Understanding rectification of mistake under section 154 of Income tax act with latest case laws.

The Income-tax Authority, may amend his own order u/s 154(1), if there is a mistake apparent from records.

The A.O. is empowered to rectify any order of assessment or refund or any other order passed by him. The A.O. is also empowered to amend intimation or deemed intimation

The CIT is empowered to rectify his order passed u/s 263 or 264.

The CIT(A) may rectify his order passed u/s 250.

Other income-tax Authorities may also rectify the orders passed by them.

However, if the matter in the order is subject matter of appeal or revision, the A.O. can not amend that order [ Sec. 154(1A) ]

 

When Rectification can be made ?

Rectification can be made :

On his own motion, or

On application by the assessee.

Opportunity of being heard [ Sec. 154(3) ]

Must, where effect of rectification is ,

(a) Enhancement of assessment,

(b) Reduction of refund,

(c) Increasing liability of the assessee.

Rectification order [ Sec. 154(4) ]

An order of rectification must be in writing. Refusal to make rectification shall also require an order under this section.

Refund to be given in case where rectification results into reduction of assessment [ Sec. 154(5) ]

Notice of demands should be issued in case rectification results into enhancing assessment [ 154(6) ]

Time limit for rectification [ 154(7) ] : Within four years from the end of the F.Y. in which the order sought to be amended was passed. However, this time limit shall not apply to cases wherea mendment is made u/s 155.

Time limit for rectification where assessee has applied [ 154(8) ] :Without prejudice to the provision of section 154(7), within 6months from the end of the month in which the application has been filed.

Where a valid application was made under clause (b) of subsection (2) of section 154 by the assessee within the time limit of 4 years, but was not disposed by the authority concerned within the time limit specified in section 154(7), it may be disposed by that authority even after the expiry of statutory time limit and in accordance with the law.- [ Circular No. 73 dated 7-1-1972 ].

Where a the sum of tax, duty, etc. referred to in the first proviso of 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 of income, the A.O. can entertain the application u/s 154 for rectification of the intimation u/s 143(1) of order 153(3) as the case maybe, and decide the case on merits.- [ Circular No. 669 dated 25-10-1993 ]

Effect of Apex Court Order

Law subsequently interpreted by Supreme Court – 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 154 would be in order. 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.—Circular : No. 68 [F.No.245/17/71-A & PAC], dated 17-11-1971.

Action on penalty order after assessment is cancelled or annulled

Income-tax assessment, on the basis of which an order of penalty has been passed, is itself either cancelled or annulled and yet the order of penalty survives. ITOs/AACs/IACs/Addl. CITs/CITs are authorised to take action under section 154 suo motu or on application by the assessees seeking cancellation of penalty orders of the type mentioned above, the time limit prescribed under section 154(7) is waived. —Circular : No. 87 [F.No. 245/25/71-A & PAC], dated 19-6-1972 in supersession of Circular No. 81 [F.No. 245/25/71-A & PAC], dated 26-3-1972.

Notifications issued after completion of assessments

Where notifications under section 10(23C) or section 35(1) are issued much after the completion of the assessments of the assessment years to which such notification apply, there is a mistake apparent from the record which can be rectified under section 154. However, while disposing of the rectification applications, the Assessing Officer must ensure that the conditions prescribed in the notifications are satisfied.—Circular : No. 725, dated 16-10- 1995.

RECTIFICATION OF MISTAKE SECTION 155

S.S. (1) & (2)- On assessment or reassessment of Firm it is found that remuneration to partner is not deductible, AO may amend the order of Partner.

On assessment or reassessment of AOP/BOI – share of member is not properly assessed - AO may amend the order of Member.

Time – 4 Years

S.S. (4)- Where as a result of proceedings initiated under section 147, a loss or depreciation has been recomputed and in consequence thereof it is necessary to re compute the total income of the assessee for the succeeding year or years to which the loss or depreciation allowance has been carried forward and set off the Assessing Officer may proceed to recompute the total income in respect of such year or years.

S.S. (10A)-  capital gain arising from the transfer of a long-term capital asset, is charged to tax and within a period of six months after the date of such transfer, the assessee has made any investment or deposit in any specified asset within the meaning of section 54E, the A O shall amend the order of assessment so as to exclude the amount of the capital gain not chargeable to tax.

Time – 4 Years

S.S. (11) -  capital gain arising from the transfer of any original asset as is referred to in section 54H is charged to tax and within the period extended under that section the assessee acquires the new asset referred to in that section or, as the case may be, deposits or invests the amount of such capital gain within the period so extended, the Assessing Officer shall amend the order of assessment so as to exclude the amount of the capital gain not chargeable to tax.

