Section 154 is in itself a complete code governing the filing of rectification petitions with the intent to cure the mistake/error/omission apparent from record. ‘Any mistake apparent from record’ must be the one which is apparent from the face of record and cannot be the one which can be drawn by perceptive capabilities or engineered reasoning.
Section 154 of the Income Tax Act basically deals with the correction of any error that may or may not have occured in the income tax records of any assessee. Section 154 of the Income Tax Act, 1961 (herein after referred to as ‘the Act’), pertains to rectification of mistakes in the income tax records or an order passed by the Assessing Officer. Any order can be rectified to correct any mistake apparent from record.
Section 154 of the Act provides for rectification of any mistake apparent from record and the powers of the concerned Income-tax Authorities in this regard. This section only confers power of rectification if there is a mistake apparent on the face of the record. The limit of rectification can be stretched only to the field where the mistake is glaring, obvious, patent and apparent on the face of the record. Glaring, obvious, patent and apparent mistakes are those for which no investigation into facts or determination of law or discussion of debatable points is involved, to establish which long drawn argument would not be necessary and in respect of which no two opinions are possible.
Need for provision to rectify mistakes
To err is human and, therefore, the authority who passes an order under the provisions of the Income-tax Act, 1961 (‘the Act’) is empowered under section 154 of the Act to rectify a mistake apparent from the record. First there should be a mistake. The mistake should be apparent from the record. It may be rectified within four years.
It is simple. Late T. T. Krishnamachari when he was the Finance Minister, said, “The Income-tax Act is simple; but the difficulty arises when it is applied”. Late Shankar of Shankar’s weekly asked, ‘then, why do you apply?’ The question silenced the Minister and so far none of his successors attempted to find an answer and we know that the reason is obvious.
How to Raise Income Tax Rectification Request on Portal
A request for rectification can be submitted on the e-Filing portal if there is any mistake apparent from record, in an Intimation issued under section 143(1) or order under section 154 by the CPC or by the Assessing Officer (where rectification rights are transferred by CPC). A rectification request can be submitted only for returns that are already processed by CPC.
Submitting the request for Rectification
(i) Go to the ‘e-File’ menu and Click ‘Rectification’ link.
(ii) Choose the options of ‘Order/Intimation to be rectified’ and ‘Assessment Year’ from the dropdown list. Click ‘Continue’
(iii) Select any one of the following options of ‘Request Type’ from drop down list.
[1] Order which can be rectified under section 154 - Mistake apparent from record [Section 154(1)]
Section 154 (1) provides that with a view to rectifying any mistake apparent from the record an income-tax authority referred to in section 116 may, —
(a) amend any order passed by it under the provisions of this Act;
(b) amend any intimation or deemed intimation under sub-section (1) of section 143;
(c) amend any intimation under sub-section (1) of section 200A;
(d) amend any intimation under sub-section (1) of section 206CB.
For rectification of intimation under Section 200A(1)/206CB online correction statement is to be filed; the procedure thereof is given at httpi/contents.tdscpc.gov. in/en/filing-correction-etutorial. html
Meaning of record
Record means : piece of evidence or information constituting an account of something that has occurred or been said or state of being set down or preserved in writing etc. The ‘record’ contemplated by section 154 does not mean only an order of assessment. It also comprises all the proceedings on which the assessment is made or the proceedings relating to appeals and the Assessing Officer or any other authority 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.
The authority(s) rectifying mistake under section 154 cannot go beyond the records and look into fresh evidence or material which has not been on record at the time when order sought to be rectified was passed.
The Apex court in the case of Atmala Nagraj held that the mistake should be discovered from the assessee’s own record and not from the records of another assessee or a result of disposal of another case.
In CIT v. MRM Plantations (P) Ltd., the Madras High Court held that the records for the purposes of section 154 are those which are available to the authorities at the time of initiation of the proceedings for rectification and not merely the records of original proceedings sought to be rectified. In other words, the records should be those which are produced by the assessee at the time of passing the assessment order
The following errors can be taken care of by filing a rectification –
(a) an error of fact
(b) an arithmetic mistake
(c) a small clerical error
(d) an error due to overlooking compulsory provisions of law.
CBDT Circular No. 669, dated 25.10.1993.
Subject : Where sums referred to in first proviso to section 43B had in fact been paid on or before due dates mentioned therein, but evidence therefor had been omitted to be furnished along with return, Assessing Officer can entertain applications under section154 for rectification of intimations under section 143(1)(a) or order under section 143(3), as the case may be, and decide same on merits
1. Attention is invited to Board’s Circular No. 581, dated 28.09.1990 [Clarification 1], wherein it was, inter alia, stated that where a deduction claimed is disallowed as, prima facie, inadmissible for want of evidence in support thereof under section 143(1)(a), it cannot be subsequently allowed by a rectification order under section 154 even if the assessee later on furnishes evidence in support thereof. This clarification was made especially with reference to the requirement of furnishing of evidence of payment of tax-duty, etc., along with the return, contained in section 43B.
