When you think of tax assessments, you might imagine a one-time audit & a straightforward calculation. However, in India, the tax authorities have a powerful tool to correct past errors—Section 155. This provision isn’t about conducting fresh assessments; it allows for the amendment of completed ones, sometimes even years later.
If you've ever wondered whether past assessments can be reopened or how a partner’s underreported share might affect your taxes, keep reading. This section could have a much greater impact on your peace of mind than you realise.
A Time-Tested Power to Amend
At its core, Section 155 empowers the Assessing Officer (AO) to amend a partner’s assessment if, after completing the firm’s assessment, he spots misreporting of the partner’s income share, even retroactively.
That means, even if your return was filed & processed successfully, it can be reopened if your partnership’s filings had discrepancies. Corrections can be made for up to four years after the financial year in which the firm’s final assessment was completed. This clock ticks from the year the firm’s return was fully finalised, not merely assessed or filed.
How It Works for Partnerships & AOPs
Under Section 155(1), the AO can amend a partner’s return to include missed income or correct errors, based on changes made in the firm’s assessment. A similar provision applies to members of an Association of Persons (AOP) through Section 155(2).
This ensures that when one entity’s finances change, its members’ returns are aligned accordingly, preserving fairness in tax administration."
Timing Is Critical
Section 155 isn’t a tool for endless re-evaluation. There’s a strict four-year time limit, counted from the end of the year in which the firm or AOP received its final order. If you miss that window, the AO can’t reopen your assessment, even if a mistake is glaring.
So, while Section 155 is powerful, it’s also bounded.
Conflict in Courts: Limits on AO’s Powers
The power to reopen assessments under Section 155 is not without friction. In Hansraj Dhingra vs. Union of India, the Calcutta High Court ruled that Section 155 can only apply after a completed, definitive assessment, not on a provisional order or unagreed exercise. If no formal assessment is in place, the AO cannot use Section 155 to re-engineer your taxes.
That judgment ensures tax officers cannot stretch procedural boundaries.
Why Section 155 Matters to You
- Partnership Entrants & Exits
If your partnership firm’s income fluctuates due to missing disclosures, that will directly affect your past returns, even if your assessments looked fine initially. - Firm-Level Corrections
Any adjustments—whether additions or deletions—at the firm level trigger corresponding edits for partners, ensuring that filings remain in sync." - The Clock Is Always Running
With just a four-year window, missing deadlines can save you from late adjustments, but delays may also hurt if you’re due a refund.
Example Scenario
Say ABC LLP was assessed & reported ₹10 lakh in profits, which were distributed equally to partners A & B. Later, the firm revised its income to ₹12 lakh. Under Section 155(1), the AO can amend both partners’ assessments to reflect ₹1 lakh extra income each, provided it’s within four years of the firm’s final order.
Best Practices to Avoid Surprise Amendments
- Keep audit responses ready: If your firm’s assessment is under review, prepare for possible adjustments that might affect your return.
- Act fast if still within time: Mistakes? File rectifications or revised returns early, before Section 155 is used against you.
- Consult a CA: Especially around profit-sharing, business exits, or reconstruction, expert guidance can prevent retrospective notices.
Section 155: A Balancing Act
Section 155 helps maintain integrity in the tax system, ensuring partners can't escape mistakes simply because they filed timely returns. But it also gives taxpayers clear protections: a four-year limit, judicial scrutiny, & a defined scope of amendments.
Worried your past returns may be subject to amendment under Section 155?
Our friendly chartered accountants at Callmyca.com can review your partnership filings, individual returns, & timelines to ensure you’re safe & your returns stand strong.
