The officer says my section 154 notice is in time because he is rectifying the order giving effect to the appeal. Is that right where the point was never in appeal?
The Gujarat High Court said no. Following its own decision in Poonjabhai Vanmalidas, it held that where the issue was not the subject matter of the appeal the appellate order does not subsume the original order, so the time for correcting the mistake relates back to the original order and not to the appellate or appeal effect order. It also held that a notice founded on the interpretation of a Supreme Court decision cannot be a mistake apparent from the record.
Decided by the High Court (Biren Vaishnav J and Bhargav D. Karia J) on 2023-09-26, reported as Special Civil Application Nos. 3971, 3972, 3973, 3977 and 3981 of 2019 (Gujarat High Court). It bears on section 154, section 154(7), section 10A, section 143(3), section 148, section 263 of the Income Tax Act 1961, in Assessment & Scrutiny, Deductions & Disallowances and Appeals matters.
This is the counterweight to the Delhi High Court's Tony Electronics, and the two cannot both be right on the same facts. Here the assessment was dated 2 February 2012, no s.10A dispute was carried in appeal, the appeal relief came on 27 August 2014, the order giving effect followed, and a s.154 notice issued on 20 March 2018 was still held out of time — because the mistake, if any, was in the untouched part of the original order. The second limb is just as useful: where the Department's case depends on how a Supreme Court decision is to be read, the issue is by definition debatable and outside s.154.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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The petitioner is a public limited company providing software development and related services. For assessment year 2008-09 it returned income of Rs 1,76,66,295 after claiming a deduction under s.10A. The case was scrutinised, the officer specifically enquired into the computation of the s.10A deduction and the company answered. By order dated 2 February 2012 income was assessed at Rs 26,28,28,351 with certain additions, but the s.10A deduction was not disputed and was allowed, and no appeal was filed on that ground. On other grounds the CIT(A) granted relief by order dated 27 August 2014. In November 2014 the officer issued a s.148 notice to recompute the s.10A deduction; that notice was quashed by the High Court on 11 January 2016. An order giving effect to the appellate relief was passed in January 2015. In March 2018 the officer issued notices dated 20 March 2018 and 24 April 2018 under s.154 to rectify the order giving effect, saying that a mistake of law and fact had been committed in allowing the loss of the eligible s.10A units SDF VI and SDF VII of Rs 4,46,67,531 against income from house property, on the footing that on the Supreme Court's decision in CIT v. Yokogawa India Ltd. the profits of eligible undertakings are excluded from the computation of total income so the loss cannot be set off against other income. Five petitions were filed, for assessment years 2008-09, 2009-10, 2011-12, 2012-13 and 2013-14 respectively; four challenged s.154 notices and the fifth, Special Civil Application No. 3981 of 2019, challenged a notice under s.263. In two of the petitions there were no orders giving effect at all.
The petitions were allowed and the rule was made absolute with no order as to costs (para 13). The s.154 notices were bad on two independent grounds. First, limitation: applying Poonjabhai Vanmalidas, where the appellate authority did not touch the issue the appellate order does not subsume the original order, so the time for correcting the mistake in the original order relates back to the passing of the original order and not to the appellate order; the assessment was dated 2 February 2012, s.10A was not in dispute either in the assessment or in the appeal, and the Revenue's argument that the exercise was within the time frame was therefore misconceived. Second, the issue was debatable: the notice depended on the interpretation of the Supreme Court's decision in Yokogawa India Ltd., which had settled whether ss.10A, 10B and 10AA are deduction or exemption provisions, and a question of interpretation cannot be a mistake apparent from the record (paras 11.8 and 11.9). Having held the notice barred by limitation and the issue outside the parameters of s.154, the notices were held bad (para 11.17), and the challenge was held maintainable in writ (para 11.18).