2. The Board have reconsidered the matter and are of the opinion that where the sums referred to in the first proviso under section 43B had in fact been paid on or before the due dates mentioned therein, but the evidence therefor had been omitted to be furnished along with the return, the Assessing Officers can entertain applications under section 154 for rectification of the intimations under section 143(1)(a) or orders under section 143(3), as the case may be, and decide the same on merits.
3. Circular No. 581, dated 28.09.1990 stands modified to the above extent.
Where assessee-company omitted to claim deduction under section 43B on account of interest paid on loan, since allowability of deduction under section 43B on account of interest payment was a debatable issue and it required further investigation, said omission to claim deduction in original return was not a mistake coming within purview of section 154 and in case of such omission only remedy available was under section 139(5)
Assessee filed its return of income. After noticing mistake that it had omitted to claim deduction under section 43B on interest paid on loan, assessee filed a rectification application under section 154 seeking rectification on account of said mistake. Assessing Officer rejected same on ground that said mistake was not apparent on face of record. Allowability of deduction under section 43B on account of interest payment was a debatable issue and it required further investigation therefore, omission to claim deduction under section 43B for interest payment in original return was not a mistake coming within purview of section 154. In case of such omission only remedy available was under section 139(5). Assessee having not filed any revised return to rectify mistakes committed in original returns, assessee could not fall back on section 154 as said section is meant only to rectify mistakes which are apparent on face of record. [In favour of revenue] (Related Assessment years : 2003-04 and 2004-05) – [ACIT v. Nagaraj and Co. (P) Ltd. (2020) 274 Taxman 38 : 117 taxmann.com 618 (Mad.)]
Where Assessing Officer failed to apply binding precedent that blending of tea leaves was not manufacturing or production activity and had wrongly allowed deduction under section 80-I, same being an error apparent on face of record, assessment order was to be rectified
Assessee-company set up units at a tea garden for blending of tea leaves. Assessing Officer allowed assessee's claim of deduction under section 80-I failing to notice ratio laid down in Apeejay (P) Ltd. v. CIT (1994) 206 ITR 367 : 77 Taxman 208 (Cal.), which stipulated that blending of tea leaves does not amount to manufacturing or production. There were errors apparent on face of record in respect of assessment orders and thus, invoking section154, notice was correctly issued to rectify same. [In favour of revenue] (Related Assessment years : 1991-92 to 1993-94) - [Hindustan Lever Ltd. v. JCIT (Special Range) (2019) 104 taxmann.com 215 (Cal.)]
Where the assessee did not claim deduction on account of payment of salary to its employees in income-tax return or during course of assessment proceedings, it could not be said that the Assessing Officer had committed a mistake apparent from record in not granting deduction of said payment and so the assessment order was not amenable for rectification under section 154 of the Act
Undisputedly, the assessee did not make any claim on the basis of payment of arrears of salary either in the original return of income or during the course of the assessment proceedings. It was not disputed that as per the books of account, no debit was made to the profit and loss account insofar as the amount paid was adjusted against the provision made.
Therefore, it was evident that the assessee had not made a claim for the amount of Rs. 7 crores either in the original return or during the course of the assessment proceedings. The assessee had also not filed a revised return at any stage of proceedings. The Supreme Court, in the case of Goetze (India) Ltd. v. CIT (2006) 284 ITR 323 : 157 Taxman 1 (SC), held that deduction on account of any claim cannot be allowed to the assessee if such a claim is not made in the original return or unless a revised return is filed in accordance with the provisions of the Act.
Thus, from the above discussion, it was crystal clear that the omission of the assessee to claim deduction on account of payment of the salary to its employees in the income-tax return or during the course of assessment proceedings was not a mistake apparent from the record of the case to which proceedings provision of section 154 could get attracted. Therefore, there was no error in the order of the Tribunal, and the appeal was to be dismissed. (Related Assessment year : 1998-99) - [Punjab State Co-op. Supply & Marketing Federation Ltd. v. DCIT (2008) 173 Taxman 15 (P & H)]
Reference to documents outside the records is not permissible - Reference to documents outside the record and the law is impermissible when applying the provisions of section 154.
