In a writ petition filed recently in the court, the department has stated that "the tribunal can rectify its order only to the extent which could be said to be a mistake apparent from the record".

The order passed by the ITAT bench consisting of A Kalyanasundaran and SL Banerjee in October 1995 observed that "the tribunal had not applied the principles of the Bombay high court and accordingly, the mistake has crept in...". The bench posted the case for a fresh hearing.

Earlier, the ITAT bench consisting of OP Jain and RN Singhal in their order dated May 11, 1994 had dismissed the appeal of the assessee Pushpa S Sheth. In her appeal, pertaining to assessment year (AY) 1991-92,Sheth had asked for rectification of the assessment order under Section 154 in adjustments made u/s 143(1)(a).

The main dispute was regarding thesequence of availing two types of deductions. From the gross amount long-term capital gains, an assessee is entitled to two types of deductions and the dispute was to which of the two types should precede the other.

Section 154 empowers an income-tax authority to amend any order passed by it if there is any mistake apparent from the record or any adjustments made u/s 143(1).

Under proviso (iii) of Section 143(1)(a), the assessing officer (AO) can make an adjustment to the income or loss declared in the return, if on the basis of the information available in such return accounts or documents, the allowance or relief claimed is prima facie inadmissible.

According to her assessment order pertaining to AY 1991-92, Sheth sold a self-occupied flat at Mumbai for Rs 1,01,64,884. After deduction of brokerage and transfer charges totalling around Rs 1,60,400, the net sale proceeds came to about Rs 1,00,04,484. After deducting the cost of acquisition of Rs 2,24,000, the final balance was Rs 97,80,434.

In January1992, she sought rectification of adjustments made u/s 143(1)(a), which were rejected by the assessing officer. The assessee claimed that deduction u/s 48(2) should be quantified and allowed first and then from the balance, deductions should be allowed u/s 53 and 54. The department contested that the deductions would be allowed in the reversed manner.

Sheth's counsel, who heavily relied on the Mumbai high court decision in the case of Khatau Junkar versus KS Panthania, submitted to ITAT that such a change in computation of the taxable part of long-term capital gains was not envisaged in the adjustments to be made u/s 143(1)(a).

As per the Khatau Junkar order, the AO cannot disallow a claim for deduction on the grounds that adequate evidence in support of such a claim or deduction is not before him, said the I-T department's counsel Beni Chatterjee.

The departmental representative (who also relied on the Khatau Junkar decision) contended that section 143(1)(a) envisaged prima facie adjustments and thatwould take into its ambit correction of computation as per law.

He emphasised that legally incorrect computations made by the assessee would not be regarded as "untouchable" for the adjustments to be made u/s 143(1)(a). It was also brought to the notice of the tribunal that by the insertion of explanation below section 53 vide Finance Act 1987, all doubts were set to rest as it was applicable to the assessee's case.