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Facts
The assessee, a banking company, had its total income assessed for AY 2008-09 on 24/12/2010, which included MAT credit under Section 115-AA. After several rectifications, including one on 24/03/2016 that modified the MAT section to 115-JAA, the AO on 11/02/2019 issued a suo moto rectification order denying the MAT credit, stating it was unavailable for carry forward from prior years. The assessee argued that this denial was time-barred, as the limitation period should run from the initial assessment order of 24/12/2010, but the CIT(A) held that the period should be counted from the last rectification order of 24/03/2016.
Held
The Tribunal, following the Supreme Court's decision in Hind Wire Industries Ltd., ruled that the term "order" in Section 154(7) includes rectified orders, not just the original assessment. Since the MAT credit was reiterated in the rectification order dated 24/03/2016 (albeit under a different section), the limitation period for its correction should be computed from the end of the financial year in which this later rectification order was passed. Consequently, the rectification order dated 11/02/2019, denying the MAT credit, was found to be within the statutory 4-year limitation period.
Key Issues
Whether the 4-year limitation period for rectification under Section 154 of the Income Tax Act is to be computed from the date of the original assessment order or from a subsequent rectification order that addressed the same subject matter (MAT credit), in the context of denying MAT credit previously allowed.
Sections Cited
250, 154, 143(2), 142(1), 143(3), 115-AA, 234B, 234D, 115-JAA, 154(7)
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Income Tax Appellate Tribunal, COCHIN
Before: SHRI INTURI RAMA RAOSHRI SANDEEP SINGH KARHAIL
Date of Hearing – 27/03/2025 Date of Order - 27/05/2025
O R D E R PER SANDEEP SINGH KARHAIL, J.M.
The assessee has filed the present appeal against the impugned order dated 07/02/2024, passed under section 250 of the Income Tax Act, 1961 (“the Act”) by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, [“learned CIT(A)”], which in turn arose from the rectification order dated 11/02/2019 passed under section 154 of the Act, for the assessment year 2008-09.
In this appeal, the assessee has raised the following grounds: –
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“1. On the facts and in the circumstances of the case and in law, the Id. CIT(A) erred in dismissing the ground raised by appellant on limitation by even when the order u/s 154 was passed after 4 years from the end of the financial year in which the order sought to be revised was passed by considering the last order passed instead of the order in which the relief was originally allowed.”
3. The brief facts of the case are that the assessee is a banking company. For the year under consideration, the assessee filed its return of income on 29/09/2008, declaring a total income of ₹ 154,65,54,240. The return filed by the assessee was selected for scrutiny, and statutory notices under section 143(2) and section 142(1) of the Act were issued and served on the assessee. Vide order dated 24/12/2010 passed under section 143(3) of the Act, the total income of the assessee was assessed at ₹ 256,58,53,626. The Assessing Officer (“AO”), while computing the tax liability for the year under consideration, also granted MAT credit to the assessee amounting to ₹ 22,59,55,822 relating to the assessment years 2006-07 (₹ 649.57 lakh) and 2007-08 (₹ 1609.9 lakh) under section 115-AA of the Act. Subsequently, this order was revised and rectified several times, and the total income of the assessee was finally determined at ₹ 268,45,53,626 vide rectification order dated 26/03/2015 passed under section 154 of the Act. As there were certain mistakes in tax calculation in the rectification order dated 26/03/2015 passed under section 154 of the Act, the assessee filed the application dated 16/04/2015 seeking rectification on the following grounds: –
“1. Total income considered in the order generated by the system amounts to Rs. 268,45,53,626/- As per the manual tax calculation sheet enclosed with the order as well as our workings, total income amounts to Rs.268,43,53,626/-only.
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TDS considered in the manual tax calculation sheet enclosed with the order amounts to Rs.5,03,53,272/- only. As per the order generated by the system as well as our workings, TDS amounts to Rs. 5,05,82,900/-.
