The Assessing Officer has issued a section 154 notice on an item my CIT(A) appeal already dealt with. Can he do that?
No. The Orissa High Court held that the scope of s.154(1A) is limited to mistakes apparent from the record and does not include a power to revise, review or reappraise the officer's own order, and that letting him rectify a matter already carried in appeal would let him override the appellate order. If the Revenue was dissatisfied with the CIT(A) it had to file a second appeal to the Tribunal.
Decided by the High Court (A.K. Ganguly C.J. and I. Mahanty J) on 2008-01-10, reported as [2008] 298 ITR 53 (Orissa); (2008) 218 CTR (Ori) 374; 2008 (I) OLR 751. It bears on section 154, section 154(1A), section 143(1)(a), section 143(3), section 234B, section 264 of the Income Tax Act 1961, in Assessment & Scrutiny, Appeals and Revision & Rectification matters.
This is the taxpayer-side answer to a rectification notice issued after an appellate order, and the decision the Madras High Court later relied on in Indus Finance. It also draws the line precisely: the doctrine of merger is not universal, so the part of the assessment that was NOT the subject matter of the appeal remains open to rectification. The pleading point is to identify item by item what the appellate order actually dealt with.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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For assessment year 1991-92 the assessee returned income of Rs 2,76,306 on 30 December 1991. By order dated 7 March 1994 under s.143(1)(a) tax and interest were assessed at Rs 1,45,084 against tax already deposited of Rs 1,67,362, leaving Rs 30,358 refundable. Instead of refunding, the officer issued a s.143(2) notice and determined income at Rs 13,59,510 by adding Rs 9,38,989 on the trading account and Rs 1,10,487 on scrap sale. On 25 January 1995 the CIT(A) quashed both additions but directed an addition of Rs 2,52,000 for stock discrepancy. Rather than pass a consequential order, the Assessing Officer issued a s.154 notice proposing to rectify two things: non-levy of interest under s.234B at the time of the s.143(3) assessment, and excess depreciation said to have been allowed. The assessee objected that the order sought to be rectified had merged in the appellate order and that the notice did not identify where excess depreciation had been allowed. The objections were rejected and the rectification order dated 14 March 1995 raised an additional demand of Rs 9,89,700. A revision under s.264 was rejected on 28 February 1996, and the assessee moved the High Court under Article 226 challenging both orders. The Department relied on s.154(1A) and on CIT v. Sundaram Textiles Ltd. (Madras) and Addl. CIT v. India Tin Industries P. Ltd. (Karnataka).
The writ application was allowed. On depreciation, the original s.143(3) order had itself applied its mind and disallowed depreciation, that issue was raised in appeal and rejected by the Commissioner, so the appellate order merged with the assessment order on that item and the exercise of power under s.154 in relation to depreciation was without jurisdiction (paras 13 and 14). On interest, because the assessee had not originally been liable to s.234B interest on the s.143(1) order and the additional tax arose only on regular assessment — additions that were in any event later deleted by the CIT(A) — the non-charging of s.234B interest could not be accepted as a mistake capable of rectification under s.154 (para 12). The scope of s.154(1A) remains limited to mistakes apparent from the record and does not extend to revising, reviewing or reappraising the officer's own order (para 14).
The Court accepted from Sundaram Textiles and India Tin Industries that the doctrine of merger operates only in respect of items considered and decided by the appellate or revisional authority, and that the part of the assessment left untouched does not merge and can still be rectified (paras 8 to 10). It therefore framed the determinative question as whether the items sought to be rectified were matters dealt with or considered and decided in appeal (para 10). On depreciation the answer was yes, so merger applied (para 13). Allowing the Assessing Officer to exercise power under s.154 on matters already carried in appeal would lead to judicial anarchy and would in effect let him override or overreach the order passed by the higher authority in appeal or revision, which is not the intention behind s.154(1A); the Revenue's remedy, if dissatisfied, was a second appeal to the Tribunal (para 14). On s.234B the Court read Explanations 1 and 3 to the section and held that the assessee was not originally liable to interest on the s.143(1) order and that additional income-tax arising on regular assessment could not attract interest for non-payment of advance tax (para 12).
Such mistakes cannot and do not include powers to revise or review/reappraise one's earlier order.
