Section 154 of the Income Tax Act, 1961 deals with the rectification of mistake. In some situations, there may be a mistake in any order passed by the Assessing Officer. This mistake, which is apparent on the record, can be rectified. In this article, the provisions related to the rectification of mistake will be discussed and explained thoroughly.
What kind of orders can be rectified under Section 154?
An Income-tax authority may:
- Amend any order passed by it under the provisions of the Income-Tax Act, 1961
- Amend any intimation or deemed intimation under the provision of the Income-Tax Act 1961, dealing with an assessment.
Application of the Provision
This provision has limited application. It provides for rectification of any mistake apparent from the record, by any Income-Tax authority. The authorities are bound to rectify the mistake brought to their notice by the assessee, and the CIT(A) is also bound to rectify the mistake brought to his notice by the Assessing Officer. The Income-tax Act, 1961 confers similar power of rectification upon the tribunal, which is likewise bound to rectify the mistake brought to its notice by the assessee or by the Assessing Officer.
By an apparent mistake, one means that the mistake must be apparent from the record. An arithmetical mistake is a mistake of such time. A glaring and obvious mistake of law may be corrected as an apparent mistake too. For example, not granting depreciation allowance, or granting extra allowance which is expressly prohibited, or levy of tax under a statutory provision which is subsequently held inoperative, or omission to charge tax or interest, or action under a rule which is outside the scope of law are all mistakes apparent from the record.
What Authorities can rectify orders?
The only authority which may rectify an order is the authority which passed the order, and not any higher or lower authority. For example, if an Assessing Officer has revised an assessment to give effect to the order of the CIT(A) which had become final, and then, the Supreme Court says that the appellate order was incorrect, the Assessing Officer may not rectify the reassessment because that would amount to going against the finality of the appellate order. It is purely subjective and up to the discretion of the Officer.
Procedure for Amendments
The authority concerned with rectification can make an amendment if the following two conditions are satisfied. Firstly, the amendment should pertain to rectification of mistake and should be made of its own motion. Secondly, the amendment can only be made to rectify such mistake after it has been brought to the notice of the authority by the assessee, and where the authority concerned is the Commissioner (Appeals).
Further, the amendment will not be made unless the authority has notified the assessee about the same, and followed the principle of audi alteram partem, i.e. hear the other side. The assessee has to be given a reasonable opportunity of being heard before the amendment is made, especially if it is reducing a refund, or increasing the assessee’s liability.
The time limit for Rectification
No order of rectification can be passed after the expiry of four years from the end of the financial year in which order sought to be rectified was passed. The period of 4 years is from the date of the order sought to be rectified and not 4 years from the original order. Hence, if an order is revised or set aside, then 4 years will be counted from the date of such fresh order and not from the date of the original order.
In case an application for rectification is made by the taxpayer, the authority shall amend the order or refuse to allow the claim within 6 months from the end of the month in which the authority receives the application.
Like any other provisions in other Acts, Section 154 allows the authorities to correct mistakes, and amend orders which it had passed previously under a mistaken belief or fact. It is an important provision because it provides the authority with the chance to protect the interests of the assessee.