Interest u/s.234B amounting to Rs. 5,81,36,331/ - only has been levied in the ordergenerated by the system.Interest u/s.234B amounting toRs.5,81,13,891/- only has been levied in the manual tax calculation sheet enclosed with the order. As per our working, interest u/s.234B amounts to Rs.5,97,96,846/-. 4. In the manual tax calculation sheet enclosed with the order, an amount of Rs.26,62,83,280/- has been mentioned as refund issued on 22-2-2010. As per our workings, no such refund has been issued in the light of order dated 12-1-2011. 5. Interest u/s.234D amounting to Rs.5,07,34,012/- has been levied in the order generated by the system.Interest u/s.234D amounting to Rs.5,05,93,808/-has been levied in the manual tax calculation sheet enclosed with the order.As per our workings, interest s.234D amounts to Nil in the light of order dated 12-1-2011. 6. In the manual tax calculation sheet enclosed with the order – a) The rate of Income Tax has been wrongly mentioned as 35% instead of 30%. b) The rate of education cess has been wrongly mentioned as 2% instead of 3%. c) The section under which MAT credit has been allowed has been wrongly mentioned as 115AA instead of 115JAA. d) After 'balance payable', the section under which interest has been levied has been wrongly mentioned as 234D instead of 234B. e) The date of the last payment of tax has been wrongly mentioned as 21- 12-2014 instead of 21-2-2014. Vide demand notice dated 26-3-2015, the demand raised amounts to Rs.5,05,25,210/- However, as per our workings, the refund due amounts to Rs.31,65,41,606/- The above mentioned mistakes are apparent from the record and may please be rectified u/s. 154. Till such time as the above mistakes are rectified and the demand revised, we may not be treated as an assessee in default in respect of the tax presently demanded for A. Y.2008-09.”
Vide order dated 24/03/2016 passed under section 154 of the Act, though the assessed income of the assessee remained unchanged, however refund of ₹ 32,20,78,005 was computed by the AO. It is pertinent to note that the AO, inter-alia, accepting the assessee’s prayer, rectified the section ITA No.248/Coch/2024 (A.Y. 2008-09) 4 under which MAT credit was allowed and granted the MAT credit under section 115-JAA of the Act.
Subsequently, the AO on 11/02/2019 passed a suo moto rectification order, after issuing notice under section 154 of the Act on 04/02/2019, denying the MAT credit on the basis that upon scrutiny of the assessment records for the assessment years 2006-07 and 2007-08, it was noticed that though the return of income for these years were filed under the MAT provisions, however, there were no tax credits available to be carried forward relating to these assessment years as the assessment of these years were completed under the normal provisions of the Act and the tax was levied accordingly.
In its appeal before the learned CIT(A), the assessee raised a specific plea that the rectification order passed on 11/02/2019 is barred by limitation, as the AO has sought to rectify the MAT credit allowed for the first time in the assessment order dated 24/12/2010, and therefore, the rectification order dated 11/02/2019 has been passed beyond the statutory period of 4 years. However, the learned CIT(A), vide impugned order, rejected the ground raised by the assessee on the basis that the last rectification order allowing the MAT credit of ₹ 22,59,55,822 was passed on 24/03/2016, and thus, the date from which the limitation period will be counted is 24/03/2016. Accordingly, the learned CIT(A) held that the rectification order passed on 11/02/2019 is within the 4-year limitation period from the date 24/03/2016. Being aggrieved, the assessee is in appeal before us.
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During the hearing, the learned Authorised Representative (“learned AR”), reiterating the submissions made by the assessee before the lower authorities, submitted that the MAT credit was allowed to the assessee vide assessment order dated 24/12/2010, and therefore, the cause of action arose on 24/12/2010. The learned AR submitted that since 24/12/2010, the error continued and even vide order dated 24/03/2016, the MAT credit granted earlier was unaltered. Thus, the learned AR submitted that to compute the limitation period from 24/03/2016, the error of the grant of MAT credit needs to occur vide order dated 24/03/2016, which is not so in the present case. Accordingly, the learned AR submitted that for disallowing the MAT credit granted vide order dated 24/12/2010, the rectification order was passed on 11/02/2019 in the present case, which is beyond the statutory limitation period of 4 years.
