Retrospective Amendments under Budget 2026 – Rectification, Revision, Reassessment Options before Tax Authorities

HARI OM JINDAL 26 Feb 2026 4,749 Views 1 comment Print Income Tax | Articles, Featured

CA Hari Om Jindal, Adv. Surya Jindal & Adv. Sanya Jindal

Retrospective Amendments under Budget 2026 – Rectification, Revision, Reassessment Options before Tax Authorities

Synopsis

It is a general principle that when a law is amended, the amendment has prospective application, unless it is explicitly stated to be retrospective. The principle, however, applies to substantive law only and not to procedural law. If the amendment is of a procedural or clarificatory nature, it applies to pending proceedings also. In a recent Budget 2026, many provisions are amended specifically with retrospective effect. Therefore, there is no purpose of discussion whether the law is procedural or substantive. However, it will be quite interesting to know the options available with the tax authorities. In this article, the authors examine the issue of retrospective effect of amendments as regards the power exercisable by the departmental authorities.

Page Contents

1. Background
2. What is retrospective amendment?
3. Power of Government to amend law retrospectively
4. Applicability of retrospective amendments to the cases pending at any appellant forum
5. Rectification u/s 154
6. Revision under section 263
7. Misc. rectification application to ITAT under section 254(2)
8. Filing appeal with application for condonation of delay
9. Reassessment based on retrospective amendment?

1. Background

The provisions of Finance Bill, 2026 (hereinafter referred to as “the Bill” or “the Budget 2026”), relating to direct taxes seek to amend the Income-tax Act, 2025 (‘the Act’), the Income-tax Act, 1961(ITA1961), The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 and the Finance (No. 2) Act, 2004.

It is interesting to note that most of the amendments relating to ITA1961, will be applicable with retrospective effect. Here, we will refer to four important retrospective amendments:

A. Limitation Controversy – Roca issue – 144C v. 153

> Section 153 provides that a final order of assessment has to be passed within twelve months from the end of assessment year. Further, in cases involving reference to TPO, the period of limitation in increased by twelve months. It means 24 months from the end of assessment year.

> Section 144C contains a non obstante clause providing that the DRP has to pass the directions within nine months from the end of the month in which the draft order is forwarded to the eligible assessee.

> It is also provided therein that notwithstanding Section 153, the Assessing Officer is required to pass final order after giving effect to DRP directions within one month from the end of the month in which DRP directions are received by the Assessing Officer.

> The controversy is; whether this nine-month period specified u/s 144C is in addition to period specified under section 153?

> Madras HC in Roca Bathroom [CIT v. Roca Bathroom Products (P.) Ltd. [2022] 140 taxmann.com 304/445 ITR 537 (Mad.)] and Bombay HC in Shelf Drilling [Shelf Drilling Ron Tappmeyer Ltd. Assistant Commissioner of Income-tax, International Taxation [2023] 153 taxmann.com 162 (Bombay)/[2023] 295 Taxman 85 (Bombay)/[2023] 457 ITR 161 (Bombay)] upheld taxpayer contention that no additional time of nine month will be available for passing final order.

> SC in Shelf Drilling decision held that the judgment of the High Court of Bombay ‘shall not be cited as a precedent in any other subsequent matter until further orders.

> However, there is split decision on August 8, 2025 [Assistant Commissioner of Income-tax (International Taxation) vs. Shelf Drilling Ron Tappmeyer Ltd. [2025] 177 taxmann.com 262 (SC)[08-08-2025] and the matter is pending before Chief Justice of India for constituting an appropriate Bench to consider issues afresh.

> Roca Bathroom is still pending before SC.

> In the Budget 2026, notwithstanding anything contained in any judgment, order or decree of court, it is proposed to clarify in section 153 and section 153B that time lines in these sections govern the draft order stage and the timelines provided in section 144C operate for finalization of assessments, notwithstanding the time limit provided in section 153 and section 153B.

> Suitable amendments are also proposed to be carried out in the Income-tax Act, 2025 so that correct interpretation is taken, litigation is minimized and certainty is achieved.

> The clarification in Income-tax Act, 1961 shall come into force with retrospective effect from 1.4. 2009 in respect of section 153 and from 1.10.2009 in respect of section 153B. The amendment in Income-tax Act, 2025 shall come into force with effect from 1st day of April, 2026.

B. JAO vs. FAO

> Faceless Scheme of Assessment had come to be adopted by virtue of Sections 144B and 151A of the Act.

> Presently, section 148 notice and enquiry u/s 148A are conducted by JAO.

> Assessment proceedings are conducted by faceless units.

> The controversy arises that the notice u/s 148 etc. should also be issued by FAO.

> Delhi HC had held that both JAO and FAO have concurrent jurisdiction to issue section 148 notices – Yukti Export v. Income-tax Officer – [2025] 179 taxmann.com 619 (Delhi). The Court in the case of T.K.S. Builders (P.) Ltd. v. ITO [2024] 167 taxmann.com 759 (Delhi) had settled the law relating to the issue, which though under challenge before the Supreme Court, has not been stayed.

> Though the said judgment has been taken in appeal before the Supreme Court, the revenue has been permitted to continue the proceedings with a caveat that any order, if passed adverse to the petitioner therein, shall not be given effect.

> However, various other high courts including Bombay and Telangana held in favour of taxpayers. [Hexaware Technologies Ltd. vs. Assistant Commissioner of Income-tax [2024] 162 taxmann.com 225 (Bombay)/[2024] 464 ITR 430 (Bombay)[03-05-2024]

> The issue is presently pending before the Hon’ble Supreme Court in the case of Union of India v Suryalakshmi Cotton Mills, SLP (Civil) No. 27736 /2023 together with several other appeals on the same issue.

> Interestingly, SC dismissed Revenue’s SLP in two cases, may be in ignorance of pending other SLPs.

> However, recently, SC allows Revenue’s M.A.s and restored two SLPs in Prakash Patil and Deepanjan Roy on JAO-FAO controversy. SC tags both matters with batch of 1000 cases pending before another Bench of Apex Court.

> The Income-tax Act, 2025 is coming into force from the 1st of April, 2026. The objective of the new law has been to provide simplicity in language and provisions so as to avoid interpretational issues and prevent litigation. Therefore, as per Government, there is an urgent need to clarify the position of law in the new Income-tax Act, 2025. The intention of the legislature also needs to be clearly laid out in the Income-tax Act, 1961 so that the intent is uniformly reflected in the two Acts.

> Accordingly, it is proposed in Budget 2026, to clarify in the Income-tax Act, 1961 that notwithstanding anything contained in any judgment, order or decree of court, the Assessing Officer for the purposes of section 148 and section 148A shall mean and shall always be deemed to have meant Assessing Officer other than the National Faceless Assessment Centre or any of its assessment units. Suitable amendment is also carried out in the Income-tax Act, 2025 so that correct interpretation is taken and litigation is minimized and certainty is achieved.

> The clarification in Income-tax Act, 1961 shall come into force with retrospective effect from 1st day of April, 2021. The amendment in Income-tax Act, 2025 shall come into force with effect from 1st day of April, 2026.

Very recently, the Supreme Court, through a Bench of Justice B.V. Nagarathna and Justice Ujjal Bhuyan, has passed an order remitting a batch of JAO-FAO cases back to the High Court for fresh consideration following retroactive amendments. Another batch of 1000 cases pertaining to this issue is pending before CJI led Bench, which has listed them on Feb. 17.

Retrospective Amendments under Budget 2026 – Rectification, Revision, Reassessment Options before Tax Authorities

C. DIN Issue

> CIRCULAR NO. 19/ 2019 [F.NO. 225/95/2019-ITA.II], DATED 14-08-2019. It has been decided that no communication shall be issued by any income-tax authority relating to assessment, appeals, orders, statutory or otherwise, exemptions, enquiry, investigation, verification of information, penalty, prosecution, rectification, approval etc. to the assessee or any other person, on or after the 1st day of October, 2019 unless a computer-generated Document Identification Number (DIN) has been allotted and is duly quoted in the body of such communication, except, in the following circumstances:

> when there are technical difficulties in generating/allotting/quoting the DIN and issuance of communication electronically; or

> when communication regarding enquiry, verification etc. is required to be issued by an income-tax authority, who is outside the office, for discharging his official duties: or

> when due to delay in PAN migration. PAN is lying with non-jurisdictional Assessing Officer; or

> when PAN of assessee is not available and where a proceeding under the Act (other than verification under section 131 or section 133 of the Act) is sought to be initiated; or

> When the functionality to issue communication is not available in the system,

> The communication issued under aforesaid circumstances shall state the fact that the communication is issued manually without a DIN and the date of obtaining of the written approval of the Chief Commissioner/ Director General of Income-tax for issue of manual communication in the following format-

” .. This communication issues manually without a DIN on account of reason/reasons given in para3(i)/3(ii)/3(iii)/3(iv)/3(v) of the CBDT Circular No …dated (strike off those which are not applicable) and with the approval of the Chief Commissioner/Director General of Income Tax vide number …. dated ….

> It has been provided that any communication which is not in conformity shall be treated as invalid and shall be deemed to have never been issued.

> The communication issued manually in the three situations specified above shall have to be regularised within 15 working days of its issuance.

> I-T notices without computer generated identification numbers will be invalid, it was also clarified by the finance minister Nirmala Sitharaman

> In the case of CIT v. Brandix Mauritius Holdings Ltd. [2023] 149 taxmann.com 238/293 Taxman 385 (Delhi), the High Court has ruled that the object and purpose of the issuance of Circular No. 19/2019, dated 14-8-2019, was to create an audit trail. Thus, communication related to assessments, appeals, and orders without DIN would have no legal standing.

> It was held that the final assessment order issued by the Assessing Officer lacked a DIN, and there was no evidence on record indicating exceptional circumstances, as outlined in Circular No. 19/2019, that would justify the manual communication of the final assessment order without a DIN. Further, failing to assign a DIN was not a correctable error under Section 292B.

> SC Granted an Interim Stay on HC’s Order – Commissioner of Income-tax v. Brandix Mauritius Holdings Ltd. – [2024] 158 taxmann.com 247 (SC)

> Accordingly, it is proposed to clarify in section 292B that notwithstanding anything contained in any judgment, order or decree of court, no assessment in pursuance of any of the provisions of Income-tax Act, 1961 shall be invalid or shall be deemed to have been invalid on the ground of any mistake, defect or omission in respect of quoting of a computer generated Document Identification Number, if such assessment order are referenced by such number in any manner. Further, this amendment seeks to clarify as long as there is a reference of DIN in the assessment order, the same would be sufficient compliance even if there may be some minor mistakes, defects or omissions in notices or summons in relation to such assessment. Suitable amendments are also proposed to be carried out in the Income-tax Act, 2025 so that correct interpretation is taken, litigation is minimized and certainty is achieved.

