DIRECT TAXES CIRCULAR

SECTION 154 l RECTIFICATION OF MISTAKES

897. Mistakes apparent from records - Whether can be treated as such on the basis of subsequent decision of Supreme Court

1. The Board are advised that a mistake arising as a result of a subsequent interpretation of law by the Supreme Court would constitute “a mistake apparent from the records” and rectificatory action under section 35/154 of the 1922 Act/the 1961 Act would be in order. It has, therefore, been decided that where an assessee moves an application under section 154 pointing out that in the light of a later decision of the Supreme Court pronouncing the correct legal position, a mistake has occurred in any of the completed assessments in his case, the application shall be acted upon, provided the same has been filed within time and is otherwise in order. Where any such applications have already been rejected and the assessee files fresh applications within the statutory time limit, the same may also be treated on par with the applications which may either be pending or received after the issue of this circular.

2. The Board desire that any appeals or references pending on the point at issue may please be withdrawn.

Circular : No. 68 [F.No. 245/17/71-A&PAC], dated 17-11-1971.

Judicial analysis

Explained in - In ITO v. Smt. Manini Niranjanbhai [1992] 41 ITD 324 (Ahd.-Trib.) (SMC) it was observed that as per Circular No. 68, dated 17-11-1971, it is now a well established position that the Supreme Court does not declare the law with effect from the date of its order and the law declared by the Supreme Court has effect not only from the date of the decision but from the inception of the statutory provision. It has been mentioned therein that the Board have been advised that the mistake arising as a result of subsequent interpretation of law by the Supreme Court would constitute a mistake apparent from record and rectificatory action under section 154 would be justified.

898. Clarification regarding date of limitation for filing appeals

1. According to the provisions of section 249(2)(c) an appeal has to be presented within 30 days from the date of service of the order sought to be appealed against. Also, the proviso under section 154(2)(b) provides that if the Assessing Officer does not rectify, within a period of three months from the end of the month in which a mistake in an intimation under section 143(1) is brought to his notice by the assessee, he may file an appeal and the provisions of sections 246 and 249 shall have effect as if the said intimation were an order for the purposes of these sections.

2. References have been received requesting for a clarification as to the date of expiry of the time limit for filing an appeal in such cases.

3. The matter has been considered by the Board. It has been decided that, for the purposes of section 249(2)(c), the intimation under section 143(1) should be deemed to have been served on the assessee (for this limited purpose) on the date following the expiry of the period of three months mentioned in the proviso under section 154(2)(b) and hence the limitation period of thirty days will start from that date.

Circular : No. 668, dated 20-10-1993.

899. Board’s authorisation for taking action under section 154 beyond time limit specified under section 154(7) in cases of protective assessments requiring to be cancelled - Order under section 119(2)(b)

A copy of the order dated 20-12-1971 passed by the Board on the subject is enclosed for information and guidance.

Circular : No. 71 [F.No. 246/25/71-A & PAC], dated 20-12-1971.

ANNEX - ORDER REFERRED TO IN CLARIFICATION

1. Where the same income was assessed, as a protective measure, in the hands or more than one assessee or as the income of more than one assessment year, and one or more of these protective assessments needs to be cancelled as a result of some of the relevant assessments having become final and conclusive, it has been the practice of the Income-tax Department to cancel the redundant assessments under section 154, treating these as involving mistakes apparent from the records. This is being done by the Income-tax Officers either suo motu or on applications made by assessees. Sometimes, it is not possible to take action under section 154 in such cases because of the operation of the time limit laid down in sub-section (7) of section 154. Since the operation of this time limit causes genuine hardship to the affected assessees, the Central Board of Direct Taxes, in exercise of the powers vested in them under clause (b) of sub-section (2) of section 119, hereby authorises the Income-tax Officer to take action under section 154, or to admit or dispose of on merits applications under section 154 filed by assessees seeking relief, for cancelling such protective assessments as have become redundant by waiving, if necessary, the time limit fixed under sub-section (7) of section 154.

2. Every case of the relaxation of the time limit on the authority of this order shall be reported by the Income-tax Officer to the Inspecting Assistant Commissioner, in whose jurisdiction he is functioning within one month of the passing of such order.

