Case Law Details
Katragadda Ramesh Vs ACIT (ITAT Hyderabad)
Hyderabad ITAT: Assessee Cannot Reduce Income in Section 148 Return by Correcting Alleged Mistakes in Original Return
Summary: The Hyderabad ITAT dismissed the assessee’s appeal and upheld the addition after holding that reassessment proceedings under Sections 147/148 cannot be used to reduce income voluntarily disclosed in the original return by claiming an inadvertent mistake. The assessee had originally disclosed rental income from five properties in the return filed under Section 139(1) but, in response to a notice under Section 148 issued after a search, reduced the house property income by claiming that part of the rental income related to his wife’s properties or her share in jointly owned properties. The Tribunal noted that the CIT(A) found no cogent documentary evidence establishing the ownership pattern, the assessee’s share, or the correctness of the revised computation, and also observed discrepancies regarding the number of properties, tenants and rental receipts. Relying on the Supreme Court decision in CIT v. Sun Engineering Works (P.) Ltd. and the decisions of the Karnataka High Court in CIT v. Sangeetha Granites Ltd. and the Bombay High Court in CIT v. Jai Hind Cooperative Society Ltd., the Tribunal held that reassessment proceedings are confined to escaped income and cannot be converted into proceedings for revising or reopening concluded matters unrelated to escaped income. Accordingly, the CIT(A)’s order was upheld and the appeal was dismissed.
The Hyderabad ITAT held that an assessee cannot use reassessment proceedings under sections 147/148 to withdraw income voluntarily offered in the original return by claiming it was included due to an inadvertent mistake. In this case, the assessee had originally disclosed rental income from five properties but, in the return filed in response to a notice under section 148 following a search, reduced the house property income by claiming that part of the rental income related to his wife’s properties or her share in jointly owned properties. The Tribunal found that the assessee failed to substantiate the claim with cogent documentary evidence and, more importantly, held that reassessment proceedings are meant to bring escaped income to tax and cannot be converted into a mechanism for revising or reopening issues that had already attained finality. Relying extensively on the Supreme Court’s decision in CIT v. Sun Engineering Works (P.) Ltd. (1992) 198 ITR 297 (SC), as well as the Karnataka High Court decision in CIT v. Sangeetha Granites Ltd. and the Bombay High Court decision in CIT v. Jai Hind Cooperative Society Ltd., the Tribunal held that an assessee cannot seek relief in respect of matters unrelated to the escaped income during reassessment proceedings. Accordingly, the addition was sustained and the assessee’s appeal was dismissed.
FULL TEXT OF THE ORDER OF ITAT HYDERABAD
The present appeal filed by the assessee is directed against the order of the Commissioner of Income Tax (Appeals)-12, Hyderabad (for short, “CIT(A)”) dated 09/10/2025, which in turn arises from the order passed by the Assessing Officer (for short, “AO”) under section 147 r.w.s. 144B of the Income-tax Act, 1961 (for short, “the Act”), dated 27/03/2025 for the Assessment Year (“AY”) 2020-21. The assessee has raised the following grounds of appeal:
“1. In the facts and circumstances of the case, the order of the CIT(A) is not sustainable on facts or in law.
2. In the facts and circumstances of the case, the CIT(A) ought to have considered that there was an inadvertent error in admitting income from house property income in the return filed u/s 139(1).
3. In the facts and circumstances of the case, the CIT(A) ought to have considered that in the return of income filed u/s 148 income from house property was correctly admitted.
4. In the facts and circumstances of the case, the CIT(A) ought to have considered that in the return of income filed u/s 139(1), the share of the house property income relating to the wife of the assessee was inadvertently included.
5. In the facts and circumstances of the case, the CIT(A) ought to have considered the fact that the share of the wife in the house property income has been admitted in her return of income.
6. The assessee may be permitted to add, alter, modify or drop any ground that may be urged at the time of hearing with the prior approval of the Hon’ble ITAT.”
2. Succinctly stated, the assessee had filed his original return of income for AY 2020-21 under section 139(1) of the Act on 05/11/2020, declaring an income of Rs.47,32,750/-.
3. Subsequently, a search and seizure operation under section 132(1) of the Act was carried out on 05/10/2023 in the case of M/s. Pooja Krishna Chit Funds India Pvt. Ltd., M/s. Jeevan Shakti Chit Fund Pvt. Ltd. and other connected persons, and the assessee, were also covered by a warrant of authorisation issued under section 132(1) of the Act. Consequent thereto, proceedings under section 147 of the Act were initiated by issuance of notice under section 148 dated 29/03/2024. In response to the notice issued under section 148 of the Act, the assessee furnished his return of income on 20/04/2024, declaring an income of Rs. 45,95,180/-.