> The clarification in Income-tax Act, 1961 shall come into force with retrospective effect from 1st day of October, 2019. The amendment in Income-tax Act, 2025 shall come into force with effect from 1st day of April, 2026.

D. Clarifying the manner of computation of sixty days for passing the order by the Transfer Pricing Officer

> Section 92CA(3A) states that TPO is required to pass an order before 60 days prior to the date on which period of limitation under section 153, or as the case may be, in section 153B for making the order of assessment or reassessment or recomputation or fresh assessment, as the case may be, expires.

> There has been considerable litigation in courts as to how the period of sixty days referred in section 92CA(3A) is required to be computed. As per Government, the intent of the legislature has always been to include the date of limitation in the computation of sixty days. However, the courts have annulled number of assessments holding that period of sixty days does not include the date of limitation and therefore assessments which have lawfully made by the Transfer Pricing Officer with clearly sixty days remaining for completion of final assessment as per section 153 or 153B as the case may be, have been struck down.

> It has been held in various cases that the TPO order has to be passed 60 days prior to the date on which the time limit provided under section 153 of the Act expires, i.e. by 23:59:59 hours of 29.01.2027 (one day extra in leap year). Deputy Commissioner of Income-tax Saint Gobain India (P.) Ltd. [2022] 137 taxmann.com 215 (Madras)/[2022] 444 ITR 636 (Madras), Pr. CIT v. Tata Power Solar Systems Ltd. [2024] 166 taxmann.com 16 (Karnataka), Deputy Commissioner of Income-tax vs. IQVIA RDS (India) (P.) Ltd. [2025] 181 taxmann.com 623 (Bangalore – Trib.)]

> The Income-tax Act, 2025 is coming into force from the 1st of April, 2026. The objective of the new law has been to provide simplicity in language and provisions so as to avoid interpretational issues and prevent litigation. Therefore, there is an urgent need to clarify the position of law in the new Income-tax Act, 2025. The intention of the legislature also needs to be clearly laid out in the Income-tax Act, 1961 so that the intent is uniformly reflected in the two Acts.

> Accordingly, notwithstanding anything contained in any judgment, order or decree of court, it is proposed in Budget 2026, to be clarified in section 92CA(3A) as to how the period of sixty days is required to be computed. Suitable amendments are also proposed to be carried out in the Income-tax Act, 2025 so that correct interpretation is taken, litigation is minimized and certainty is achieved.

> The clarification in Income-tax Act, 1961 shall come into force with retrospective effect from 1st day of June, 2007. The amendment in Income-tax Act, 2025 shall come into force with effect from 1st day of April, 2026.

2. What is retrospective amendment?

When the law is amended with effect from a date that is previous to the date of amendment, then it is called retrospective amendment. For example, the Finance Act, 2001, has inserted a new section 14A with effect from April 1, 1962, this is a retrospective amendment.

3. Power of Government to amend law retrospectively

India is a federal country, so the powers regarding legislation are divided between the State and the Centre. As ‘tax on income other than agricultural income is a Central subject (as per Entry 82 of Schedule VII(I) of the Constitution), so the Central Government has the power to legislate on income-tax under article 245(1) of the Constitution. As per the Supreme Court’s decision in Nandu Mal Girdhari Lal v. State of UP AIR 1992 SC 2084, the power to make the law includes the power to give it retrospective effect, but there are some restrictions on this power of Parliament :

> Penal laws cannot be retrospective (Article 20(1) of the Constitution)

> There should not be any infringement of fundamental rights (Articles 14 and 19 of the Constitution)

> Legislatures have legislative power over the subject-matter which is included in their respective lists (Centre or State list) (Article 245).

So, the Legislature has the power to make the law applicable retrospectively but that should not violate fundamental rights and should be within the legislative power of the Legislature, because India is a federal country and legislative including taxation powers are divided between the States and the Central Government.

The Hon’ble Supreme Court in Virender Singh Hooda v. State of Haryana (2004) 12 SCC 588 observed as under:

“47. There is a distinction between encroachment on the judicial power and nullification of the effect of a judicial decision by changing the law retrospectively. The former is outside the competence of the legislature but the latter is within its permissible limits (Tirath Ram Rajendra Nath v. State of U.P.). The reason for this lies in the concept of separation of powers adopted by our constitutional scheme. The adjudication of the rights of the parties according to law is a judicial function. The legislature has to lay down the law prescribing norms of conduct which will govern parties and transactions and to require the court to give effect to that law (I.N. Saksena case).

48. The legislature can change the basis on which a decision is given by the Court and thus change the law in general, which will affect a class of persons and events at large. It cannot, however, set aside an individual decision inter parties and affect their rights and liabilities alone. Such an act on the part of the legislature amounts to exercising the judicial power by the State and to function as an appellate court or tribunal, which is against the concept of separation of powers. (Cauvery Water Disputes Tribunal, Inre).

49. It is not possible to accept the contention that vested rights cannot be taken away by legislature by way of retrospective legislation. Taking away of such right would, however, be impermissible if violative of Articles 14, 16 and any other constitutional provision. In State of T.N. v. Arooran Sugars Ltd., [(1997) 1 SCC 326], this Court held that whenever any amendment is brought in force retrospectively or any provision of the Act is deleted retrospectively, in this process rights of some are bound to be affected one way or the other. In every case, it cannot be urged that the exercise by the legislature while introducing a new provision or deleting an existing provision with retrospective effect per se shall be violative of Article 14 of the Constitution. If that stand is accepted, then the necessary corollary shall be that legislature had no power to legislate retrospectively, because in that event a vested right is affected.”

In Medical Council of India v. State of Kerala (2019) 13 SCC 185, the Hon’ble Supreme Court held that, no doubt it is open to legislature to change the law in general by changing the basis but it is not open to set aside an individual decision inter partes and thus affect their rights and liabilities alone. Such an act on the part of the legislature amounts to exercising judicial power cannot be defiance to judicial decision. Once judgment has attained finality and is binding, it cannot be overruled by legislative measure. Such an act is an open invitation to lawlessness and anarchy. It would be against the rule of law.

The Constitution bench in the case of Commissioner of Income-tax (Central)-I, New Delhi vs. Vatika Township (P.) Ltd. [2014] 49 taxmann.com 249 (SC)/[2014] 227 Taxman 121 (SC)/[2014] 367 ITR 466 (SC)/[2014] 271 CTR 1 (SC), had observed:

“31. Of the various rules guiding how a legislation has to be interpreted, one established rule is that unless a contrary intention appears, a legislation is presumed not to be intended to have a retrospective operation. The idea behind the rule is that a current law should govern current activities. Law passed today cannot apply to the events of the past. If we do something today, we do it keeping in view the law of today and in force and not tomorrow’s backward adjustment of it. Our belief in the nature of the law is founded on the bed rock that every human being is entitled to arrange his affairs by relying on the existing law and should not find that his plans have been retrospectively upset. This principle of law is known as lex prospicit non respicit : law looks forward not backward. As was observed in Phillips v. Eyre [1870] LR 6 QB 1, a retrospective legislation is contrary to the general principle that legislation by which the conduct of mankind is to be regulated when introduced for the first time to deal with future acts ought not to change the character of past transactions carried on upon the faith of the then existing law.

32. The obvious basis of the principle against retrospectivity is the principle of ‘fairness’, which must be the basis of every legal rule as was observed in the decision in L’Office Cherifien des Phosphates v. Yamashita-Shinnihon Steamship Co. Ltd. [1994] 1 AC 486. Thus, legislations which modified accrued rights or which impose obligations or impose new duties or attach a new disability have to be treated as prospective unless the legislative intent is clearly to give the enactment a retrospective effect; unless the legislation is for purpose of supplying an obvious omission in a former legislation or to explain a former legislation. We need not note the cornucopia of case law available on the subject because aforesaid legal position clearly emerges from the various decisions and this legal position was conceded by the counsel for the parties. In any case, we shall refer to few judgments containing this dicta, a little later.

33. We would also like to point out, for the sake of completeness, that where a benefit is conferred by a legislation, the rule against a retrospective construction is different. If a legislation confers a benefit on some persons but without inflicting a corresponding detriment on some other person or on the public generally, and where to confer such benefit appears to have been the legislators object, then the presumption would be that such a legislation, giving it a purposive construction, would warrant it to be given a retrospective effect. This exactly is the justification to treat procedural provisions as retrospective. In Government of India v. Indian Tobacco Association [2005] 7 SCC 396, the doctrine of fairness was held to be relevant factor to construe a statute conferring a benefit, in the context of it to be given a retrospective operation. The same doctrine of fairness, to hold that a statute was retrospective in nature, was applied in the case of Vijay v. State of Maharashtra [2006] 6 SCC 286. It was held that where a law is enacted for the benefit of community as a whole, even in the absence of a provision the statute may be held to be retrospective in nature. However, we are confronted with any such situation here.

In such cases, retrospectively is attached to benefit the persons in contradistinction to the provision imposing some burden or liability where the presumption attaches towards proceptivity. In the instant case, the proviso added to Section 113 of the Act is not beneficial to the assessee. On the contrary, it is a provision which is onerous to the assessee. Therefore, in a case like this, we have to proceed with the normal rule of presumption against retrospective operation. Thus, the rule against retrospective operation is a fundamental rule of law that no statute shall be construed to have a retrospective operation unless such a construction appears very clearly in the terms of the Act, or arises by necessary and distinct implication. Dogmatically framed, the rule is no more than a presumption, and thus could be displaced by out weighing factors.”

So, the Legislature has, subject to certain limitation, have the power to make the law applicable retrospectively.