The Court set out the four-year rule in s.154(7) (para 11.2) and worked through Poonjabhai Vanmalidas, where a wealth-tax assessment of 22 or 23 February 1971 was varied on appeal on 23 June 1971, consequential orders were passed on 30 March 1974 and rectification notices issued on 15 January 1976; the Division Bench held that even after an appeal is decided a mistake in the part of the assessment that was not the subject matter of review by the appellate authority and was left untouched can be rectified, but that the part being rectified is the untouched part of the original order, so the four years run from the original order (para 11.3). Applying that to the facts — assessment 2 February 2012, no s.10A dispute in the appeal, relief granted on 27 August 2014, order giving effect thereafter, benefit of s.10A given 'as per assessment order' — the Court held the appellate order did not subsume the original order and the time related back to the original order. On the merits it applied T.S. Balaram v. Volkart Brothers for the meaning of a mistake apparent — an obvious and patent mistake, not something established by a long drawn process of reasoning on points on which there may conceivably be two opinions — and held that the dispute here was about how Yokogawa India Ltd. should be read (paras 11.8 and 11.9). It went on to hold that in any event the Revenue's reading of Yokogawa was erroneous and that the decision in fact supported the assessee (paras 11.11 to 11.16), concluding that the Revenue's interpretation was clearly not legally permissible (para 11.16).
A question of interpretation therefore would not make it an issue of a mistake apparent from record.
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Handle my notice → Ask a CA on WhatsAppThe Gujarat High Court said no. Following its own decision in Poonjabhai Vanmalidas, it held that where the issue was not the subject matter of the appeal the appellate order does not subsume the original order, so the time for correcting the mistake relates back to the original order and not to the appellate or appeal effect order. It also held that a notice founded on the interpretation of a Supreme Court decision cannot be a mistake apparent from the record. This was decided by the High Court (Biren Vaishnav J and Bhargav D. Karia J) and bears on section 154, section 154(7), section 10A, section 143(3), section 148, section 263 of the Income Tax Act 1961. It is reported as Special Civil Application Nos. 3971, 3972, 3973, 3977 and 3981 of 2019 (Gujarat High Court). This is the counterweight to the Delhi High Court's Tony Electronics, and the two cannot both be right on the same facts. Here the assessment was dated 2 February 2012, no s.10A dispute was carried in appeal, the appeal relief came on 27 August 2014, the order giving effect followed, and a s.154 notice issued on 20 March 2018 was still held out of time — because the mistake, if any, was in the untouched part of the original order. The second limb is just as useful: where the Department's case depends on how a Supreme Court decision is to be read, the issue is by definition debatable and outside s.154. If it applies to you, the first step is this: Ask where the alleged mistake actually originated. If the appeal effect order merely carried forward what the original assessment had already allowed, argue that limitation relates back to the original assessment.
The petitioner is a public limited company providing software development and related services. For assessment year 2008-09 it returned income of Rs 1,76,66,295 after claiming a deduction under s.10A. The case was scrutinised, the officer specifically enquired into the computation of the s.10A deduction and the company answered. By order dated 2 February 2012 income was assessed at Rs 26,28,28,351 with certain additions, but the s.10A deduction was not disputed and was allowed, and no appeal was filed on that ground. On other grounds the CIT(A) granted relief by order dated 27 August 2014. In November 2014 the officer issued a s.148 notice to recompute the s.10A deduction; that notice was quashed by the High Court on 11 January 2016. An order giving effect to the appellate relief was passed in January 2015. In March 2018 the officer issued notices dated 20 March 2018 and 24 April 2018 under s.154 to rectify the order giving effect, saying that a mistake of law and fact had been committed in allowing the loss of the eligible s.10A units SDF VI and SDF VII of Rs 4,46,67,531 against income from house property, on the footing that on the Supreme Court's decision in CIT v. Yokogawa India Ltd. the profits of eligible undertakings are excluded from the computation of total income so the loss cannot be set off against other income. Five petitions were filed, for assessment years 2008-09, 2009-10, 2011-12, 2012-13 and 2013-14 respectively; four challenged s.154 notices and the fifth, Special Civil Application No. 3981 of 2019, challenged a notice under s.263. In two of the petitions there were no orders giving effect at all. The matter was decided on 2023-09-26 by the High Court (Biren Vaishnav J and Bhargav D. Karia J). On those facts the High Court held as follows. The petitions were allowed and the rule was made absolute with no order as to costs (para 13). The s.154 notices were bad on two independent grounds. First, limitation: applying Poonjabhai Vanmalidas, where the appellate authority did not touch the issue the appellate order does not subsume the original order, so the time for correcting the mistake in the original order relates back to the passing of the original order and not to the appellate order; the assessment was dated 2 February 2012, s.10A was not in dispute either in the assessment or in the appeal, and the Revenue's argument that the exercise was within the time frame was therefore misconceived. Second, the issue was debatable: the notice depended on the interpretation of the Supreme Court's decision in Yokogawa India Ltd., which had settled whether ss.10A, 10B and 10AA are deduction or exemption provisions, and a question of interpretation cannot be a mistake apparent from the record (paras 11.8 and 11.9). Having held the notice barred by limitation and the issue outside the parameters of s.154, the notices were held bad (para 11.17), and the challenge was held maintainable in writ (para 11.18).
