Understanding Rectification of Mistake under Section 154 of Income Tax Act, 1961

There is no doubt that anybody can cause/effect/commit a mistake ‘inadvertently’ while reading, understanding, interpreting & writing, or during drafting, dictating, or taking note, translating from shorthand, typing, computing, etc.     Considering this factor, the makers of Income Tax Law have kept open a provision in the Income Tax Law for “rectification” of such “mistakes” as & when identified, at a later date.     Thus, there exists the Section 154 of the Income Tax Act, 1961.

The Subsection (1) of Section 154 of the Act empowers the Income Tax Authorities referred in Section 116 of the Act to rectify any “mistake” apparent from the “Record”.

WHO ARE INCOME TAX AUTHORITIES?

The Income Tax Authorities referred in Section 116 are as follows:

  1. The Central Board of Direct Taxes (CBDT)
  2. The Principal Director Generals of Income Tax or Principal Chief Commissioners of Income Tax
  3. The Director Generals of Income Tax or Chief Commissioners of Income Tax
  4. The Principal Directors of Income Tax or Principal Commissioners of Income Tax
  5. The Directors of Income Tax or Commissioners of Income Tax or Commissioners of Income Tax (Appeals)
  6. The Additional Directors of Income Tax or Additional Commissioners of Income Tax or Additional Commissioners of Income Tax (Appeals)
  7. The Joint Directors of Income Tax or Joint Commissioners of Income Tax
  8. The Deputy Directors of Income Tax or Deputy Commissioners of Income Tax or Deputy Commissioners of Income Tax (Appeals)
  9. The Assistant Directors of Income Tax or Assistant Commissioners of Income Tax
  10. The Income Tax Officers
  11. The Tax Recovery Officers
  12. Inspectors of Income Tax

WHAT IS ‘MISTAKE’?

Apart from the general, arithmetical & clerical errors or mistakes, one could also read & understand from the Taxmann’s Direct Taxes Manual Vol. 3, the meaning of the term/expression “mistake” under Section 154, in legal perspective, as follows:

  • Misreading a clear provision is a mistake
  • Application of wrong provision of Act or erroneous application of same will amount to mistake apparent on the face of record
  • Applying an inapplicable provision is a mistake
  • Overlooking a nondiscretionary but mandatory provision is a mistake
  • Non-following of decision of Jurisdictional High Court is a mistake

WHAT IS ‘RECORD’?

As one could read & understand from the Taxmann’s Direct Taxes Manual Vol. 3, the meaning of the term/expression “Record” under Section 154 is the “record of the case comprising the entire proceedings including documents and materials produced by the parties and taken on record by the authorities which were available at the time of passing of the order which is the subject-matter of the proceedings for rectification”.

WHAT OTHER CLAUSES OF SUBSECTION (1) SAYS?

The Clause (a) of Subsection (1) of Section 154 of the Act empowers an  Income Tax Authority to rectify any mistake by amending any order passed by it in any other proceedings under the provisions of the Income Tax Act.   Here, it is to be noted that “other Proceedings” means (other than those relating to “Return of Income”, “Assessment”, “Enhancement of Tax” or “Reducing Refund”, etc.,) such as Registration/Recognition/Exemption, etc., under Sections 12AA, 80G, 10(23C), 35AC, 288, etc.

The Clause (b) of Subsection (1) of Section 154 of the Act empowers an  Income Tax Authority to rectify any mistake by amending any intimation or deemed intimation under Subsection (1) of Section 143 of the Income Tax Act.   Here, it is to be noted that “deemed intimation under Subsection (1) of Section 143 of the Income Tax Act” is relating to “Return of Income”, “Assessment”, “Enhancement of Tax” or “Reducing Refund”, etc.

The Clause (c) of Subsection (1) of Section 154 of the Act empowers an  Income Tax Authority to rectify any mistake by amending any intimation under Subsection (1) of Section 200A of the Income Tax Act.   Here, it is to be noted that “intimation under Section 200A of the Income Tax Act” is relating to “Statements of Tax Deducted at Source & its processing”.

WHAT SUBSECTION (1A) SAYS?

The later on added Subsection (1A) of Section 154 of the Act [inserted by the Direct Taxes (Amendment) Act, 1964 with effect from 06-10-1964] empowers an Income Tax Authority to rectify any mistake by amending any order passed in “any matter” which has been considered and decided in any proceedings by way of either “appeal” or “revision”.    This means, any Order or Communication or Intimation on “any matter” which has been considered and decided in any proceedings under the provisions of the Act, by way of either “appeal” or “revision” could be rectified or amended.

