RECTIFICATION OF MISTAKE UNDER SECTION 154

Sometimes there may be a mistake in any order passed by the Assessing Officer. In such a situation, mistake which is apparent from the record can be rectified under section 154. Section 154 of the Income Tax Act, 1961, provides the Income Tax Authority with the power to rectify errors in its orders, intimation, or assessments.

Order which can be rectified under section 154 - With a view to rectifying any mistake apparent from the record, an income-tax authority may-

a) Amend any order passed under any provisions of the Income-tax Act.

b) Amend any intimation or deemed intimation sent under section 143(1).

c) Amend any intimation sent under section 200A(1) [section 200A deals with processing of statements of tax deducted at source i.e. TDS return].

d) amend any intimation under section 206CB.

Under section 200A, a TDS statement is processed after making correction of any arithmetical error in the statement or after correcting an incorrect claim, apparent from any information in the statement.

Similarly, a new section 206CB is inserted by Finance Act, 2015 to provide for the processing of TCS statement.

If due to rectification of mistake, the tax liability of the taxpayer is enhanced or refund is reduced, the taxpayer shall be given an opportunity of being heard.

What Constitutes a "Mistake Apparent from Record"?

A mistake apparent on record is a clear, obvious, and undeniable error. Examples include:

• Clerical/Arithmetical Errors: Incorrect computation of tax or total income.

• Legal Mistakes: Misapplication or non-application of a binding legal precedent.

• Errors in Law or Facts: For instance, non-grant of eligible deductions, exemptions, or relief due to oversight.

Note: Complex or debatable issues requiring extensive investigation or interpretation are not treated as "mistakes apparent from record."

Rectification of order which is subject to appeal or revision

If an order is the subject-matter of any appeal or revision, any matter which is decided in such an appeal or revision cannot be rectified by the Assessing Officer. 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.

Initiation of rectification by whom- The income-tax authority can rectify the mistake on its own motion.

The taxpayer can intimate the mistake to the income-tax authority by making an application to rectify the mistake.

If the order is passed by the Commissioner (Appeals) or the Joint Commissioner (Appeals), then such the Commissioner (Appeals) or the Joint Commissioner (Appeals) can rectify mistake which has been brought to notice by the Assessing Officer or by the taxpayer.

Time-limit for rectification

No order of rectification can be passed after the expiry of 4 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 order sought to be rectified and not 4 years from original order. Hence, if an order is revised, set aside, etc., then the period of 4 years will be counted from the date of such fresh order and not from the date of 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 application is received by the authority.

Impact of Rectification

1. Reduction of Tax Liability: Correction of errors leading to excess tax demand.

2. Refund of Excess Taxes Paid: Timely correction facilitates refunds.

3. Clarity and Transparency: Reduces litigation and improves compliance.

The procedure to be followed for making an application of rectification- Before making any rectification application the taxpayer should keep following points in mind.

• The taxpayer should carefully study the order against which he wants to file the application for rectification.

• Many times the taxpayer may feel that there is any mistake in the order passed by the Income-tax Department but actually the taxpayer’s calculations could be incorrect and the CPC might have corrected these mistakes, e.g., the taxpayer may have computed incorrect interest in return of income and in the intimation the interest might have been computed correctly.

• Hence, to avoid application of rectification in above discussed cases the taxpayer should study the order and should confirm the existence of mistake in the intimation, if any.

• If he observes any mistake in the order then only he should proceed for making an application for rectification under Section 154.

• Further, he should confirm that the mistake is one which is apparent from the records and it is not a mistake which requires debate, elaboration, investigation, etc. The taxpayer can file an online application for rectification of mistake. Before making an online application for rectification the taxpayer should refer to the rectification procedure prescribed at https://incometaxindiaefiling.gov.in/

• For rectification of intimation under Section 200A(1)/206CB online correction statement is to be filed; the procedure thereof is given at http://contents.tdscpc.gov.in/en/filing-correction-etutorial.

• An amendment or rectification which has the effect of enhancing the assessment or reducing a refund or otherwise increasing the liability of the taxpayer (or deductor) shall not be made unless the authority concerned has given notice to the taxpayer or the deductor of its intention to do so and allowed the taxpayer (or the deductor) a reasonable opportunity of being heard.

Latest Case laws on Rectification-

1. The ITAT dismissed the Revenue's appeal challenging the CIT(A)'s order granting exemption under Section 11 to an educational institution. It held that CPC erred in rectification proceedings by disallowing the exemption without justification. Debatable issues cannot be resolved under Section 154, reaffirming the earlier exemption's validity. [2024] 207 TAXLOK.COM (IT) 239 (ITAT-AHMEDABAD)

2. The Tribunal held that a debatable issue such as the allowance of depreciation on non-compete fees cannot be rectified under Section 154. The Tribunal set aside the CIT(A)'s order, which had invoked Section 154 to rectify an earlier decision allowing depreciation on non-compete fees, and restored the matter for decision after the Supreme Court's ruling on the pending appeal. [2024] 206 TAXLOK.COM (IT) 157 (ITAT-DELHI)

3. The petitioner challenged the rectification notice and subsequent orders passed under Section 154 of the Income Tax Act after settling the tax dispute through the Direct Tax Vivad Se Vishwas Scheme (DTVSV). The court quashed the rectification orders, holding that the settlement was final and could not be revisited under Section 154. [2024] 205 TAXLOK.COM (IT) 513 (DEL)

4. The issue of disallowance u/s 36(1)(va) of the Act stands decided in favour of the assessee as on the date of passing of the rectification order u/s 154 of the Act. Therefore, the adjustment made by CPC disallowing PF/ESI contributions by way of rectification u/s 154 of the Act cannot be said to be a mistake apparent on record as contemplated u/s 154 of the Act. Therefore, for this reason also the order passed u/s 154 of the Act disallowing PF/ESI contributions by way of rectification u/s 154 of the Act cannot be sustained. [2024] 205 TAXLOK.COM (IT) 372 (ITAT-DELHI)

Conclusion- Section 154 of the Income Tax Act, 1961, is a crucial tool for correcting apparent mistakes in tax orders. While it provides relief to taxpayers, the scope is limited to obvious errors. Efficient use of this provision can enhance taxpayer satisfaction and reduce unnecessary litigation. Taxpayers and authorities must ensure adherence to the procedural safeguards and time limits prescribed under the Act.