4. During the course of reassessment proceedings, the AO observed that while in the original return the assessee had disclosed income under the head “Income from House Property” at Rs.10,61,572/-, but in the return filed in response to notice under section 148, the said income was scaled down to Rs. 5,23,997/-.
5. As is discernible from the record, the AO noticed that the assessee in his original return had offered rental income from five properties, whereas in the return filed in response to notice under Section 148 of the Act, rental income was disclosed only in respect of four properties. Besides variation in the number of properties, the AO also noticed differences in tenants’ names and in the quantum of rental receipts disclosed. The AO observed that the assessee had reduced the taxable income from house property by Rs.7,21,877/- without any legally sustainable basis. The AO, based on his aforesaid observations, held that the income voluntarily disclosed in the original return could not be withdrawn in the return filed pursuant to notice under section 148 and consequently brought the differential amount of Rs.7,21,877/- to tax while completing the reassessment vide his order passed under section 147 of the Act, dated 27/03/2025.
6. Aggrieved, the assessee carried the matter in appeal before the CIT(A). It was the assessee’s claim that while filing the original return of income under section 139(1) of the Act, he had inadvertently included rental income which either pertained to properties jointly owned by him and his wife or exclusively belonged to his wife. It was submitted that upon noticing the mistake, the same was rectified in the return filed in response to notice under section 148 by offering only the rental income that was legally assessable in his hands. It was further submitted that the corresponding rental income had already been offered to tax by his wife in her return of income and, therefore, there was neither any concealment nor any loss of revenue.
7. The CIT(A), however, did not find favour with the explanation furnished by the assessee. It was observed by him that, except for placing on record the computation of income of the assessee’s wife, no documentary evidence had been produced to establish the ownership pattern of the properties, the extent of the assessee’s share therein or the correctness of the revised computation of rental income. The CIT(A) further observed that there were material discrepancies between the two returns with regard to the number of properties, identity of tenants and quantum of rental receipts and that the figures disclosed by the assessee did not reconcile with those reflected in the computation of income of his wife. Accordingly, the CIT(A), being of the view that the assessee had failed to substantiate his claim with cogent documentary evidence, upheld the addition made by the AO and dismissed the appeal.
8. The assessee, aggrieved with the CIT(A) order, has carried the matter in appeal before us.
9. We have heard the Ld. Authorised Representatives of both parties, perused the orders of the authorities below and the material available on record,
10. Sh. SK Gupta, the Ld. Authorised Representative (for short, “AR”) for the assessee reiterated the submissions advanced before the lower authorities. The Ld. AR submitted that the reduction in the income from house property was occasioned solely on account of correction of an inadvertent mistake committed while filing the original return under section 139(1). Elaborating on his contention, it was submitted that, in respect of one property, the assessee had originally offered the entire rental income, although he owned only a 50% share therein and the balance share belonged to his wife, who had independently disclosed the corresponding rental income in her return of income. It was further submitted that another property belonged exclusively to the assessee’s wife, and its rental income had also been inadvertently included in the assessee’s original return. According to the learned AR, the return filed pursuant to notice under section 148 merely corrected the aforementioned inadvertent errors and reflected the correct taxable income. The Ld. AR further submitted that the return filed under section 148 represented the correct income chargeable to tax in the hands of the assessee and, therefore, the addition sustained by the CIT(A) deserved to be deleted.
11. Per Contra, the learned Departmental Representative (for short, “DR”) supported the orders of the lower authorities.
12. We have heard the Ld. Authorised Representatives of both parties in the backdrop of the orders of the authorities below.
13. Controversy involved in the present appeal lies in a narrow compass, i.e., whether the AO was justified in bringing to tax a sum of Rs.7,21,877/- representing the difference between the income from house property originally disclosed by the assessee in the return filed under section 139(1) of the Act and the reduced income disclosed by him in the return furnished in response to notice issued under section 148 of the Act.
