Section 154 – Rectification of Mistake by Tax Authority

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It may be possible that an Income tax authority may commit a mistake while passing the order of assessment, appeal, revision etc. With a view to rectifying any mistake, apparent from record, the income tax authority is empowered as under:-

  1. The Income Tax 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)
  2. The Commissioner is empowered to rectify any order passed by him in revision under Section 263 or 264.
  3. The Commissioner (Appeals) may rectify any order passed by him under Section 250.
  4. Other Income Tax Authorities mentioned under Section 116 may also amend any order passed by it.

The Income Tax Authorities may make the rectification:-

  1. On its own motion
  2. On application made by the assessee bringing the mistake to the notice of the authority concerned.

If the authority concerned is Commissioner (Appeals), besides the above, such mistake can be brought to his notice by the Assessing Officer also.

The Appellate Tribunal can rectify its order under Section 254(2) but not under Section 154 as it is not an income tax authority.

If any matter had been considered and decided in any proceeding by way of appeal or revision, rectification of such matter cannot be done by the Assessing Officer under Section 154. However, the matter which has not been considered and decided in the appeal/revision can be rectified under Section 154.

Relevant Points of Section 154

Opportunity of being heard is important if Rectification results in Enhancement

If such rectification order under Section 154 has the effect of enhancing an assessment, or reducing a refund, or otherwise increasing the liability of the assessee, the authority concerned must give a notice to the assessee of its intention to do so and an opportunity of being heard must be given to the assessee.

Notice of Demand to be issued in case the Rectification results in enhancing the Assessment

If any such assessment under Section 154 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 the income tax act shall apply accordingly.

Time Limit for Rectification under Section 154

Rectification of an order can be made only within 4 years from the end of the financial year in which the order sought to be amended was passed. However, this time limitation shall not apply to cases where amendment is made under Section 155.

The order that is sought to be amended does not necessarily mean the original order. It could be any order including the amended or rectified order.

Time Limit for passing an Order under Section 154 if application for amendment made under Section 154

If an application for amendment is made by the assessee, the authority shall pass an order within a period of 6 months from the end of the month in which the application is received by it:-

  1. Making the Amendment, or
  2. Refusing to allow the Claim

Other Relevant Points of Section 154

  1. The power of Rectification can be evoked with reference to the law prevailing at the time of the original order.
  2. If the appeal has been filed but the matter has still not been considered and decided in appeal, the rectification is still possible.
  3. If any rectification is made under this section, an order of rectification shall be passed in writing by the income tax authority concerned.
  4. If any such amendment under Section1 54 has the effect of reducing the assessment, the Assessing Officer shall make any refund which may be due to the assessee.

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