Rectification of Mistake
Introduction
If there is any mistake in the order passed by the Income-tax authorities, the said authority can rectify it. The power to rectify the mistake may be exercised by the authority concerned on its own initiative or when the mistake is brought to its notice by the assessee concerned.
1. About
1.1 Which order can be rectified?
If any mistake is apparent from the record, the Income-tax authority can rectify such mistake. The Income-tax authority can rectify the mistakes that are apparent in the following orders:
(a) Any order passed by it
(b) Intimationissued after processing of the Income-tax return
(c) Intimation issued after processing of the statement of Tax Deducted or Tax Collected at source.
1.1-1 Exception 1: Order subject to appeal or revision
The Income-tax authority cannot rectify that part of its order, which has been considered and decided in any proceeding by way of appeal or revision. However, a mistake in the order that was not the subject of appeal or revision can be rectified by the authority that passed it.
1.1-2 Exception 2: Intimation after issue of notice
If a notice has been issued under Section 270(8) for scrutiny assessment after sending the intimation under Section 270(1), any mistake in the intimation cannot be rectified by the authorities
1.2 Meaning of 'Mistake Apparent from record'
A mistake can be regarded as apparent only when it is obvious, self-evident and whose discovery is not dependent on argument or elaboration. Where an alleged mistake in the order can be resolved only by way of a complicated process of investigation, recourse cannot be taken to this provision. If, on a question of construction on a point of law, two views are possible, no rectification can be done by invoking this provision
The following are some of the illustrative cases of the mistake apparent from the records:
(a) Clerical or arithmetical mistake
(b) An incorrect computation of the cost of acquisition of a depreciable asset
(c) Allowing credit of TDS to the person who is not entitled to it
(d) Order not in conformity with the law subsequently declared by the Apex court
(e) An assessment order that is inconsistent with retrospective amendment in the law
(f) Consequential rectification in the assessment order of the assessee due to a modification in his assessment in another year or due to a modification in the assessment of any other person (Section 288).
1.3 Who can rectify the mistake?
The authority concerned may exercise the power to rectify the mistake on its own initiative. The authority can exercise this power if a mistake has been brought to its notice by the assessee, deductor, or collector.
If there is a mistake in an order passed by the Joint Commissioner (Appeals) or Commissioner (Appeals), the Joint Commissioner (Appeals) or Commissioner (Appeals) can rectify the mistake if it has been brought to his notice by the assessee, deductor, collector or the Assessing Officer.
Further, if there is a mistake in an order passed by the Appellate Tribunal, the Tribunal can rectify the mistake if it has been brought to its notice by the assessee or the Assessing Officer.
1.4 Time limit for rectification of the order
1.4-1 Order passed by the Assessing Officer, CIT (Appeals), or JCIT (Appeals)
An order of rectification is required to be passed within a period of 4 years from the end of the financial year in which the order (sought to be rectified) was passed. However, where the assessee, deductor or collector makes an application for rectification, the income tax authority is required to pass an order rectifying the mistake within a period of 6 months from the end of the month in which the application is received by it. The CBDT
The authorities making the rectification have been authorised by the CBDT
1.4-2 Order passed by ITAT
Where rectification is to be made by the Appellate Tribunal, it shall be made within a period of 6 months from the end of the month in which such order was passed. The rectification can be made when a mistake is brought to its notice by the assessee or the Assessing Officer. Where such rectification is prejudicial to the assessee, he shall be provided an opportunity of being heard.
1.4-3 Order passed by TPO for the determination of ALP
Where a Transfer Pricing Officer has passed an order, under Section 166, determining the Arm's Length Price in relation to an International Transaction or specified transaction, and it contains a mistake apparent from the record, the Assessing Officer is required to rectify the order to correct such mistake. Such rectification can be made any time within 4 years from the end of the tax year in which the order of the Transfer Pricing Officer was passed.
1.4-4 Failure to comply with the conditions of Section 52
Where an assessee was allowed a deduction for expenditure incurred on the acquisition of any right to use spectrum for telecommunication services under Section 52, but subsequently he failed to comply with the provisions of this section, the Assessing Officer shall rectify the assessment order to disallow the deduction. Such rectification can be made at any time within 4 years from the end of the financial year in which the failure occurred.
