Rectification Applications u/s 154 and 254 (2) of the Income-Tax Act, 1961

Table of Contents

1. Introduction

2. Process

3. Period of limitation

4. Opportunity of being heard

5. Powers to rectify

6. Conclusion

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1. Introduction

Inherent powers of the Courts are not exclusively defined. Yet Courts make use of such powers to render and perform their duty in the rendition of justice. Section 151 of the Civil Procedure Code, reads as, “Nothing in this Code shall be deemed to limit or otherwise affect the inherent power of the Court to make such orders as may be necessary for the ends of justice or to prevent abuse of the process of the Court.” Rectification of mistakes is one such inherent power.

Honourable Supreme Court in case of Manohar Lal Chopra v. Rai Bahadur Rao Raja Seth Hiralal 1962 AIR 527, 1962 SCR Supl. (1) 450, observed that the inherent power has not been conferred upon the Court; it is a power inherent in the Court by virtue of its duty to do justice between the parties before it.

The Madras High Court in the case of the Collector of Madras (Accommodation Controller) v. C. Logeswara Rao, 1985 SCC On Line Mad 212 : (1986) 99 LW 432 : (1986) 2 Mad LJ 187, had observed that Every judicial or quasi-judicial body, in the absence of express provision, must be deemed to possess, as inherent in its very Constitution, all such powers as are necessary to do the right and to undo the wrong in the course of the administration of justice. This is based on the principle embodied in the Maxim. Quando lex aliquid alicui concedit concedere vidatur id quo res ips aesse non protest (when the law gives anything to anyone, it gives also all those things without which the thing itself would be unavailable). Where an error apparent on the face of the record is committed by a judicial or quasi-judicial authority in the discharge of its functions it must necessarily have the power to rectify, that error and to deny that judicial authority this right to undo the wrong will be self-defeating.

However, there are a series of judgments which state that when a power is exercised through the express provision or then inherent power cannot be resorted to. Any Court or Tribunal may have inherent power unless prohibited.

While an income-tax authority is defined in section 116, the Income-tax Appellate Tribunal (‘Tribunal’) is a quasi-judicial institution constituted on 25/01/1941 by virtue of section 5A of the Income Tax Act, 1922.

Section 154 of the Income-tax Act, 1961, empowers an Income-tax authority to rectify any mistake apparent from the record and Section 254(2) empowers the Tribunal to rectify any such mistake.

2. Process

As per section 154, an Income-tax authority may

(a) amend any order passed by it under the provisions of the 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.

Such rectification may be of the authority’s own motion, or at the instance of the Taxpayer and where the authority concerned is the Commissioner (Appeals), at the instance of the Assessing Officer also.

Similarly, under section 254(2) Tribunal may rectify the order either at the instance of the Assessee or the Assessing Officer, if such a mistake is brought to Tribunal’s notice. Such rectification application is termed as miscellaneous application and should be accompanied with a fee of Rs. 50/-.

Further, where such rectification has the effect of enhancing an assessment or reducing a refund or otherwise increasing the liability of the assessee, no such rectification or amendment shall be made unless the Authority or Tribunal, as the case may be, has given notice to the Taxpayer of its intention to do so and has allowed the Taxpayer a reasonable opportunity of being heard.

While the Income-tax Rules, 1962, do not lay down any format or procedure for the Income-tax Authorities while dealing with rectification applications, Rule 34A of Income-tax (Appellate Tribunal) Rules, 1963, provides for the procedure for the Tribunal while dealing with applications u/s 254(2). As per the rule, a rectification application should clearly and concisely state the mistake apparent from the record of which the rectification is sought. Such an application shall be in triplicate and the procedure for filing appeals will apply mutatis mutandis to such rectification applications. The Applicant shall also state whether any Miscellaneous Application under section 254(2) was filed earlier before the Tribunal against the same order and if so, the fate of such application. Copies of the orders passed by the Tribunal on such applications shall also be filed before the Tribunal in triplicate along with the Miscellaneous Application.

Sub-rule (4) mandates that Tribunal while disposing of the application shall pass an order in writing giving reasons in support of its decision, which is similar to sub-section 4 of section 154 applicable to an Income-tax authority.