The Assessing Officer rectified the original assessment under section 154 and withdrew excess depreciation allowed earlier and made variation in unabsorbed depreciation. On appeal, the Commissioner (Appeals) cancelled the rectificatory order on the ground that the mistake to be rectified had to be apparent from the record, it had to be obvious and not something on which there might conceivably be two points of view. The Tribunal and the High Court upheld the view and the latter further opined that these were questions of fact. On appeal :
Held : The question did not raise a pure question of fact. To that extent the High Court was in error in coming to the conclusion that there was no occasion for rectification. Under the provisions of section 154, there has to be a mistake apparent from the record. In other words, a look at the record must show that there has been an error, and that error may be rectified. The revenue had not been able to satisfy that it showed any apparent error from the record. Reference to documents outside the record and the law is impermissible when applying the provisions of section 154. The appeal was, accordingly, to be dismissed. [In favour of assessee]. – [CIT v Keshri Metal (P) Ltd. (1999) 237 ITR 165 : 104 Taxman 360 (SC)].
Assessee-company did not claim rebate under section 84 either before ITO or before AAC – Assessee’s subsequent application under section 154 praying for rectification of assessment order by grant of relief under section 84, even though there was no material on record to support its claim, was rightly rejected by ITO - When record of super profits tax assessment did not contain sufficient material pertaining to assessee’s claim under section 84, then it could not be said that ITO committed a mistake apparent from record in omitting to grant relief under section 84
In the present case, the assessee sought to invoke the jurisdiction of the ITO to rectify the assessment order. If the record did not contain any material, as to whether the assessee satisfied the requirements of section 84 it could not be said that the ITO had committed a mistake in omitting to grant relief under section 84. There had to be material to support the claim to relief under section 84, and unless such material could be referred to no grievance could be made if the ITO refused to rectify the assessment and refused relief under section 84.
If the record of the super profits tax assessment contained material pertaining to the claim under section 84 such material could be considered by the ITO for the purpose of granting relief under section 84 in the income-tax assessment. That did not suffice, however, to entitle the assessee to relief. There were a number of conditions which had to be satisfied before relief could be granted under section 84. All that data was evidently not contained in the super profits tax assessment record at the time when the income-tax assessment was completed. When that was the position, it could hardly be said that in omitting to grant relief under section 84 when making the assessment order the ITO committed a mistake apparent from the record. Accordingly, the High Court rightly dismissed the assessee’s writ petition.
It was held that the jurisdiction of the Income-tax Officer under section 154 of the Act for rectifying a mistake is wider than what was provided under Order 47, rule 1, of the Code of Civil Procedure and where there are materials to support the claim of the assessee which are found in the records, the Income-tax Officer is duty bound to rectify the mistake. The Supreme Court in the above case, held that the obligation imposed on the Income-tax Officer to grant relief is wider and the relief to the assessee cannot be refused merely because the assessee had omitted to claim the relief. But, where there are materials to show that the relief was available to the assessee, but the Income-tax Officer has failed to grant the relief, then the court can compel the Officer to grant the relief.” – [Anchor Pressings (P) Ltd. v. CIT (1986) 161 ITR 159 : 27 Taxman 295 (SC)]
Mistake should be apparent only from records
It was held that, “Any apparent error can be rectified within the period prescribed in section 37. An apparent error must be from the records of the case and not error discovered from other sources. Any error discovered as a result of investigation of other records or other sources will not constitute an apparent error on the face of the record which alone confers jurisdiction on the officer concerned to rectify any order” – [EM. Viswanathan Chettiar v. Agrl. ITO (1983) 142 ITR 244 (Karn.).
