Understanding Rectification of Income-tax Mistakes Under Section 154

Sometimes, the Assessing Officer may make a mistake while passing an order. If the mistake is clear and obvious from the records, it can be corrected under Section 154.

Section 154 allows such clear and apparent mistakes to be rectified without going through a lengthy process.

If the income-tax department notices an obvious mistake in its records, it has the power to:

• Change any order passed under any provisions of the Income-tax Act.
• Change any intimation or deemed intimation sent under section 143(1).
• Change any intimation sent under section 200A(1).
• Amend any intimation under section 206CB.

Under section 200A, when a person files a TDS or TCS statement, the tax department checks it on its system. During this check, they may correct small mistakes that are clearly visible from the details already given in the statement.

A new Section 206CB applies to TCS statements. This new section is inserted by the Finance Act, 2015. If, after correcting these mistakes, the department finds that the tax payable becomes higher or the refund amount becomes lower, then the taxpayer cannot be charged straightaway.

The taxpayer must first be informed and given a chance to explain or present their side. Only after hearing the taxpayer can the tax department finalise the revised tax amount.

Time Limit for Rectification

No rectification order can be passed after the expiry of four years from the end of the financial year in which the order sought to be rectified was passed. This four-year period is counted from the date of the order that is being corrected and not from the date of the original order. Therefore, if an order is revised, set aside, or replaced by a fresh order, the limitation period of four years will be calculated from the date of such revised or fresh order. Once this four-year period expires, no rectification can legally be made to that order.

In case an application for rectification is made by the taxpayer, the authority must either fix the order or say “no” within 6 months. Those 6 months are counted from the end of the month in which the application was received.

Guidelines for Filing a Rectification Application

Before making any rectification application, the taxpayers must consider the following points:

• The taxpayer should carefully read and understand the order before applying to get it corrected.
• Sometimes a taxpayer feels that the Income-tax Department has made a mistake in the order they received. But in reality, the mistake may be in the taxpayer’s own calculation. The CPC (Centralised Processing Centre) just corrects these errors.
• So, to avoid unnecessary rectification, the taxpayer should carefully read the order and first check whether there is actually any mistake in the intimation. Only if a real and clear error exists should they go for rectification.
• If a taxpayer observes any mistake in the order, then only he should proceed to make an application for rectification under section 154.
• Before applying, taxpayers must check that the mistake is obvious and clearly visible from the records. The mistake should not be something that needs arguments, explanations, investigations, or detailed discussion. The taxpayer can apply online for rectification of the mistake.
• Before applying online, the taxpayer should read the rectification procedure available on the Income Tax e-filing website.
• If the mistake is related to TDS/TCS intimation under Section 200A(1) or 206CB, then an online correction statement must be filed instead.
• If the correction will increase tax liability, reduce a refund, or raise the amount payable, the authority must inform the taxpayer/deductor in advance.
• The taxpayer/deductor must be given a reasonable chance to explain or be heard before such a change is made.