On the other hand, the learned Departmental Representative (“learned DR”) vehemently relied upon the impugned order.
We have considered the submissions of both sides and perused the material available on record. The only issue which arises for our consideration is whether the limitation period of 4 years for passing the rectification order in the present caseshould be computed from 24/12/2010, i.e. the date of passing the original assessment order, or 24/03/2016, i.e. the date of passing the last rectification order. As per the assessee, since the alleged error of grant of MAT credit occurred on 24/12/2010 and the said error continued thereafter, therefore, the limitation period should be ITA No.248/Coch/2024 (A.Y. 2008-09) 6 computed from 24/12/2010. However, on the other hand, as per the Revenue, since vide rectification order dated 24/03/2016, the MAT credit was also granted to the assessee, the limitation period should be computed only from 24/03/2016, and thus, the rectification order passed on 11/02/2019 is not barred by limitation.
Before proceeding further, it is pertinent to note the provisions of section 154 of the Act, which provides that the AO,to rectify any mistake apparent from the record, either on its own motion or an application filed by the assessee, may amend any order passed by it under the Act. Further, as per the provisions of section 154(7) of the Act, no amendment under this section shall be made after the expiry of four years from the end of the financial year in which the order sought to be amended was passed.
From the record, it is evident that vide order dated 24/12/2010 passed under section 143(3) of the Act, the assessee was granted MAT credit of ₹ ₹ 22,59,55,822 under section 115-AA of the Act. There is no dispute regarding the fact that the said order was revised and rectified several times thereafter, and even vide rectification order 24/03/2016, the assessed income remained unchanged. We find that vide its application dated 16/04/2015, which resulted in the rectification order dated 24/03/2016, the assessee, inter-alia, also prayed that the section under which the MAT credit has been granted should be rectified to section 115- JAA instead of 115-AA of the Act. It is further evident from the perusal of the rectification order dated 24/03/2016 that the AO, inter-alia, accepting the prayer of the assessee, granted the MAT credit of ₹ 22,59,55,822 under ITA No.248/Coch/2024 (A.Y. 2008-09) 7 section 115-JAA of the Act. Subsequently, vide rectification order dated 11/02/2019, the AO denied the MAT credit granted earlier on the basis that from the perusal of the assessment records relating to the assessment years 2006-07 and 2007-08, it was noticed that though the return of income for these years were filed under the MAT provisions, however, the assessments were completed under the normal provisions of the Act and tax was levied accordingly. Therefore, as per the AO, there was no MAT credit relating to these years available to be carried forward. There is no dispute amongst the parties regarding the basic facts of the present case. For completion, we may further note that the assessee has not disputed the factual findings in the rectification order passed on 11/02/2019, and the challenge before us is limited only to the aspect that the said rectification order passed on 11/02/2019 is barred by limitation.
