of the sales" instead of "10% of the unrecorded sales." The Tribunal found this to be an inadvertent error or oversight.

Key evidence and findings: The assessee had not disputed the quantum of on-money quantified by the Assessing Officer but contended that the entire on-money amount should not be added as income; only the profit portion (10%) after deducting expenses should be considered. The seized documents and statements of brokers confirmed the payment of on-money. The Tribunal's earlier order had acknowledged these facts and had restored the issue to the Assessing Officer for quantification on this basis.

Application of law to facts: Since the Tribunal's substantive finding was clear that the addition should be based on 10% of unrecorded sales (on-money), the incorrect use of the term "sales" instead of "unrecorded sales" was a clerical error. The Assessing Officer's implementation of the order based on 10% of recorded sales was contrary to the Tribunal's true intention. Therefore, rectification was warranted to align the order with the actual finding.

Treatment of competing arguments: The Revenue did not contest the rectification application on merits but the Tribunal considered the submissions of the assessee emphasizing the error and the alternate plea. The Tribunal found no reason to reject the rectification since it was an apparent mistake and did not affect the merits of the case.

Conclusions: The Tribunal held that paragraph 10 of the order dated 28.10.2022 should be read as restricting the addition to 10% of unrecorded sales (on-money) after set-off of expenses, and not 10% of sales. The Miscellaneous Application for rectification was allowed accordingly.

Issue: Validity of the alternate plea that only the profit element embedded in on-money should be added as income after allowing set-off of expenses.

Relevant legal framework and precedents: The principle that only the net profit portion of unrecorded income should be added after allowing expenses attributable to such income is well established in income tax jurisprudence. The Assessing Officer's addition of gross on-money without considering expenses is contrary to this principle.

Court's interpretation and reasoning: The Tribunal recognized the assessee's alternate plea that the entire on-money amount should not be treated as income, but only 10% as profit after deducting expenses incurred for purchase of land out of on-money. This plea was discussed in detail in paragraph 10 of the original order, and the Tribunal directed restoration of the issue to the Assessing Officer for fresh consideration on this basis.

Key evidence and findings: The seized documents and broker statements confirmed the payment of on-money and the existence of expenses incurred out of the on-money. The plea was not to dispute the quantum of on-money but to restrict addition to the profit element.

Application of law to facts: The Tribunal applied the principle of allowing set-off of expenses incurred from unrecorded income before making additions. The Assessing Officer was directed to consider the claim accordingly.

Treatment of competing arguments: The Revenue had sustained the addition of gross on-money at the appellate stage but the Tribunal found merit in the assessee's alternate plea and restored the issue for reconsideration.

Conclusions: The Tribunal allowed the alternate plea in principle and remanded the matter to the Assessing Officer to make a "micend" (presumably 'correct') addition for undisclosed income at the rate of 10% of unrecorded sales after set-off of expenses incurred.

3. SIGNIFICANT HOLDINGS

"In para 10, the Tribunal has given the finding for assessing 10% profit element on unrecorded sales after setoff of unrecorded expenses. However, in last 3rd line of para, inadvertently instead of mentioning 'unrecorded sales', it is mentioned as 'sales'. This being an apparent mistake on record, accordingly, we rectify the para No. 10 of the appeal..."

"We feel it appropriate to restore the issue in dispute involving grounds raised by the assessee to the file of the Learned Assessing Officer for considering the claim of the assessee for making micend addition for undisclosed income for on-money at the rate of the 10% of the unrecorded sales after giving set off of the expenses of on-money incurred for purchase of the land."

Core principles established include:

• The Tribunal can rectify apparent or clerical errors in its orders under section 254(2) without re-hearing or reappraisal of evidence.
• The addition on account of unrecorded income (on-money) should be restricted to the profit element after allowing set-off of expenses incurred from such income.
• Orders must be implemented in accordance with the true intention of the Tribunal's findings, and errors in terminology that affect implementation can be corrected by rectification.

Final determinations:

• The Miscellaneous Application for rectification was allowed.
• Paragraph 10 of the earlier order was rectified to read "10% of the unrecorded sales" instead of "10% of the sales."
• The matter was restored to the Assessing Officer for fresh consideration of the addition on the basis of 10% of unrecorded sales after set-off of expenses.