Mistake apparent on the record must be an obvious and patent mistake – It should not require a long drawn process of reasoning where there may be conceivably two opinions – ITO was incompetent to pass orders under section 154 of the Act to rectify the assessment. [Indian Income-tax Act, 1922, Section 17(1)]
The Honourable Supreme Court analysed the provisions of section 17(1) of the 1922 Act, wherein, a person being a non resident would be taxable at the maximum rate plus super tax. However, section 17(1) can apply only to a ‘person’ as defined in section 2(9) of the 1922 Act. The expression person was defined to include only a HUF and a local authority. A firm was not considered a person as defined and hence the provisions of section 17(1) of the 1922 Act could not apply to the assessee firm. However, the provisions of section 2(31) of the Act defined a person to include a firm. Whether the definition contained in section 2(31) of the Act is an amendment of the law or merely declaratory of the law that was in force earlier was kept open by the Supreme Court. The Supreme Court held that since the application of the provisions of section 17(1) of the 1922 Act to the assessee was not free from doubt and there could be two opinions, the ITO was not justified in his view that there could be no two opinions. The Supreme Court further held that the ITO cannot go into the scope of the provisions of the Act in proceedings under section 154 of the Act as a mistake apparent on the record must be an obvious and patent mistake and not something which requires a long drawn process of reasoning where there may be conceivably two opinions. Hence, a decision on a debatable point of law is not a mistake apparent from the record. (Related Assessment years : 1958-59, 1960-61 to 1962-63) – [T. S. Balaram ITO v. Volkart Bros (1971) 82 ITR 50 (SC)]
A decision on a debatable point of law is not a mistake apparent from the record
Section 154 of the Income-tax Act, 1961 [Corresponding to section 35 of the Indian Income-tax Act, 1922] - Rectification of mistakes - Apparent from records - Pursuant to dismissal of suit filed by assessee for recovery of bad debts by trial Court, he filed an appeal to High Court but with no success. Assessee claimed that amount of bad debt as deduction. ITO disallowed assessee’s claim. Tribunal, however, held that debt had become a bad debt when judgment of High Court was delivered and took erroneous view that date of judgment fell within relevant accounting year. It, accordingly, allowed assessee’s appeal. Subsequently, Tribunal rectified its mistake at instance of Commissioner and dismissed assessee’s appeal holding that date of judgment of High Court did not fall within accounting year and, thus, assessee could not claim to include bad debt in relevant assessment year. Power of Tribunal is not only confined to mere rectification of mistake which is patent on record, but, after mistake is corrected, it also has power to pass all consequential orders. Therefore, Tribunal was perfectly competent in rectifying mistake made by it under section 35(1) of 1922 Act, and having rectified it, it was equally competent to pass consequential order which was that assessee’s appeal was to be dismissed and not to be allowed. (Related Assessment year : 1943-44) – [Sidhramappa Andannappa Manvi v. CIT (1952) 21 ITR 333 (Bom.)]
[2] Where if any matter has been considered and decided in any proceeding by way of appeal or revision, contained in any law for the time being in force, such order shall not be amended [Section 154(1A)]
Section 154(1A) provides that where if any matter has been considered and decided in any proceeding by way of appeal or revision, contained in any law for the time being in force, such order shall not be amended. In other words, if an order is subject matter of any appeal, then the Assessing Officer can rectify only those matters which are not decided in such appeal.
Merely because appeal or revision of assessment order was pending, there was no embargo on power of amendment/rectification, as matter did not assume character of a sub-judice matter
Section 154(1A) provides that where any matter has been considered and decided in any proceeding by way of appeal or revision, contained in any law for the time being in force, such order shall not be amended. Section 154 (1A), thus, places an embargo on the power of rectification in the cases where the matter has been considered and decided in appeal or revision. It is of importance that the legislature has used the phrase 'considered and decided' in the past tense. The phrase 'considered and decided' cannot be read as ‘pending consideration in appeal or revision’. To do so would be adding and changing the plain language of the statute. By modifying and adding the words in this manner, which is not permissible, the Assistant Commissioner has divested himself of the power of amendment. In view of the plain language of section 154, there is no embargo on the power of amendment if an appeal or revision is merely pending. The rejection of the rectification application on this ground was unwarranted. The appeal is still pending. The Assistant Commissioner has failed to exercise the jurisdiction vested in him and, thus, the impugned order will have to be set aside and the application will have to be decided. The Writ Petition succeeds. The impugned order is to be quashed and set aside. The rectification application filed by the petitioner under section 154 stands restored to the file of Assistant Commissioner to be disposed of on its own merits. [In favour of assessee] (Related Assessment year : 2015-16) – [Piramal Investment Opportunities Fund v. ACIT (2019) 267 Taxman 297 : 111 taxmann.com 5 (Bom.)]
Rectification of mistake – Law in force when order was sought to be revised was made – Change of opinion
The assessee claimed the power subsidy as capital receipt. Assessee’s claim was not accepted by the Assessing Officer. However, under section 264, the CIT held that power subsidy was a capital receipt, as per order dated 30.04.1997. Subsequent to revision order, a Supreme Court judgment in Sahney Steel & Press Works Ltd. was delivered on 19.09.1997 holding that incentive subsidy linked to production was a revenue receipt. There upon the CIT made rectification under section 154 of his revision order passed under section 264 and consequently held that power subsidy was a revenue receipt. Assessee filed a writ petition before the High Court which was dismissed by the High Court. The Supreme Court held that the judgment in Sahney Steel Works was delivered after passing the revision order on 30.03.1997 by the CIT and that each case has to be examined in light of the facts of the case to determine the applicability of its decision in Sahney Steel’s case. The rectification made under section 154 was held to be not valid. The High Court’s order was set aside and assessee’s appeal was allowed. – [Metro Industries Ltd. v. CIT (2010) 216 Taxation 113 (SC)]
Any matter which has not been considered and decided in any proceeding by way of appeal or revision, may be amended by the authority passing such an Order in exercise of its power under section 154(1) [Section 154(1A)]
Section 154 provides for rectification of any mistake apparent from the record, by the ITO and the AAC. The power to rectify can only be exercised by the authority which passed the order. Sub-section (1A) further provides that even after an appeal or revision as filed and decided against an order referred to in sub-section (7) of section 154, a mistake apparent from that part of that order which was not the subject-matter of the appeal or revision, as the case may be, and which was left undisturbed by the appellate or revision authority can be rectified by the authority which passed that order.