Time – 4 Years

S.S. (11A) -   Where in the assessment for any year, the deduction under section 10A or section 10B or section 10BA has not been allowed on the ground that such income has not been received in convertible foreign exchange in India,/not been brought into India, with the approval of the RBI, subsequently brought into, India

Time - 4 years from the end of the previous year in which such income is so received in, or brought into, India

S.S. (13) -  Where in the assessment for any year, the deduction under section 80HHB or section 80HHC or section 80HHD or section 80HHE or section 80-O or section 80R or section 80RR or section 80RRA has not been allowed on the ground that such income has not been received in convertible foreign exchange in India, or brought into India, subsequently such income or part thereof has been or is received in, or brought into, India in the manner aforesaid, the A O shall amend the order of assessment so as to allow deduction . ( Approved by RBI )

Time – 4 Years

TDS/TCS – S.S. (14) -  In 143(1) credit for TDS/TCS not allowed since certificate not filed

Certificate can be produced within two years from the end of the A.Y.

Income should have been disclosed in the return.

S.S. (15) -  land or building or both - full value of the consideration is taken as adopted or assessed by any authority of a State Government for the purpose of payment of stamp duty. Subsequently such value is revised in any appeal or revision.  Assessing Officer shall amend the order of assessment with revised value.

Time – 4 Years

S.S. (16) -  capital gain – from - compulsory acquisition. The compensation or consideration enhanced or further enhanced section 45 (5),.  Subsequently such compensation or consideration is reduced by any court,.  

Time – 4 years from the end of the previous year - order was passed.

 

Pre-Requisites to file online Rectification Request U/s. 154

1. The Income Tax Return for the Assessment Year should have been processed in CPC, Bangalore.
2. An Intimation under Section 143(1) OR an order under Section 154 passed by CPC, Bangalore for the e-Filed Income Tax return should be available with the taxpayer.
3. For Electronic returns filed and processed at CPC, only online rectifications will be considered.
4. If the refund arising out of return processed at CPC is adjusted against the demand of other
   Assessment Years and then the assessee is challenging the demand itself, in that case

i)   Rectification application has to be filed for the demand year, if the demand was raised by CPC then online application has to be filed

ii)   for the demand raised by the Field Assessing Officer, the application has to be filed before him.

1. No rectification has to be filed for giving credit to taxes paid after raising the demand.
2. To file your Rectification, you should be a registered user in e-Filing application

Below listed are the steps to file Rectification for Rectification:

Step 1 - LOGIN to e-Filing application and GO TO –> My Account –> Rectification request.

Step 2 - Select the Assessment Year for which Rectification is to be e-Filed, enter Latest Communication Reference Number (as mentioned in the CPC Order), and Latest CPC Order Date (as mentioned in the CPC Order).

Step 3 – Click ‘Submit’.

Step 4 – Select the ‘Rectification Request type’

–> ‘Taxpayer Correcting Data for Tax Credit mismatch only’ − On selecting this option, three check boxes, TCS, TDS, IT, are displayed. You may select the check-box for which data needs to be corrected. You can add a maximum of 10 entries for each of the selections. No upload of an Income Tax Return is required.

–> ‘Taxpayer is correcting the Data in Rectification’ − select the reason for seeking rectification, Schedules being changed, Donation and Capital gain details (if applicable), upload XML and Digital Signature Certificate (DSC), if available and applicable. You can select a maximum of 4 reasons

–> ‘No further Data Correction required. Reprocess the case’ − On selecting this option, three check-boxes, Tax Credit mismatch, Gender mismatch, Tax/ Interest mismatch are displayed. You may select the check-box for which re-processing is required. No upload of an Income Tax Return is required.

Step 5 – Click the ‘Submit’ button.

Step 6 – On successful submission, an Acknowledgment number is generated and sent for processing to CPC, Bangalore.

