The Supreme Court (SC) last week set aside the judgement of the division bench of the Madras high court in a case raising the question of the power of the Income Tax authorities to ‘rectify mistakes’ in assessment under Section 154 of the Income Tax Act.

In this case, Mepco Industries Ltd vs Commissioner of Income Tax, the company received power subsidy from the Puducherry government for two years. The company filed returns on the basis that the subsidy was revenue receipt. Later, it claimed that it was capital receipt and therefore sought revision of the assessment. After that there was a change in the interpretation of the law by the SC. The revenue authorities sought to ‘rectify’ their earlier order.

The company moved the high court, which allowed the authorities to rectify the order. On appeal, the Supreme Court accepted the argument of the company.

It explained that a ‘rectifiable mistake’ is one which is obvious. In this case, it was a change of opinion; therefore Section 154 cannot be invoked by the authorities.

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