Judicial analysis

Explained in - The above circular was referred to in Kirtikumar Vinodray, Sanjay Kumar Vinodrai and Sandip Ashwinkumar Trust v. ITO 1995 Tax LR 186 (ITAT-Ahd.), with the following observations:

“. . . Once we hold that the entire income should be assessed in the hands of the trustees in their representative capacity under section 161(1A), it is simultaneously necessary to also direct the Assessing Officer to delete the share income from the trust in the hands of the respective beneficiaries as otherwise it would result in levy of tax twice on the same income, which is not permissible under the aforesaid provisions and which is clearly invalid in view of the various decisions referred to hereinbefore. Such a finding is, therefore, a necessary finding for a proper disposal of the present appeal before us. We have, therefore, directed the ITO to rectify the assessments in the case of all the three beneficiaries by passing appropriate orders. We would also like to make it clear that once the entire income has been held to be taxable in the hands of the trustees in their respective capacity under section 161(1A), the inclusion of the same income in the hands of the respective beneficiaries in their respective returns and its acceptance under section 143(1) would only be in the nature of a protective inclusion in the hands of the beneficiaries which deserves to be deleted and cancelled under section 154 regardless of the fact that a period of more than 4 years have already passed. Such deletion of the share income from the trust in the hands of the beneficiaries will also be in consonance with Circular No. 71, dated 20-12-1971 issued by the Board under section 119 read with section 154 of the Income-tax Act, 1961. The ITO is, therefore, directed to grant necessary relief in the assessments of all the three beneficiaries as indicated above.” (p. 191)

900. Board’s authorisation for taking action under section 154 beyond time limit specified under section 154(7) in cases where valid application has been filed under section 154(2)(b) but was not disposed of within the said time limit - Order under section 119(2)(a)

In exercise of the powers conferred by clause (a) of sub-section (2) of section 119, the Central Board of Direct Taxes hereby orders that in all the cases where a valid application under clause (b) of sub-section (2) of section 154 had been filed by the assessee within the statutory time limit but was not disposed of by the authority concerned with in the time specified under sub-section (7) of section 154, it may be disposed of by that authority even after the expiry of the statutory time limit, on merits and in accordance with law.

Circular : No. 73 [F.No. 245/13/71-A & PAC], dated 7-1-1972.

901. Penalties based on cancelled/annulled assessments - Authorisation by the Board for taking action in respect of such penalties under section 154 beyond the time limit specified under section 154(7) - Order under section 119(2)(a)/(b)

I am directed to invite a reference to the Board’s Circular No. 71 [F.No. 245/25/71-A & PAC], dated 26-3-1972 and to say that the CBDT have passed a revised order of date in supersession of their earlier order dated 28-2-1972, a copy of which was sent with the Board’s above-noted Circular dated 26-3-1972. A copy of this revised order is attached herewith. This may be brought to the notice of ITOs/AACs/IACs in your charge.

Circular : No. 87 [F.No. 245/25/71-A & PAC], dated 19-6-1972 in supersession of Circular No. 81 [F.No. 245/25/71-A & PAC], dated 26-3-1972.

ANNEX - ORDER REFERRED TO IN CLARIFICATION

1. The Board’s Order F.No. 245/25/71-A & PAC, dated 28-2-1972 under section 119(2)(a)/(b) is hereby superseded and substituted by the following order :

2. It has been brought to the notice of the CBDT that sometimes the income-tax assessment, on the basis of which an order of penalty has been passed, is itself either cancelled or annulled and yet the order of penalty survives. Where such a penalty order has not been made subject of appeal or where it has been confirmed on appeal by the Appellate Assistant Commissioner or on revision petition by the Commissioner/Additional Commissioner, there will be justification for cancellation of the penalty order by the income-tax authority concerned under section 154; if the penalty order of the ITO/AAC/IAC is final, the respective authority will be entitled to cancel it, but if the latest position is as per appellate order of AAC or revision order of CIT/Addl. CIT, the competent authority to act under section 154 will be the AAC or the Commissioner/Additional Commissioner having regard to the provisions of section 154(1A).