14. Admittedly, the assessee had originally filed his return of income under section 139(1) on 05/11/2020 declaring an income of Rs. 47,32,750/-. Ostensibly, the assessee, while computing the said income, had voluntarily offered income chargeable under the head “Income from House Property” amounting to Rs.10,61,572/-. Thereafter, consequent to the search conducted under section 132(1) of the Act, the assessee in his return of income filed in response to notice issued under Section 148 of the Act, dated 29/03/2024 declared an income of Rs.45,95,180/-, wherein the income under the head “Income from House Property” was disclosed by him at a reduced amount of Rs.5,23,997/-.
15. As is discernible from the record, the explanation offered by the assessee is that while filing the original return, certain rental income which either belonged to his wife or represented her share in jointly owned properties was inadvertently included in his own hands and that the said mistake was rectified while furnishing the return in response to notice issued under section 148 of the Act, dated 29/03/2024. According to the assessee, since the corresponding rental income had already been offered by his wife in her return of income, there was neither any concealment nor any loss of revenue.
16. We have given thoughtful consideration and are unable to persuade ourselves to subscribe to the aforesaid claim of the assessee. As is discernible from the record, the income sought to be excluded by the assessee was not brought to tax by the AO in the original proceedings, but was voluntarily disclosed by him in the return of income furnished under section 139(1) of the Act. In our view, the assessee, after having consciously offered the subject income to tax, had sought to withdraw the same by filing a return in response to a notice issued under section 148, which, we are afraid, is not permissible as per the settled position of law. The Hon’ble Supreme Court in CIT Sun Engineering Works (P.) Ltd. (1992) 198 ITR 297 (SC) has explained the scope of reassessment proceedings by holding that proceedings under section 147 are intended to bring to tax escaped income and cannot ordinarily be converted into proceedings for reopening concluded matters at the instance of the assessee or for securing relief in respect of matters unconnected with the reassessment. It was observed by the Hon’ble Apex Court that an assessee in the course of reassessment proceedings is not vested with any right to re-agitate any issue which had already attained finality. For the sake of clarity, we deem it apposite to cull out the observations of the Hon’ble Apex Court in CIT v. Sun Engineering Works (P.) Ltd.(supra), as under:
“37. The principle laid down by this Court in V. Jaganmohan Rao’s case (supra) therefore, is only to the extent that once an assessment is validly reopened by issuance of notice under section 32(2) of the 1922 Act (corresponding to section 148 of the 1961 Act), the previous under-assessment is set aside and the ITO has the jurisdiction and duty to levy tax on the entire income that had escaped assessment during the previous year. What is set aside is, thus, only the previous under-assessment and not the original assessment proceedings. An order made in relation to the escaped turnover does not effect the operative force of the original assessment, particularly if it has acquired finality, and the original order retains both its character and identity. It is only in cases of ‘under-assessment’ based on clauses (a) to (d) of Explanation (I) to section 147, that the assessment of tax due has to be recomputed on the entire taxable income. The judgment in V. Jaganmohan Roa’s case (supra), therefore, cannot be read to imply as laying down that in the reassessment proceedings validly initiated the assessee can seek reopening of the whole assessment and claimed credit in respect of items finally concluded in the original assessment. The assessee cannot claim recomputation of the income or redoing of an assessment and be allowed a claim which he either failed to make or which was otherwise rejected at the time of original assessment which has since acquired finality. Of course, in the reassessment proceedings it is open to an assessee to show that the income alleged to have escaped assessment has in truth and in fact not escaped assessment but that the same had been shown under some inappropriate head in the original return, but to read the judgment in V. Jaganmohan Roa’s case (supra) as if laying down that reassessment wipes out the original assessment and that reassessment is not only confined to ‘escaped assessment’ or ‘under-assessment’ but to the entire assessment for the year and start the assessment proceedings de novo giving right to an assessee to reagitate matters which he had lost during the original assessment proceeding, which had acquired finality, is not only erroneous but also against the phraseology of section 147 and the object of reassessment proceedings. Such an interpretation would be reading that judgment totally out of context in which the questions arose for decision in that case. It is neither desirable nor permissible to pick out a word or a sentence from the judgment of this Court, divorced from the context of the question under consideration and treat it to be the complete ‘law’ declared by this Court. The judgment must be read as a whole and the observations from the judgment have to be considered in the light of the questions which were before this Court. A decision of this Court takes its colour from the questions involved in the case in which it is rendered and while applying the decision to a latter case, the Courts must carefully try to ascertain the true principle laid down by the decision of this Court and not to pick out words or sentences from the judgment, divorced from the context of the questions under consideration by this Court, to support their reasonings. In HR. Maharajadhiraja Madhav Rao Jiwaji Rao Scindia Bahadur v. Union of India [1971] 3 SCR 9 this Court cautioned:
“It is not proper to regard a word, a clause or a sentence occurring in a judgment of the Supreme Court, divorced from its context, as containing a full exposition of the law on a question when the question did not even fall to be answered in that judgment.”
