The ITAT Mumbai has clarified that inadvertent computational errors in depreciation claims, supported by books of accounts and evident from the record, can be corrected during assessment proceedings without requiring a revised return. This ruling reinforces the appellate authorities' broad powers under Section 254 to ensure accurate computation of taxable income.
Background & Facts
The Dispute
The dispute centered on two unclaimed depreciation adjustments for Assessment Year 2016-17: (1) an error in opening Written Down Value (WDV) leading to under-claim of normal depreciation of Rs. 11,72,128, and (2) failure to claim additional depreciation of 20% under Section 32(1)(ii) on new assets acquired during FY 2015-16, amounting to Rs. 97,23,986. The Assessing Officer rejected both claims solely on the ground that they were not included in the original return or a revised return.
Procedural History
- 2018: Assessing Officer completed assessment under Section 143(3), disallowing both depreciation claims on the basis of Goetze India Ltd. v. CIT.
- 2024: The Commissioner of Income Tax (Appeals) allowed the claims, holding that appellate authorities may entertain fresh claims supported by evidence, even if not filed via revised return.
- 2025: The Revenue filed an appeal before ITAT Mumbai, challenging the CIT(A)'s order.
- Simultaneously, the assessee filed a cross-objection seeking affirmation of the CIT(A)'s order.
Relief Sought
The assessee sought allowance of the Rs. 1,08,96,114 in unclaimed depreciation adjustments, arguing they were mere rectifications of computational errors apparent from the records. The Revenue sought to restore the original assessment and disallow the entire claim.
The Legal Issue
The central question was whether an assessee can claim correction of an inadvertent computational error in depreciation during assessment proceedings without filing a revised return, and whether appellate authorities have jurisdiction to entertain such claims under Section 254 of the Income-tax Act.
Arguments Presented
For the Petitioner
The assessee relied on NTPC Ltd. v. CIT and CIT v. Pruthvi Brokers & Shareholders Pvt. Ltd., arguing that Section 254 grants the ITAT plenary powers to examine any question of law arising from facts already on record. It contended that the error in opening WDV was evident from depreciation schedules and books of accounts, making it a rectifiable computational mistake, not a fresh claim. The Goetze India precedent, it argued, applies only to entirely new claims not supported by existing records.
For the Respondent
The Revenue relied on Goetze India Ltd. v. CIT, asserting that any claim not made in the original return or a revised return cannot be entertained during assessment. It argued that allowing such corrections would undermine the statutory requirement of filing accurate returns and open the door to abuse. The Revenue maintained that the CIT(A) erred in allowing the claim without a revised return.
The Court's Analysis
The ITAT examined the distinction between a "fresh claim" and a "correction of an existing claim". It held that Goetze India does not bar correction of errors apparent from the record, but only prohibits introduction of entirely new deductions not previously disclosed. The Tribunal emphasized that the assessee had consistently maintained the correct WDV in its books and depreciation schedules, and the under-claim was purely a mechanical error in return filing.
"The correction sought is not a fresh claim but a rectification of an inadvertent computational error apparent from the books of accounts and depreciation schedules on record."
The Tribunal further noted that the CIT(A) had correctly applied the principle from NTPC Ltd. and Pruthvi Brokers, which affirm that appellate authorities are not confined to the grounds raised below if the issue arises from facts already before them. The Revenue’s own records confirmed the correctness of the assessee’s computation. The ITAT concluded that denying such corrections would defeat the purpose of Section 254 and lead to unjust outcomes.
The Verdict
The assessee won. The ITAT held that correction of inadvertent depreciation errors, supported by documentary evidence and apparent from the records, is permissible during assessment proceedings without a revised return. The appellate authority has jurisdiction under Section 254 to allow such claims. The Revenue’s appeal was dismissed for lack of tax effect, and the cross-objection was allowed.
What This Means For Similar Cases
Correction of Computational Errors Is Permissible
- Practitioners may now argue that errors in WDV carry-forwards, miscalculations in block depreciation, or incorrect rates applied due to clerical oversight qualify as rectifiable errors.
- Documentation such as prior year’s depreciation schedules, fixed asset registers, and internal audit notes are critical to substantiate such claims.
Appellate Powers Under Section 254 Are Broad
- The ITAT reaffirmed that appellate authorities are not restricted to the grounds raised before lower authorities if the issue arises from facts already on record.
- This empowers taxpayers to raise new legal arguments on appeal if they are logically connected to existing evidence.
Revenue Must Accurately Compute Tax Effect
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Appeals filed by the Revenue with inflated tax effects to circumvent CBDT thresholds will be dismissed at the threshold.
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Practitioners must scrutinize Form 36 and challenge erroneous tax effect calculations with precise tabulations.
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Always cross-verify the Revenue’s claimed tax effect against actual disputed amounts
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File supporting documents (depreciation schedules, asset registers) with the appeal to establish error
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Cite NTPC Ltd. and Pruthvi Brokers to establish appellate jurisdiction for rectification claims
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Do not assume Goetze India bars all unfiled claims - it only bars entirely new deductions without record support