4. Applicability of retrospective amendments to the cases pending at any appellant forum

If any law is amended with retrospective effect, then amended law has to be applied in appeal. It is settled position of law and this point is concluded by a judgment of supreme court in Commissioner of Sales Tax v. Bijli Cotton Mills [1964] 15 S.T.C. 656; A.I.R. 1964 S.C. 1594, 1598. In this case, Shah J., speaking for the court, observed as follows:

“Undoubtedly the Tribunal called upon to decide a taxing dispute must apply the relevant law applicable to a particular transaction to which the problem relates, and that law normally is the law applicable as on the date on which the transaction in dispute has taken place. If the law which the Tribunal seeks to apply to the dispute is amended, so as to make the law applicable to the transaction in dispute, it would be bound to decide the question in the light of the law so amended. Similarly, when the question has been referred to the High Court and in the meanwhile the law has been amended with retrospective operation, it would be the duty of the High Court to apply the law so amended if it applies. By taking notice of the law which has been substituted for the original provision, the High Court is giving effect to legislative intent and does no more than what must be deemed to be necessarily implicit in the question referred by the Tribunal, provided the question is couched in terms of sufficient amplitude to cover an enquiry into the question in the light of the amended law, and the enquiry does not necessitate investigation of fresh facts. If the question is not so couched as to invite the High Court to decide the question in the light of the law as amended or if it necessitates investigation of facts which have not been investigated, the High Court may refuse to answer the question. Application of the relevant law to a problem raised by the reference before the High Court is not normally excluded merely because at the date when the Tribunal decided the question the relevant law was not or could not be brought to its notice.”

In the case of CIT v. Straw Products Ltd. [1966] 60 ITR 156 (SC), the Taxation Laws Merged States) (Removal of Difficulties) Order, 1949, came to be amended with retrospective effect amended by the Taxation Laws (Merged States) Removal of Difficulties) Order, 1962. A reference was pending before the Supreme Court requiring reference to Order, 1949. The court held that it was the duty of the Supreme Court to answer the reference in accordance with the amendment unless the question referred by the Appellate Tribunal was not couched in terms of sufficient amplitude to cover an inquiry into the question in the light of the amendment.

In the case of Commissioner of Income-tax vs. Uttam Chand Nahar [2007] 295 ITR 403 (Rajasthan)/[2006] 204 CTR 498 (Rajasthan), also it was held that the principle is well-settled that where the proceedings are pending at any stage and law which is to be applied to the facts of the case is amended retrospectively, the same has to be noticed and given effect to which matter operates against the ordinary principle as the validity of a transaction has to be examined as on the date the transaction has taken place.

Therefore, if any law is amended with retrospective effect, then amended law has to be applied in appeal irrespective of assessment year if the assessment year is covered by retrospective amendment.

Very recently, the Supreme Court, through a Bench of Justice B.V. Nagarathna and Justice Ujjal Bhuyan, has passed an order remitting a batch of JAO-FAO cases back to the High Court for fresh consideration following retroactive amendments.

For example; Section 92CA(3A) states that TPO is required to pass an order before 60 days prior to the date on which period of limitation under section 153, or as the case may be, in section 153B for making the order of assessment or reassessment or recomputation or fresh assessment, as the case may be, expires. The clarification in Income-tax Act, 1961 shall come into force with retrospective effect from 1st day of June, 2007. Therefore, though the assessment year 2007-08 cannot be reopened under any provisions, still, if the appeal is pending before any appellant authorities, even may be by taking additional legal ground [National Thermal Power Co. Ltd. v. CIT [1998] 97 Taxman 358/229 ITR 383 (SC)], it can be raised in appellant proceedings.

5. Rectification u/s 154

If the assessment is complete and no appeal, etc., is pending, then one of the option available with the tax authorities is to do rectification under section 154. Section 154 of the Income Tax Act empowers an income-tax authority, referred to in section 116, to rectify any mistake apparent from the record in the orders passed by them. An order of rectification can be made within a period of 4 years from the date of the passing of the order sought to be rectified. However, rectification can be done only by the same authority who has passed the original order. Junior authority cannot rectify the order of senior authority. AO is also one of the authorities referred to in section 116. Hence, AO can rectify the assessment order. Following are the specified Tax Authorities under section 154 of the Act:

The Central Board of Direct Taxes constituted under the Central Boards of Revenue Act, 1963 (54 of 1963);
Principal Directors General of Income-tax or Principal Chief Commissioners of Income-tax;
Directors-General of Income-tax or Chief Commissioners of Income-tax;
Principal Directors of Income-tax or Principal Commissioners of Income-tax;
Directors of Income-tax or Commissioners of Income-tax or Commissioners of Income-tax (Appeals);
Additional Directors of Income-tax or Additional Commissioners of Income-tax or Additional Commissioners of Income-tax (Appeals);
Joint Directors of Income-tax or Joint Commissioners of Income-tax;
Deputy Directors of Income-tax or Deputy Commissioners of Income-tax or Deputy Commissioners of Income-tax (Appeals);
Assistant Directors of Income-tax or Assistant Commissioners of Income-tax;
Income-tax Officers;
Tax Recovery Officers;
Inspectors of Income-tax.

While TPOs and CIT (A)s are covered within the scope of section 154, the DRP is not one of the specified authorities under section 154. Therefore, specific powers are given under rule 13 of the DRP Rules. Even specific powers of rectification are also given to TPO under section 92C(5) even the TPO is one of the specified authorities under section 116.

Therefore, where the ALP is determined by AO based on TPO report, which is binding on the AO, the AO cannot rectify the assessment order so as to overrule the TPO determination of ALP. Nevertheless, the provisions of section 92CA permit rectification/amendment by TPO also. Section 92CA(5) provides that with a view to rectifying any mistake apparent from the record, the TPO may amend any order passed by him and the provisions of section 154 shall apply. Section 92CA(6) provides that where any amendment is made by the TPO under sub-section (5), he shall send a copy of his order to the AO who shall thereafter proceed to amend the order of assessment in conformity with such order of the TPO. But, the scope under section 154 read with section 92CA(5) is limited to apparent error.

As per rule 13 of the Income Tax (Dispute Resolution Panel) Rules, 2009 (DRP Rules), after the issue of directions under rule 10, if any mistake or error is apparent in such direction, the panel may, suo moto, or on an application from the eligible assessee or the Assessing Officer, rectify such mistake or error, and also direct the Assessing Officer to modify the assessment order accordingly. The DRP had rectified such mistake on the rectification application of the assessee as reported in case of Sony India (P.) Ltd. v Addl. CIT [2019] 104 taxmann.com 238 (Delhi – Trib.).

Further, it is also important to note that time limit is not prescribed for rectification by TPO and DRP. However, based on time limit prescribed under section 154, it can be argued that these authorities can also rectify their orders within a period of 4 years from the date of the passing of the order sought to be rectified.

The scope and effect of the expression “mistake apparent from the record” and the extent of the powers of the Income-tax Officer under section 154 of the Act were discussed by supreme court in Venkatachalam v. Bombay Dyeing and Manufacturing Co. Ltd [1958] 34 ITR 143 (SC), where the facts were these: A sum of Rs. 50,063 being interest on tax paid in advance was given credit for under section 18A(5) of the Act. Subsequently, there was an amendment of the Act by which the interest became allowable only on the difference between the amount of tax paid and what was actually determined. As a consequence of this the Income-tax Officer rectified the mistake and reduced the amount of interest credited to Rs. 21,157 and issued a demand for the difference. The assessee obtained a writ of prohibition against the Income-tax Officer on the ground that the mistake contemplated under that provision had to be apparent on the face of the order and it was not contemplated to cover a mistake resulting from an amendment of the law even though it was retrospective in its effect. The Revenue appealed to supreme court. Thus, the question for decision in that case was whether an order proper and valid when made could be said to disclose a mistake apparent from the record merely because it became erroneous as a result of a subsequent amendment of the law which was retrospective in its operation. In delivering the judgment of the court, Gajendragadkar, J., said:

“At the time when the Income-tax Officer applied his mind to the question of rectifying the alleged mistake, there can be no doubt that he had to read the principal Act as containing the inserted proviso as from April 1, 1952. If that be the true position then the order which he made giving credit to the respondent for Rs. 50,603-15-0 is plainly and obviously inconsistent with a specific and clear provision of the statute and that must inevitably be treated as a mistake of law apparent from the record. If a mistake of fact apparent from the record of the assessment order can be rectified under section 35 we see no reason why a mistake of law which is glaring and obvious cannot be similarly rectified.”

This decision is followed in the cases of Ester Industries Ltd. vs. UOI [2013] 39 taxmann.com 107 (Delhi)/[2014] 221 Taxman 22 (Delhi) (Mag.) and NSDL E-Governance Infrastructure Ltd. vs. Assistant Commissioner of Income-tax, Circle-7 (1), Mumbai [2015] 55 taxmann.com 359 (Mumbai)/[2014] 35 ITR(T) 152 (Mumbai).

Therefore, AO and other specified Tax Authorities u/s 116 can rectify their orders under section 154. The TPO can rectify their orders u/s section 92C(5) and DRP under rule 13 of the DRP Rules.

However, as per section 154(1A) of the Act, the AO can rectify the order in respect of a matter other than the matter which has been considered and decided by the appellate/revisional authority. In the case of Principal Commissioner of Income-tax vs. Godrej Industries Ltd. [2023] 153 taxmann.com 529 (Bombay), the issue of diminution in value of an asset for calculating book profit was not a subject matter of appeal or revision. Therefore, it was held that the original order under section 143(3) of the Act dated 27/02/2004 is the order which can be rectified by the AO within a period of 4 years. Since, the original order was passed in 2004, the order passed under section 154 of the Act dated 29/03/2014 is barred by section 154(7) of the Act.

Further, if, in a case where assessment/reassessment under section 147 or rectification under section 154 are both equally competent, the department may take action under either section, since the two sections are not mutually exclusive as held in Ester Industries Ltd. vs. Union of India [2013] 39 taxmann.com 107 (Delhi)/[2014] 221 Taxman 22 (Delhi) (Mag.).

6. Revision under section 263

“Revision of orders prejudicial to revenue.

263. (1) The Principal Chief Commissioner or Chief Commissioner or Principal Commissioner] or] Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the [Assessing] Officer or the Transfer Pricing Officer, as the case may be,] is erroneous in so far as it is prejudicial to the interests of the revenue , he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including,-

(i) an order enhancing or modifying the assessment or cancelling the assessment ³² and directing a fresh assessment; or

(ii) an order modifying the order under section 92CA; or

(iii) an order cancelling the order under section 92CA and directing a fresh order under the said section].

