PFA
Exercise of power to rectify an error apparent from the record is conferred upon the Income-tax Officer in aid of enforcement of a right. The Income-tax Officer is an officer concerned with assessment and collection of revenue, and the power to rectify the order of assessment conferred upon him to ensure that injustice to the assessee or to the Revenue may be avoided. It is implicit in the nature of the power and its entrustment to the authority invested with quasi-judicial functions under the Act, that exercise of the power was discretionary and the Income-tax from the record is brought to his notice by a person concerned with or interested in the proceeding. When mistake apparent from record is bought to the notice of Assessing Officer, he is mandatorily bound to pass such order. [ Hirday Narain (L) V ITO (1970) 78 ITR 26 (SC)]. - See more at: http://taxguru.in/income-tax-case-laws/ao-mandatorily-bound-exercise-power-154.html#sthash.g3xKHuTY.dpuf
Hello readers, we all understand rectification just as correction in any order passed by Income tax authority concerned so let's review every clause of section 154 in detail with relevant judgement and my significant findings to it.
Rectification Under Section 154 of Income Tax Act,1961
Ankit Gupta
Hello readers, we all understand rectification just as correction in any order passed by Income tax authority concerned so let's review every clause of section 154 in detail with relevant judgement and my significant findings to it.Now you can first read the extract of Act in Bold Italic and its explanation thereafter below:
(1) With a view to rectify any mistake apparent from record an Income Tax Authority referred under section 116 may
(a) Amend any order passed by it
(b) Amend intimation or deemed intimation under section 143(1)
(c) Amend intimation under section 200A(1)
Income Tax Authority referred under section 116 (which does not include Tribunal) may amend any ORDER passed by it or Intimation under section 143(1) or 200A(1) if found any MISTAKE APPARENT FROM RECORD.
Note 1 - Order does not necessarily means original order, it include amended order and rectified order. [Hind Wire Industries Ltd. V CIT (1995) 212 ITR 639 SC]
Note 2 - Obvious mistake of law cannot be rectified under section 154, while mistake of fact apparent from record can be rectified. [Venkatachalam (M.K.) ITO V Bombay Dying & Mfg Co.Ltd 1958 34 ITR 143 SC, AIR 1958 SC 875, 1959 SCR 703]
Note 3 - Records must show that that there has been an error and that error may be rectified; Reference of documents outside the record and the law is impermissible when applying the provisions of section 154. [CIT V Keshri Metal Pvt Ltd. (1999) 237 ITR 165 SC]
Note 4 - Mistake means commission that is not designed and which is obvious and something which has no two opinions or which is debatable. [CIT V Lakshmi Prasad Lahkar (1996) 220 ITR 100 (GAU)]
(1A) Where the matter has been considered and decided in any proceedings 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 the law for the time being in force, amend the order under the sub section in relation to any matter other than the matter which has been so considered and decided.
Where an assessee has filed an appeal or revision again any order referred under sub section (1) then the authority to which appeal or revision has been made may rectify any mistake in the order appealed against even if it is out of the ambit of grounds of appeal or revision.
(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 bought to its notice by the assessee [or by deductor], and where the authority concerned is the Commissioner (Appeals), by the Assessing Officer also.
The Income tax Authority MAY pass rectification order suo moto.
SHALL pass rectification order if the mistake is bought into notice by Assessee.
CIT (APPEALS) SHALL pass rectification order if the order is passed by it and mistake is bought into notice by Assessing Officer.
(3) An amendment which has the effect of enhancing an assessment or reducing refund or otherwise increasing the liability of assessee ( or the deductor ) , shall not be made under this section unless the authority concerned has given notice to the assessee ( or the deductor) of its intention to do so and has allowed the assessee or the deductor a reasonable opportunity of being
No order shall be passed under this section without giving an opportunity of being heard which increases the assessment or reduce refund.
(4) Where an amendment is made under this section, an order shall be passed in writing by the Income Tax Authority concerned.
All order passed under this should be in writing only.
(5) Where any such amendment is made under this section, an order shall be passed in writing by the Income Tax Authority concerned.
(6) Where any such amendment has the effect of enhancing the assessment or reducing a refund, 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 act apply accordingly.
Where any amendment has the effect of increasing assessment or reducing refund then such shall be deemed as notice of demand under section 156. And shall be disposed off fully within 30 days otherwise the assessee would be deemed to be the assessee in default and become liable to pay interest under section 220 and penalty under section 221.
(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 financial year in which the order sought to be amended was passed).
It can better be understood with the help of small illustration :
If the order under section 143 (3) is passed on 10.01.2015
Then the order under under section 154 can be passed till 31.03.2019 only.
(8)Without prejudice to the provisions of sub section (7), where an application under this section is made by the assessee (or by the deductor) on or after 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 month in which the application is received by it,-
(a) Making the amendment or
(b) 'refusing to all the claim
The order under this section shall be passed by the authority concerned within 6 months from the end of month in which the application is received by it.
AND
As per CIRCULAR NO. 14/2001 Dated- 9-11-2001 Issued by CBDT clarified that
Considering the absence of any specific time-limits regarding disposal of application for rectification under section 154, and with a view to ensure time-bound disposal of rectification applications, the Act has inserted a new sub-section (8) in section 154 to provide that where an application for amendment under this section is made by an assessee on or after 1st June, 2001 to an income-tax authority referred to in the said section, the authority shall pass an order within six months from the end of the month in which the application is received by it, either making the amendment or refusing to allow the claim. The overall time-limit of four years provided in the section for passing any rectification order shall however continue to apply. In other words, the period of six months mentioned in the new sub-section (8) cannot extend, under any circumstances, beyond the overall time-limit of four years from the end of the financial year in which the order sought to be rectified was passed.
