(A) Rectification only when Mistake Apparent from the record and by the Authority who passed the Order [Section 154(1)]:
It may be possible that an Income-tax authority may commit a mistake while passing the order of assessment, appeal, revision, etc. With a view to rectifying any mistake, apparent from the record, the income-tax authority is empowered as under:
(a) The Assessing Officer is empowered to rectify any order of assessment or of refund or any other order passed by him.
(b) The Assessing Officer/designated income tax authority is empowered to amend any intimation or deemed intimation under section 143(1).
(c) The Assessing Officer/designated income tax authority may amend any intimation
(i) under section 200A(1) relating to processing of statement of tax deducted at source, or
(ii) under section 206CB (1) relating to processing of TCS statement
(d) The Commissioner is empowered to rectify any order passed by him in revision under section 263 or264.
(e) The Commissioner (Appeals) may rectify any order passed by him under section 250.
(f) Other Income-tax Authorities mentioned under section 116 may also amend any order passed by it.
Rectification can be done only by the Authority who has Passed the Order:
An authority under the Income-tax Act can rectify its own order. But where it gives effect to the order of the appellate authority, it is the appellate order, which is required to be implemented as a mandate from a higher appellate forum. It was pointed out that the assessing authority has no right to modify the order. The authority passing the order alone could rectify its order for the alleged mistake.
(B) When can Rectification be made [Section 154(2)]:
The Income-tax authorities may make the rectification:
(a) on its own motion; or
(b) on application made by the assessee or the diductor or by the collector bringing the mistake to the notice of the authority concerned.
Where the authority concerned is Commissioner (Appeals), besides the above, such niistake can be brought to his notice by the Assessing Officer also.
The Appellate Tribunal can rectify its order under section 254(2) but not under section 154 as it is not an income-tax authority.
(C) Rectification can be done for any matter other than the matter considered and decided in Appeal / Revision [Section 154(1A)] :
Where an matter had been considered and decided in any proceeding by way of appeal or revision, rectification of such matter cannot be done by Assessing Officer under section 154. However, the matter which has not been considered and decided in the appeal / revision can be rectified under section 154.
Assessing Officer could not pass order suo motu under section 154 levying interest under sections 234B and 234C when superior authority had already passed an order against levy of interest .
(D) Opportunity of being heard is necessary if Rectification Results into Enhancement, etc. [Section 154(3)] :
If such rectification order has the effect of enhancing an assessment, or reducing a refund, or otherwise increasing the liability of the assessee or the deductor or the collector the authority concerned must give a notice to the assessee or the deductor or the collector of its intention to do so and an opportunity of being heard must be given to the assessee of the deductor or the collector.
(E) Order of Rectification [Section 154(4)]:
Where any rectification is made under this section, an order of rectification shall be passed in writing by the income-tax authority concerned. Refusal to make rectification shall also require an order under this section.
(F) Refund to be given in case Rectification Results into Reduction of Assessment [Section 154(5)]:
Where any such amendment has the effect of reducing the assessment or otherwise reducing the liability of the assessee or the deductor or the collector, the Assessing Officer shall make any refund which may be due to such assessee or the deductor or the collector.
(G) Notice of Demand to be Issued in case Rectification Results in to Enhancing the Assessment, etc. [Section 154(6)]:
Where any such amendment has the effect of enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee or the deductor or the collector, the Assessing Officer shall serve on the assessee or the deductor or the collector, as the case may be. 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 Income-tax Act shall apply accordingly.
(H) Time Limit for Rectification [Section 154(7)]:
Rectification of an order under this section can be made only within four years from the end of the financial year in which the order sought to be amended was passed. However, this time limitation shall not apply to cases where amendment is made under section 155.
(I) Time Limit for Passing an Order of Rectification if Application for Amendment made by the Assessee U/s 154 [Section 154(8)]:
Without prejudice to the provisions of section 154(7), where an application for amendment under this section is made by the assessee or the deductor or the collector to an income-tax authority referred to in section 154(1), the authority shall pass an order. within a period of six months from the end of the month in which the application is received by it—
(a) making the amendment; or
(b) refusing to allow the claim.
Time limit gets freshly extended in case of rectification of rectified order:
Order sought to be amended does not necessarily mean the original order. It could be any order including the amended or rectified order. Thus for subsequent rectification, the time limit of four years shall be from the end of the financial year in which the earlier rectification order was passed.
Time limit of 4 years as per section 154(7) would freshly apply to the appellate order:
Once an appeal against order passed by an authority is preferred and is decided by the appellate authority, the order of Assessing Officer/income-tax authority merges with order of the appellate authority. Hence, after merger, the order of the original authority ceases to exist and the order of the appellate authority prevails and therefore period of limitation of 4 years for the purpose of section 154(7) has to be counted from the date of the order of the Appellate Authority.