[Explanation 1.]-For the removal of doubts, it is hereby declared that, for the purposes of this sub-section,-

(a) an order passed ³⁹[on or before or after the 1st day of June, 1988] by the Assessing Officer ⁴⁰[or the Transfer Pricing Officer, as the case may be,] shall include-

(i) an order of assessment made by the Assistant Commissioner ⁴¹[or Deputy Commissioner] or the Income-tax Officer on the basis of the directions issued by the ⁴²[Joint] Commissioner under section 144A;

(ii) an order made by the ⁴²[Joint] Commissioner in exercise of the powers or in the performance of the functions of an Assessing Officer ⁴⁰[or the Transfer Pricing Officer, as the case may be,] conferred on, or assigned to, him under the orders or directions issued by the Board or by the ⁴³[Principal Chief Commissioner or] Chief Commissioner or ⁴³[Principal Director General or] Director General or ⁴³[Principal Commissioner or] Commissioner authorised by the Board in this behalf under section 120;

⁴⁴[(iii) an order under section 92CA by the Transfer Pricing Officer;]

(b)⁴⁵“record” ⁴⁶[shall include and shall be deemed always to have included] all records relating to any proceeding under this Act available at the time of examination by the ⁴³[Principal ⁴⁷[Chief Commissioner or Chief Commissioner or Principal] Commissioner or] Commissioner;

(c) where any order referred to in this sub-section and passed by the Assessing Officer ⁴⁴[or the Transfer Pricing Officer, as the case may be,] had been the subject matter ⁴⁸ of any appeal ⁴⁹[filed on or before or after the 1st day of June, 1988 ⁴⁸], the powers of the^*⁵⁰[Principal Commissioner or] Commissioner under this sub-section shall extend ⁴⁹[and shall be deemed always to have extended] to such matters as had not been considered and decided in such appeal.]

……………….

⁵⁵[(2) No order shall be made under sub-section (1) after the expiry of two years from the end of the financial year in which the order sought to be revised was passed.”

Two explanations are very important:

> Record shall include and shall be deemed always to have included all records relating to any proceeding under this Act available at the time of examination.

> Where any order had been the subject matter of any appeal the powers shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal.

Therefore, if due to retrospective amendment, order passed by AO becomes erroneous in so far as it is prejudicial to the interests of the revenue, that can be revised if the time prescribed under section 263 is available, even it was correct when the AO passed the original order.

Under the provisions of section 263 of the Income Tax Act, the Commissioner of Income-tax (“CIT”) or Principal Commissioner of Income-tax (“PCIT”) is empowered to call for and examine the record of any proceeding and if he considers that the order passed by the Assessing Officer is erroneous insofar as it is prejudicial to the interests of revenue, he may pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the same or directing a fresh assessment. By the Finance Act, 1988, an Explanation was substituted with effect from 1.6.1988 to the relevant sections of the Income-tax Act to clarify that the term ‘record’ would include all records relating to any proceeding available at the time of examination by the Commissioner. Further, it was also clarified that the Commissioner is competent to revise an order of assessment passed by an Assessing Officer on all matters except those which have been considered and decided in an appeal. The above Explanation was incorporated in the Finance Act, 1988 to clarify this legal position to have always been in existence.

The interpretation of expression “erroneous in so far as it is prejudicial to the interests of the revenue” has been a contentious one. In order to provide clarity on the issue, section 263 of the Income Tax Act has been amended w.e.f. 1.6.2015 to provide that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Commissioner or Commissioner: (a) the order is passed without making inquiries or verification which, should have been made; (b) the order is passed allowing any relief without inquiring into the claim; (c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or (d) the order has not been passed in accordance with any decision, prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person.

Presently, the scope of revision is quite wide and even the Principal Chief Commissioner and Chief Commissioner can revise order of TPO besides orders of AOs.

Earlier, the TPO could pass the order only after obtaining the approval of the Director of Income Tax (Transfer Pricing) (Instruction No. 3, dated 20.5.2003). Provisions of section 92CA(4) were modified w.e.f. 1.06.2007 and there was judicial consensus that TPO’s order under sub-section (3) of section 92CA should be treated as final and binding on AO. So long as the order under section 92CA(3) by the TPO was available on record, AO has no other option than to follow the same. Therefore, when the TPO order is binding on AO, a view can be taken that this order cannot be revised by CIT. The CIT has no jurisdiction over the TPO administratively. Even if the order is erroneous and prejudicial to the interests of the revenue, how a commissioner can revise an order which is passed after obtaining approval of CIT(TP). Further, it is doubtful that even CIT(TP) can revise TPO order which is based on its own approval!

However, from 1st April 2022, after amendment of section 263, there are two separate jurisdictions. The Circular No. 23/2022, dated 3-11-2022 explain the purpose of amendment:

43. Amendment in the provisions of section 263

43.1 Section 263 of the Act contains the provision for revision of an order passed by the Assessing Officer which is erroneous in so far as it is prejudicial to the interests of revenue. An order under section 263 of the Act can be passed within two years from the end of the financial year in which the order sought to be revised was passed.

43.2 As per provisions of section 92CA, if the Assessing Officer considers it necessary or expedient, he may, with the approval of the Principal Commissioner or Commissioner refer the computation of arm’s length price (ALP) in relation to the International transaction or specified domestic transaction entered into by an assessee, to the Transfer Pricing Officer (TPO). The TPO passes an order determining the ALP in an international transaction or specified domestic transaction under the provisions of section 92CA and sends it to the Assessing Officer for final income determination. However, it is not clear as to who has the power under section 263 to revise the order of the TPO passed under section 92CA.

43.3 Therefore, the provisions of section 263 of the Act have been amended so as to provide that the Principal Chief Commissioner or the Chief Commissioner or the Principal Commissioner or the Commissioner who is assigned the jurisdiction of transfer pricing may call for and examine the record of any proceeding under this Act, and if he considers that any order passed by the TPO, working under his jurisdiction, to be erroneous in so far as it is prejudicial to the interests of revenue, he may pass an order directing revision of the order of TPO.

43.4 Further, section 153 of the Act is amended by inserting sub-section (5A) to provide that where the Transfer Pricing Officer gives effect to an order or direction under section 263 by means of an order under section 92CA and forwards such order to the Assessing Officer, the Assessing Officer shall proceed to modify the order of assessment or reassessment or recomputation, in conformity with such order of the Transfer Pricing Officer, within two months from the end of the month in which such order of the Transfer Pricing Officer is received by him. Further, consequential amendments to sub-sections (3), (5) and (6) have also been carried out.

43.5 Applicability: This amendment is effective from 1st April, 2022.”

Therefore, the logical conclusion should be as under:

1. If the order of AO is erroneous and prejudicial to the interests of revenue, except which is based on TPO order, then the CCIT/CCIT/Pr. CIT/CIT having jurisdiction over AO can revise the order AO.

2. If the order of TPO is erroneous and prejudicial to the interests of revenue then the CCIT/CCIT/Pr.CIT/CIT having jurisdiction over TPO can revise only the order TPO.

In the case of CIT v. Ralson Industries Ltd. [2007] 158 TAXMAN 160 (SC), it was held that the scope and ambit of a proceeding for rectification of an order under section 154 and a proceeding for revision under section 263 are distinct and different. The supreme court held that:

“The scope and ambit of a proceeding for rectification of an order under section 154 and a proceeding for revision under section 263 are distinct and different. Order of rectification can be passed on certain contingencies. It does not confer a power of review. If an order of assessment is rectified by the AO in terms of section 154 of the Act, the same itself may be a subject-matter of a proceeding under section 263 of the Act. The power of revision under section 263 is exercised by a higher authority. It is a special provision. The revisional jurisdiction is vested in the Commissioner. An order thereunder can be passed if it is found that the order of assessment is prejudicial to the revenue. In such a proceeding, he may not only pass an appropriate order in exercise of the said jurisdiction but in order to enable him to do it, he may make such inquiry as he deems necessary in this behalf.” (p. 164)

The supreme court further held that the Commissioner can even revise assessment order under section 263 even if the order was rectified under section 154 by the assessing officer. The supreme court held that—

“When different jurisdictions are conferred upon different authorities to be exercised on different conditions, both may not be held to be overlapping with each other. Jurisdiction under section 154 of the Act is only to be exercised by him when there is an error apparent on the face of the record. It does not confer any power of review. An order of assessment may or may not be rectified. If an order of rectification is passed by the assessing authority, the rectified order shall be given effect to. However, only because an order of assessment has undergone rectification at the hands of the AO, in our opinion, the same would not mean that revisional authority shall be denuded of exercising its revisional jurisdiction. Such an interpretation, in our opinion, would run counter to the scheme of the Act. . .An order of assessment is subject to exercise of an order of a revisional jurisdiction under section 263 of the Act. Doctrine of Merger in such a case will have no application.” (p. 165)

The Supreme Court further held that—

“The decision of the Madhya Pradesh High Court in Chunnilal Onkarmal (P.) Ltd.’s case (supra) is also not apposite. Initiation of a proceeding under section 263 of the Act cannot be held to have become bad in law only because an order of rectification was passed. No such hard and fast rule can, in our opinion, be laid down. Each case is required to be considered on its own facts. In a given situation, the High Court may be held to be entitled to set aside both orders and remit the matter for consideration of the matter afresh. But in our opinion, it would not be correct to contend that only because a proceeding for rectification was initiated subsequently, the revisional jurisdiction could not have been invoked under any circumstances whatsoever. If such a proceeding was initiated, in our opinion, the contesting parties could bring the same to the notice of the Commissioner so as to enable him to take into consideration the subsequent events also. It goes without saying that if and when the Commissioner of Income-tax takes up for consideration a subsequent event, the assessee would be entitled to make its submission also in regard thereto.” (p. 166)

Thus, as per the scheme of the Act, the order of the AO can be revised by the Commissioner even if the same has been rectified under section 154, but the order of Commissioner cannot be rectified by the AO on those matters which are covered by the Commissioner.

A 3-Judge Bench of Supreme Court in CIT v. Shri Arbuda Mills Ltd. [1998] 231 ITR 50 (SC) held that the powers under section 263 of the Commissioner shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in an appeal. Therefore, the period of limitation provided for under sub-section (2) of section 263 of the Act would begin to run from the date of the order of assessment and not from the order of reassessment. It was so held in the case of Commissioner of Income-tax, Chennai vs. Alagendran Finance Ltd. [2007] 162 Taxman 465 (SC)/[2007] 293 ITR 1 (SC)/[2007] 211 CTR 69 (SC). The Supreme Court held:

‘15. We, therefore, are clearly of the opinion that keeping in view the facts and circumstances of this case and, in particular, having regard to the fact that the Commissioner of Income-tax exercising its revisional jurisdiction reopened the order of assessment only in relation to lease equalization fund which being not the subject of the reassessment proceedings, the period of limitation provided for under sub-section (2) of section 263 of the Act would begin to run from the date of the order of assessment and not from the order of reassessment. The revisional jurisdiction having, thus, been invoked by the Commissioner of Income-tax beyond the period of limitation, it was wholly without jurisdiction rendering the entire proceeding a nullity.’

