A typo triggers a Rs 40 cr tax demand and four-year ordeal
Apr 1, 2025
Synopsis
In autumn 2021, Monica Capoor, a retired teacher in Gurgaon, received a notice from the I-T department claiming she profited ₹279 crore from stocks due to her CA's error. Despite her efforts to correct it, the demand stood until 2025 when the ITAT finally ruled in her favor, acknowledging it as a clerical mistake.
In the autumn of 2021, a 75-year-old retired school teacher leading a quiet life in Gurgaon was clueless that a Kafkaesque ordeal was lurking beyond the pandemic.
Her travail began in November that year when a notice from the income tax (I-T) department pointed out that she had profited by more than ₹279 crore from stocks - a claim that boils down to a tax demand of over ₹40 crore. It was Monica Capoor's first brush with the tax office.
The bizarre notice stemmed from an unintentional error her chartered accountant made while filing her tax return for 2019-20. Capoor, who taught mathematics and physics in a New Delhi school till 2009, probably felt that typos so obvious could be easily corrected. After all, her income as a consultant for publication of text books, was there for anyone to see. She was mistaken.
In the months that followed, she knocked one door after another, caught in the arguments of the tax processing centre and assessing officer. Not only was her application to rectify the demand turned down, even the Commissioner of Appeals - the first appellate body in a dispute - upheld the huge tax demand.
It made no difference that past court rulings had said that patent mistakes should be corrected. Unaware of the workings of the tax machinery, she agonised over the turn of events.
ITAT BREATHER
Finally, in 2025, there was a ray of hope from the I-T Appellate Authority (ITAT), a quasi-judicial authority, after she placed an affidavit by her CA admitting the mistake.
"Significantly, the ITAT has now ruled that any inadvertent misreporting of income in the ITR filed by an assessee, which is suitably explained by the assessee, amounts to a 'mistake apparent from record' and is rectifiable under section 154 of the IT Act. The tribunal has also ruled that the assessee can be taxed only on her 'real income' and not on 'fictional income' based on any inadvertent mistake made while filing the ITR," said Manas Shankar Ray, advocate and partner at the law firm Nora Chambers, which advised Capoor.
Capoor's experience, as narrated by her lawyer, is a story of how a taxpayer could unwittingly find herself dealing with a stubborn, process-driven administration over what can be a minor issue. She tried to put across the point that her CA had mistakenly inserted a figure of ₹2,79,79,26,466 in Schedule CG (capital gains) of the I-T return form. And, since the software did not capture this in the computation of income, the error remained undetected when uploading the return.
She had filed two separate rectification petitions - one on the tax portal in December 2022 and the other to the jurisdictional assessing officer in Gurgaon I-T office. She also submitted a copy of ledger account with her brokers Zerodha and HDFC Securities, along with a summary of transactions, bank statements, and a copy of the tax audit report as evidence of not having earned any income by way of capital gains during the year. It didn't cut ice with the people at the different levels of the tax establishment.
According to Ashish Karundia, founder of the CA firm Ashish Karundia & Co, "The Supreme Court, in M/s Volkart Brothers [(1971) 82 ITR 50], has interpreted the phrase "mistake apparent from record" to refer to an error that is patent and obvious, without any room for differing opinions. Similarly, the Lahore High Court, nearly a century ago, in RS Lala Jessa Ram [(1927) 2 ITC 342], ruled that clerical or arithmetical mistakes qualify as mistakes apparent from the record. In a more recent decision on 21.03.2025, the Supreme Court, in a GST case, affirmed that the right to correct clerical or arithmetical errors is part of the fundamental right to conduct business and should not be denied unless there is a valid reason for such denial."
“This ITAT ruling that recognizes such errors as "mistakes apparent from the record" and directs the Assessing Officer to reconsider the matter offers a positive development for taxpayers. This is especially beneficial in the context of the mandatory 20% pre-deposit requirement for obtaining a stay on demand. The ruling emphasizes that technology should alleviate taxpayers' concerns and that technological progress should aim to simplify processes, not burden stakeholders with unnecessary complications over simple clerical or arithmetical mistakes. This is particularly important when it can take years to obtain relief for such mistakes,” said Karundia.
[The Economic Times]