38. Although, section 147 is part of a taxing statute, it imposes no charge on the subject but deals merely with the machinery of assessment and in interpreting a provision of that kind, the rule is that construction should be preferred which makes the machinery workable. Since the proceedings under section 147 are for the benefit of the revenue and not an assessee and are aimed at garnering the ‘escaped income’ of an assessee, the same cannot be allowed to be converted as ‘revisional’ or ‘review’ proceedings at the instance of the assessee, thereby making the machinery unworkable.
39. As a result of the aforesaid discussion we find that in proceedings under section 147 the ITO may bring to charge items of income which had escaped assessment other than or in addition to that item or items which have led to the issuance of notice under section 148 and where reassessment is made under section 147 in respect of income which has escaped tax, the ITO’s jurisdiction is confined to only such income which has escaped tax or has been under-assessed and does not extend to revising, reopening or reconsidering the whole assessment or permitting the assessee to reagitate questions which had been decided in the original assessment proceedings. It is only the underassessment which is set aside and not the entire assessment when reassessment proceedings are initiated. The ITO cannot make an order of reassessment inconsistent with the original order of assessment in respect of matters which are not the subject matter of proceedings under section 147. An assessee cannot resist validly initiated reassessment proceedings under this section merely by showing that other income which had been assessed originally was at too high a figure except in cases under section 152(2). The words ‘such income’ in section 147 clearly refer to the income which is chargeable to tax but has ‘escaped assessment’ and the ITO’s jurisdiction under the section is confined only to such income which has escaped assessment. It does not extend to reconsidering generally the concluded earlier assessment. Claims which have been disallowed in the original assessment proceeding cannot be permitted to be reagitated on the assessment being reopened for bringing to tax certain income which had escaped assessment because the controversy on reassessment is confined to matters which are relevant only in respect of the income which had not been brought to tax during the course of the original assessment. A matter not agitated in the concluded original assessment proceedings also cannot be permitted to be agitated in the reassessment proceedings unless relatable to the item sought to be taxed as ‘escaped income’. Indeed, in the reassessment proceedings for bringing to tax items which had escaped assessment, it would be open to an assessee to put forward claims for deduction of any expenditure in respect of that income or the non-taxability of the items at all. Keeping in view the object and purpose of the proceedings under section 147 which are for the benefit of the revenue and not an assessee, an assessee cannot be permitted to convert the reassessment proceedings as his appeal or revision, in disguise, and seek relief in respect of items earlier rejected or claim relief in respect of items not claimed in the original assessment proceedings, unless relatable to ‘escaped income’, and reagitate the concluded matters. Even in cases where the claims of the assessee during the course of reassessment proceedings related to the escaped assessment are accepted, still the allowance of such claims has to be limited to the extent to which they reduce the income to that originally assessed. The income for purposes of ‘reassessment’ cannot be reduced beyond the income originally assessed.
40. It would be seen that whereas in the case of Anglo French Textile Co. Ltd. (supra) the question as to the rights of an assessee to claim ‘redoing’, ‘revising’ or ‘recomputing’ entire income during the reassessment proceedings was left open, that question did not come up for consideration in the case of R. Shri Ramulu (supra) or H.M. Esufali H.M. Abdulahi (supra) or even in V. Jaganmohan Rao’s case (supra).
Some of the High Courts, therefore, fell in error in reading those judgments, divorced from the context in which the precise questions came up for consideration in those cases, and to hold that the assessee could ‘reagitate’ the concluded issues and claim relief in respect of items, finally concluded in the original assessment proceedings, during the reassessment proceedings, unconnected with the escapement of income. We cannot, therefore, approve in broad propositions laid in that regard in Indian Refrigeration Industries (P.) Ltd.’s case (supra), Ramsevak Paul’s case (supra ), Assam Oil Co. Ltd.’s case (supra), Standard Motor Products of India Ltd.’s case (supra), Rangnath Bangur’s case (supra), State Bank of Hyderabad’s case (supra) and Indian Rare Earth Ltd.’s case (supra).
