CBDT issues Instruction directing Assessing Officers to follow the time limit of section 154

The Central Board of Direct Taxes has issued an Instruction on 15.02.2016 being No. 01/2016 wherein it has directed the Assessing Officers to strictly follow the time limit as has been prescribed under section 154(8) of the Income Tax Act, 1961 in connection with rectification orders. It has also directed the supervisory officers to check whether the prescribed time limit is being followed.

The CBDT and to take suitable administrative steps where there is any failure to follow the prescribed time limit.

Scope of rectification under the Act:

A rectification can be filed by an assessee for correction of particulars. The Income Tax Authority can suo moto rectify a mistake which is apparent on record.

Sometimes there may be an error in any order passed by the Assessing Officer. In such a situation, mistake which is apparent from the record can be rectified under section 154 of the Income Tax Act.

The provisions relating to rectification of mistake under section 154:

To rectify any mistake apparent from the record, an income tax authority may, amend any order passed under any provisions of the Act or may change any intimation sent under section 143(1) of the Act. It may also amend any intimation sent under section 200A which deals with processing of statements of TDS return or may amend any intimation under section 206CB.

If due to rectification of an error, the tax liability of the taxpayer is increased or refund is decreased, the taxpayer shall be given an opportunity of being heard.

Rectification of order which is subject to appeal or revision:

If an order is the subjected to appeal or revision, any issue which is adjudicated in such an appeal or revision cannot be rectified by the Assessing Officer.

In case of any order that is subjected to any appeal or revision, the Assessing Officer can rectify only those issues that are not decided in such appeal or revision.

Who may initiate rectification?

The income-tax authority can rectify a mistake on its own motion. The taxpayer can also intimate the same to the authority by making an application to rectify the mistake.

If the order is passed by the Commissioner (Appeals), then the Commissioner (Appeals) can rectify mistake which has been intimated by the Assessing Officer or the taxpayer.

Time-limit for rectification:

No order of rectification can be passed after the end of four years from the end of the financial year in which the said order was passed.

The period of four years is calculated from the date of order which is to be rectified and not from the passing of original order.

However if upon rectifying an “error” there is a change in income, a rectification should not be filed. In such case one must file a Revised Return.

In other words in a request for rectification no new deductions or exemptions can be claimed.