Rectification of mistake apparent from records- a rarely useful remedy for tax payers in spite of clear provisions- whether recent instructions of CBDT will help assesses?

[CA DEV KUMAR KOTHARI]

Rectification of mistake apparent from records:

Most of Tax Authorities have been conferred with power to rectify any mistake which is apparent from records. This authority can be exercised by authority himself, or on application of concerned parties namely the assessee and in some situations the assessing Officer or other lower authority who is affected by an order having some mistake in it.  There are provisions for allowing opportunity of hearing to the affected party/ applicant.

There is overall limit within which an order can be passed. In case of an application also there is clear limit prescribed for passing an order either allowing or rejecting the application.

Besides orders provisions also provide for rectification of intimations and deemed intimations.

Mandatory provisions are treated with ‘who care’attitude:

The section contains mandatory provisions by use of words like “shall” for passing order in writing and also within prescribed time. However, very unfortunately, the approach adopted by the Assessing Officers and even senior officers is ‘who care for provision’?  and ‘who care for tax payer’?.

Not following instructions of CBDT is common practice:

When clear cut mandatory provisions are not followed, it is doubtful that instructions of CBDT will be followed.

 This is also very unfortunate that the Assessing Officers and even senior authorities are not strictly following instructions of CBDT on many issues which are to give some relief or reprieve to tax payers. The Board has directed the tax officers not to take advantage of assessee and allow allowable relief, but in practice we find that the attitude of most of officers is how to deny relief.

Tax payers have reason to be afraid:

As per recent instructions, senior authority shall also monitor matters of rectification and in case rectification orders is not passed, some action may be taken against erring officer. The relevant portion of recent circular in this regard reads as follows:

The supervisory officers should monitor the adherence of prescribed time limit and suitable administrative action may be initiated in cases where failure to adhere to the prescribed time frame is noticed.  

Considering past experience and ground realities, author feels that just to avoid administrative action (against officer), somehow order will be passed and it is most likely that rectification petition shall be dismissed on the simple ground that there is no mistake apparent from record.

Ground reality:

Ground reality is that Authorities rarely care for disposal of applications u/s 154 for rectification of orders. If Assessee insists too much, the application may be rejected just on ground that mistake is not apparent from records and passing an order will amount to review, which is not permissible u/s 154. There is time limit to dispose-off application within six months, however, in many cases assessee has to file repeated application because an application on which order has not been passed within six months, is considered by authorities as lapsed or no longer valid.

Whereas, if we go by spirit of the provision, then it must be deemed that if an application has not been rejected within prescribed time, then it must be deemed to have been granted.

Provisions of section 154 reproduced with highlights added:

Rectification of mistake.

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

(a) amend any order passed by it under the provisions of this Act ;

[(b) amend any intimation or deemed intimation under sub-section (1) of section 143.]]

[(c) amend any intimation under sub-section (1) of section 200A.]

[(d) amend any intimation under sub-section (1) of section 206CB. ]

[(1A) 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-

(a) may make an amendment under sub-section (1) of its own motion, and

(b) shall make such amendment for rectifying any such mistake which has been brought to its notice [by the assessee or by the deductor] [or by the collector ], and where the authority concerned is the [Commissioner (Appeals)], by the ⁶[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 or the deductor] [or the collector], shall not be made under this section unless the authority concerned has given notice to [the assessee or the deductor] [or the collector], of its intention so to do and has allowed [the assessee or the deductor] [or the collector], 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) Where any such amendment has the effect of reducing the assessment or otherwise reducing the liability of the assessee or the deductor [or the collector], the Assessing Officer shall make any refund which may be due to such assessee or the deductor.][or the collector]

(6) Where any such amendment has the effect of enhancing the assessment or reducing a refund [already made or otherwise increasing the liability of the assessee or the deductor [or the collector], the Assessing Officer shall serve on the assessee or the deductor, [or the collector ] as the case may be] 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 or by the deductor] ²³[or by the collector ]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,-

(a) making the amendment; or

(b) refusing to allow the claim.]

Recent two circulars issued by CBDT about S. 154:

The CBDT has issued Instruction No. 01/2016 dated 15.02.2016 directing Assessing Officers to strictly follow the time limit of six months prescribed under section 154(8) of the Income-tax Act, 1961 to pass rectification orders. The CBDT has also directed the supervisory officers to monitor the adherence to the prescribed time limit and initiate suitable administrative action where failure to adhere to the prescribed time limit is noticed.

The effective parts of the Circular reads as follows:

Instruction No. 01/2016

Subject: Following the prescribed time-limit in passing order under sub-section (8) of section 154 of Income-tax Act, 1961-regd.

Sub-section (8) of section 154 of the Income-tax Act, 1961 ('Act') stipulates that where an application for amendment is made by assessee/deductor/collector with a view to rectify any mistake apparent from record, the income-tax authority concerned shall pass an order, within a period of six months from the end of the month in which such an application is received, by either making the amendment or refusing to allow the claim. It has been brought to the notice of the Board that the said time-limit of six months has not been observed in deciding some applications. In such cases, the field authorities often take a view that since no action was taken within the prescribed time-frame, the application of the taxpayer is deemed to have lapsed, thereby not requiring any action.

2.  The matter has been examined by the Board. In this regard, the undersigned is directed to convey that the aforesaid time-limit of six months is to be strictly followed by the Assessing Officer while disposing applications filed by the assessee/deductor/collector under section 154 of the Act. The supervisory officers should monitor the adherence of prescribed time limit and suitable administrative action may be initiated in cases where failure to adhere to the prescribed time frame is noticed.

Instruction No. 02/2016 dated 15.02.2016

The CBDT has issued Instruction No. 02/2016 dated 15.02.2016 in which it has directed Assessing Officers to pass rectification orders in writing and serve a copy on the assesseee and not just make an entry on the AST system

The effective parts of the Circular reads as follows:

Subject: Passing rectification order under section 154 Income-tax Act, 1961 regd.

Instances have come to the notice of the Board that in some cases rectification order under section 154 of the Income-tax Act, 1961 ('Act') is being passed by the Assessing Officer on AST System without giving copy of the order to the taxpayer concerned. This is causing grievance to the taxpayers as they remain unaware of such orders and consequentially, are unable to pursue the matter further, either in appeal or rectification, if required.

2.   Sub-section (4) of section 154 of the Act mandates that rectification order shall be passed in writing by the Income-tax authorities. Therefore, on consideration of the matter, the Board hereby directs that all rectification applications must be disposed of after passing an order in writing, to be duly served upon the taxpayer concerned and not by merely making necessary rectification on the AST System.