Therefore, where the subject matter of revision was not subject to any appellant proceedings, then the period of limitation provided for under sub-section (2) of section 263 of the Act would begin to run from the date of the order of assessment and not from the order of reassessment or the order giving rise to appellant order.

The Supreme Court in the case of CIT v. Shri Arbinda Mills Ltd. [1998] 231 ITR 50/ 98 Taxman 457 held that in view of the consequence of amendment made in section 263(1) including clause (c) of Explanation, with retrospective effect, is that the powers under section 263 of the Commissioner shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in an appeal. In the face of Explanation (c) as interpreted by the Supreme Court, the order of assessment could not be said to have merged with the appellate order and was, therefore, available for revision under section 263.

The consequence of the said amendment made with retrospective effect is that the powers under section 263 of the Commissioner shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in an appeal. Accordingly, even in respect of the aforesaid three items, the powers of the Commissioner under section 263 shall extend and shall be deemed always to have extended to them because the same had not been considered and decided in the appeal filed by the assessee. This is sufficient to answer the question which has been referred.

In the case of Commissioner of Income-tax vs. Shree Manjunathesware Packing Products & Camphor Works [1998] 96 Taxman 1 (SC)/[1998] 231 ITR 53 (SC)/[1997] 143 CTR 406 (SC), also it was held:

14. It, therefore, cannot be said, as contended by the learned counsel for the respondent, that the correct and settled legal position, with respect to the meaning of the word ‘record’ till 1-6-1988, was that it meant the record which was available to the ITO at the time of passing of the assessment order. Further, we do not think that such a narrow interpretation of the word ‘record’ was justified, in view of the object of the provision and the nature and scope of the power conferred upon the Commissioner. The revisional power conferred on the Commissioner under section 263 is of wide amplitude. It enables the Commissioner to call for and examine the record of any proceeding under the Act. It empowers the Commissioner to make or cause to be made such enquiry as he deems necessary in order to find out if any order passed by the Assessing Officer is erroneous insofar as it is prejudicial to the interests of the revenue. After examining the record and after making or causing to be made an enquiry if he considers the order to be erroneous then he can pass the order thereon as the circumstances of the case justify. Obviously, as a result of the enquiry, he may come in possession of new material and he would be entitled to take that new material into account. If the material, which was not available to the ITO when he made the assessment could, thus, be taken into consideration by the Commissioner after holding an enquiry, there is no reason why the material which had already come on record, though subsequently to the making of the assessment, cannot be taken into consideration by him. Moreover, in view of the clear words used in clause (c) of the Explanation to section 263(1), it has to be held that while calling for and examining the record of any proceeding under section 263(1) it is and it was open to the Commissioner not only to consider the record of that proceeding but also the record relating to that proceeding available to him at the time of examination.

15. The view that we are taking receives support from the two decisions of this Court, though the point which is raised before us was not specifically raised in those two cases. In CIT v. Shri Arbuda Mills Ltd. [Tax Reference Case No. 11 of 1983], this Court after considering the effect of the amendment made in section 263(1) by the Finance Act, 1989 whereby clause (c) of the Explanation was also amended with retrospective effect from 1-6-1988, held that ‘the consequence of the said amendment made with retrospective effect is that the powers under section 263 of the Commissioner shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in an appeal. Accordingly, even in respect of the aforesaid three items, the powers of the Commissioner under section 263 shall extend and shall be deemed always to have extended to them because those items had not been considered and decided in the appeal filed by the assessee’. In that case, the assessment was completed on 31-3-1978 and the ITO while computing loss and income of the assessee had accepted the claim of the assessee in respect of those three items. Obviously, in the appeals filed by the assessee those items were not the subject-matter of the appeals as the decision in respect thereof was in its favour. In respect of those three items, the Commissioner had exercised his power under section 263 and, therefore, the question which had arisen for consideration was ‘whether on the facts and in the circumstances of the case, the order of assessment passed by the ITO under section 143(3) read with section 144B on 31-7-1978 had merged with that of the Commissioner (Appeals) dated (sic) in respect of the three items in dispute so as to exclude the jurisdiction of the Commissioner under section 263 ?’ Thus, the amendment made in clause (c) was held applicable to the orders passed before 1-6-1988.

16. In South India Steel Rolling Mills v. CIT 1997 (9) SCC 728, the Commissioner in exercise of his power under section 263 had withdrawn the development rebate granted for the years 1962-63, 1963-64, 1967-68 and 1968-69 on the ground that since the partnership stood dissolved on 3-3-1968 on the death of one of the two partners, before the expiry of eight years the assessee-firm was not entitled to the benefit of the development rebate under section 33(1)(a) of the Act. The said order passed by the Commissioner was challenged before the Tribunal but the assessee’s appeal had failed. At its instance, the following question was referred to the Madras High Court:

“Whether, on the facts and in the circumstances of the case, the revision of assessment under section 263 by the Commissioner for withdrawing the development rebate granted for assessment years 1962-63, 1963-64, 1967-68 and 1968-69 is proper and justified ?”

The High Court also decided against the assessee. In the appeal filed by the assessee the order of Commissioner was challenged, inter alia, on the ground that the power under section 263 could have been invoked on the basis of the record as it stood when the order was passed by the ITO and that it was not open to the Commissioner to take into account dissolution of the assessee-firm, which took place after passing of the assessment order because that circumstance was not disclosed by the record which was before the ITO. Rejecting this contention, this Court held ‘As regards his taking into consideration an event which had occurred subsequent to the passing of the order by the ITO, it may be stated that in Explanation (b) in section 263 there is an express provision wherein it is prescribed that ‘record shall include and shall be deemed always to have included all records relating to any proceeding under this Act available at the time of examination by the Commissioner’. The death of one of the two partners resulting in the dissolution of the assessee-firm on account of such death took place prior to the passing of the order by the Commissioner and it could, therefore, be taken into consideration by him for the purpose of exercising his powers under section 263 of the Act. In that case also the amendment was held applicable to an order passed before 1-6-1988.

17. We, therefore, hold that it was open to the Commissioner to take into consideration all the records available at the time of examination by him and, thus, to consider the valuation report submitted by the departmental valuation cell subsequent to the passing of the assessment order and, so the order passed by him was legal. The High Court was wrong in taking a contrary view. We, therefore, allow this appeal, set aside the judgment and order passed by the High Court and answer the question referred to the High Court in the negative, i.e., in favour of the revenue and against the assessee. In view of the facts and circumstances of the case, there shall be no order as to costs.”

In the case of CIT v. Vincast Engineering [2006] 280 ITR 385(All)(HC), also it was held that an order which became erroneous due to retrospective amendment in the law would be amenable to revision under section 263. In this case, the court held:

“4. The learned counsel for the revenue submitted that as an amendment was made under section 80J of the Act by the Finance Act, 1980 which came into force from 21st August, 1980, but was retrospective in operation, the order of the assessing authority ought to have excluded the borrowed capital for working out the capital employed in the business of the respondent and the assessment order was erroneous and also prejudicial to the interest of the revenue. He submitted that in view of the retrospective amendment it would be treated that for the assessment year in question, borrowed capital had to be excluded while working the capital employed in a business under section 80J of the Act and therefore the order passed by the Commissioner of Income-tax under section 263 was perfectly justified. It is not in dispute that after the retrospective amendment the provisions of the statute exclude the borrowed capital from being taken into consideration for working out capital employed under section 80J of the Act. As a result of retrospective amendment made in the aforesaid section the position under law would be that during the assessment year in question borrowed capital had to necessarily excluded and the same has not to be taken into consideration while working out the capital employed. The order is therefore erroneous and prejudicial to the interest of the revenue. Thus the Commissioner of Income-tax was justified in setting aside the order of the assessing authority in exercise of jurisdiction under section 263 of the Act.”

7. Misc. rectification application to ITAT under section 254(2)

Section 254 deals with orders passed by the Tribunal. The section as stood read thus :

(1) The Appellate Tribunal may, after giving both the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit.

………………………

(2) The Appellate Tribunal may, at any time within six months from the end of the month in which the order was passed, with a view to rectifying any mistake apparent from the record, amend any order passed by it under sub-section (1), and shall make such amendment if the mistake is brought to its notice by the assessee or the Assessing Officer :

Provided that an amendment which has the effect of enhancing an assessment or reducing a refund or otherwise increasing the liability of the assessee, shall not be made under this sub-section unless the Appellate Tribunal has given notice to the assessee of its intention to do so and has allowed the assessee a reasonable opportunity of being heard :

Provided further that any application filed by the assessee in this sub-section on or after the 1st day of October, 1998, shall be accompanied by a fee of fifty rupees.

……….

(4) Save as provided in section 256 or section 260A, orders passed by the Appellate Tribunal on appeal shall be final.

Section 255 of the Act lays down procedure to be followed by the Tribunal. Section 260A provides for appeal to High Court by the assessee or revenue. Section 154 of the Act, likewise, empowers Income-tax Authorities to rectify mistakes.

Plain reading of sub-section (1) of section 254 quoted hereinabove makes it more than clear that the Tribunal will pass an order after affording opportunity of hearing to both the parties to appeal. Sub-section (4) expressly declares that save as otherwise provided in section 256 or section 260A, “orders passed by the Appellate Tribunal on appeal shall be final”. Sub-section (2) enacts that the Tribunal may at any time within six months from the end of the month (earlier it was four years from the date of the order) rectify any mistake apparent from the record suo motu. The Tribunal shall rectify such mistake if it is brought to notice of the Tribunal by the assessee or the Assessing Officer. Sub-section (2) thus covers two distinct situations :

> It enables the Tribunal at any time within six months from the end of the month of the order to amend any order passed under sub-section (1) with a view to rectify any mistake apparent from the record; and

> It requires the Tribunal to make such amendment if the mistake is brought to its notice by the assessee or the Assessing Officer.

