Dr. Pravin Kumar Hosabettu Vs ACIT (Karnataka High Court)
₹12.12 Crore in the Wrong Column: Karnataka High Court Orders Fresh Consideration of Rectification
The controversy
A mistake in selecting a return column can have substantial tax consequences. But when the taxpayer identifies the error and submits corrected particulars, can the Department reject rectification merely by repeating the aggregation requirement arising from the original entry?
The Karnataka High Court examined this issue in the case of a doctor who had reported ₹12,12,68,334 under “any other item of income” instead of “capital receipt”.
The Court found an infirmity in the rejection of his rectification application because the corrected return and the circumstances explaining the error had not been considered. It quashed the rejection order and restored the application for reconsideration by the jurisdictional Assessing Officer.
The relief was a fresh, reasoned examination of the claim; the Court did not finally determine the receipt’s taxability.
The reporting error
The petitioner, a doctor aged about 70 years, sought rectification concerning his return for AY 2021–22.
His counsel acknowledged that the Chartered Accountant had made an error by reporting ₹12.12 crore in Sl. No. 5(d) of Part A–OI, under “any other item of income”. According to the petitioner, the amount should have been reported in Sl. No. 5(e), dealing with capital receipts.
Amounts entered in Sl. Nos. 5(a) to 5(d) required aggregation in Sl. No. 23 of Schedule BP. However, the disputed amount had not been included there.
The petitioner relied on this inconsistency as further evidence of a bona fide reporting mistake, rather than an intention to offer the amount as taxable business income.
The explanation for the receipt
The petitioner claimed that the amount was a capital receipt received proportionately to his interest following the sale of shares of Narayana Hrudayalaya Limited by a firm in which Narayana Health Trust was a partner.
His submission was that the applicable income tax on capital gains from the sale of shares had already been discharged.
This explanation formed the basis of his request to correct the return entry and reconsider the treatment of the amount.
However, the order does not contain a detailed adjudication of the underlying arrangement or the statutory basis of the exemption claimed. The receipt’s treatment remained a matter for examination in the restored rectification proceedings.
Correction attempted, rejection followed
The petitioner initially sought rectification through the income-tax e-proceedings portal. According to his submissions, that request was processed without addressing the reporting error, and the amount was treated as taxable income.
On being informed that the application should be made through the Return Data Correction Module, he filed another application on 27 July 2024, enclosing a corrected return.
In that return, the disputed amount was shown as a capital receipt in Sl. No. 5(e).
Nevertheless, the application was rejected on 11 September 2024, reiterating that the amount should have been aggregated in Sl. No. 23 of Schedule BP. The petitioner’s grievance was that this response failed to examine the very correction he had requested.
Repeated representations remained unanswered
After being informed that another application could not be filed through the Return Data Correction Module, the petitioner approached the jurisdictional Assessing Officer.
His subsequent applications and representations remained without consideration. He therefore sought the High Court’s intervention for their disposal in accordance with law.
Counsel requested liberty to file a detailed response before the jurisdictional Assessing Officer, bringing together the earlier representations and the circumstances supporting rectification.
The issue before the Court was thus both the defective rejection of the earlier application and the absence of a response to the subsequent requests.
A reasoned decision was necessary
The High Court observed that the salient circumstances remained undisputed. The petitioner had explained the bona fide error and submitted a corrected return with his application dated 27 July 2024.
The rejection order had been passed without considering those circumstances, creating an infirmity.
The Court emphasised that effective consideration required a reasoned outcome based on the petitioner’s explanation, rather than mere repetition of the earlier position.
It also recorded that the jurisdictional Assessing Officer could examine the issue and process the return submitted with the rectification application.
The relief granted
The petition was allowed in part. The Court quashed the Section 154 order dated 11 September 2024 and restored the application dated 27 July 2024 for reconsideration by the jurisdictional Assessing Officer.
The petitioner was permitted to submit a detailed response, enclosing his earlier representations, by 12 October 2026.
The Court further observed that there should be no precipitation pending the decision on the restored application, particularly because the petitioner was claiming exemption in respect of the capital receipt.
Author’s comments
The correction requested must be examined before the consequences of the incorrect entry are repeated. Here, the taxpayer was explaining why the original column was wrong; simply insisting on aggregation from that column did not answer his case.
The judgment offers useful support where a rectification request and corrected return have been rejected without meaningful consideration.
Its scope must nevertheless be preserved. The Court ordered reconsideration; it did not declare that every capital receipt is exempt or finally allow this taxpayer’s exemption claim.
The important principle is administrative: a demonstrated reporting error deserves a reasoned response, not a mechanical reiteration of the error’s tax consequence.