1.4-5 Increase in book profit due to APA or Secondary Adjustment
Where the book profit of the assessee has increased due to an advance pricing agreement or secondary adjustment, the Assessing Officer shall, on an application made by the assessee in this behalf, recompute the book profit of the past years and tax payable thereon. Consequently, the Assessing Officer needs to amend the assessment order within 4 years from the end of the financial year in which such an application is received by him.
1.4-6 Foreign company fails to comply with the conditions of Section 220
Section 220 provides that where a foreign company has been treated as resident in India in the relevant tax year and has not been a resident in India in any earlier tax year, certain provisions notified by the Central Government shall apply, subject to exceptions, modifications, and adaptations. However, if the assessee subsequently fails to comply with any of the prescribed conditions, the Assessing Officer shall recompute the total income of the assessee for the said tax year and make the necessary amendment in the assessment order. Such an amendment can be made within 4 years from the end of the tax year in which the failure occurred.
1.4-7 Foreign company fails to comply with the conditions of Section 219
Section 219 provides that where a foreign company is engaged in the banking business in India through a branch situated in India, and such a branch is converted into a subsidiary company (an Indian company), certain provisions notified by the Central Government shall apply, with exceptions, modifications, and adaptations. However, if the assessee subsequently fails to comply with any of the prescribed conditions, the Assessing Officer shall recompute the total income of the assessee for the said tax year and make the necessary amendment in the assessment order. Such an amendment can be made within 4 years from the end of the tax year in which the failure takes place.
1.5 How to pass the rectification order?
1.5-1 Assessee to be given the opportunity of being heard
Where rectification of a mistake has the effect of enhancing the assessment or reducing the amount of refund or otherwise increasing the liability of the assessee (or deductor or collector), the authority making rectification is required to provide a reasonable opportunity of being heard to the assessee before any rectification is made. However, such an opportunity is not required where the order of rectification reduces the assessment.
1.5-2 Rectification order to be passed in writing
The CBDT
The CBDT has issued these instructions because instances have come to the Board's notice that, in some cases, rectification orders were being passed by the Assessing Officer on the AST System without giving a copy of the order to the taxpayer concerned. This is causing grievance to taxpayers, as they remain unaware of such orders and are consequently unable to pursue the matter further, either by appeal or rectification, if required.
1.5-3 Demand notice to be issued in writing
Where, as a result of the rectification of mistakes, the assessment has been enhanced, or the refund has been reduced, the assessing officer is required to serve on the assessee a demand noticespecifying the sum payable by him.
1.5-4 Refund to be allowed
Where, as a result of the rectification of mistakes, the liability of the assessee has been reduced, the assessing officer shall make a refund which may be due to him.
1.6 Appeal against rectification order
Assessee aggrieved by a rectification order passed by the competent authority having the effect of enhancing the assessment or reducing the refund or an order refusing to allow a claim made by the assessee can prefer an appeal before CIT(A) or before JCIT(A) or make an application for revision. However, the appeal cannot be preferred against an assessment order passed after the invocation of GAAR.
However, the appeal shall be filed with the Income Tax Appellate Tribunal (ITAT):
(a) Where a rectification order is passed by the Commissioner (Appeals)
(b) Where a rectification order is passed by the Joint Commissioner (Appeals)
(c) Where a rectification order is passed against assessment orders which were passed by the assessing officer in pursuance of the directions of the Dispute Resolution Panel
(d) Where a rectification order is passed against assessment orders that the assessing officer passed to invoke the provisions of GAAR.
1.7 Faceless Proceedings
Section 532 empowers the Central government to make a scheme for any purpose of the Act so as to impart greater efficiency, transparency and accountability by:
(a) Eliminating the interface with the assessee or any other person to the extent technologically feasible.
(b) Optimising utilisation of the resources through economies of scale and functional specialisation.