41. Keeping in view the above principles, we may now turn our attention to the question formulated by the High Court as noticed in the earlier part of the judgment.
42. The Tribunal rightly found that the loss which the assessee wanted to be set off against the ‘escaped income’ could not be allowed to be so set off because in the original assessment proceedings, no ‘set off was claimed or permitted and the original assessment had acquired finality when the appeal against the order of assessment failed before the AAC and the assessee took no further steps to agitate the issue. The Tribunal was also right in concluding that the items which the assessee wanted to be taken into account in the proceedings under section 147 were unconnected with the escapement of income. The High Court clearly fell in error in holding otherwise. Since the original assessment had been concluded finally against the assessee, it was not permissible for the assessee in the reassessment proceedings to seek a review/revision of the concluded assessment for the purpose of computation of the escaped income. The High Court clearly fell in error by permitting the assessee to reagitate, in the reassessment proceedings under section 147(a), the finally concluded assessment proceedings and to grant to him relief in respect of items not only earlier rejected, but also unconnected with the escapement of income by assuming as if the original assessment had not been concluded or was ‘still open’.
43. Therefore, our answer to the question formulated by the High Court and noticed in the earlier part of this judgment is that in the reassessment proceedings it is not open to an assessee to seek a review of the concluded item, unconnected with the escapement of income, for the purpose of computation of the escaped income.
44. The appeals, consequently, succeed and are allowed. The orders of the High Court are set aside and those of the Tribunal restored. Since the assessee had not put in any appearance, there shall be no order as to costs.”
Relying on the aforesaid judgment of the Hon’ble Apex Court in the case of Sun Engineering Works P. Ltd. (supra), the Hon’ble Karnataka High Court in the case of CIT Vs Sangeetha Granites Ltd. (2010) 326 ITR 324 (Kar), has held that an assessee cannot be permitted to convert the reassessment proceedings as his appeal or revision and in the guise of the same seek relief in respect of items earlier rejected or accepted. On a similar footing, the Hon’ble High Court of Bombay in the case of CIT Vs. Jai Hind Cooperative Society Ltd. (2012) 349 ITR 537 (Bom), had observed that as the object and purpose of the reassessment is for the benefit of the Revenue and not for the benefit of the assessee, therefore, the assessee cannot be permitted to convert the same as his appeal or revision in disguise.
17. We find that the assessee in the case before us had, in the garb of the reassessment proceedings initiated in his case u/s.147 of the Act, tried to seek relief on issues which had already attained finality. As observed by the Hon’ble Supreme Court in the case of CIT Vs. Sun Engineering Works P. Ltd. (1992) 198 ITR 297 (SC), the jurisdiction of the A.0 in the course of reassessment proceedings initiated u/s.147 of the Act is confined to only such income which has escaped tax or has been under-assessed and does not extend to revising, reopening or reconsidering the whole assessment; or permitting the assessee to re-agitate questions which had been decided in the original assessment proceedings. Also, as observed by the Hon’ble Apex Court the proceedings under Section 147 of the Act is for the benefit of the revenue and an assessee cannot be permitted to convert the reassessment proceedings as his appeal or revision, in disguise, and seek relief in respect of items earlier rejected or claim relief in respect of items not claimed in the original assessment proceedings, unless the same was relatable to ‘escaped income’. Apart from that, it was observed by the Hon’ble Apex Court that even in cases where the claims of the assessee during the course of reassessment proceedings relating to the escaped assessment are accepted, still the allowance of such claims has to be limited to the extent to which they reduce the income to that originally assessed and the income for the purposes of ‘reassessment’ cannot be reduced beyond that originally assessed. We, thus, are of the firm conviction that the reduction by the assessee of his income from house property in the return of income filed in response to notice under Section 148 of the Act, dated 29/03/2024, as against that disclosed by him in his original return of income filed under section 139(1) of the Act on 05/11/2020 is not permitted as per the settled position of law.
18. We thus uphold the order of the CIT(A), though in terms of our aforesaid observations.
19. As we have, based on our aforesaid observations, concluded that the assessee in the course of the reassessment proceedings was not principally permitted to seek relief in respect of items, unless the same was relatable to ‘escaped income’, therefore, we refrain from adverting to and adjudicating the merits of the case based on which the impugned addition made by the AO has been assailed by the assessee before us, which, thus, having been rendered as academic are left open.
20. In the result, the appeal filed by the assessee is dismissed.
Order pronounced in the open court on 08th July, 2026.
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