3. In the above context it has been pointed out that action under section 154 by the aforesaid authorities in the types of cases mentioned above cannot sometimes be taken because of expiry of time limit under section 154(7). To obviate genuine hardship in such cases, the Board in exercise of the powers vested in them by section 119(2)(a)/(b), hereby authorise the ITOs/AACs/IACs/Addl. CITs/CITs to take action under section 154 suo motu or to admit applications under section 154 filed by the assessees seeking cancellation of penalty orders of the type mentioned above, waiving for this purpose, as may be necessary, the time limit prescribed under section 154(7). It is clarified that this order will not apply to—

(a) penalties which stand confirmed by the Income-tax Appellate Tribunal/High Court/Supreme Court ;

(b) penalties based on assessments which have been set aside for being framed de novo ; and

902. Whether where deduction claimed under section 43B was disallowed as prima facie inadmissible, under section 143(1)(a), as assessees had not furnished evidence of payment of tax, duty, etc., along with return, later on, the deduction claimed could not be allowed under section 154 as assessees subsequently furnished such evidence

CLARIFICATION 1

1. Attention is invited to Board’s Circular No. 581, dated 28-9-1990, wherein it was, inter alia, stated that where a deduction claimed is disallowed as prima facie, inadmissible for want of evidence in support thereof under section 143(1)(a), it cannot be subsequently allowed by a rectification order under section 154 even if the assessee later on furnishes evidence in support thereof. This clarification was made especially with reference to the requirement of furnishing of evidence of payment of tax duty, etc., along with the return, contained in section 43B.

2. The Board have reconsidered the matter and are of the opinion that where the sums referred to in the first proviso under section 43B had in fact been paid on or before the due dates mentioned therein, but the evidence therefor had been omitted to be furnished along with the return, the Assessing Officers can entertain applications under section 154 for rectification of the intimations under section 143(1)(a) or orders under section 143(3), as the case may be, and decide the same on merits.

3. Circular No. 581, dated 28-9-1990 stands modified to the above extent.

Circular: No. 669, dated 25-10-1993.

Clarification 2

1. Instances have come to the notice of the Board where deduction claimed under section 43B of the Income-tax Act was disallowed as prima facie inadmissible, under section 143(1)(a), as the assessees had not furnished evidence of payment of tax, duty etc. along with the return. However, later on, the deduction claimed was allowed under section 154 as the assessees subsequently furnished such evidence.

2. The aforesaid action of allowing the deduction subsequently under section 154 is not in accordance with law. Furnishing of evidence of payment of any sum by way of tax, duty, etc., along with return is a necessary requirement for allowance of deduction of that sum under section 43B. The sums disallowed as prima facie inadmissible under section 143(1)(a), in the absence of requisite evidence of the payment, cannot be subsequently allowed under section 154. This is because the scope of the powers to make prima facie adjustments under section 143(1)(a) is somewhat coterminus with the power to rectify a mistake apparent from the record under section 154.

3. Similarly, filing of evidence in support of an exemption/deduction at the time of furnishing the return of income has been prescribed as a necessary condition in certain other sections of the Income-tax Act, such as sections 32AB(5), 33AB(2), 54(2), 54B(2), 54D(2), 54F(4), 54G(2), 80HH(5), 80HHA(4), 35D(4), 35E(6), 80HHB(3), 80HHC(4), 80HHD(6), 80-I(7) etc. In such cases also, where the exemption/deduction claimed is disallowed as prima facie inadmissible for want of evidence in support thereof under section 143(1)(a), it cannot be subsequently allowed by a rectification order under section 154 if the assessee later on furnishes evidence in support thereof.

4. Such a view is also necessary from administrative angle as, if the department condones such lapses in the initial stages, a tendency may develop amongst the taxpayers not to file relevant evidence at the time of filing the return and then make a claim by putting an application under section 154. This tendency would unnecessarily increase infructuous work for the department. Hence strict view which is in accordance with the legal provisions is necessary in such cases.

Circular : No. 581, dated 28-9-1990.

Judicial analysis

Explained in - In Khatau Junkar Ltd. v. K.S. Pathania [1992] 61 Taxman 157 (Bom.) it was observed that the Board’s Circular No. 581, dated 28-9-1990 makes it clear that the Board itself has viewed the power to make adjustments as coterminus with the power to rectify mistake apparent from the record under section 154.