3. Period of limitation

Similar to section 154(7) even section 254(2) allowed rectification within four years from the date of the order. However, w.e.f. 1-6-2016, section 254(2) was amended, and the period of four years was reduced to six months. Hence, as far as Tribunal is concerned, now, such rectification can be done within six months from the end of the month in which the order was passed. No discretion has been conferred statutorily to condone the delay and admit an application under section 154 or section 254(2) of the Act.

To hold the date of the order to be the relevant date for the purpose of calculating the period of six months or four years, can lead to several absurd and anomalous situations. When an order is passed without being served and without the knowledge of the aggrieved party, it would render the rectification remedy meaningless as the same would be lost by limitation while the person aggrieved would not even know that an order has been passed. Hence in such situations, six months or four years should be considered from the date when the order is communicated or known to the Assessee. Further, in case of Sree Ayyanar Spinning & Weaving Mills Ltd. v. CIT [2008] 171 Taxman 498/301 ITR 434 (SC), the Apex Court had held that an application filed well within four years and where Tribunal took its own time to dispose of the application, in such circumstances, the Tribunal could yet entertain the rectification application.

4. Opportunity of being heard

Earlier there was a controversy as to whether the principle of natural justice should be followed while rectifying the order. However, the controversy has been set to rest as far as the Tribunal is concerned. Rule 34A of the Income-tax (Appellate Tribunal) Rules, 1963, states that the Bench which heard the matter giving rise to the application (unless the President, the Senior Vice-President, the Vice-President, or the Senior Member present at the station otherwise directs) shall dispose it after giving both the parties to the application a reasonable opportunity of being heard. This is irrespective of the fact that there is no enhancement.

This procedure is contrary to section 154(3), where a reasonable opportunity of being heard is only to be granted in case of enhancement of assessment or reduction of refund or otherwise increasing the liability.

5. Powers to rectify

The Code of Civil Procedure, 1908, makes it clear that the court may set right any mistake in their records at any time. While Sec. 152 is confined to amendments of Judgments, orders or decrees, Sec. 153 confers a general power on the court to amend defects or errors in any proceeding in a suit. On similar lines section 154 empowers Income-tax Authorities as defined in section 116, and section 254(2) empowers the Tribunal to amend any order with a view to rectify any mistake apparent from the record.

It may be noted that section 154 uses the phrase “mistake apparent from record”, which is analogous to section 254(2). To attract the jurisdiction under section 154 or 254(2), a mistake should exist and must be apparent from the record. The power to rectify the mistake, however, does not cover cases where a revision or review of the order is intended. No re-appreciation of evidence or re-appreciation of arguments can be done by the Income-tax authority/Tribunal in rectifying the mistakes. The power of review is not inherent in a Court or a Tribunal and definitely not with the Income-tax authority. It is a creature of the Statute, and hence a Court or Tribunal cannot review its own decision unless it is permitted to do so by the Statute.

An order cannot be reviewed to admit more additional evidence or new arguments. The power to rectify its order is restricted to mistakes apparent from the record. “Record” means the record of the Tribunal, i.e. papers and documents and orders which have been placed in the ‘Paper Book’ and with the memo of appeal, before the Tribunal by the parties. Any paper or document before the lower authorities but not included in the Paper book shall not be part of the record for Tribunal purposes.

However, with reference to rectification u/s 154, a record does not mean only the order of assessment, but it comprises of all proceedings on which the assessment order is based and the Income-tax authority is entitled for the purpose of exercising his jurisdiction under section 154 to look into the whole evidence to ascertain whether there was an error. Thus section 154 is to be exercised not with particular reference to the assessment alone. The error apparent on the fact of records cannot be said to be the record of one particular assessment year.

