ITAT Lucknow on Section 154 Rectification for Wrong Capital Gains Disclosure in Return

1. Background of the Dispute

The appeal in Kumar Keshwani Vs ITO (ITAT Lucknow) concerns whether a wrong disclosure of long-term capital gain in the income-tax return, claimed to be a typographical error, can be corrected by way of rectification under Section 154 of the Income Tax Act 1961, even after the time for filing a revised return under Section 139(5) has lapsed.

The assessee challenged the order of the CIT(A), NFAC dated 23.08.2024, which had upheld the Assessing Officer’s rejection of a rectification application for A.Y. 2021-22. The rectification request was made against the intimation issued under Section 143(1).

The core issue was whether excess long-term capital gain wrongly offered to tax due to an error in the e-return could be treated as a “mistake apparent from the record” within the meaning of Section 154, and whether such a claim could be entertained at the appellate stage.

2. Facts Leading to the Rectification Application

2.1 Return filing and processing

• The assessee filed the income-tax return for A.Y. 2021-22 on 14.03.2022.
• Total income declared: Rs. 31,06,120/-.
• This included long-term capital gain (LTCG) of Rs. 25,66,288/-.
• The return was processed by CPC under Section 143(1) and no demand or refund was determined.

2.2 Discovery of the error and rectification request

Later, on review of the computation, the assessee claimed to have noticed that:

• In Schedule CG, under “B Long Term Capital Gain” at Sr. No. 11(b), the LTCG was wrongly entered as Rs. 25,66,288/-.
• According to the assessee, the correct LTCG figure should have been Rs. 11,97,893/-.
• Thus, an amount of Rs. 13,68,395/- was alleged to have been mistakenly and excessively offered to tax, which, as per the assessee, did not represent real income earned during the relevant year.

On 09.11.2023, the assessee filed a rectification application under Section 154, enclosing:

• Revised computation of income.
• Sale and purchase documents of the property.
• Judicial precedents supporting the claim that such error was rectifiable under Section 154.

3. Stand of the Assessing Officer

The Assessing Officer rejected the rectification petition, primarily on the following grounds:

• The e-filing account and return are under the assessee’s control; hence the responsibility for data entry lies with the assessee.
• Sufficient time was available to file a revised return under Section 139(5) if any error was discovered.
• Once the time-limit for a revised return expired, the assessee could not use Section 154 to indirectly achieve what should have been done through a revised return.
• The alleged error was not a “mistake apparent from the record”, but a debatable factual issue requiring re-examination of facts, which is beyond the narrow scope of Section 154.
• Judicial precedents cited by the assessee were viewed as distinguishable on facts.

Accordingly, the Assessing Officer held that no apparent mistake existed in the intimation under Section 143(1) and rejected the rectification application.

4. Proceedings Before the CIT(A), NFAC

4.1 Assessee’s submissions before CIT(A)

In appeal before the CIT(A), NFAC, the assessee advanced multiple arguments:

1. Time-bar under Section 154(8)

   • It was contended that the rectification order dated 30.05.2024 was not passed within six months from the date of filing the rectification application, as required by Section 154(8).
   • On this basis, the assessee claimed that the order was time-barred, invalid and void ab initio.

2. Nature of mistake covered by Section 154
   The assessee contended that rectification under Section 154(1) can be invoked for:

   • an error of fact,
   • an arithmetical mistake,
   • a small clerical error, or
   • an error due to overlooking a mandatory provision of law.
     The alleged excess LTCG disclosure was characterized as an inadvertent typographical error, squarely falling within this scope.

3. Tax should be levied only on real income

   • The assessee argued that the Department is obliged to tax only actual income that has arisen or been received by the assessee.
   • The excess sum of Rs. 13,68,395/- never accrued as income and was never received; its offer in the return was only due to an input error.

4. **CBDT Circular No.