Further, it is to be noted that whereas the meaning of the term “appeal” in general parlance is making a “request”, any “Application of Request” made under the provisions of the Act, could be fit for rectification of mistake found in it or any official paper, document, notice, intimation, communication, letter or record pertaining to such application or any order made on such application could be fit for rectification of any mistake identified in those official proceedings, if such mistake is apparent from the record.

WHAT OTHER SUBSECTIONS SAY?

The Subsection (2) of Section 154 of the Act empowers the Income Tax Authorities to rectify any mistake apparent from the Record, under Subsection (1) of Section 154 of the Act, by either (a) Authority’s own motion, i.e., on suo-moto basis, or (b) on bringing to the notice of the Authority by the Assessee/Applicant or by the Deductor of Tax, and Authority is the Commissioner (Appeals), by the Assessing Officer also.

The Subsection (3) of Section 154 of the Act compels the Income Tax Authority to issue a Notice of “a reasonable opportunity of being heard” to the Assessee or the Deductor of Tax, intimating about the intension of the Authority to make rectification through an amendment to bring the effect of enhancing an assessment or reducing the refund or in other words increasing the liability of the assessee.

The Subsection (4) of Section 154 of the Act mandates the Authority to pass an Order in Writing, when such rectification by way of an amendment is carried out under Section 154 of the Act.

The Subsection (5) of Section 154 of the Act mandates the Authority/ Assessing Officer to make refund, if any, due to the Assessee or Deductor, when such rectification by way of an amendment has the effect of reducing the assessment or in other words reducing the liability of the Taxpayer/Assessee or the Deductor of Tax.

The Subsection (6) of Section 154 of the Act mandates the Authority to issue a Notice of demand (which shall be deemed to have issued under Section 156 of the Act) in prescribed Form No.7 (See Rule 15), specifying the sum so payable when such rectification by way of an amendment has the effect of enhancing the assessment or reducing the refund.

The Subsection (7) of Section 154 of the Act stipulates that no rectification or amendment shall be made under this Section of the Act, after the expiry of a period of four years from the end of the financial year in which the order was passed.

The Subsection (8) of Section 154 of the Act mandates that the IT Authority who has received an Application u/s 154 has to pass an Order either (a) making the amendment/rectification, or (b) refusing to allow the claim, within a period of six months from the end of the month in which the Authority has received such an application.

IS THERE ANY MODIFICATION IN LIEU OF THE ‘TIME LIMIT’?

Even-though as per Subsection (8) of Section 154 of the Act each application under that Section has to be disposed of by passing appropriate order within 6 months from the end of the month in which application is received, the Citizens Charter is exhibiting that the service delivery standard in respect of deciding rectification application has been fixed as 2 months.

Even, as per “Item C.1.” of the Instruction No. 3/2013 dated 05-07-2013 (F. No. 225/76/2013/ITA.II), the Central Board of Direct Taxes has stipulated just 2 months for disposal of rectification applications filed under Section 154 of the Income-tax Act- 1961.

Therefore, concerned authorities should abide by the standard stipulated under Instruction No. 3 /2013 dated 05-07-2013 (F. No. 225/76/2013/ITA.II) by the Central Board of Direct Taxes and ensure that rectification applications are decided as far as possible within a period of two months from the end of the month in which application is received.

OTHER PRIVILEGES TO THE APPLICANTS’ UNDER SECTION 154:

As per the Central Board of Direct Taxes’ Instruction No. 3 /2013 dated 05-07-2013 (vide F.No. 225/76/2013/ITA.II):-

  • There is facility to file the Application meant for Rectification of Mistake either (a) to submit online, or (b) to submit by post or in person.
  • If the Applications u/s 154 is submitted by post or in person, the same should be received, diarized and acknowledgment number should be given to the applicant by the receiving Officer immediately at the time of filing the application.
  • On receipt of such “Rectification Application” the same has to be compulsorily uploaded in “Online Rectification Register” by the Officer on the day of application is received by him, even when such application is received in his own office directly or by post.

In either way, obtaining the Acknowledgement Number is a basic entitlement of the applicant while submitting the application u/s 154 by the Officer.

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