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Handle my notice → Ask a CA on WhatsAppNo. The Orissa High Court held that the scope of s.154(1A) is limited to mistakes apparent from the record and does not include a power to revise, review or reappraise the officer's own order, and that letting him rectify a matter already carried in appeal would let him override the appellate order. If the Revenue was dissatisfied with the CIT(A) it had to file a second appeal to the Tribunal. This was decided by the High Court (A.K. Ganguly C.J. and I. Mahanty J) and bears on section 154, section 154(1A), section 143(1)(a), section 143(3), section 234B, section 264 of the Income Tax Act 1961. It is reported as [2008] 298 ITR 53 (Orissa); (2008) 218 CTR (Ori) 374; 2008 (I) OLR 751. This is the taxpayer-side answer to a rectification notice issued after an appellate order, and the decision the Madras High Court later relied on in Indus Finance. It also draws the line precisely: the doctrine of merger is not universal, so the part of the assessment that was NOT the subject matter of the appeal remains open to rectification. The pleading point is to identify item by item what the appellate order actually dealt with. If it applies to you, the first step is this: Set the section 154 notice alongside the appellate order and mark, item by item, which proposed rectification touches a matter the appellate authority considered and decided.
For assessment year 1991-92 the assessee returned income of Rs 2,76,306 on 30 December 1991. By order dated 7 March 1994 under s.143(1)(a) tax and interest were assessed at Rs 1,45,084 against tax already deposited of Rs 1,67,362, leaving Rs 30,358 refundable. Instead of refunding, the officer issued a s.143(2) notice and determined income at Rs 13,59,510 by adding Rs 9,38,989 on the trading account and Rs 1,10,487 on scrap sale. On 25 January 1995 the CIT(A) quashed both additions but directed an addition of Rs 2,52,000 for stock discrepancy. Rather than pass a consequential order, the Assessing Officer issued a s.154 notice proposing to rectify two things: non-levy of interest under s.234B at the time of the s.143(3) assessment, and excess depreciation said to have been allowed. The assessee objected that the order sought to be rectified had merged in the appellate order and that the notice did not identify where excess depreciation had been allowed. The objections were rejected and the rectification order dated 14 March 1995 raised an additional demand of Rs 9,89,700. A revision under s.264 was rejected on 28 February 1996, and the assessee moved the High Court under Article 226 challenging both orders. The Department relied on s.154(1A) and on CIT v. Sundaram Textiles Ltd. (Madras) and Addl. CIT v. India Tin Industries P. Ltd. (Karnataka). The matter was decided on 2008-01-10 by the High Court (A.K. Ganguly C.J. and I. Mahanty J). On those facts the High Court held as follows. The writ application was allowed. On depreciation, the original s.143(3) order had itself applied its mind and disallowed depreciation, that issue was raised in appeal and rejected by the Commissioner, so the appellate order merged with the assessment order on that item and the exercise of power under s.154 in relation to depreciation was without jurisdiction (paras 13 and 14). On interest, because the assessee had not originally been liable to s.234B interest on the s.143(1) order and the additional tax arose only on regular assessment — additions that were in any event later deleted by the CIT(A) — the non-charging of s.234B interest could not be accepted as a mistake capable of rectification under s.154 (para 12). The scope of s.154(1A) remains limited to mistakes apparent from the record and does not extend to revising, reviewing or reappraising the officer's own order (para 14).
The Court accepted from Sundaram Textiles and India Tin Industries that the doctrine of merger operates only in respect of items considered and decided by the appellate or revisional authority, and that the part of the assessment left untouched does not merge and can still be rectified (paras 8 to 10). It therefore framed the determinative question as whether the items sought to be rectified were matters dealt with or considered and decided in appeal (para 10). On depreciation the answer was yes, so merger applied (para 13). Allowing the Assessing Officer to exercise power under s.154 on matters already carried in appeal would lead to judicial anarchy and would in effect let him override or overreach the order passed by the higher authority in appeal or revision, which is not the intention behind s.154(1A); the Revenue's remedy, if dissatisfied, was a second appeal to the Tribunal (para 14). On s.234B the Court read Explanations 1 and 3 to the section and held that the assessee was not originally liable to interest on the s.143(1) order and that additional income-tax arising on regular assessment could not attract interest for non-payment of advance tax (para 12). In the words reproduced by the source cited on this page: "Such mistakes cannot and do not include powers to revise or review/reappraise one's earlier order." The decision followed or applied CIT v. Sundaram Textiles Ltd. [1984] 149 ITR 525 (Mad) — considered; Addl. CIT v. India Tin Industries P. Ltd. (Karnataka) — considered; Followed by the Madras High Court in M/s. Indus Finance Corporation Ltd v. CIT (T.C.A. No. 536 of 2005, decided 29 July 2015), which reproduced para 14.
