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May 30, 2023

Accepting returned money in place of assessed income is an obvious error that can be corrected under Section 154

Accepting returned money in place of assessed income is an obvious error that can be corrected under Section 154

Fact and issue of the case

This appeal filed by the assessee is directed against the order dated 27.04.2022 of Learned Commissioner of Income Tax (Appeals)-11, Hyderabad relating to AY 2016-17

Facts of the case, in brief, are that the assessee is an individual and is a professional interior decorator. She filed her return of income on 16.10.2016, declaring total income of Rs. 29,35,780/-. The case was selected for scrutiny and the AO passed the order u/s. 143(3) on 06.12.2018 wherein he had made addition of Rs. 1,56,71,710/- by brining to tax the long term capital gain by denying the exemption u/s. 54 and made addition of Rs. 46,35,194/- on account of denial of cost of improvement

Subsequently, a search and seizure operation u/s.132 of the I.T.Act, 1961 was carried out in case of the assessee on 20.11.2019. In response to notice u/s. 153A issued on 08.06.2021 which was duly served on the assessee to file return of income for the impugned assessment year, the assessee did not file any return of income. However, in response to notice u/s. 143(2) and 142(1), the AR of the assessee appeared before the AO and filed relevant details. After due verification and examination of the seized/impounded material and information furnished by the assessee during assessment proceedings, the AO accepted the income originally returned at Rs. 29,35,780/-

Subsequently, the AO noted that the assessment was completed u/s. 143(3) for AY 2016-17 on 06.12.2018 wherein the income was determined at Rs.2,32,42,684/- and demand of Rs.66,75,521/- was raised. The AO, therefore, issued a notice u/s. 154 of the Act proposing to rectify the assessment. Since the assessee did not respond to the notice issued u/s. 154 of the Act, the AO in the order passed u/s. 154, determine the assessed income at Rs. 2,32,42,684/-

Before the ld.CIT(A), the assessee stated that the AO passed the order u/s. 154 of the Act bringing into taxation an amount which was never the subject matter of the assessment u/s. 153A. It was argued that the AO in the assessment order passed u/s. 153A on 22.09.2021 has completed the assessment after due verification and thus rectifying and adding an amount of Rs. 2,03,06,904/- tantamounts to change of opinion and therefore, such rectification order is not a valid one. The provisions of section 154 were also brought to the notice of the ld.CIT(A)

Observation of the court

Thus, it is seen that although, the assessee has offered the income to tax in the AY 2018-19, however the AO has brought to tax the same in AY 2016-17 and the matter is still pending before the ld.CIT(A). Under these circumstances, when there was an apparent mistake in the order of the AO in accepting the returned income instead of substituting the same with the assessed income there was an apparent error and the AO was fully justified in rectifying the same. The proposition of the ld.counsel for the assessee that there cannot be addition of the same amount in two different assessment years is correct. However, it is to be seen as to in which year, the addition has to be made. Merely, because the AO has retained the addition in AY 2018-19 as per the income retuned by the assessee, it cannot be said that the income cannot be brought to tax in AY 2016-17 especially when the appeal is still pending before the ld.CIT(A). In view of the above discussion and in view of the detailed reasoning given by the ld.CIT(A) on this issue, we do not find any infirmity in his order. Accordingly, the same is upheld and the grounds raised by the assessee are dismissed

In the result, the appeal filed by the assessee is dismissed

Order pronounced in the Open Court on 11th May, 2023


In the result, appeal of the assessee is allowed and ruled in favour of the assessee

Read the full order from here


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