This provision also provides that where a scheme has been notified under the Income-tax Act 1961, the Central Government may amend or modify the said scheme. This indicates that the schemes notified under the ITA 1961 will continue to apply, which is also in line with the repeal and saving provision of Section 536(2)(j) that provides that any scheme issued under any provision of the repealed Income-tax Act shall, so far as it is not inconsistent with the corresponding provisions of this Act, be deemed to have been issued under the corresponding provision of this Act and shall continue in force accordingly.
Under the ITA 1961, the CBDT has not notified any scheme for rectification of mistakes in a faceless manner.
1.8 Overview
See also: Other Amendments
The assessment order of a person shall be rectified if, due to a change in certain circumstances, his income is required to be recomputed. The rectification in the assessment order is required, as disallowances or deductions in the hands of a person in one year may affect the income or deductions of that person or any other person in the same or subsequent years. A list of circumstances is enumerated below, where rectification in assessment order is required due to a modification in the assessment of another person or another year.
| Section | Description of Order | Time limit for rectification |
| 288(1) [Table: Sl. No. 1] | Where assessment of a partner is completed but it is subsequently found that remuneration to partner is not deductible from the taxable profits of partnership firm, the Assessing Officer may amend the assessment order of the partner so as to adjust the income of partner to the extent of amount not so deductible. | Before expiry of 4 years from the end of financial year in which final order was passed in respect of firm. |
| 288(1) [Table: Sl. No. 2] | Where assessment of member is completed but it is subsequently found that share of income in AOP or BOI has not been included in assessment of such member, the Assessing Officer may amend the assessment order of such member for the purpose of such inclusion. | Within 4 years from the end of financial year in which order was passed in respect of AOP or BOI |
| 288(1) [Table: Sl. No. 3] | Where any loss or depreciation is re-computed under re-assessment proceedings and accordingly, it becomes necessary to re-compute the total income of the assessee for the succeeding years to which such loss or depreciation has been carried forward and set-off, the Assessing Officer is required to re-compute the total income in respect of such year or years | Within 4 years from the end of financial year in which re-assessment order was passed |
| 288(1) [Table: Sl. No. 4] | Where transfer of capital asset by a parent company to wholly owned subsidiary (or vice-versa) is not treated as transfer, but transferee co. converts such capital asset into stock-in-trade or the parent co. ceases to hold 100% shareholding of the subsidiary co., the exemption from capital gains tax in respect of such transfer shall be withdrawn. | Within 4 years from the end of financial year in which the relevant asset was converted into stock-in-trade or the holding co. ceased to hold the entire share capital of the subsidiary co. |
| 288(1) [Table: Sl. No. 5] | Where capital gains from transfer of original asset is charged to tax in the year of transfer itself, but assessee makes the investment in new asset within the extended period allowed under Section 89, the assessing officer is required to amend the assessment order to exclude the amount of capital gain from the total income of the assessee for that year. | Within 4 years from the end of financial year in which compensation was received by assessee. |
| 288(1) [Table: Sl. No. 6] | Where assessee was not allowed deduction under Section 144 as income was not received (or brought) in convertible foreign exchange in India but subsequently such income is received/brought in India, the Assessing Officer is required to amend the assessment order so as to allow such deductions. | Within 4 years from the end of financial year in which income or part thereof has been received or brought in India. |
| 288(1) [Table: Sl. No. 7] | Where assessee was not allowed credit of taxes paid outside India as it was under dispute and subsequently such dispute was settled, the Assessing Officer shall amend the assessment order and allow the credit of such tax, if assessee furnishes relevant documents within 6 months from the end of the month in which such dispute was settled. | Within 6 months from the end of the month in which the relevant documents are furnished by assessee. |