We find that a similar issue pertaining to the computation of the limitation period for passing the rectification order, subsequent to theearlier rectification order, on an issue which was not the subject matter in the earlier rectification proceedings came up for consideration before the Hon’ble Calcutta High Court in CIT v/s Hind Wire Industries Ltd., reported in [1993] 202 ITR 274 (Cal.). The basic facts under consideration before the Hon’ble Calcutta High Court, in the aforesaid decision, are reproduced as follows: -
“The assessee's grievance had its genesis in the following circumstances. In the income-tax returns filed by the assessee for the five assessment years under consideration, the assessee had claimed depreciation on factory buildings at five per cent. The assessments were completed, inter alia, on that basis. It is a matter of record that the assessee did not at any time prior to July, 1986, file any rectification application specifically claiming that the allowance of depreciation at five per cent. instead of ten per cent. on the ITA No.248/Coch/2024 (A.Y. 2008-09) 8 factory buildings constituted a mistake apparent from the record. As pointed out earlier on July 12, 1982, the Income-tax Officer passed rectification orders dealing, inter alia, with the question of extra shift allowance. At that time also the assessee did not specifically raise the issue relating to factory buildings. The assessee had filed appeals before the Commissioner of Income-tax (Appeals) for the assessment years in question. Even at that stage the question of depreciation admissible on factory buildings was not raised. On July 4, 1986, the assessee filed a rectification petition claiming, inter alia, that for the assessment years 1976-77 to 1983-84, depreciation on factory buildings was wrongly allowed at five per cent. instead of ten per cent. It would appear that in the course of the discussions that took place with the Income-tax Officer on this matter the assessee had contended that the rectification petition dated July 4, 1986, was not hit by the bar of limitation if July 12, 1982, the date on which the orders under section 154 were passed by the Income-tax Officer for these years, was taken into account. The Income-tax Officer was not impressed by the assessee's argument in this regard. The Income-tax Officer, on his part, held that for the assessment years 1976-77 to 1980-81, the period of limitation ran from the respective dates on which the original assessment orders were passed for these years. On this basis, the Income-tax Officer negatived the assessee's claim for the five years under examination.(As for the assessment years 1981-82 to 1983- 84, the Income-tax Officer allowed the assessee's application).”
Thus, from the perusal of the aforesaid facts before the Hon’ble Calcutta High Court in Hind Wire Industries Ltd. (supra), it is evident that the taxpayer, in the facts of that case, claimed depreciation on factory buildings at 5% in its return of income, which was granted vide assessment order. Subsequently, on 12/07/1982, the rectification order was passed only qua the question of extra shift allowance. Thereafter, for the first time on 04/07/1986, the taxpayer filed a rectification petition claiming that the depreciation on the factory buildings was wrongly allowed at 5% instead of 10%. The taxpayer further claimed that if the limitation is computed from 12/07/1982, i.e. the date on which the order under section 154 of the Act was passed, the rectification petition filed on 04/07/1986 will not be hit by the bar of limitation. It is evident from the perusal of the aforesaid facts before the Hon’ble Calcutta High Court that the Income Tax Officer disagreed
ITA No.248/Coch/2024 (A.Y. 2008-09) 9 with the assessee's submissions and held that the limitation period shall be computed from the date of the original assessment order. The first appellate authority confirmed this order of the Income Tax Officer. However, in appeal, the Tribunal agreed with the submissions of the assessee and held that the limitation period shall be computed from the date of the rectification order passed on 12/07/1982, and therefore, the subsequent rectification petition filed on 04/07/1986 is within the limitation. While deciding the issue of whether the Income Tax Officer was justified in reckoning the limitation period not from the date on which the rectification order was passed, but from the date on which the original assessment order was passed, the Hon’ble Calcutta High Court, vide aforesaid decision, observed as follows: -
“The position would of course have been different if a certain mistake arose in an assessment order and the subsequent rectification order dealt not with that aspect of the matter in which the mistake had occurred initially, but with some other matters. In such cases, the mistake having occurred in the original order, the period of limitation must be reckoned with reference to the date of the original order. It bears repetition that, in this case, depreciation allowance was one of the items considered in the set of rectification orders passed on July 12, 1982. Under the Income-tax Act, 1961, allowance towards depreciation is a single item of allowance, even though the quantum of the allowance is calculated on different assets at different rates. It should, therefore, follow that, when in the set of rectification orders passed by the Income-tax Officer on July 12, 1982, with a view to recomputing the depreciation allowance admissible to the assessee, the mistake of allowing depreciation on factory buildings at five per cent. instead of ten per cent. got repeated, the mistake is capable of being rectified under section 154 and the period of limitation will have to be computed with reference to July 12, 1982. '' As will be seen from the Tribunal's observations on the issue, the Tribunal has assumed that since the present rectification petition of the assessee relates to depreciation, the previous rectification should be construed to contain the mistake sought to be rectified notwithstanding that it is a different mistake touching a different aspect of the depreciation allowance having genesis not in the earlier rectification order but in the original assessment order. The ITA No.248/Coch/2024 (A.Y. 2008-09) 10