In the present case, the assessee claimed before the ITO that development rebate of Rs. 16,751 including development rebate of Rs. 5,740 on dyes and tools. The ITO disallowed the claim for development rebate in respect of dyes and tools and allowed the rest of the claim for development rebate, viz., Rs. 11,011 by his order made on 31.01.1964. The only question for consideration in the appeal before the AAC was whether the assessee was entitled to development rebate in respect of dyes and tools. The assessee was satisfied with that part of the order of the ITO, allowing development rebate to an extent of Rs. 11,011. It was, therefore, not the subject-matter of the appeal before the AAC, by the assessee and was not touched and was undisturbed by the appellate order of the AAC and could, therefore, be rectified by the ITO.
Further, to attract the provisions of section 154, there must be a mistake and it must be a mistake apparent from the record. Overlooking a mandatory provision of law which leaves no discretion to the taxing authorities like admission to tax, surcharge or interest is a mistake apparent from record. Conditions under section 34(3)(a) have to be complied with and unless they are complied with an assessee is not entitled to claim the development rebate under section 33. Allowing the concession of development rebate to an assessee who had not fulfilled the conditions specified was a mistake apparent from the record because the grant of development rebate was by overlooking the mandatory provisions of section 34(3)(a). This mistake was a mistake apparent from the records and, therefore, attracted the provisions of section 154. Therefore, the ITO was justified in rectifying the assessment to withdraw the excess development rebate already allowed. [In favour of revenue] - [Addl. CIT v. India Tin Industries (P) Ltd. (1987) 166 ITR 454 : (1986) 29 Taxman 128 (Karn.)]
[3] Who can make application for rectification of mistake under section 154 of Income Tax Act1961 to authority concerned ? [Section 154(2)]
(1) Assessee
(2) Deductor
(3) Collector
(4) Assessing officer, if the authority concerned is CIT(A)
No form prescribed for making application under section 154
There is no form prescribed under Income tax rules for rectification application under section 154 of Income Tax Act-1961.
[4] Opportunity of being heard where income is to be increased or loss to be decreased, refund claimed is to be reduced or tax liability is to be increased [Section 154(3)]
As per section 154(3), no Income Tax Authority shall make an amendment for rectification of mistake which has effect of enhancing an assessment , reducing a refund , otherwise increasing the liability of the assessee or the deductor or the collector unless the authority concerned has given notice to the assessee or the deductor or the collector of its intention so to do and has allowed the assessee or the deductor or the collector a reasonable opportunity of being heard.
[5] Where an amendment is made under this section, an order shall be passed in writing by the income-tax authority concerned [Section 154(4)]
Section 154(4) of the Act mandates the Authority to pass an Order in Writing, when such rectification by way of an amendment is carried out under Section 154 of the Act.
[6] Refund can be allowed on basis of rectification order under section 154 where any such amendment has the effect of reducing the assessment [Section 154(5)]
As per section 154(5), refund will be allowed to the assessee or the deductor or the collector where any such amendment has the effect of reducing the assessment or otherwise reducing the liability of the assessee or the deductor or the collector.
[7] Notice of demand is required to be issued in case of amendment is carried out under section 154 where any such amendment has the effect of enhancing the assessment or reducing a refund already made [Section 154(6)]
As per section 154(6), a notice of demand in prescribed form ( Form No. 7 as per Rule 15 of Income Tax Rules) determining the amount payable is required to be issued and served on Asessee/ deductor/ collector in case of amendment is carried out under section 154 where any such amendment has the effect of enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee or the deductor or the collector
[8] No amendment under this section shall be made after the expiry of four years from the end of
the financial year in which the order sought to be amended was passed [Section 154(7)]
Section 154(7) lays down that rectification of an order can be made only within four years from the end of the financial year in which the order sought to be amended was passed. However, this time limitation shall not apply to cases where amendment is made under section 155.
CBDT Circular No. 73 dated 07.01.1972.
