Overview
Section 154 of the Income-tax Act empowers Assessing Officers (AOs) to rectify mistakes apparent from the record. However, accepting a Revenue Audit objection does not automatically justify rectification. CBDT Instruction F. No. 246/06/2023 dated 16 February 2023 reiterates the need to follow Instruction No. 7/2017 and apply independent judgment before initiating remedial action under Section 154 or Section 263. The article explains the scope of apparent mistakes, the distinction between rectification and revision, and the importance of recording reasons to avoid adverse appellate outcomes.
The legal contours of an error apparent on the face of the record cannot be exactly identified, but there has to be an application of mind by the AO while invoking Section 154, when a Revenue Audit objection is accepted by the department. Question is that what are “records” and what are “Mistakes apparent”, for the AO to apply Sec 154. In various cases it has been concluded that the records of the case comprising the entire proceedings including documents and materials produced by the parties and taken on record by the authorities which were available at the time of passing of the order which is the subject-matter of the proceedings for rectification are to be considered as records. Mistakes on the other hand which can be considered apparent are Arithmetical errors, Clerical errors, Misreading of any provision of law, Application of wrong provision of law.
An error which has to be established by a long-drawn process of reasoning on points where there may conceivably be two opinions can hardly be said to be an error apparent on the face of the record. Where an alleged error is far from self-evident and if it can be established, it has to be established, by lengthy and complicated arguments, such an error cannot be said to be apparent from records.
Incases where Revenue objection is accepted, it is noticed that the AO is frequently using section 154, even in cases where there is no mistake apparent from records or where action under section 263/147 is necessary. This leads to unfavorable judgments at the appellate stage, which could have been avoided. Even If Pr. CIT chooses not to use section 263, the Assessing Officer (AO) is obligated to evaluate the case’s facts and take the appropriate action based on his independent judgment. Application of mind by the AO is important in these cases.
Vide Instruction F. No. 246/06/2023, dated 16-02-2023, The Central Board of Direct Taxes (CBDT) has requested all tax officers to ensure that the procedure prescribed in Instruction no. 7/2017 is followed scrupulously and remedial action is taken after due application of mind. Instruction no. 7/2017 prescribes the procedures for invoking section 263/154 if a revenue audit objection is accepted. In accordance with the said procedure, the Principal Commissioner of Income Tax (PCIT) must determine whether the order in question, which prompted the objection, requires revision under Section 263. This decision should be based on the facts of the case and will depend on whether the objection is acceptable.
Thus, the CBDT has requested all field authorities to ensure that the procedure prescribed in Instruction No. 7/2017 is followed scrupulously and remedial action is taken under the appropriate section of the Income-tax Act after due application of mind.
Indirectly, vide this instruction a message has been sent to the AOs to take responsibility of cases where they apply Section 154. Incase they choose to do so, then they should also have sufficient reasons on record so that the cases are not rejected at the appellate stage on the basis of mis-application of Section 154.
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