| 288(1) [Table: Sl. No. 8] | Where stamp value of an immovable property is subsequently revised in any appeal or revision or reference, the Assessing Officer shall amend the assessment order to compute the capital gain by taking the full value of the consideration to be the value as so revised in such appeal or revision or reference. | Within 4 years from the end of financial year in which the order revising the value was passed. |
| 288(1) [Table: Sl. No. 9] | Where amount of compensation in case of compulsory acquisitionis subsequently reduced by the judicial authorities, the Assessing Officer shall amend the assessment order to compute the capital gain by taking the compensation as so reduced by the judicial authorities to be the full value of consideration. | Within 4 years from the end of financial year in which order reducing such compensation was passed. |
| 288(1) [Table: Sl. No. 10] | Where assessee was allowed deduction under Section 152 but subsequently, the underlying patent was revoked or his name was removed from the patents register as patentee, the Assessing Officer is required to rectify the assessment order to disallow the deduction. | Within 4 years from the end of financial year in which the order of Controller or High Court was passed. |
| 288(1) [Table: Sl. No. 11] | Where an income has been reported in an income tax return filed under Section 263 for the specific tax year, but the tax was withheld by the deductor and paid to the government in the subsequent tax year. | Within a period of 4 years from the financial year in which the tax was withheld |
| 288(2) | Where the Transfer Pricing Officer determines the arm's length price under Section 166(6) for a tax year (Year 1) and validates the assessee's option under Section 166(9) for 2 consecutive tax years (Year 2 and Year 3), the Assessing Officer shall recompute the assessee's total income for those 2 years by amending the order of assessment or any intimation or deemed intimation under Section 270(1). | · [Where the assessment, intimation or deemed intimation of Year 2 and Year 3 is done] Within 3 months from the end of the month in which Year 1's assessment is completed. · [Where assessment, intimation or deemed intimation of Year 2/3 is not done within those 3 months period] Within 3 months from the end of the month in which assessment for Year 2/3 is actually made. |
| 166 | Where Transfer Pricing Officer has passed an order determining the Arm Length Price in relation to an International Transaction or specified transaction and it contains a mistake apparent from record, Assessing officer is required to rectify the order to correct such mistake. | Within 4 years from the end of financial year in which order of Transfer Pricing Officer was passed |
| 52 | Where assessee was allowed deduction for expenditure incurred on acquisition of any right to use spectrum for telecommunication services under Section 52 but subsequently, he failed to comply with the provisions of this section, the Assessing Officer shall rectify the assessment order to disallow the deduction. | Within 4 years from the end of the financial year in which failure takes place |
| 206 | Where the book profit of the assessee has increased due to an advance pricing agreement or secondary adjustment, the Assessing Officer shall, on an application made by him, re-compute the book profit of the past years and tax payable thereon. | Within 4 years from the end of the financial year in which such application is received by the Assessing Officer |
| 219 | Where capital gains arising on conversion of an Indian branch of a foreign company into an Indian subsidiary were exempted under section 219 but subsequently, it failed to comply with the conditions subject to which such exemption was allowed, the Assessing officer shall amend the assessment order for withdrawal of benefit, exemption or relief. | Within 4 years from the end of financial year in which failure takes place |
| 220 | Where a foreign company was allowed the benefit of Section 220 but subsequently, such company failed to comply with the conditions subject to which such benefit was allowed, the Assessing officer shall amend the assessment order for withdrawal of benefit, exemption or relief. | Within 4 years from the end of financial year in which failure takes place |
References
Lakhanpal National Ltd. v. Dy. CIT [1997] 90 Taxman 12 (Guj.)
CIT v. Muthoot Leasing & Finance Ltd. [2008] 21 SOT 281 (Cochin)
ITO v. Ashok Textiles Ltd. [1961] 41 ITR 732 (SC)
CIT v. Pierce Leslie & Co. Ltd [1998] 227 ITR 759 (Madras)
CIT v. TanjorePermanent Bank Ltd. [1987] 30 Taxman 265 (Madras)
Southern Industrial Corpn. Ltd. v. CIT [2002] 258 ITR 481 (Mad.)and Dinosaur Steels Ltd. v. CIT [2007] 288 ITR 476 (Madras)
CIT v. E. Sefton & Co. (P.) Ltd. [1989] 179 ITR 435 (Cal.)
Instruction No. 1/ 2016, Dated 15-02-2016.
Circular No. 73, dated January 7, 1972
Instruction No. 2/2016, dated 15-02-2016
This article is general information and not tax advice. Provisions change. Confirm your position with a qualified professional before acting.