It was submitted that so far as the first part is concerned, it is in the discretion of the Tribunal to rectify the mistake which is clear from the use of the expression ‘may’ by the Legislature. The second part, however, enjoins the Tribunal to exercise the power if such mistake is brought to the notice of the Tribunal either by the assessee or by the Assessing Officer. The use of the word ‘shall’ direct the Tribunal to exercise such power.

The use of expression ‘any mistake apparent from the record’ is similar to expression used under section 154, therefore, tribunal can also rectify its order if there is any retrospective amendment.

The Gujarat High Court in Suhrid Geigy Ltd. v. Commissioner of Surtax [1998] 150 CTR 424/[1999] 237 ITR 834/107 Taxman 347 (Gujarat), hold that if a point is covered by the decision of a jurisdictional court rendered prior or even subsequent to the order of rectification, it could be said to be “mistake apparent from the record” under Section 254(2) of the I.T.Act and could be corrected by the Tribunal.

This decision has since been upheld by supreme court in case of Assistant Commissioner of Income-tax, Rajkot vs. Saurashtra Kutch Stock Exchange Ltd. [2008] 173 Taxman 322 (SC)/[2008] 305 ITR 227 (SC)/[2008] 219 CTR 90 (SC), with the following observations:

25. The learned counsel for the revenue contended that the normal principle of law is that once a judgment is pronounced or order is made, a Court, Tribunal or Adjudicating Authority becomes functus officio [ceases to have control over the matter]. Such judgment or order is ‘final’ and cannot be altered, changed, varied or modified. It was also submitted that Income-tax Tribunal is a Tribunal constituted under the Act. It is not a ‘Court’ having plenary powers, but a statutory Tribunal functioning under the Act of 1961. It, therefore, cannot act outside or de hors the Act nor can exercise powers not expressly and specifically conferred by law. It is well-settled that the power of review is not an inherent power. Right to seek review of an order is neither natural nor fundamental right of an aggrieved party. Such power must be conferred by law. If there is no power of review, the order cannot be reviewed.

26. Our attention, in this connection, was invited by the learned counsel to a leading decision of this Court in Patel Narshi Thakershi v. Pradyumansinghji Arjunsinghji [1971] 3 SCC 844. Dealing with the provisions of the Saurashtra Land Reforms Act, 1951 and referring to Order 47, Rule 1 of the Code of Civil Procedure, 1908, this Court held that there is no inherent power of review with the adjudicating authority if it is not conferred by law.

27. The Court stated :

“… It is well-settled that the power to review is not an inherent power. It must be conferred by law either specifically or by necessary implication. No provision in the Act was brought to notice from which it could be gathered that the Government had power to review its own order. If the Government had no power to review its own order, it is obvious that its delegate could not have reviewed its order…”. [Emphasis supplied] (p. 847)

28. The view in Patel Narshi Thakershi’s case (supra) has been reiterated by this Court in several cases. It is not necessary for us to refer to all those cases. The legal proposition has not been disputed even by the learned counsel for the assessee.

29. In view of settled legal position, if the submission of the learned counsel for the Revenue is correct that the Tribunal has exercised power of review, the order passed by the Tribunal must be set aside. But, if the Tribunal has merely rectified a mistake apparent from the record as submitted by the learned counsel for the assessee, it was within the power of the Tribunal and no grievance can be made against exercise of such power.

37. In our judgment, therefore, a patent, manifest and self-evident error which does not require elaborate discussion of evidence or argument to establish it, can be said to be an error apparent on the face of the record and can be corrected while exercising certiorari jurisdiction. An error cannot be said to be apparent on the face of the record if one has to travel beyond the record to see whether the judgment is correct or not. An error apparent on the face of the record means an error which strikes on mere looking and does not need long-drawn-out process of reasoning on points where there may conceivably be two opinions. Such error should not require any extraneous matter to show its incorrectness. To put it differently, it should be so manifest and clear that no Court would permit it to remain on record. If the view accepted by the Court in the original judgment is one of the possible views, the case cannot be said to be covered by an error apparent on the face of the record.

38. Though the learned counsel for the assessee submitted that the phrase “to rectify any mistake apparent from the record” used in section 254(2) (as also in section 154) is wider in its content than the expression “mistake or error apparent on the face of the record” occurring in Rule 1 of Order 47 of the Code of Civil Procedure, 1908 [vide Kil Kotagiri Tea & Coffee Estates Co. Ltd. v. ITAT [1988] 174 ITR 579 (Ker.)], it is not necessary for us to enter into the said question in the present case.

40. The core issue, therefore, is whether non-consideration of a decision of Jurisdictional Court (in this case a decision of the High Court of Gujarat) or of the Supreme Court can be said to be a “mistake apparent from the record”? In our opinion, both – the Tribunal and the High Court – were right in holding that such a mistake can be said to be a “mistake apparent from the record” which could be rectified under section 254(2).

41. A similar question came up for consideration before the High Court of Gujarat in Suhrid Geigy Ltd.’s case (supra). It was held by the Division Bench of the High Court that if the point is covered by a decision of the Jurisdictional Court rendered prior or even subsequent to the order of rectification, it could be said to be “mistake apparent from the record” under section 254(2) of the Act and could be corrected by the Tribunal.

42. In our judgment, it is also well-settled that a judicial decision acts retrospectively. According to Blackstonian theory, it is not the function of the Court to pronounce a ‘new rule’ but to maintain and expound the ‘old one’. In other words, Judges do not make law, they only discover or find the correct law. The law has always been the same. If a subsequent decision alters the earlier one, it (the later decision) does not make new law. It only discovers the correct principle of law which has to be applied retrospectively. To put it differently, even where an earlier decision of the Court operated for quite sometime, the decision rendered later on would have retrospective effect clarifying the legal position which was earlier not correctly understood.

……………..

45. Rectification of an order stems from the fundamental principle that justice is above all. It is exercised to remove the error and to disturb the finality.”

In the case of Kil Kotagiri Tea & Coffee Estates Co. Ltd. vs. Income-tax Appellate Tribunal [1989] 42 Taxman 33 (Kerala)/[1988] 174 ITR 579 (Kerala)/[1989] 75 CTR 35 (Kerala), also it was held that a subsequent decision of Supreme Court or of High Court has retrospective operation and overruling is always retrospective. Further, the expression ‘mistake apparent from the record’ in section 154/254(8) has a wider meaning than expression ‘error apparent on the face of record’ occurring in Order 47, rule 1 of the Civil Procedure Code. The court observed:

9. Section 254(2) and section 154 of the Income-tax Act enable the concerned authorities to rectify any ‘mistake apparent from the record’. The said expression has a wider meaning than the expression ‘error apparent on the face of the record’ occurring in Order 47, rule 1 of the Civil Procedure Code. The restrictions on the power of review under Order 47, rule 1, Civil Procedure Code, do not hold good in the case of section 254(2) and section 154. Even so, a subsequent binding decision taking a different view in law was held to be a good ground for review which will constitute an error apparent on the face of the record within the meaning of Order 47, rule 1—See Pathrose v. Kuttan (alias) Sankaran Nair [1969] AIR 1969 Ker. 186 and Chandrasekharan Nair v. Purushothaman Nair [1969] KLT 687. These two decisions were overruled by a Bench of this Court in Board of Revenue v. P.K. Syed Akbar Sahib AIR 1973 Ker. 285. But, the Supreme Court reversed the Bench decision aforesaid, holding that the Bench was not justified in refusing to entertain the review petition on super technical considerations which were ill-founded—See State of Kerala v. P.K. Syed Akbar Sahib [1988] 173 ITR 1 (SC). So, it appears that even for the purpose of Order 47, rule 1, which is more restrictive, a subsequent binding authority taking a different view of law is a good ground for review, on the ground that the order sought to be reviewed passed on an antecedent decision, which stands overruled, constitutes an error apparent on the face of the record. So far as this case is concerned, it is unnecessary for us to base our decision on the provisions of Order 47, rule 1 which is more restrictive.

In the case of Haryana State Co-op. Supply & Marketing Federation Ltd. vs. Commissioner of Income-tax, Panchkula [2017] 79 taxmann.com 439 (Punjab & Haryana)/[2016] 389 ITR 266 (Punjab & Haryana), also it was observed:

“7. Further, Full Bench of this Court in CIT v. Smt. Aruna Luthra [2001] 252 ITR 76/118 Taxman 932 was considering the scope of power given under Section 154 which is analogous to Section 254 of the Act for rectification of any mistake apparent on the record. It was held as under:—

‘The power given to the authority is wide. It can correct “any mistake” provided it is “apparent from the record”. The first question that arises for consideration is – when a mistake can be said to be apparent from the record?

The plain language of the provision suggests that the mistake should be apparent. It must be patent. It must appear ex facie from the record. It must not be a mere possible view. The issue should not be debatable.

Mr. Sawhney contended that when the view taken by an authority is ex facie contrary to the decision of the jurisdictional High Court or a superior court, the case would fall within the mischief of section 154. However, Mr. Bansal submitted that while deciding a matter, an authority cannot anticipate the view that may be taken by the High Court or the Supreme Court on a subsequent date. If at the time of the passing of the order, the authority takes a particular view, which is not contrary to the existing interpretation of law, the provision of section 154 cannot be invoked.

Apparently, the argument of Mr. Bansal appears to be attractive. If the issue of error in the order is to be examined only with reference to the date on which it was passed, it may be possible to legitimately contend that it was legal on the date on which it was passed. The subsequent decision has only rendered it erroneous or illegal. However, there was no error much less an apparent error on the date of its passing. Thus, the provision of section 154 is not applicable. However, such a view shall be possible only if the provision were to provide that the error has to be seen in the order with reference to the date on which it was passed. Such words are not there in the statute. Resultantly, such a restriction cannot be introduced by the court. Thus, the contention raised by counsel for the assessee cannot be accepted.

There is another aspect of the matter. In a given case, on an interpretation of a provision, an authority can take a view in favour of one of the parties. Subsequent to the order, the jurisdictional High Court or their Lordships of the Supreme Court interpret the same provision and take a contrary view. The apparent effect of the judgment interpreting the provision is that the view taken by the authority is rendered erroneous. It is not in conformity with the provision of the statute. Thus, there is a mistake. Should it still be perpetuated? If the contention raised on behalf of the assessee were accepted, the result would be that even though the order of the authority is contrary to the law declared by the highest court in the State or the country, still the mistake could not be rectified for the reason that the decision is subsequent to the date of the order.