Subject : Board’s authorisation for taking action under section 154 beyond time limit specified under section 154(7) in cases where valid application has been field under section 154(2)(b) but was not disposed of within the said time limit - Order under section 119(2)(a)
In exercise of the powers conferred by clause (a) of sub-section (2) of section 119, the Central Board of Direct Taxes hereby orders that in all the cases where a valid application under clause (b) of sub-section (2) of section 154 had been filed by the assessee within the statutory time limit but was not disposed of by the authority concerned with in the time specified under sub-section (7) of section 154, it may be disposed of by that authority even after the expiry of the statutory time limit, on merits and in accordance with law.
Word ‘order’ in expression ‘from the date of the order sought to be amended’ in section 154(7) includes amended or rectified order - Therefore, where original assessment was subsequently rectified, a second application for rectification made within four years from date of rectificatory order was valid
Original assessment in the assessee's case was completed by the assessment order dated 21.09.1979. The assessee filed rectification application under section 154 claiming extra shift allowance and rectification order was passed on 12.07.1982. Again, against this rectification order the assessee filed another application under section 154 on 04.07.1986 contending that as against 10 per cent of depreciation available to the assessee only 5 per cent was allowed. The Assessing Officer dismissed the application on the ground that the application was beyond time and the same was confirmed by the first appellate authority. The Tribunal, however, allowed the application holding that the application was within four years of the fresh order of assessment, i.e., the first rectification order. The High Court held that that the period of four years was to be calculated from the date of original order of assessment and not from the date of rectification order and, therefore, the application was barred by limitation. On appeal to Supreme Court:
Held : The word ‘order’ in the expression ‘from the date of the order sought to be amended’ in section 154(7) as it stood at the relevant assessment year had not been qualified in any way and it did not necessarily mean the original order. It could be any order including the amended or rectified order. Therefore, the Tribunal was correct in holding that the second rectification application was well within limitation. – [Hind Wire Industries Ltd. v. CIT (1995) 212 ITR 639 : 80 Taxman 79 (SC)]
[9] Time limit for passing rectification order [Section 154(8)]
Sub-section (8) was inserted by the Finance Act, 2001 with effect from 01.06.2001 to provide that on or after that date, the income- tax authorities shall pass an order within a period of six months from the end of the month in which the application for rectification under section 154 is received by the tax authority (a) making the amendment as requested or (b) refusing to allow the claim so made in the said rectification application. This sub-section (8) was introduced to curtail the discretion of the officer to keep such rectification applications pending for an undefined time period. The officer may or may not allow the rectification/amendment sought but, in every case, he is bound to dispose of the application filed under section 154(1) within the given time-frame of six months from the end of the month in which the rectification application was filed.
Text of Section 154(8)
Without prejudice to the provisions of section 154(7), where an application for amendment under this section is made by the assessee or by the deductor or by the collector on or after 01.06.2001 to an income-tax authority referred to in section 154(1), the authority shall pass an order, within a period of six months from the end of the month in which the application is received by it,—
(a) making the amendment; or
(b) refusing to allow the claim.
Instruction No. 3/2013 dated 05.07.2013 (F. No. 225/76/2013/ITA.II), the Central Board of Direct Taxes has stipulated just 2 months for disposal of rectification applications filed under Section 154 of the Income-tax Act, 1961.
This amendment provides that the income-tax authority in case of rectification application under section 154 shall pass an order within a period of six months from the date of filing of the application, but it is not clarified as to what will happen in a situation where the prescribed time-limit expires and the officer fails to pass any order on rectification application. Law is absolutely silent on this issue and CBDT has also not issued any clarification to meet this situation. However, in such a situation judicial pronounce-ment shall prove to be the guiding factor.
Thee Supreme Court in DLF Universal Ltd. v. Appropriate Authority (2000) 243 ITR 730 : 110 Taxman 315, where the Supreme Court in respect of an issue under Chapter XX-C (now no longer in force) on pre-emptive purchase of property held that where no objection certificate was not issued in respect of Form 37-I filed before the appropriate authority within three months stipulated in the statute, it should be presumed that there is no objection, so that the parties were free to act on the basis that there was no objection from the appropriate authority. Where a time-limit is set out for offices functioning under the law, it should be treated as mandatory.
A mistake arising as a result of subsequent interpretation of law by the Supreme Court would constitute ‘a mistake apparent from the records’.
A mistake arising as a result of subsequent interpretation of law by the Supreme Court would constitute ‘a mistake apparent from the records’. Therefore, where an assessee moves an application under section 154 pointing out that in the light of a later decision of the Supreme Court pronouncing the correct legal position, a mistake has occurred in any of the completed assessments in his case, the application shall be acted upon, provided the same has been filed within time and is otherwise in order.