FULL TEXT OF THE JUDGMENT/ORDER OF KARNATAKA HIGH COURT
The petitioner, a Doctor, is aggrieved by the Rectification Order dated 11.09.2024 [Annexure-M], and the rectification requested by the petitioner under Section 154 of the Income Tax Act [for short, ‘the IT Act’] is rejected observing that the petitioner should have aggregated the amounts mentioned in Sl.No.5(a) to 5(d) of Part A- of his return for the assessment year 2021-2022. The petitioner has subsequently filed Applications with the second respondent which have not been considered, and therefore, the petitioner seeks mandamus to this respondent to consider these applications and dispose them of in accordance with law.
2. Sri A. Shankar, the learned Senior Counsel for the petitioner, submits the following to support the petition.
[A] The petitioner cannot dispute that there is an error by the petitioner’s Chartered Accountant in reporting a sum of Rs.12,12,68,334/- in Column 5 (d) of Part A-OI of his Return as ‘any other item of income’ instead of reporting this sum as capital receipt in 5(e). However, this is a bonafide error which is apparent.
[B] This amount is declared as ‘any other item of income’ in Sl.No.5(a) to 5(d) which requires to be aggregated in Sl.No.23 of Schedule BP of the returns, but this is not mentioned in this Column. This also shows that there is an error in mentioning Rs.12,12,68,334/- in Column 5 (d) of Part A-OI of his Return instead of reporting this sum as capital receipt in 5(e).
[C] Therefore, the petitioner has filed first application for rectification om the IT e-proceedings portal, which is processed without considering the error and treating Rs.12,12,68,334/- as taxable income.
[D] This amount [of Rs.12,12,68,334/-] is a capital receipt in the petitioner’s hands which is received proportionate to his interest on the sale of the shares of M/s Narayana Hrudalaya Limuted by the Firm in which M/s Narayana Health Trust is a partner after discharging the applicable income tax on capital gain on the sale of shares.
[E] When the petitioner is informed that the application must be filed on the Return Data Correction Module, the petitioner has filed such application on 27.07.2024 enclosing the Rectified Return as well disclosing the afore sum as ‘capital receipt instead of ‘any other item of income’. This application is rejected on 11.09.2024 [vide Annexure – M] without considering these material aspects reiterating that the petitioner ought to have aggregated the amount in Sl.No.23 of Schedule BP.
[F] The Petitioner, upon being informed that another application cannot be filed under on the Return Data Correction Module, has repeated applications with the Jurisdictional Assessing Officer [the second respondent] but without any response.
3. Sri A. Shankar submits that this Court may reserve liberty to the petitioner to file a detailed response with the Jurisdictional Assessing Officer calling upon this Assessing Officer to consider the petitioner’s case for a rectification because [i] the petitioner’s repeated representations starting from the year 2024 addressed to the jurisdiction Assessing Officer [JAO] has not been of any avail to the petitioner, [ii] the petitioner’s rectification applications must be considered in terms of the procedure under Section 154 of the Income Tax Act and [iii] the petitioner cannot another time seek rectification under the.
4. Mr. Aravind V Chavan, the learned Senior Standing Counsel for the first respondent, and Mr. E.I. Sanmati along with Mr. Nirmal Mathew, the learned Senior Standing Counsel/standing counsel who are called upon to accept notice for the second respondent, are heard. The salient remains undisputed. The petitioner’s case for rectification under Return Data Correction Module is in the light of the fact that a bonafide error is made in filing the original Returns declaring capital receipts under ‘any other item of income’. The petitioner, along with the rectification application dated 27.07.2024, has filed Rectified Return showing the amount as “capital receipt” in Sl.No.5(e) of Part A-OI. This application dated 27.07.2024 is rejected vide Order dated 11.09.2024[Annexure – M] without considering the afore circumstances, and hence, there is an infirmity. The petitioner’s other applications with the second respondent remain without consideration.
5. This Court is of the view that the petitioner’s pending application for rectification must be considered and that for effective consideration, rather than a mere reiteration, there must be a reasoned outcome based on the circumstances relied upon by the petitioner. Further, because it is not in dispute that the second respondent can also look into this aspect and process the petitioner’s Return filed along with the rectification application dated 27.07.2024, this Court is inclined to pass the following.
ORDER
A. The petition is allowed in-part.
B. The order dated 11.09.2024 under Section 154 of the IT Act, 1961 [Annexure-M] is quashed.
C. The petitioner’s rectification application dated 27.07.2024 is restored for reconsideration by the second respondent reserving liberty to the petitioner to file a detailed response enclosing the earlier representations as well and calling upon the second respondent to process the Return and pass orders in accordance with law.
D. The petitioner shall in terms of this liberty file the response by 12.10.2026.
E. It is needless to observe that there cannot be any precipitation especially when the petitioner is claiming exemption of the capital receipts now offered until there is a decision on the restored rectification application.