The Court set out the four-year rule in s.154(7) (para 11.2) and worked through Poonjabhai Vanmalidas, where a wealth-tax assessment of 22 or 23 February 1971 was varied on appeal on 23 June 1971, consequential orders were passed on 30 March 1974 and rectification notices issued on 15 January 1976; the Division Bench held that even after an appeal is decided a mistake in the part of the assessment that was not the subject matter of review by the appellate authority and was left untouched can be rectified, but that the part being rectified is the untouched part of the original order, so the four years run from the original order (para 11.3). Applying that to the facts — assessment 2 February 2012, no s.10A dispute in the appeal, relief granted on 27 August 2014, order giving effect thereafter, benefit of s.10A given 'as per assessment order' — the Court held the appellate order did not subsume the original order and the time related back to the original order. On the merits it applied T.S. Balaram v. Volkart Brothers for the meaning of a mistake apparent — an obvious and patent mistake, not something established by a long drawn process of reasoning on points on which there may conceivably be two opinions — and held that the dispute here was about how Yokogawa India Ltd. should be read (paras 11.8 and 11.9). It went on to hold that in any event the Revenue's reading of Yokogawa was erroneous and that the decision in fact supported the assessee (paras 11.11 to 11.16), concluding that the Revenue's interpretation was clearly not legally permissible (para 11.16). In the words reproduced by the source cited on this page: "A question of interpretation therefore would not make it an issue of a mistake apparent from record." The decision followed or applied Poonjabhai Vanmalidas (Gujarat High Court, wealth-tax s.35) — followed; T.S. Balaram, ITO v. Volkart Brothers [1971] 82 ITR 50 (SC) — applied; CIT v. Yokogawa India Ltd. — construed.
It was decided by the High Court on 2023-09-26 and is reported as Special Civil Application Nos. 3971, 3972, 3973, 3977 and 3981 of 2019 (Gujarat High Court). Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 154, section 154(7), section 10A, section 143(3), section 148, section 263, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The petitions were allowed and the rule was made absolute with no order as to costs (para 13). The s.154 notices were bad on two independent grounds. First, limitation: applying Poonjabhai Vanmalidas, where the appellate authority did not touch the issue the appellate order does not subsume the original order, so the time for correcting the mistake in the original order relates back to the passing of the original order and not to the appellate order; the assessment was dated 2 February 2012, s.10A was not in dispute either in the assessment or in the appeal, and the Revenue's argument that the exercise was within the time frame was therefore misconceived. Second, the issue was debatable: the notice depended on the interpretation of the Supreme Court's decision in Yokogawa India Ltd., which had settled whether ss.10A, 10B and 10AA are deduction or exemption provisions, and a question of interpretation cannot be a mistake apparent from the record (paras 11.8 and 11.9). Having held the notice barred by limitation and the issue outside the parameters of s.154, the notices were held bad (para 11.17), and the challenge was held maintainable in writ (para 11.18). It arises in Assessment & Scrutiny, Deductions & Disallowances and Appeals matters, on section 154, section 154(7), section 10A, section 143(3), section 148, section 263 of the Income Tax Act 1961, and was decided by Biren Vaishnav J and Bhargav D. Karia J. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Show that the item was never in dispute before the appellate authority — in this case s.10A was allowed in the assessment and no appeal was filed on it, and the relief granted in appeal was on other grounds. Where the notice rests on the reading of a judgment, take the Volkart Brothers point: an issue of interpretation involves a long drawn process of reasoning on which there may conceivably be two opinions and is not a mistake apparent. Do not be put off by the alternative remedy objection; the Court held a challenge to a s.154 notice issued without jurisdiction is maintainable in writ.