Tribunal thinks that once the depreciation is rectified irrespective of the point of rectification, all points converging on depreciation shall have to be deemed to have been rectified in the earlier rectification order and, therefore, the limitation should be deemed to run from the date of the said rectification order. This approach in our view is not correct. First, the assessment of income itself is a multi-faceted determination. Depreciation itself has many unrelated aspects depending on the nature of the assets, period of use of the assets, extra shift operation and so on. There may be one mistake in the treatment of one aspect of the issue or there may be different mistakes in different aspects of the allowance. If a mistake in the same aspect of depreciation occurs in a rectification with regard to the self-same point, it can be said that the subsequent mistake is a mistake in the rectification order itself. It is only in that case that the period of limitation can run from the date of the order of rectification. As for the doctrine of merger, which has been urged before us, it is now well-settled that the doctrine of merger is not a doctrine of rigid and universal application and it cannot be said that wherever there are two orders, one by an inferior Tribunal and the other by a superior Tribunal passed in an appeal or revision, there is a fusion or merger of the two orders irrespective of the subject-matter of the appellate or revisional order and the scope of the appeal or revision contemplated by particular statute, vide State of Madras v. Madurai Mills Co. Ltd. [1967] 19 STC 144 (SC). The same can be also said of the effect of merger or fusion when the original order is rectified in any part. It can be equally said that the original order does not get completely merged or fused in the rectification order. The fusion or merger by virtue of the rectification order passed is only to the extent it relates to the matter considered and decided in the rectificatory order. The other part of the assessment order which relates to items forming the subject-matter of the original assessment order does not merge in the rectification order. This holds good even after an appeal from an order of assessment is decided by the appellate authority. A mistake in that part of the assessment order which was not the subject-matter of review of the appellate authority and was left untouched by him does not merge and the order in such part remains open for rectification by the Assessing Officer under section 154. On this there was some judicial controversy. See Karsandas Bhagwandas Patel's case [1975] 98 ITR 255 (Guj.), (which was dissented from in J. K. Synthetics Ltd. v. Addl. CIT [1976] 105 ITR 344 (All.)), Jeewanlal (1929) Ltd. v. Addl. CIT [1977] 108 ITR 407 (Cal.), Premchand Sitanath Roy v. Addl. CIT [1977] 109 ITR 751 (Cal.). But the conflict of judicial opinion is now resolved as the principle of partial merger is now given statutory effect by sub-section (1A) of section 154 introduced by the Direct Taxes (Amendment) Act, 1964. In the instant case, the question of the rate applicable to the factory building was admittedly not the subject-matter of the earlier rectification. What was the matter for rectification in the earlier order under section 154 was the question of admissibility of extra shift allowance. In fact, in the extra shift allowance, the depreciation for factory buildings cannot at all come in for consideration as no extra shift allowance is applicable to the factory buildings. Therefore, the Tribunal's view that depreciation as a whole in all its aspects was rectified earlier in the process of allowing extra shift allowance
ITA No.248/Coch/2024 (A.Y. 2008-09) 11 to plant and machinery, entitled to such allowance, is misconceived. Therefore, the omission to correct the mistake in the original order in allowing depreciation to buildings at a lower rate than the rate applicable was not transmuted into a mistake incidental to the rectification order even though limited only to extra shift allowance. The Tribunal's view does not hold good in the light of the law as settled by the statute as well as judicial pronouncements. The allowance of a rate lower than that due for the factory building is a mistake that remains embedded in the original assessment and it cannot be said that the mistake in allowing the lower rate of depreciation was repeated while passing the rectification order specifically for allowing extra shift depreciation. The concept of such constructive mistake, despite its novelty, requires a fiction. But there is no fiction unless law creates one. If the mistake is not in the rectification order, it must be in the original one. Therefore, the limitation for rectification for that particular mistake shall run from the date of the initial order of assessment and not the subsequent rectificatory order.” (Emphasis supplied) 14. Therefore, from the careful perusal of the aforesaid decision of the Hon’ble Calcutta High Court, it is evident that the Hon’ble Court specifically held that the mistake in the original assessment order, which was raised by way of subsequent rectification application, cannot be said to have been repeated while passing the earlier rectification order on a different issue, and such mistake remained embedded in the original assessment order. Therefore, the Hon’ble High Court held that the limitation for rectification of that particular mistake, which occurred in the original assessment order, shall run from the date of the original assessment order and not the subsequent rectification order. Accordingly, the Hon’ble High Court overturned the findings of the Tribunal and decided the issue in favour of the Revenue.
