Section 154 of Income Tax Act – Rectification of mistake

Section 154 of the Income Tax Act is a very important Section and as per this section the assessee or department has a right to rectify any arithmetical error in an assessment order or assessment intimation. Section 154(1A) authorizes the Assessing Officer to give appeal effect. The assessee can file an application to CPC in case assessment intimation is passed by CPC and to jurisdictional AO in case order or intimation is passed by him. Section 154(7) provides that no amendment under this section shall be made after the expiry of four years from the end of financial year in which order sought to be amended was passed. This means that if any assessment order or intimation is passed and demand is created and assessee is unaware of this demand and he comes to know this demand after several years and time to file the application for rectification as provided in Section 154(7) has already crossed and demand so created has already been adjusted out of refunds for subsequent years, no rectification order can be passed. The CBDT considering genuine hardship of assessee had issued CBDT Circular No. 4/2012 dated 20.6.2012 in which it is clearly provided that such type of assessment orders or intimations can be rectified even after the period of 4 years. This circular is very important for every one in whose case old demand is appearing on the portal. A copy of this circular is given below :

Circular No. 4 of 2012, dated 20-6-2012

The Board has been apprised that in certain cases the assessees have disputed the figures of arrear demands shown as outstanding against them in the records of the Assessing Officer. The Assessing Officers have expressed their inability to correct/reconcile such disputed arrear demand on the ground that the period of limitation of four years as provided under sub-section (7) of section 154 of the Act has expired.

Further, in some cases, the Assessing Officers have uploaded such disputed arrear demand on the Financial Accounting System (FAS) portal of Centralized Processing Center (CPC), Bengaluru which has resulted in adjustment of refund arising out of processing of Returns against such arrear demand which has been disputed by such assessees on the grounds that either such demand has already been paid or has been reduced/eliminated in the appeals, etc. The arrear demands, in these cases also were not corrected/reconciled for the reason that the period of limitation of four years has elapsed.

2. The Board, in consideration of genuine hardship faced by the abovementioned class of cases, in exercise of powers vested under section 119(2)(b) of the Act, hereby authorize the Assessing Officers to make appropriate corrections in the figures of such disputed arrear demands after due verification/ reconciliation and after examining the same on merits, whether by way of rectification or otherwise, irrespective of the fact that the period of limitation of four years as provided under section 154(7) of the Act has elapsed.

3. In view of the above the following has been decided:—

(a)  In the category of cases where based on the figure of arrear demand uploaded by the Assessing Officer but disputed by the assessee, the Centralized Processing Center (CPC), Bengaluru has already adjusted any refund arising out of processing of return, the jurisdictional Assessing Officer shall verify the claim of the assessee on merits. After due verification of any such claim on merits, the Assessing Officer shall issue refund of the excess amount, if any, so adjusted by CPC due to inaccurate figures of arrear demand uploaded by the Assessing Officer. The Assessing Officer, in appropriate cases, will also upload amended figure of arrear demand on the Financial Accounting System (FAS) portal of Centralized Processing Center (CPC), Bengaluru wherever there is balance outstanding arrear demand still remaining after aforesaid correction/ reconciliation.

(b)  In other cases, where the assessee disputes and requests for correction of the figures of arrear demand, whether uploaded on CPC or not uploaded and still lying in the records of the Assessing Officer, the jurisdictional Assessing Officer shall verify the claim of the assessee on merits and after due verification of such claim, will make suitable correction in the figure of arrear demand in his records and upload the correct figure of arrear demand on CPC portal.

4. It is specifically clarified that these instructions would apply only to the cases where the figures of arrear demand is to be reconciled/ corrected – whether such arrear demand has been uploaded by the Assessing Officer on to Financial Accounting System (FAS) of CPC or it is still in the records of the Assessing Officer.

This may be brought to the notice of all the officers of your CCA region.

Now coming to Section 154(8) it is provided that any application for amendment made under this section after 1^st day of June 2001 shall be disposed off by concerned authority with a period of 6 months from the end of the month in which application is received by it by either making the amendment or refusing to allow the claim by passing an order. Now it is seen that in a number of cases the departmental officers does not pass any order and application is neither accepted not rejected which is against Section 154(8) which clearly provides that application has to be disposed off with a period of 6 months from the end of the month in which application is received by the said officer. It is seen that in many cases no order is passed and no communication is also made by officers of income tax department. For this CBDT has issued Instruction No. 01/2016 dated 15.2.2016 that such cases must of brought in the knowledge of supervisory officers and necessary administrative action may be initiated in cases where failure to adhere to the prescribed time frame is noticed. I hope the above article shall  be useful to everyone who is interested in this topic.

Extract of Section 154 of Income Tax Act, 1961

Section 154 is reproduced below for ready reference:

Rectification of mistake.

154.(1) 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.

(1A) Where any matter has been considered and decided in any proceeding by way of appeal or revision relating to an order referred to in sub-section (1), the authority passing such order may, notwithstanding anything contained in any law for the time being in force, amend the order under that sub-section in relation to any matter other than the matter which has been so considered and decided.

(2) Subject to the other provisions of this section, the authority concerned—

(a) may make an amendment under sub-section (1) of its own motion, and

(b) shall make such amendment for rectifying any such mistake which has been brought to its notice by the assessee or by the deductor or by the collector, and where the authority concerned is the Commissioner (Appeals), by the Assessing Officer also.

(3) An amendment, which has the effect of enhancing an assessment or reducing a refund or otherwise increasing the liability of the assessee or the deductor or the collector, shall not be made under this section 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.

(4) Where an amendment is made under this section, an order shall be passed in writing by the income-tax authority concerned.

(5) 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, the Assessing Officer shall make any refund which may be due to such assessee or the deductor or the collector.

(6) 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, the Assessing Officer shall serve on the assessee or the deductor or the collector, as the case may be a notice of demand in the prescribed form specifying the sum payable, and such notice of demand shall be deemed to be issued under section 156 and the provisions of this Act shall apply accordingly.

(7) Save as otherwise provided in section 155 or sub-section (4) of section 186 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.

(8) Without prejudice to the provisions of sub-section (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 the 1st day of June, 2001 to an income-tax authority referred to in sub-section (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.