High Courts differ on this point. No search for later treatment of this 2023 decision was made, so whether it has been followed, appealed or doubted is unverified. What is established from the documents read is a conflict between High Courts on when limitation under s.154(7) starts where an appellate order has intervened: this Bench holds that for an item untouched by the appeal the time relates back to the original order, while the Delhi High Court in CIT v. Tony Electronics Limited (ITA No. 196 of 2009, decided 9 October 2009) held that the original assessment merges in the appellate order and it is no explanation that the error occurred in the original order and was not the subject matter of appeal. Neither judgment cites the other. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
Retrieval of this judgment was difficult and the entry says only what could be corroborated. The plain document URL returned HTTP 403 on three attempts; the print view returned text but was demonstrably unreliable — asked for para 11 it returned the words that the structural transcription showed belong to para 1, and its rendering of para 11.9 silently dropped a sentence that a phrase search on the same document supplied. Every proposition used here was therefore confirmed by phrase search on the document itself. The structural transcription showed a judgment numbered 1 to 13 with sub-numbering under 7, 8, 10 and 11 (11.1 to 11.19 at least), and the disposal at para 13. There is a date conflict inside the judgment: para 7.4 gives the order giving effect as dated 30 January 2015, while the passage applying Poonjabhai Vanmalidas gives it as 31 March 2015. Note also that a very long passage in the judgment is a quotation from Poonjabhai Vanmalidas, not this Bench speaking, and must not be cited to Mastek. The print view's corruption of paragraph numbers is worse than a single displacement: asked for paragraphs 12 and 13 it returned two paragraphs of Supreme Court prose about the Finance Act 2000 amendment of s.10A — text that belongs to the Yokogawa passage quoted inside paras 11.12 and 11.13 — under the labels 12 and 13. The genuine para 13 ('Petitions are accordingly allowed. Rule is made absolute accordingly with no order as to costs.') is only reachable by phrase search. Do not take any paragraph number in this document from the print view. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The petitions were allowed and the rule was made absolute with no order as to costs (para 13). The s.154 notices were bad on two independent grounds. First, limitation: applying Poonjabhai Vanmalidas, where the appellate authority did not touch the issue the appellate order does not subsume the original order, so the time for correcting the mistake in the original order relates back to the passing of the original order and not to the appellate order; the assessment was dated 2 February 2012, s.10A was not in dispute either in the assessment or in the appeal, and the Revenue's argument that the exercise was within the time frame was therefore misconceived. Second, the issue was debatable: the notice depended on the interpretation of the Supreme Court's decision in Yokogawa India Ltd., which had settled whether ss.10A, 10B and 10AA are deduction or exemption provisions, and a question of interpretation cannot be a mistake apparent from the record (paras 11.8 and 11.9). Having held the notice barred by limitation and the issue outside the parameters of s.154, the notices were held bad (para 11.17), and the challenge was held maintainable in writ (para 11.18).
TaxSphere, “Mastek Limited v ACIT”, https://taxnotice.vittsphere.com/caselaw/case/mastek-154-7-relates-back-to-the-original-order-for-an-untouched-item/ (validity last checked 2026-09-08)
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