These amendments will take effect from 1st June, 2001.
Means if 6 months lapse then also the authority concerned can pass order within four years from the end of financial year in which the order sought to be amended.
OTHER RELEVANT JUDGEMENTS:
1. When mistake apparent from record is bought to the notice of Assessing Officer, he is mandatorily bound to pass such order. [ Hirday Narain (L) V ITO (1970) 78 ITR 26 (SC)]
2. The power to rectify the error must extend to the elimination of error, may be the error may be such as to go to the root of order and its elimination may result in the whole order falling to the [Blue Star Engineering Co. (Bombay) Pvt. Ltd V CIT (1969) 73 ITR 283]
3. Subsequent interpretation of law by Supreme Court would constitute as Mistake Apparent from Record. [ Seshvatram (B V K) V CIT (1994) 210 ITR 633 AP
4. ITAT can make rectification subject to the provisions of Section 254(2)
"Now After Understanding This Section In Detail A Question Arise In My Mind … That What Are The Consequences If The Income Tax Authority Fails To Pass Order Within Four Years From The End Of Financial Year In Which The Order Sought To Be Amended Was Passed.
And You Will Be Shocked To Know That I Found No High Court Or Supreme Court Case And Judgment Thereon So It's Still A Mystery That Whether Asses See Can Presumed That It Is Deemed To Be Passed In Favour Of Assessee Or Not."
(Author can be reached at 9811985576, Ankitg2711@gmail.com)
Indexation On Inherited Property
Ankit Gupta
A big question arise in the mind of every professional that whether benefit of Indexation can be claimed on Inherited Property ; if yes then second half thought is whether it can be claimed from the year in which it is first held by the assessee or from the year in which it is occupied by the Previous Owner or predecessor. Since As per Explanation (iii) to Section 48 Of Income Tax Act ""indexed cost of acquisition" means an amount which bears to the cost of acquisition the same proportion as Cost Inflation Index for the year in which the asset is transferred bears to the Cost Inflation Index for the first year in which the asset was held by the assessee or for the year beginning on the 1st day of April, 1981, whichever is later"
AND
Section 49(1) Of Income Tax Act says that "Where the capital asset became the property of the assessee by succession, inheritance etc . then the cost of acquisition of the asset shall be deemed to be the cost for which the previous owner of the property acquired it, as increased by the cost of any improvement of the assets incurred or borne by the previous owner or the assessee, as the case may be.
THERE IS A CONFLICT BETWEEN BOTH THESE PROVISIONS
For Better Understanding lets take a Case Example :
- Mr A has Acquired an Asset on 01.01.1990
- Mr A died on 30.09.2008
- Mr B (son of Mr A) acquired the Asset belonged to Mr A on 30.09.2008 (By Inheritance)
- B sold the same Asset on 31.01.2014
Now the question arise that whether the Indexation will be claimed at 582 (FY 2008-2009) or at 172 (FY 1989-1990)
Analysis of case
If you carefully understand Explanation (iii) to Section 48 Of Income Tax Act it has clearly state that "For the purpose of computation of Indexed Cost of Assets the Cost Inflation Index has to be considered for the first year in which the asset was held by the assessee " which is 2008-2009 in the given case. And Section 49(1) says that the cost of acquisition of the asset shall be deemed to be the cost for which the previous owner of the property acquired it (therefore consider Cost Inflation Index for the year in which the assets is acquired by the Previous owner) which is 1989-1990 in the given case.
The said issue have been challenged many times in many Tribunals and High Courts but the matter has been reasonably resolved in the Following Cases:
a) In Case of CIT Vs. Gautam Manubhai Amin (Gujrat High Court); Assessee (An Individual) sold property inherited by him for Rs 3.35Cr. hence calculated his share of Capital Gain at Rs.21.24 Lac after considering the benefit of Cost Inflation Index as per base year 1981-1982 but the Assessing Officer is of the view that Cost Inflation Index should be as per Financial Year 1998-99 which is the year in which the property is acquired by the assessee under Inheritence therefore compute Capital Gains accordingly.
Assessee was aggrieved with the decision of Assessing Officer therefore filed an appeal to CIT (Appeals) where CIT (A) on considering the decision held in case of CIT Vs. Manjula J. Shah (Bombay High Court) pass the order in favour of Assessee.
Later on ITAT also confirmed the order passed by Assessing Officer in the same case.
At last the matter was placed before Gujrat High Court on the appeal filed by Revenue in which High Court conclude that "For the purpose of computation of Capital Gains , Indexed Cost of Acquisition was to be computed with reference to year in which previous owner first held asset and not the year in which assessee become owner of assets by inheritance".
b) In Case of Arun Shungloo Trust Vs. CIT (Delhi High Court) : Assessee (Mr. Arun) acquired property before 1981 then in 1996 Mr. Arun transferred the property to the trust Managed by the Appellant , during 2001-2002 the Appellant sold the aforesaid property.
The contention of the appellant assessee is that it is entitled to the benefit of indexed cost of acquisition from the period during which Mr. Arun Shungloo held the property before it was Transferred to the trust.
There is no reason and justification to hold that clause (iii) of the explanation to section 48 intents to reduce or restrict the "indexed cost of acquisition" to the period during which the assessee has held the property and not the period during which the property was held by the previous owner.
In the given case Delhi High Court held that the Assessee Trust have acquired the property in 1996which was acquired by the transferor (Previous Owner) sometimes before 01.04.1981 therefore on the sale of property by the Assessee Trust in 2001-2002, Trust is entitled to the benefit of Indexed Cost of Acquisition from 01.04.1981 and not for the period after 1996.
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