Only the dead make no mistake. Exemption from error is not the privilege of mortals. It would be a folly not to correct it. Section 154 appears to have been enacted to enable the authority to rectify the mistake. The legislative intent is not to allow it to continue. This purpose has to be promoted. The Legislature’s will has to be carried out. By placing a narrow construction, the object of the legislation shall be defeated. Such a consequence should not be countenanced.’

8. In view of the above, no illegality or perversity could be found in the order dated 22.7.2003 (Annexure A-1) passed by the Tribunal. Accordingly, the substantial questions of law are answered against the assessee and in favour of the revenue. The appeals stand dismissed.”

In the case of Deputy Commissioner of Income-tax vs. N.R. Wires (P.) Ltd. [2023] 154 taxmann.com 434 (Raipur – Trib.)/[2023] 105 ITR(T) 292 (Raipur – Trib.), also it was held that where the ITAT order is not accords with later Supreme Court decision, said order suffered from mistake apparent from record and was to be rectified.

However, very recently, in the case of Vaibhav Maruti Dombale vs. Assistant Registrar, Income-tax Appellate Tribunal [2025] 178 taxmann.com 447 (Bombay)/[2025] 481 ITR 103 (Bombay), it was held that a subsequent ruling of high court or supreme court cannot be a ground for invoking provisions of section 254(2). In this case, the court relied on the decision of supreme court in case of Beghar Foundation vs. Justice K.S. Puttaswamy [2021] 123 taxmann.com 344 (SC)/[2021] 278 Taxman 1 (SC). In this case, the supreme court had observed that a change in the law or subsequent decision/judgment of a co-ordinate or larger Bench by itself cannot be regarded as a ground for review. Following this decision, Bombay HC observed:

“8. Having heard the learned Counsel for the parties, we agree with the learned Counsel appearing on behalf of the Petitioner that a subsequent ruling of the Hon’ble Supreme Court cannot be a ground for invoking the provisions of Section 254 (2). Section 254 (2) can be invoked with a view to rectify any mistake apparent from the record and not otherwise. Admittedly, on the date when the original order was passed by the ITAT on 22^nd June, 2022, it followed the law as it stood then. That was overruled subsequently by the Hon’ble Supreme Court in Checkmates Services (supra). Hence, we are of the view, that on the date when the Tribunal passed its original order (on 22^nd June, 2022), it could not be said that there was any error or mistake apparent on the record, giving jurisdiction to the Tribunal to invoke Section 254(2) of the IT Act.”

The court also relied on the case of Commissioner of Income-tax (IT-4), Mumbai v. Reliance Telecom Ltd. [2021] 133 taxmann.com 41/284 Taxman 517/440 ITR 1 (SC), where the Hon’ble Supreme Court has held that the powers under Section 254(2) of the IT Act are akin to Order 47 Rule 1 of the Code of Civil Procedure, 1908 (hereinafter referred to as “the CPC”). In this context, paragraph 3.2 of the said judgement is relevant and is set out hereunder:

“3.2 Having gone through both the orders passed by the ITAT, we are of the opinion that the order passed by the ITAT dated 18.11.2016 recalling its earlier order dated 06.09.2013 is beyond the scope and ambit of the powers under Section 254(2) of the Act. While allowing the application under Section 254(2) of the Act and recalling its earlier order dated 06.09.2013, it appears that the ITAT has re-heard the entire appeal on merits as if the ITAT was deciding the appeal against the order passed by the C.I.T. In exercise of powers under Section 254(2) of the Act, the Appellate Tribunal may amend any order passed by it under subsection (1) of Section 254(2) of the Act with a view to rectifying any mistake apparent from the record only. Therefore, the powers under Section 254(2) of the Act are akin to Order XLVII Rule 1 CPC. While considering the application under Section 254(2) of the Act, the Appellate Tribunal is not required to revisit its earlier order and to go into detail on merits. The powers under Section 254(2) of the Act are only to rectify/correct any mistake apparent from the record.”

(emphasis supplied)

Therefore, there are different rulings by different high courts. However, rulings of Kerala and Gujrat high courts seems to be more accord with the precedence because review and rectification have different scope and there are settled principles on section 154 which can be guiding factors for ITATs u/s 254(2).

8. Filing appeal with application for condonation of delay

There may be a situation where an issue is decided by an appellant authorities based on law in favour of taxpayer and no appeal was preferred by the revenue because the issue was decided by various high courts and ITATs etc. in the favour of taxpayers. However, later the issue was reversed by supreme court or law is amended retrospectively. The tax authorities can file appeal with condonation application before the higher appellant authorities.

In the case of Karamchand Premchand (P.) Ltd. v. CIT [1975] 101 ITR 46 (GUJ.), the assessee relying upon decisions of various High Courts, did not claim deduction in respect of certain expenses incurred by it. However, later the Supreme Court reversed the view taken by various High Courts. Assessee filed revision petition though the time to file revision was expired. Therefore, the Commissioner dismissed revision application on ground of limitation. However, the high court held that the delay in filing revision application was sufficiently explained and, as such, order of Commissioner dismissing revision application was to be set aside. The high court held:

“It is obvious that the decision of the Supreme Court in India Cements Ltd. amounted to a declaration of law as contemplated by article 141 of the Constitution of India. This declaration of law had retrospective effect and rendered the assessment of the expenditure in connection with the debentures illegal, because that assessment was passed on a wrong view that the expenditure in question was capital expenditure. This apparent illegality crept into the assessment and became quite apparent only because of the decision of the Supreme Court. It was, therefore, only after this decision of the Supreme Court that the petitioner had reason to move the Commissioner in revision with a view to obtain refund. The fact that the petitioner did not keep the question alive by preferring appeals also does not detract from the situation that before the Supreme Court took the different view in India Cements Ltd., the legal position was practically settled. If the petitioner did not keep the question “alive”, it was obviously because the real legal position appeared to be settled and there was no point in pursuing the question any further. Therefore, for the purpose of decision whether the petitioner had sufficient cause for not preferring the revision application within time, the fact that it did not keep the question alive by preferring appeals, which were likely to prove infructuous, did not make any difference.

………..

It is true that the Commissioner had the jurisdiction to decide whether the delay in question should be condoned or not. But it is settled that the Commissioner, acting under section 33A of the Act of 1922 or under section 264 of the Act of 1961, is acting judicially and if he makes a palpable mistake in arriving at a decision by failing to apply the obvious and well-recognised principles of law on the subject, this court acting under article 226 of the Constitution would have full justification to interfere with such a decision with a view to set the matter right. In this case, we find that it was the pronouncement of the Supreme Court which made the whole difference in the situation and which gave the cause for moving the Commissioner. Therefore, petitioner’s inaction prior to this decision of the Supreme Court was sufficiently explained. Under these circumstances, it was neither reasonable nor judicious to hold that the petitioner had no sufficient cause to explain the delay. In our opinion, therefore, this is eminently a fit case in which the jurisdiction of this court under article 226 of the Constitution can be effectively utilised to do real justice.

9. Reassessment based on retrospective amendment?

The reassessment proceedings based on retrospective amendment is a quite complex topic. It depends on the provision of law prevailing at the relevant time.

In a very old case of Chatturam Horilram Ltd. v. Commissioner of Income-tax [1955] 27 ITR 709 (SC), the assessee-company carrying on business in Chota Nagpur was assessed to tax for the year 1939-40, but the assessment was set aside by the Income-tax Appellate Tribunal on March 28, 1942, on the ground that the Indian Finance Act, 1939, was not in force during the assessment year 1939-40 in Chota Nagpur which was a partially excluded area. On June 30, 1942, a regulation was promulgated by which the Indian Finance Act of 1939 was brought into force in Chota Nagpur retrospectively as from March 30, 1939. Thereupon the Income-tax Officer made an order holding that the income of the assessee for the year 1939-40 had escaped assessment and issued to the assessee a notice under section 34 of the Income-tax Act. The validity of the notice was questioned. It was held by supreme court that though the Finance Act was not in force in that area in 1939-40, the income of the assessee was liable to tax in that year and, therefore, it had escaped assessment within the meaning of section 34 of the Income-tax Act. It was pointed out that the income was chargeable to tax independently of the passing of the Finance Act, but until the Finance Act was passed no tax could be actually levied.

Therefore, it may be held that retrospective amendment of law is information for the purpose of section 147 and notice can be issued under section 148.

Reassessment – Section 147 to 151 of Income tax act, 1961. (before amendment made by Finance Act, 2021). The provisions of section 147 provides that if the AO has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax, which has escaped assessment. Further, AO may also assess or reassess such other income which has escaped assessment, and which comes to his notice subsequently in the course of proceedings under this section. AO is required to record the reasons for reopening the assessment before issuing notice under section 148 with a view to reassess the income of assessee. There were three-time frames for reopening:

Up to 4 years from the end of relevant assessment year: If the AO has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may assess or reassess such income and also any other income chargeable to tax, which has escaped assessment. AO is required to record the reasons for reopening the assessment before issuing notice under section 148 with a view to reassess the income of assessee. The only condition is that the AO has reason to believe that any income chargeable to tax has escaped assessment for any assessment year and it is irrelevant whether return has been filed or not and also whether assessment have been made under sub-section (3) of section 143 or under section 147. Further it is also irrelevant that assessee has disclosed fully and truly all material facts necessary for his assessment, for that assessment year.
Up to 6 years from the end of relevant assessment year: Where an assessment under sub-section (3) of section 143 or under section 147 has been made for the relevant assessment year, no action shall be taken under this section after the expiry of 4 years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year:
Up to 16 years from the end of relevant assessment year: The time limit of 6 years is not sufficient in cases where assets are located outside India because gathering information regarding such assets takes much more time on account of additional procedures and laws of foreign jurisdictions. Hence, the time limit for issue of notice for reopening an assessment is 16 years, where the income in relation to any asset (including financial interest in any entity) located outside India, chargeable to tax, has escaped assessment.

Based on discussions in various decisions, following preposition of law can be used as a general guide for the law applicable till 31.03.2021:

It is settled law that a court is guided only by the reasons recorded for re-assessment and not by the reasons or explanation given by the Revenue at a later stage in respect of the notice of re-assessment.
It is now well settled that it is impermissible to re-open concluded assessments on the basis of change of opinion. However, it is also well-settled, at the stage of issuing a notice under section 148/147 of the Act is concerned, the Assessing Officer does not need to have a cast iron case, but only a prima facie view that there is reason to believe that income has escaped assessment. There should be some new/fresh tangible material before the Assessing Officer.
The tests which are applicable in relation to the reopening of assessments within 4 years and beyond a period of 4 years are distinct. This is very important. Amendment of law retrospectively can be used to reopen assessment upto 4 years but not for six years. This is discussed later with the help of cases.

