[TAXSCAN 360] Income Tax Rectification: Time Limits and Grounds for Seeking Rectification u/s 154

For both taxpayers and tax authorities, rectification is an important solution for resolving mistakes in the income tax orders. When there is an error in the income tax order, either the income tax officer suo moto can rectify the mistake or the assessee/taxpayer can approach the concerned AO for rectifying the same under Section 154 of the income tax act, 1961.

Section 154: Purpose and Scope

Rectification should only be carried out where an error is evident from the record and by the authority that issued the order, according to Section 154(1). When issuing the order of assessment, appeal, revision, etc., an income-tax authority could make a mistake. In order to correct any errors that are visible in the record, the income-tax authority has the following powers:

(i) The Assessing officer is empowered to rectify any order of assessment or of refund or any other order passed by him. Further, the Assessing Officer is also empowered to amend any intimation or deemed intimation under section 143(1).

(ii) The Commissioner is empowered to rectify any order passed by him in revision under section 263 or 264.

(iii) The Commissioner(Appeals) may rectify any order passed by him under section 250.

(iv) Other Income-tax Authorities mentioned in section 116 may also amend the order passed by it.

The provision states that:

“(1) With a view to rectifying any mistake apparent from the record an income-tax authority referred to in section 116 may,-

1. amend any order passed by it under the provisions of this Act;
2. amend any intimation or deemed intimation under sub-section (1) of section 143.
3. amend any intimation under sub-section (1) of section 206CB.

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

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

• may make an amendment under sub-section (1) of its own motion, and
• shall make such amendment for rectifying any such mistake which has been brought to its notice by the assessee, and where the authority concerned is the Commissioner (Appeals), by the Assessing Officer also.

(3)An amendment, which has the effect of enhancing an assessment or reducing a refund or otherwise increasing the liability of the assessee, shall not be made under this section unless the authority concerned has given notice to the assessee of its intention so to do and has allowed the assessee a reasonable opportunity of being heard.

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

(5) Subject to the provisions of section 241, where any such amendment has the effect of reducing the assessment, the Assessing Officer shall make any refund which may be due to such assessee.

(6) Where any such amendment has the effect of enhancing the assessment or reducing a refund already made, the Assessing Officer shall serve on the assessee a notice of demand in the prescribed form specifying the sum payable, and such notice of demand shall be deemed to be issued under section 156 and the provisions of this Act shall apply accordingly.

(7) Save as otherwise provided in section 155 or sub-section (4) of section 186, no amendment under this section shall be made after the expiry of four years from the end of the financial year in which the order sought to be amended was passed.

(8)Without prejudice to the provisions of sub-section (7), where an application for amendment under this section is made by the assessee on or after the 1st day of June, 2001 to an income-tax authority referred to in sub-section (1), the authority shall pass an order, within a period of six months from the end of the month in which the application is received by it,-

• making the amendment; or
• refusing to allow the claim.”

What Constitutes a ‘Error Apparent from the Record’?

A mistake apparent from the record refers to an error that is self-evident and can be detected without detailed scrutiny or interpretation. These include:

• Clerical errors: Typographical mistakes, misstatements of facts, or incorrect entries.
• Arithmetical errors: Calculation mistakes in tax computation, interest, or penalties.
• Obvious legal oversights: Failure to apply a clear and settled legal provision.
• Omissions: Overlooking mandatory legal requirements or facts that are undisputed.

The Supreme Court has clarified that mistakes requiring long-drawn arguments or where two opinions are possible do not fall within the ambit of Section 154. Only errors that are patent and manifest from the records qualify for rectification.

Orders Eligible for Rectification

Section 154 allows for the rectification of the following:

• Any order passed under any provision of the Income Tax Act by an income-tax authority.
• Intimations or deemed intimations issued under Section 143(1) (summary assessment).
• Intimations under Section 200A(1) (processing of TDS statements).
• Intimations under Section 206CB (processing of TCS statements).

If an order is the subject matter of appeal or revision, only those matters not considered and decided in such proceedings can be rectified. Issues already adjudicated upon by appellate or revisional authorities are excluded from rectification under Section 154.

Who Can Initiate Rectification?

Rectification can be initiated in two ways:

• Suo motu by the Income Tax Authority: The Assessing Officer or other relevant authority may rectify a mistake on their own accord.
• On Application by the Taxpayer: The taxpayer can bring the mistake to the notice of the authority by filing a rectification request.

If the Commissioner (Appeals) or Joint Commissioner (Appeals) issued the order, they have the authority to correct it after being informed of the error by the Assessing Officer or the taxpayer.

Time Limits for Rectification

The law prescribes strict time limits for seeking rectification under Section 154:

• Four-Year Rule: According to Section 154(7), a rectification of an order must be made within four years from the end of the financial year in which the order sought to be rectified was passed.
• If the original order is revised, set aside, or replaced, the four-year period is counted from the date of the fresh order, not the original one.
• Disposal of Application: When a taxpayer files a rectification application, the authority must pass an order (either accepting or rejecting the application) within six months from the end of the month in which the application is received. This is mentioned in Section 154(8). However, according to the CBDT Instruction 03/2013 dated 5th July 2013, under Citizens Charter of 2010, the service delivery standard in respect of deciding rectification application has been fixed as 2 months.

Example: If an order was passed on 15th July 2021 (FY 2021-22), the rectification can be sought up to 31st March 2026 (four years from the end of FY 2021-22).

Procedure for Filing a Rectification Application

The e-Filing portal of the Income Tax Department facilitates the correction application process:

1. Login to the Income Tax e-Filing portal.
2. Navigate to the ‘Rectification’ option under the ‘Services’ menu.
3. Click on ‘New Request’ and select the relevant assessment year and order to be rectified.
4. Choose the nature of rectification (e.g., reprocess return, correct tax credit mismatch, update personal details).
5. Submit the request and complete e-verification.

Supporting documents and a clear explanation of the mistake should be provided to facilitate prompt processing.

Limitations

• Matters Decided in Appeal/Revision: If an issue has already been considered and decided in appeal or revision, it cannot be rectified under Section 154.
• Nature of Mistake: Only mistakes that are patent and do not require elaborate reasoning or interpretation are eligible. Disputed issues or those requiring investigation are outside the scope of rectification.
• No Rectification after Four Years: Orders cannot be rectified after the expiry of four years from the end of the financial year in which they were passed.
• Notice Requirement: According to Section 154(6), if an amendment has the effect of increasing the assessment or decreasing a refund that has already been made, the Assessing Officer SHALL serve the assessee with a notice of demand in the prescribed form that details the amount owed. This notice of demand will be considered to have been issued under Section 156, and the Income-tax Act's provisions will be applied appropriately.

Additionally, the sub-clause 3 of Section 154 specifies that if rectification results in enhancement, etc., a hearing must be held. The authority in question Should notify the assessee of its intention to do so and provide them a chance to be heard if the rectification order has the effect of increasing an assessment, decreasing a refund, or in any other way increasing the assessee's responsibility.