Post processing, either the rectification order under Section 154 will be issued

Common Errors in Rectification

a. Important Notes before e-Filing Rectification Request

1. You must file using the latest CPC Order for the selected Assessment Year. For eg: If an order has been passed by CPC on 27th September, 2013 and another order has been passed on 15th December, 2013, the assessee can e-File ONLY using the latest i.e. 15th December, 2013 order.
2. You can file another Rectification for the same Assessment Year ONLY if the previous Rectification request is processed.
3. The CPC order details can be used ONLY once to file a Rectification. Any subsequent Rectification should be filed using new/latest CPC order details. However, the same CPC Order details can be re-used if the e-Filed Rectification has been withdrawn by the assessee ( Note: Time for withdrawal is 7 days from date of e-Filing the Rectification)
4. The rectification request can be withdrawn within 7 days if submitted by mistake or the request needs to be amended. LOGIN and GO TO ‘My Account’ –> ‘Rectification status’ to withdraw the Rectification.

b. Tips to the user on filling the Income Tax Return

The complete Income Tax Return should be e-Filed and NOT just the schedules/ fields that need change/correction. However, there should NOT be any revision in Income or new claims of deduction/ exemption made in the Rectification request, as this would lead to rejection or delay in processing by CPC. Please note that this facility is only provided by Income Tax Department for correcting mistakes. In case you wish to make changes in Income or make new claims, a Revised Income Tax Return should be filed as per the Income Tax Act, 1961.

c. Common mistakes while filing Rectification

1. It is noticed that Communication Reference Number mentioned in the CPC Order (u/s 143(1) or 154) is entered wrongly. It must be mentioned exactly as it appears on the CPC order.
2. Right Assessment Year should be selected.
3. The complete Income Tax Return should be e-Filed and NOT just the schedules/ fields that need change/correction.
4. In case of change in ‘Income’, a rectification should NOT be filed. A revised Income Tax Return should be filed in this case, of course, subject to the time limit as per the Income Tax Act, 1961.
5. In case of change in ‘Bank Account details’ OR ‘Address Details’, a Rectification should NOT be filed. You can LOGIN and GO TO My Account –> Refund Re-issue request and raise a request for change in the Bank Account/Address details (in case of refund failure).

Note: The Bank Account details and Address details as in the original Income Tax Return (processed) will be considered for any refund/demand notice, and not the bank account/address details mentioned in the Rectified Income Tax Return.

 

 

Now let us understand the section with the help of given below recent case laws decisions by various high courts and ITAT of the country.

 

·         CPC Issues: CPC hauled up for harassing assessee by imposing tax of  60% on LTCG & refusing to rectify and accordingly AO was directed to rectify the mistake in the  intimation.[S.143(1)]  . Refer, Mohan Kant Bansal .v. ITO, Kol ITAT.

 

·         Mistake in Return of Income: In the intimation, the income by the assessee was accepted but the credit for tax paid was allowed partly  and the credit for the TDS claimed by the assessee was not allowed. The assessee filed a letter requesting  to rectify the intimation by which demand was raised. The assessee furnished photo copies of advance tax  challan with STT certificate and requested to give credit u/s. 88E(2). The A.O. rejected the letter stating  that the rebate u/s. 88E(2) was to be allowed only in case where the same was claimed in the ROI and  since the assessee had not claimed the same in ROI his claim could not be considered.On appeal Tribunal  held that the mistake, if any, was in the return of income filed by the assessee. S. 154 cannot be utilized  for rectifying the assessee's mistake in filling of the ROI.   Refer, Pawan Kumar Aggrawal .v. ACIT, 146 ITD 787.   

 

In the case of Jhansi Development Authority v. DCIT, 25 ITR 338 (Agra)(Trib.), it was held that The assessee omitted to claim exemption in the return of income. It was a mistake of the assessee in not making claim of exemption in the return of income. The Assessing Officer had no power under section 154 of the Act to correct the return of income filed by the assessee. Omission to claim exemption in the return of income did not fall in the definition of "incorrect claim" as mentioned in section 143(1)(a) of the Act read with its Explanation.

 

 

·         Carry forward of loss: Benefit of carry forward cannot be withdrawn in rectification proceedings. Refer, CIT v. Srinivasa Builders, 369 ITR 69.

 

·         Court decision: A situation in which judgment of jurisdictional High Court is not considered, such a non-consideration is clearly a mistake apparent from record. Refer, Uttara Ghosh(Smt) v. Dy.CIT, 139 ITD 88 (Kol.)(Trib.).

 

·         80-IA : The assessee’s return was processed u/s. 143(1)(a) of the Act, allowing deduction u/s. 80-IA before setting off carried forward losses. The A.O. in proceedings u/s. 154 of the Act restricted the deduction u/s. 80IA to the profits after setting off losses of earlier years, rejecting the assessee’s objections based on CIT vs. K.N. Oil Inds. (1997) 226 ITR 547 (MP). The Commissioner (Appeals) dismissed the assessee’s appeal following CIT vs. Kotagiri Inds. Co-op. Tea Factory Ltd. (1997) 224 ITR 604 (SC) and this was affirmed by the Tribunal and the High Court. On further appeal, the court held, that the provisions of chapter VI-A particularly those dealing with quantification of deductions, having been amended several times and even after the date of the decision relied on by the Tribunal, one could not say that this was a case of a patent mistake. Accordingly the order of High Court was set aside. Refer, Dinosaur Steels Ltd. v. Jt. CIT, 349 ITR 360.

