Retrospective amendment and subsequent judgment prompting action under section 154.

Issue:

XYZ & Co filed its return of income for the assessment year 2008-09 on 10.06.2008. The return was processed and subsequently assessment under section 143 (3) was completed in December 2009. During the course of assessment, certain deductions and claims were disallowed by the Assessing Officer. The assessee based on the retrospective amendment made subsequently claimed that the order of the Assessing Officer has defect apparent on record which requires rectification under section 154. Also decide whether a subsequent Supreme Court judgment prompt a rectification under section 154?

Opinion

The claim of the assessee in respect of certain deductions was disallowed by the Assessing Officer based on the law prevailing on the date of assessment. A subsequent amendment of law, may be retrospective, whether would make the order liable for rectification under section 154, is to be decided.

If the issue is debatable the provisions of section 154 cannot be invoked in spite of a subsequent retrospective change of law (CIT v. M.S.Aggarwal (2009) 308 ITR 69 (Del)).

An amendment though retrospective will not unsettle an order if it was made earlier as per the provisions of law prevailing at that time. The apex court in CIT v. Max India Ltd (2007) 295 ITR 282 (SC) has held that when the order was consistent with the law at the time it was passed notwithstanding it was amended retrospectively at a later point of time, will not entitle a revision under section 263. When revision under section 263 is not possible, the question of invoking section 154 is also impossible. This is because section 154 allows only rectification of errors apparent on record and whereas section 263 empowers revision by looking into the correctness of assessment. The time limit for section 263 is less than the time limit prescribed under section 154. Thus when section 263 could not be invoked, it is not possible to conceive a situation where section 154 could be applied.


The apex court in Mepco Industries Ltd v. CIT (2009) 319 ITR 208 (SC) has held that the right to rectify mistake apparent on record under section 154 cannot be made on mere change of opinion. Subsequent judgment of the Supreme Court and rectification based on such judgment would only amount to rectification prompted by a change of opinion. Therefore, rectification based on Supreme Court judgment is not permitted since the order passed by the Assessing Officer originally would have been in consonance with the law as interpreted at that time.

Position under DTC: Section 161 of the DTC deals with rectification of mistake and the time limit is four years from the end of the financial year in which the order sought to be amended was passed. It also says that any mistake apparent on the face of the record is eligible for such rectification. It seems that the present position with regard to rectification of mistake apparent on record will continue without any change in the DTC regime also.

Source: The Tax Referencer, Volume 120 dt.01.08.2011
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