CBDT Circular No. 68, dated 17.11.1971
Subject : Income-tax Assessments - Mistakes apparent from records - Whether can be treated as such on the basis of subsequent decisions of Supreme Court - Clarification regarding
1. The Board are advised that a mistake arising as a result of subsequent interpretation of law by the Supreme Court would constitute a ‘mistake apparent from the records’ and rectificatory action under section 35/154 of the Income-tax Act, 1922/1961 would be in order. It has, therefore, been decided that where an assessee moves an application under section154 pointing out that in the light of a later decision of the Supreme Court pronouncing the correct legal position, a mistake has occurred in any of the completed assessments in his case, the application shall be acted upon, provided the same has been filed within time and is otherwise in order. Where any such applications have already been rejected and the assessee files fresh applications within the statutory time limit, the same may also be treated on par with the applications which may either pending or received after the issue of this circular.
2. The Board desire that any appeals or references pending on the point at issue may please be withdrawn.
In ITO v. Smt. Manini Niranjanbhai (1992) 41 ITD 324 (ITAT Ahmedabad), it was observed that as per Circular No. 68, dated 17.11.1971, it is now a well established position that the Supreme Court does not declare the law with effect from the date of its order and the law declared by the Supreme Court has effect not only from the date of the decision but from the inception of the statutory provision. It has been mentioned therein that the Board have been advised that the mistake arising as a result of subsequent interpretation of law by the Supreme Court would constitute a mistake apparent from record and rectificatory action under section 154 would be justified.
Faceless rectification
Section 157A has been inserted with effect from 01.11.2020 by the Taxation and Other Laws (Relation and Amendment of certain Provision) Act, 2020 to give powers to the Central Government to make a scheme for the purpose of rectification of mistakes apparent from record under section 154, or other amendments under section 155, or issue of a notice of demand under section 156, or intimation of loss under section 157.
Text of Section 157A
157A. Faceless rectification, amendments and issuance of notice or intimation –
(1) The Central Government may make a scheme, by notification in the Official Gazette, for the purposes of rectification of any mistake apparent from record under section 154 or other amendments under section 155 or issue of notice of demand under section 156, or intimation of loss under section 157, so as to impart greater efficiency, transparency and accountability by—
(a) eliminating the interface between the income-tax authority and the assessee or any other person to the extent technologically feasible;
(b) optimising utilisation of the resources through economies of scale and functional specialisation;
(c) introducing a team-based rectification of mistakes, amendment of orders, issuance of notice of demand or intimation of loss, with dynamic jurisdiction.
(2) The Central Government may, for the purpose of giving effect to the scheme made under sub-section (1), by notification in the Official Gazette, direct that any of the provisions of this Act shall not apply or shall apply with such exceptions, modifications and adaptations as may be specified in the notification:
PROVIDED that no direction shall be issued after the 31st day of March, 2022.
(3) Every notification issued under sub-section (1) and sub-section (2) shall, as soon as may be after the notification is issued, be laid before each House of Parliament.;
Mistakes which can be Rectified
Herein below have been listed some mistakes, which can be rectified :
Incorrect set of off Minimum alternate tax credit - Prima Facie Mistake Apparent From Record - Not A Debatable Issue - Levy of interest is held to be valid
It was held that the Assessing Officer was correct in passing a rectification order under Section 154 of the Income-tax Act, 1961 to rectify the Minimum Alternate Tax (MAT) credit granted to the taxpayer wrongly. MAT credit given to the taxpayer was found to be a mistake apparent from the record. Further merely because the taxpayer had disputed the assessment before the higher appellate forum, it does not deprive the right of the tax department to rectify the assessment order. Thus, there was no debatable issue involved in adjusting the MAT credit against the tax liability of the taxpayer. In the present case, MAT credit given to the taxpayer was found to be a mistake apparent from the record. Accordingly, the AO had correctly assumed jurisdiction under Section 154 to rectify MAT credit granted to the taxpayer wrongly. (Related Assessment year : 2013-14) – [Fiserv India (P) Ltd. v. ACIT (2020) 80 ITR 3 (SN) (ITAT Delhi)]
Mentioning of incorrect provision of law in the order will not debar from moving rectification
Before the Apex Court, in the case of CCE v. Prdyumna Steel Ltd. (2003) 9 SCC 234, the case was that ‘the application for rectification made by the Department was on the ground that the mere mention of an incorrect provision of law in the show-cause notice was not sufficient to invalidate the same’.