 

Others: Question whether newspapers were small and whether expenses were spent on sales promotion is debatable, rectification proceedings to disallow expenditure held to be not valid. Computation of interest payable, mistake in calculating period of interest, reduction of advance tax paid after due date of filing return and delay in filing return being obvious mistakes which could be rectified. Refer, Kesharwani Zarda Bhandar v.CIT,. 349 ITR 519.

 

·         Clerical error: The assessee filed e. return. The Assessing Officer received the intimation under section 143(1). The Assessing Officer computed the tax payable on short term capital gain at 30 percent as against at the rate of 10 percent under section 111A. The assessee moved application under section 154. The Assessing Officer held that short term capital gains had not been shown under section 111A at Schedule CG of e. return. Commissioner (Appeals) up held the order of Assessing Officer. On appeal the Tribunal held that where due to clerical error, assessee did not showed STCG under Schedule CG of e-return, but depicted same under Schedule SI. It was held that Income chargeable at special rates, gains would be taxable at special rate of 10 per cent. Refer, Shrikant Real Estates (P.)Ltd. v. ITO, 140 ITD 155/152 TTJ 30/22 ITR 266.   

 

In the case of CIT v. Sahara India Savings and Investment Corporation Ltd, 357 ITR 520, it was held that The assessee claimed deduction under section 80M a sum of Rs.8,39,174/-. The assessee filed an  application under section 154 seeking rectification of mistake apparent on the face of record. In the  application, it was mentioned that the assessee had received dividend from U and the same was an  allowable deduction. In the application under section 154 the assessee restricted its claim to Rs.  25,07,554, i.e., equal to gross income. The A.O. did not allow the claim but the Tribunal allowed it.  On appeal to the High Court held that the genuineness of the claim was not doubted. The claim could  not be denied because the A. O. had already allowed a sum of Rs. 8,39,174/- u/s. 80M. hence, the  balance of Rs. 16,68,380 would have to be allowed as per law 

 

·         10A :  Assessee, a S.10A unit claimed deduction for depreciation and brought forward losses which were allowed. Assessing Officer found that claim for depreciation and brought forward business loss for AY had been wrongly allowed as assessee, a section 10A unit, had violated S.10A(6). Assessing Officer passed the order under section 154 and rejected the claim. In appeal Commissioner (Appeals) confirmed the order of Assessing Officer. On appeal the Tribunal held that since assessee chose to avail benefit of tax holiday from AY 1999-2000, its exemption period was continuing and therefore S. 10A(6) would not apply. Accordingly the rectification order was quashed and appeal of assessee was allowed. Refer, Tata Consultancy Services Ltd. v. ACIT, 140 ITD 325 (Chennai)(Trib.).

 

·         AO duty: In march 2006 assessee moved application under section 154 for giving proper credit to deduction of tax at source. The AO rejected the application on the ground that the application was filed beyond limitation period prescribed as the intimation was passed on30-06- 1999 and four years expired on 31-03- 2004.Tribunal held that the intimation issued in June, 1999 was not served on the assessee. The Tribunal observed that an authority must not be allowed to take advantage of its own default or failure. The authority has to act in accordance with law. AO has failed to discharge its statutory duty hence the AO was directed to entertain the application. The Tribunal also referred Circular No 73 dt 7-1-1972 and Circular no 4 dt 20-06-2012. Refer, Liberty Pesticides & Fertilizer Ltd v. ACIT, . (ITA No.337/Ahd/2010 Bench ‘D‘ dt. 10-05-2013).

 

·         Time barred: Assessment was completed on 29-12-2006. Notice for rectification was issued on 2-3-2012 and  order was passed on 23-3-2012. Thereafter, demand was raised against assessee pursuant to order  passed under section 154. Assessee claimed that as per section 154(7), limitation period for  rectification is four years from end of financial year in which assessment is completed, which was 31-  3-2011 in this case. It was held that demand raised pursuant to order under section 154 was time  barred. Refer, Vodafone Mobile Service Ltd. v. UOI, 86 DTR 332.

 

·         Debatable issue: Where issue of attribution of delay to whom, was a debatable issue, rectification order disallowing interest on refund under section 244A was  invalid.. Refer, CIT v. Nathpa Jhakri Joint Venture, 261 CTR 110.