We find that in the present case before us, the contentions of the assessee are similar to the contentions of the Revenue in the facts of the aforesaid case, which were accepted by the Hon’ble High Court, and it was ITA No.248/Coch/2024 (A.Y. 2008-09) 12 held that in such a case, the limitation period is required to be computed from the date of the original assessment order, i.e. from the date when the mistake occurred in the original order.
We find that in a further appeal by the taxpayer, the Hon’ble Supreme Court in Hind Wire Industries Ltd. v/s CIT, reported in [1995] 212 ITR 639 (SC), set aside the aforesaid decision of the Hon’ble High Court and restored the decision of the Tribunal, observing that the word “order” in section 154(7) of the Act is not qualified in any way and it does not necessarily mean the original order. Accordingly, the Hon’ble Supreme Court held that even the rectified order will fall within the meaning of the aforesaid word, and therefore, the second application for rectification made within 4 years from the date of the earlier rectification order is valid.
Therefore, we find that this issue under consideration before us is no longer res integra, and it has been settled that in a case where the earlier rectification order has been passed after the original assessment order and the mistake sought to be rectified was not the subject matter of the earlier rectification proceedings, the limitation period for passing the rectification order under section 154 of the Act shall be reckoned only from the date of passing the earlier rectification order. Therefore, respectfully following the decision of the Hon’ble Supreme Court in Hind Wire Industries Ltd. (supra), we do not find any merit in the submissions of the assessee in the present case.
ITA No.248/Coch/2024 (A.Y. 2008-09) 13
Additionally, it is pertinent to note that in the present case, as noted in the foregoing paragraphs, the AO vide rectification order dated 24/03/2016, inter-alia, dealt with the request of the assessee for granting MAT credit under the correct section, and accordingly, granted the MAT credit under section 115-JAA of the Act instead of section 115-AA, under which it was earlier granted. Therefore, the case of the Revenue, in the present facts, is on a much better footing, as the mistake of grant of MAT credit that had occurred earlier in the assessment order passed on 24/12/2010 was repeated in the subsequent rectification order dated 24/03/2016 under the correct provision. Thus, we are of the considered view that for correcting such a mistake, which was repeated in the subsequent rectification order, the limitation period shall be reckoned from the date of the rectification order.
Therefore, respectfully following the decision of the Hon’ble Supreme Court in Hind Wire Industries Ltd. (supra), we are of the considered view that the limitation period of 4 years under section 154(7) of the Act in the present case should be computed from the end of the financial year in which the rectification order dated24/03/2016 was passed. Hence, the rectification order dated 11/02/2019 denying the MAT credit to the assessee is not barred by limitation. As a result, we do not find any infirmity in the findings of the learned CIT(A) in dismissing the ground raised by the assessee on this issue. Accordingly, the same are upheld, and the sole ground raised by the assessee is dismissed.
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In the result, the appeal by the assessee is dismissed.
Order pronounced on 27/05/2025 by way of proper mentioning on the Notice Board