‘Mistake’ means to understand wrongly or inaccurately; it is an error; a fault, a misunderstanding, a misconception. ‘Apparent’ implies something that can be seen or is visible, obvious; plain. A mistake which can be rectified under section 254(2) is one which is patent, obvious and whose discovery is not dependent on argument. The amendment of an order under section 254(2), therefore, does not mean the entire obliteration of the order originally passed and its substitution by a new order which is not permissible. Further, where an error is far from self-evident, it ceases to be an ‘apparent’ error. The Delhi High Court in the case of CIT v. Maruti Insurance Distribution Services Ltd. [2012] 26 taxmann.com 68/[2013] 212 Taxman 123 (Mag.) (Delhi) (HC) that a mistake capable of rectification under section 254(2) is not confined to clerical or arithmetical mistakes, at the same time, it does not cover any mistake which may be discovered by a complicated process of investigation, argument, or proof. Significantly, the language used in Order 47, Rule 1 of the CPC, 1908, is different from the language used in section 254(2) of the Act. Power is conferred upon various authorities to rectify any ‘mistake apparent from the record’. Though the expression ‘mistake’ is of indefinite content and has a large subjective area of operation, yet, to attract the jurisdiction to rectify (an order) under section 254(2), it is not sufficient if there is merely a mistake in the orders sought to be rectified. The mistake to be rectified must be one apparent from the record. A decision on the debatable point of law or undisputed question of fact is not a mistake apparent from the record.

The Delhi High Court in the case of Federal Mogul Goetze (India) Ltd. v. Asstt. CIT [2022] 134 taxmann.com 322/285 Taxman 129 (Delhi) (HC) held that Power available to Tribunal under section 254(2) is not limited to a mistake committed by the Tribunal and amendment to the order of the Tribunal can also be made if it is triggered on account of a mistake of counsel for parties.

The Karnataka High Court in the case of Principal CIT v. Smt. Alpana Bhartia [2019] 106 taxmann.com 397/265 Taxman 18 (Mag.) (Kar.) (HC) held that if the order under sub-section (2) of section 254 is passed, the said order would not be available for rectification of mistake again under section 254(2) of the Act. The order passed under section 254(2) cannot be rectified nor amended by invoking sub-section (2) of section 254 once again. Repetitive applications under section 254(2) of the Act are not permissible.

The Supreme Court in the case of Asstt. CIT v. Saurashtra Kutch Stock Exchange Ltd. [2008] 173 Taxman 322 (SC) held that non-consideration of a decision of the Jurisdictional Court or the Supreme Court can be said to be a ‘mistake apparent from the record’ which can be rectified under section 254(2).

Recently the Supreme Court in the case of CIT v. Reliance Telecom Ltd. [2021] 133 taxmann.com 41/[2022] 284 Taxman 517/440 ITR 1 (SC) has held that even if the merits might have been decided erroneously and the ITAT had jurisdiction and within its powers, it may pass an order recalling its earlier order which is an erroneous order cannot be accepted. The Apex Court was of the view that if the order passed by the ITAT was erroneous on merits, the remedy available to the Assessee was to prefer an appeal before the High Court. The Hyderabad Tribunal in the case of GVPR Engineers Ltd. v. ACIT, MA No. 58 & 59/Hyd/2022, order dt. 06 May 2022, after considering Reliance’s case (supra) has observed Supreme Court held that Tribunal has the power to rectify any mistake apparent from the record only and further it held that the powers under Section 254(2) of the Act are akin to Order XLVII Rule 1 CP and the Tribunal is not required to revisit its earlier order and to go into detail on merits and the powers under section 254(2) of the Act are only to rectify/correct any mistake apparent from the record. The Tribunal was of the view that there is a distinction between erroneous order passed on merits and an order passed on account of a mistake apparent from the record. The Tribunal thus recalled the order as there were glaring mistakes apparent from the record.

6. Conclusion

While the Income-tax authorities have gone digital, the Tribunal has not. Hence most of the rectification applications before Income-tax authorities are online, however miscellaneous application before the Tribunal is still in non-digital mode or to say physical mode. Further, though Dispute Resolution Panel (DRP) does not have separate power as the Tribunal has, the DRP is a collegium of Commissioners, who are Income-tax authorities u/s 116, and hence section 154 could apply to DRP as well. It may be noted that DRP rules do provide for the rectification of DRP orders. However, there is no guideline on the time limit within which such rectification should be considered. Hence applying the time limit of 4 years as per section 154 would be contrary to the entire scheme of section 144C.

Also Read:
What is Income Tax Act 1961
What is Section 143 of Income-Tax Act?