In case of Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191, the Constitution Bench of Supreme Court held and observed that to confer jurisdiction on assessee to issue notice of reopening of assessment beyond a period of four years, two conditions are required to be simultaneously satisfied. Such conditions are that the Assessing Officer must have reason to believe that income, profits or gains chargeable to income tax have been under- assessed and the second is that he must also have reason to believe that such under-assessment has occurred by reason of either omission or failure on part of the assessee to make return of his income or omission or failure on part of the assessee to disclose fully and truly all material facts necessary for his assessment for that year. Both these conditions are conditions precedent to be satisfied before the taxing officer could have jurisdiction to issue notice for the assessment or reassessment beyond a period of four years. It was further observed that such duty would not extend beyond true and full disclosure of material facts. Once such primary facts are before the Assessing Officer, he requires no further assistance by way of disclosure. It is for him to decide what inferences of facts can be reasonably drawn and what legal inferences have ultimately to be drawn. It is not for the assessee to tell the assessing authority what inferences, whether of facts or of law, should be drawn.

We may however, refer a decision in case of GVK Gautami Power Ltd. v. Asstt. CIT (OSD) [2011] 336 ITR 451/[2012] 20 taxmann.com 710 (AP), wherein referring to large number of authorities on the question of reopening the assessment, Division Bench culled out various principles, relevant of which read as under :

“(xiv) The words failure to disclose fully and truly all material facts necessary for his assessment, in the first proviso to Section 147, postulate a duty on every assessee to disclose fully and truly all material facts necessary for his assessment. (Calcutta Discount Co. Ltd. (1961)41 ITR 191(SC).

(xv) Every disclosure is not, and cannot be treated to be, a true and full disclosure. A disclosure may be false or true. It may be a full disclosure or it may not. A partial disclosure may very often be misleading. What is required is a full and true disclosure of all material facts necessary for making assessment for that year. (Sri Krishna Pvt. Ltd. [1996] 221 ITR 538(SC)

(xvii) The expression “material facts” refers only to primary facts which the assessee is duty bound to disclose. There is no duty cast on the assessee to indicate or draw the attention of the Income Tax Officer to the inferences which can be drawn from the primary facts disclosed. Calcutta Discount Co. Ltd. [1961] 41 ITR 191 (SC) and Associated Stone Industries (Kotah) Ltd. [1997] 224 ITR 560(SC)

(xviii) What facts are material, and necessary for assessment, will differ from case to case. (Calcutta Discount Co. Ltd. [1961] 41 ITR 191(SC)

(xx) The assessee’s obligation, to disclose all material facts necessary for his assessment fully and truly, is in the context of the two requirements – called conditions precedent – which must be satisfied before the Income Tax Officer gets jurisdiction to re-open the assessment under Section 147/148. This obligation can neither be ignored nor watered down. Sri Krishna Pvt. Ltd. [1996] 221 ITR 538 (SC)”

In case of Denish Industries Ltd. v. ITO [2004] 271 ITR 340/140 Taxman 456, wherein it was held and observed as under :

“It is true that when there is a statutory amendment with retrospective effect, the statutory amendment has to operate as if the law as amended was there on the statute book. However, as per the settled legal position the fiction is to operate within the field for which it is meant. Hence, if the proceedings were pending on 1st April, 1986 when the statutory amendment was made, whether assessment proceedings or proceedings by way of appeal or revision or reference, Expln. 8 would have certainly operated. However, on the question whether the assessee had failed to disclose fully and truly all material facts necessary for assessment, it is obvious that when the assessee had filed its return in 1983 it could not have assumed that such a legislative amendment was going to be made in the year 1986 with retrospective effect from the year 1974. In the facts of the present case, it could never be said by any stretch of imagination that in the year 1983 when the assessee filed return claiming investment allowance on the capitalisation of interest paid after the date on which the machinery was first installed and put to use, the assessee had failed to disclose all material facts. On the contrary, the assessee would have got the benefit of the entire interest amount for the post-installation period as revenue expenditure which would have been much higher than the amount of investment allowance and depreciation allowance taken together.”

Then the law is amended by the Finance Act, 2021 and again amended by the Amendment by the Finance (No. 2) Act, 2024 w.e.f. 1.09.2024. The Finance (No. 2) Act, 2024 has made several changes in the existing scheme of reassessment, such as dispensing with the enquiry provided in earlier clause (a) of Section 148A, exempting from procedure under Section 148A in cases arising out of information received under the scheme framed under Section 135A, excluding search and requisition cases from the scope of Sections 147 to 153 and putting them under separate Chapter XIV-B of Block Assessment, lowering the rank of specified authority under Section 151 for according sanction to issue notice under Section 148(1), holding the return filed under Section 148 as non est if filed after the expiry of the time allowed in the notice to file the return, the maximum time that can be allowed to file the return is three months, reducing the time limit from six years to five years under Section 149(1)(b), etc.

“Procedure before issuance of notice under section 148.

148A. (1) Where the Assessing Officer has information which suggests that income chargeable to tax has escaped assessment in the case of an assessee for the relevant assessment year, he shall, before issuing any notice under section 148 provide an opportunity of being heard to such assessee by serving upon him a notice to show cause as to why a notice under section 148 should not be issued in his case and such notice to show cause shall be accompanied by the information which suggests that income chargeable to tax has escaped assessment in his case for the relevant assessment year.

(2) On receipt of the notice under sub-section (1), the assessee may furnish his reply within such period, as may be specified in the notice.

(3) The Assessing Officer shall, on the basis of material available on record and taking into account the reply of the assessee furnished under sub-section (2), if any, pass an order with the prior approval of the specified authority determining whether or not it is a fit case to issue notice under section 148.

(4) The provisions of this section shall not apply to income chargeable to tax escaping assessment for any assessment year in the case of an assessee where the Assessing Officer has received information under the scheme notified under section 135A.

Explanation.-For the purposes of this section and section 148, “specified authority” means the specified authority referred to in section 151.”

Therefore, the position of law is quite different now and reassessment can also be initiated based on information which suggests that income chargeable to tax has escaped assessment in the case of an assessee for the relevant assessment year [except where the Assessing Officer has received information under the scheme notified under section 135A].

It has also been provided that, for the purposes of this section and section 148A, the information with the Assessing Officer which suggests that the income chargeable to tax has escaped assessment means,-

i. any information in the case of the assessee for the relevant assessment year in accordance with the risk management strategy formulated by the Board from time to time; or

ii. any audit objection to the effect that the assessment in the case of the assessee for the relevant assessment year has not been made in accordance with the provisions of this Act; or

iii. any information received under an agreement referred to in section 90 or section 90A of the Act; or

iv. any information made available to the Assessing Officer under the scheme notified under section 135A; or

v. any information which requires action in consequence of the order of a Tribunal or a Court; or

vi. any information in the case of the assessee emanating from survey conducted under section 133A, other than under sub-section (2A) of the said section, on or after the 1st day of September, 2024.

Therefore, any information in the case of the assessee for the relevant assessment year in accordance with the risk management strategy formulated by the Board from time to time or an audit objection etc. can be used for initiation of reassessment proceedings. As per the decision of supreme court in Chatturam Horilram Ltd. v. Commissioner of Income-tax [1955] 27 ITR 709 (SC), Commissioner of Income-tax vs. Bai Navajbai N. Gamadia [1959] 35 ITR 793 (Bombay)[09-10-1958], retrospective amendment of law is information for the purpose of section 147 and notice can be issued under section 148. However, this will not be easy task for the tax authorities and may be prone to litigation.

In the case of Ester Industries Ltd. vs. Union of India [2013] 39 taxmann.com 107 (Delhi)/[2014] 221 Taxman 22 (Delhi), Delhi high court made the following pertinent observations:

“This Court held that just because action for rectification is permissible, it does not mean that no action can be taken for re-opening the assessment because the powers under Section 147 and Section 154 are not mutually exclusive and there could be some overlapping and so long as the conditions for the applicability of either of these sections are satisfied, the action taken there under has to be validated and “it is no answer to say that action should be taken under another Section.” Thus, the contention of the petitioner has been dealt with. The petitioner does not appear to have properly understood and appreciated the purport of our observations in paragraph 9. It is this very misconception or misunderstanding that seems to run through paragraph 7 of the Review Petition. It appears that the petitioner is of the impression that our decision was rendered on the premise that if action under Section 154 is permissible, action under Section 147 to re-open the assessment is automatically permissible. This is not what we have held; we have only pointed out that “there could be overlapping of jurisdiction and so long as the jurisdictional pre conditions are satisfied, action can be taken by the assessing officer under the appropriate section even though action could be taken under another Section.” The argument of the petitioner that action can only be taken under Section 154 did not appeal to this Court, and was rejected.”

Therefore, the court held that if action under Section 154 is permissible, action under Section 147 to re-open the assessment is not automatically permissible. It depends on the provisions of law prevailing at the relevant time. However, it will not be easy task to reopen concluded assessments just based on retrospective amendments.

****

Author details:

CA Hari Om Jindal, Adv. Surya Jindal and Adv. Sanya Jindal

CA Hari Om Jindal: CA Hari Om Jindal has been practicing in the fields of Income Tax, International Taxation, and Transfer Pricing for over 30 years. He has authored several books on Income Tax and Transfer Pricing.

Adv. Surya Jindal: Adv. Surya Jindal is practicing in the fields of Income Tax, International Taxation, and Transfer Pricing.

Adv. Sanya Jindal: Adv. Sanya Jindal is practicing in the fields of Income Tax, International Taxation, and Transfer Pricing.

Disclaimer: Nothing in this paper should be construed or treated as legal advice. We would like to mention that the opinion expressed in this paper is very complex and subjective views of the Authors which may or may not be accepted by administrative or judicial authorities. We would also like to mention that we have commented on some of the observations mentioned in various decisions for the purpose of explaining the provisions, to the best of our knowledge and ability, without undermining the judicial authorities. We would also like to mention that the views expressed in this paper is for academic discussion and development of subject of transfer pricing. Therefore, the readers are requested to take proper legal advice before acting on any of the observations in this paper.

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One Comment

amit desai says:

a mind boggling article. what knowledge display and clarity in this article.. Nothing is left out and there is no scope of better article on the subject. Congrates

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February 27, 2026 at 3:23 pm

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