It was decided by the High Court on 2008-01-10 and is reported as [2008] 298 ITR 53 (Orissa); (2008) 218 CTR (Ori) 374; 2008 (I) OLR 751. 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(1A), section 143(1)(a), section 143(3), section 234B, section 264, 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 writ application was allowed. On depreciation, the original s.143(3) order had itself applied its mind and disallowed depreciation, that issue was raised in appeal and rejected by the Commissioner, so the appellate order merged with the assessment order on that item and the exercise of power under s.154 in relation to depreciation was without jurisdiction (paras 13 and 14). On interest, because the assessee had not originally been liable to s.234B interest on the s.143(1) order and the additional tax arose only on regular assessment — additions that were in any event later deleted by the CIT(A) — the non-charging of s.234B interest could not be accepted as a mistake capable of rectification under s.154 (para 12). The scope of s.154(1A) remains limited to mistakes apparent from the record and does not extend to revising, reviewing or reappraising the officer's own order (para 14). It arises in Assessment & Scrutiny, Appeals and Revision & Rectification matters, on section 154, section 154(1A), section 143(1)(a), section 143(3), section 234B, section 264 of the Income Tax Act 1961, and was decided by A.K. Ganguly C.J. and I. Mahanty 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. For each such item, object under s.154(1A) that the officer has no jurisdiction, and point out that the Revenue's remedy against the appellate order was a further appeal, not rectification. Do not over-plead merger: concede that items left untouched by the appellate order can still be rectified, and concentrate the objection on the items that were in appeal. Where the officer was in fact required to pass an order giving effect to the appellate direction and instead issued a s.154 notice, say so — that was the petitioner's opening point here (recorded at para 3), and it sets up the Court's own objection at para 14 that rectification cannot be used to override or overreach the appellate order.
Still good law. A citedby search returns 4 later citing documents, three of them High Court. The Madras High Court adopted it in M/s Indus Finance Corporation Ltd v CIT (29 July 2015): the Revenue relied on it for the proposition that 'the power vested under Section 154(1A) is limited to mistakes apparent from the record and the same does not include powers to revise or review/reappraise one's earlier order', and at para 34 the Bench quoted and adopted the same passage - 'the scope of section 154(1A) remains limited to the mistakes apparent from records. Such mistakes cannot and do not include powers to revise or review/reappraise one's earlier order' - rejecting the assessee's contrary contention and holding that rectification cannot be used to raise a plea abandoned in an earlier round that had reached finality. The Madras High Court expressed the same principle in CIT v M/s Lakshmi Vilas Bank (18 December 2009), warning that permitting a decided issue to be reopened under s.154 'would lead to judicial anarchy', and the Allahabad High Court took the judgment up in CIT v Smt. Brinda Arneja (5 September 2014). Nothing overruling, doubting or confining it was found. Note how the ratio cuts: it is authority against reopening a concluded point by rectification, whichever side is trying it, and in Indus Finance it was the Revenue that used it successfully against the assessee. The Delhi Tribunal in NHPC Ltd (8 February 2016) works the jurisdictional side of the same rule, that where the point has merged in the appellate order it is the appellate authority alone that can rectify. 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.
The paragraph count was established by transcription: 16 numbered paragraphs, the operative reasoning at paras 10 to 14, the disposal at para 15 and the concurrence ('I agree.') at para 16. The disposal wording is 'the writ application is allowed, but in the circumstances, without costs' — the Court does not spell out in that sentence what consequential order follows, and the para 12 reasoning on s.234B is expressed to be 'purely academic'. Para 14 is independently corroborated because the Madras High Court reproduced it verbatim at para 34 of Indus Finance Corporation Ltd v CIT; the only difference between the two routes is the capitalisation of 'Section'/'section'. 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 writ application was allowed. On depreciation, the original s.143(3) order had itself applied its mind and disallowed depreciation, that issue was raised in appeal and rejected by the Commissioner, so the appellate order merged with the assessment order on that item and the exercise of power under s.154 in relation to depreciation was without jurisdiction (paras 13 and 14). On interest, because the assessee had not originally been liable to s.234B interest on the s.143(1) order and the additional tax arose only on regular assessment — additions that were in any event later deleted by the CIT(A) — the non-charging of s.234B interest could not be accepted as a mistake capable of rectification under s.154 (para 12). The scope of s.154(1A) remains limited to mistakes apparent from the record and does not extend to revising, reviewing or reappraising the officer's own order (para 14).
TaxSphere, “Utkal Galvanizers P. Ltd. v ACIT”, https://taxnotice.vittsphere.com/caselaw/case/utkal-galvanizers-154-1a-cannot-override-the-appellate-order/ (validity last checked 2026-09-08)
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The appeal has been decided against me. Can I now file a section 154 application raising the point I dropped in that appeal?
The Assessing Officer has rectified my old s.143(1)(a) intimation under s.154 after already completing a s.143(3) assessment. Can he do that?
We were given a refund when the return was processed under s.143(1). On scrutiny the Assessing Officer has now raised a demand and has also charged interest under s.234D on the refund. Is that right, for how long does the interest run, and can he do it for an assessment year that is older than the section itself?
The Assessing Officer has issued a section 154 notice to rectify my section 143(1)(a) intimation after a scrutiny notice under section 143(2) was already served. Can he do that?
