All about section 154 of income tax act

The power to rectify the mistake has been conferred on the tax authorities to ensure justice to both the assessee and the revenue. It is not discretionary. It must be exercised if the requisite conditions are satisfied. An income tax authority may amend any order passed by it or any intimation or deemed intimation u/s 143(1).

Mistake sought to be rectified must be apparent from the record: - u/s 154(1) the plain meaning of the apparent is that it must be something which appears to be so ex faice that it is incapable of argument or debate. Therefore a mistake can be regarded as apparent only when it is glaring, obvious or self evident mistake and not something which can be established by a long drawn process of reasoning or points or in respect of which there may be two options (CIT vs. Laskhmi Prasad Lahkar (1994)74 Taxman112 (gau)).

Glaring and obvious mistake of law be rectified: - if mistake of fact apparent from the record of the assessment order can be rectified there is no reason why a mistake of law, which is glaring and obvious, can not be similarity, rectified (ITO vs. Bombay Dying Co. (1958).

Mistake arising on a subsequent interpretation of law by Supreme Court or jurisdiction High Court to be rectified: - a decision of Supreme Court declaring a particular tax levy as invalid has the effect that such levy was at no good time. Consequently. Where the ITO levied tax and subsequently the levied was rendered invalid by the Supreme court there was a mistake apparent from the record which could be rectified by the ITO ( Walchand nagar industries ltd. Vs ITO(1962)).

In the presence of a definite opinion of the jurisdiction High Court, the same will prevail and it is binding on the functionaries working within the territorial jurisdiction of that court. (CIT vs. Ram Babu Lal (1998)).

Record includes entire proceedings:- the recode contemplated in this provision does not mean only the order of assessment but it includes all proceedings and martial on which the assessment is based. Therefore, the assessing officer is entitled, for the purpose of exercising rectification jurisdiction, to look into the whole evidence and the law applicable to ascertain whether there was an error.

They can not go beyond the records and look into the fresh evidence or material which was not on record at the time the order sought to be rectified was passed( Gammon India ltd. Vs. CIT(1995)).

The section can operate only on the facts which are already on records and can not be resorted to the introducing new facts.

1- clerical or arithmetical mistake[ITO vs. Textile ltd.41 to itr 732]

2- an incorrect computation of the cost of acquisition of the depreciable assets[ CIT vs. Pierce Leslie 227 itr 759].

3- Giving credit for tax deduction at source to the person who is not clearly entitled to it[ CIT vs. Tanjore Bank 149 itr 788].

4- Concession available to a non resident being granted to a resident[ CWT vs. Meyyammal 244 itr 758].

Disallowance of statutory duties be rectified on furnishing the proof of payment:- where statutory duties under section 43(B) where disallowance because proof of payment was not attached with the return of income, mistake may be rectified on production of proof of payment, made on or before the due date of furnishing return of income(circular no. 669 dated 25 October 1993).

Unclaimed relief be allowed on facts of a case:- if it was apparent from the records that the assessee was entitled to a particular relief, that relief could be granted to him by an order u/s 154 by rectifying the assessment even though that relief has not been claimed by the assessee in the original assessment proceedings[ CIT vs. K.N.oil industries 1983] 142 itr 13 MP.

Intimation issued under section 143(1) not to be rectified after issue of notice u/s 143(2):- if a notice has been issued u/s 143(2) after sending the intimation under section 143(1), processing’s u/s 154(1)(b) can not be initiated for rectifying that intimation[Lakhanpal National ltd. Vs. CIT 1997.

Notification issued after completion of an assessment, mistake arising there from be rectified:- where notification under section 10(23c) or section 35(1) are issued much after the completion of the assessment of the assessment years to which such notification apply, there is a mistake apparent from the record which can be rectified u/s 154. however, while disposing of the rectification applications, the assessing officer must ensure that the condition prescribed in the notification are satisfied( circular no 725 dated 16 october 1995).

For rectifying any mistake apparent from the record, an income tax authority may amend any order passed by it.

Rectification on instruction from superior officers not permissible:- the assessing officer should apply his independent mind to the facts of the case and should not be influenced or guided in the matter by any instruction of the commissioner or any other superior authority. A rectification based on a notice which indicated that the rectification was proposed as per commissioner instruction would be invalid [ Rajputana Mining Agencies vs ITO 1979] 118 ITR 585

 

Where an incumbent of the office has changed, the successor in office may pass rectification ( Sushil vs ITO 35 itr 386).

Valid rectification application be allowed even when it is time barred:- in all the cases where a valid applicable under clause(b) of section 154(2) has been filed by the assessee which the statutory time limit but was not disposed of by the authority concerned by the time specified u/s 154(7), it may be disposed of by that authority even after the expiry of statutory time limit (Circular no 73 dated  7 January 1972).

The authority can not rectify that part of his order, which has been the subject matter of appeal and has therefore merged in the appellate order(Das vs DCIT 217 itr 29).

Power exercisable on application:- u/s 154(2) the power of rectification may be exercised by the authority concerned on his own initiative , that is, on discovery by him of any mistake apparent from the record. The power may also be exercised if the assessee concerned points out such mistake. If the rectifying authority is commissioner or appellate tribunal, the assessing officer may bring any such mistake to the notice of the concerned authority also.

Where any mistake in relation to intimation for summary assessment under section 143(1) is brought to be notice of the assessing officer by the assessee, the assessing officer is required to rectify such mistake within a period of three months from the end of the month which is brought to his notice. If no such rectification is made, the assessee may file an appeal to the commissioner, as the case may be. from 1 June 1994 direct appeal has been provided against summary assessment.

Notice of rectification(sec 154(3)):- where a rectification of mistake has the effect of enhancing an assessment or reducing a refund or otherwise increasing the liability of the assesses, the concerned authority is required to issue a show cause notice to the assessee and a reasonable opportunity to be  heard should be given to him before the mistake is rectified. But such opportunity need not be given if the order of rectification reduces the assessment. The assesee is not entitled to the notice where the rectification gives effect to certain relief due to the assesee as well as enhance liability in another respect and net result after final calculation is a reduction in the total figure of asseseement.

An order of rectification is to be passed by the concerned authority in writing.

Where the rectification of mistake has the effect of reducing the assessment, the assessing officer is required to make any refund to the assessee.

Where the rectification processing has the effect of enhancing the assessment or reducing a refund already made, the assessing officer is required to serve on the assessee notice of demand in the prescribed form specifying the sum payable by the assessee. Such a demand is treated as a valid demand with all consequences attending on its non compliance.

An order of rectification may be passed by the authority concerned before the expiry of four years from the end of the financial year in which the order sought to be amended was passed (w.e.f October 1984).

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