This application was rejected by the Tribunal. It was held that :
“3. It is settled that mere mention of a wrong provision of law when the power exercised is available even though under a different provision, is by itself not sufficient to invalidate the exercise of that power. Thus, there is a clear error apparent on the face of the Tribunal’s order dated June 23, 1987. Rejection of the application for rectification by the Tribunal was, therefore, contrary to law.” (p. 234)
Non-consideration of a judgment of the jurisdictional High Court or the Apex Court would always constitute a mistake apparent from the record regardless of the judgment being rendered prior to or subsequent to the order proposed to be rectified. – [CIT v. Subodhchandra S. Patel (2004) 265 ITR 445 : 138 Taxman 185 (Guj.)]
Once an announcement is made in the open Court, then that is the order of the Tribunal and the order which is written subsequently merely contains the reasons for it to come to the conclusion which it did. If the written order is at variance with the announcement, there is a mistake in the written order which can be rectified. – [CIT v. G. Sagar Suri & Sons (1990) 185 ITR 484 (Del.)]
Overlooking of a mandatory provision of law which leaves no option or discretion with the taxing authority would amount to commission of a mistake apparent on the face of the record. - [Addl. CIT v. Distt. Co-operative Bank Ltd. (1979) 119 ITR 142 (All.)]
Under section 154 the power to rectify the error must extend to the elimination of the error even though the error may be such as to go to the root of the order and its elimination may result in the whole order falling to the ground. – [Blue Star Engg. Co. (Bombay) (P) Ltd. v. CIT (1969) 73 ITR 283 (Bom.)]
All mistakes whether of fact or law can be rectified. A glaring and obvious mistake of law can be rectified as much as a mistake of fact apparent from the record
In M. K. Venkatachalam, ITO v. Bombay Dyeing & Mfg. Co. Ltd., the Supreme Court observed that the provisions under section154 covers all mistakes discoverable from a perusal of the whole evidence in the case or from an omission to apply certain provisions of the Act to the facts of the case or a mistake due to an overlooking of certain aspects of the case or a mistake arising on account of a wrong construction of any provisions of the Act. The error may be either an error of fact or an error of law. – [M.K. Venkatachalam, ITO v. Bombay Dyeing & Mfg. Co. Ltd. (1958) 34 ITR 143 (SC)].
Mistakes which can not be Rectified
Herein below have been listed some mistakes, which can be rectified :
Omission to claim a deduction (which requires verification) in the income-tax return is not a mistake apparent from record, which could be rectified under section 154 of the Income-tax Act, 1961
Dismissing the appeal the court held that claim of deduction of interest under Section 43B , which was omitted by the assessee-company while filing the original returns could be adjudicated by the Assessing Officer only through a process of investigation. The payment of interest to IDBI was never disclosed by the assessee in the Income-tax returns. Unless the tax returns disclosed interest payments, it was impossible for the Assessing Officer to assist the assessee to rectify the alleged mistake of omission to claim deduction for interest payments under Section 43B. Hence, the omission claimed by the assessee would not fall under the category of a “mistake apparent from the record”. The deduction could not be granted under section 154. The objects of Section 139(5) and Section 154 are different. In case of omission, the only remedy available is under Section 139(5) by filing revised returns. (Related Assessment years : 2003-04, 2004-05) – [Nagaraj & Company (P) Ltd. v. ACIT (2020) 425 ITR 412 : 274 Taxman 38 : 196 DTR 190 : 117 taxmann.com 618 (Mad.)]
Rectification of mistake is not permissible after issue of notice under section 143(2)
The Assessing Officer processed the return under section 143(1), accepting the loss from a partnership firm. Having noticed subsequently that such loss was not be allowed, he issued a notice of rectification to which the assessee submitted that he had no objection to the proposed rectification. A rectification order was also passed. In the meanwhile, however, the Assessing Officer also issued a notice under section 143(2). The High Court held that intimation under section 143(1) cannot be rectified after the issue of notice under section 143(2) for the reason that regular assessment proceeding had been since commenced. - [CIT v Manjit Singh Sachdeva (2009) 310 ITR 357 (Karn.)]
The power of rectification can be invoked with reference to the law prevailing at the time of the original order. The fact that subsequent decisions may lead to a different inference cannot justify rectification. - [CIT v. India Cements Ltd. (2000) 241 ITR 62 (Mad.)]
Mistake discovered by long-drawn process of reasoning not rectifiable
A mistake which has to be discovered by a long-drawn process of reasoning or examining arguments on points where there may conceivably be two opinions cannot be said to be mistake or error which is apparent from the record. – [Century Spg. & Mfg. Co. Ltd. v. N.N. Mistry, Addl. First ITO (1984) 145 ITR 435 (Bom.)]