See also Master Devesh Darshan v. ITO [1993] 45 ITD 658 (Bom. - Trib.) (SMC)/New United Motors v. Asstt. CIT [1993] 45 ITD 302 (Delhi - Trib.)/LML Ltd. v.M.K. Venkataraman, Asstt. CIT [1993] 66 Taxman 507 (Bom.)/JCT Ltd. v. Hari Kishan [1992] 196 ITR 55 (Bom.)/Dhanoolal & Sons v. DCIT [1996] 57 ITD 426 (Cal.).

Explained in - Shree Jagdamba Emery Stone v. ITO [2001] 115 Taxman 280 (Jodh.-Trib.) (Mag.) in following words :

“The CBDT’s Circular No. 669, dated 25-10-1993, ....provides that where the sums referred to in the first proviso under section 43B had in fact been paid on or before the due dates mentioned therein, but the evidence therefor had been omitted to be furnished along with the return, the Assessing Officer could entertain applications under section 154 for rectification of the intimation and decide the same on merits. Obviously, this circular impliedly permits the furnishing of evidence supportive of the payment which the assessee had failed to furnish earlier although the payment had in fact been made before the required due date; even though it does not specifically so state but it does essentially so imply or else the circular will have no meaning and will serve no purpose.” (pp. 281 & 282)

Explained in - ACIT v. Sakay Traders [2000] 74 ITD 497 (Asr. - Trib.) in following words :

“On reading of these Circulars simultaneously, we find that Circular No. 581, dated 28-8-1990 clearly lays down that in case the assessee claims deduction/exemption in a particular provision of law (as specified in detail in that circular) but does not file any evidence in support thereof then the Assessing Officer can prima facie disallow the same as inadmissible under section 143(1)(a) of the Income-tax Act, 1961 and the same, later on, cannot be allowed by the Assessing Officer by passing an order under section 154 even if the assessee subsequently furnished the evidence in support thereof. However, by Circular No. 669, dated 25-10-1993, this above Circular No. 581, dated 28-9-1990 was modified to the extent that where the sums referred to in the first proviso to section 43B had, in fact, been paid on or before the due dates mentioned therein, but the evidence therefor had been omitted to be furnished along with the return, the Assessing Officer can entertain applications under section 154 for rectification of the intimation under section 143(1)(a) or orders under section 143(3), as the case may be, and decide the same on merits. It means that by this Circular, the earlier Circular No. 581 stood modified because the Assessing Officer was given power to rectify under section 154 in case the assessee furnished proof of payment on or before the due date as required under section 43B of the Act and so the same could be taken into consideration by the Assessing Officer at the time of considering the application under section 154 whereas due to previous Circular No. 581, he could not do so.” (pp. 502 & 503)

903. Where, in view of notification issued at a subsequent date but which is applicable to assessment years involved in application, there is mistake apparent from record which can be rectified under section 154, while disposing of rectification applications, Assessing Officer must ensure that conditions subject to which approval was granted are satisfied

1. Section 10(23C)(iv) of the Income-tax Act provides that any income received by a person on behalf of any fund or institution established for charitable purposes is not includible in the total income of the said fund or institution is notified by the Central Government in the Official Gazette, having regard to the objects of the fund or institution and its importance throughout India or throughout any State or States.

2. Section 35(1)(ii) provides for deduction out of profits computed under the head “Profits and gains of business or profession”, in respect of any sum paid to the scientific research association which has its object the undertaking of scientific research or to a University, college or other institution to be used for scientific research. Similarly, clause (iii) of sub-section (1) of section 35 provides for deduction in respect of any sum paid to university, college or other Institution to be used for research in social science or statistical research. The deductions under section 35(1)(ii) or under section 35(1)(iii) are admissible only if such association, university, college or institution is for the time being approved for the purposes of these clauses, by the prescribed authority, by notification in the Official Gazette.

3. The Board have received representations that quite often the notifications are issued much after the completion of assessments of relevant persons for the relevant assessment years. The Assessing Officers have rejected applications under section 154 on the ground that the notification was issued subsequent to the passing of the assessment order and thus there was no mistake apparent from record.

4. The matter has been examined. The Board are of the view that in view of the notification issued at a subsequent date but which is applicable to the assessment year/s involved in the application, there is a mistake apparent from record which can be rectified under section 154 of the Income-tax Act. However, while disposing of the rectification applications, the Assessing Officer must ensure that the conditions subject to which the approval was granted are satisfied.

Circular: No. 725, dated 16-10-1995.