Loading judgment…
Facts
The assessee initially purchased agricultural land with cash payments and voluntarily declared additional income for AY 2020-21. An assessment under Section 153C was subsequently completed by the AO, treating a significant investment as unexplained. The CIT(A) first allowed the assessee's appeal, holding the Section 153C assessment time-barred, based on the date of seized material handover. However, the AO applied for rectification, claiming an "inadvertent factual error" and asserting a different, later date for limitation calculation. The CIT(A) then rectified its order, dismissing the assessee's appeal by concluding the assessment was within time, which the assessee challenged before the ITAT.
Held
The ITAT held that the CIT(A) exceeded its jurisdiction under Section 154 of the Income Tax Act, 1961. Rectification powers are limited to patent, obvious, clerical, or arithmetical errors apparent on the face of the record and do not permit revisiting adjudicated matters, re-appreciating facts, or substituting new conclusions requiring elaborate inquiry. The change in the critical date for computing limitation was deemed a substantive recharacterization of facts and an attempt to review a reasoned decision, not a simple error. The ITAT, therefore, quashed the impugned rectification order.
Key Issues
Whether the CIT(A) was justified in passing a rectification order under Section 154 of the Income Tax Act, 1961, to modify a prior reasoned appellate order on the ground of an 'inadvertent factual error' concerning the date for computing limitation for a Section 153C assessment, thereby exceeding the scope of rectification powers.
Sections Cited
154, 154(1A), 153C, 153C(2)(b), 143(3), 153B, 153A, 68, 69, 69A, 69B, 69C, 69D, 115BBE, 139(1), 132, 132A, 127
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, Hyderabad ‘B’ Bench, Hyderabad
Before: Shri Manjunatha G. & Shri Ravish Sood
(िनधा�रण वष�/Assessment Year: 2020-21) Ravi Rambabu, Vs. Assistant Commissioner Hyderabad. of Income Tax, Circle-2(3), PAN: ABSPR3702P Hyderabad. (Appellant) (Respondent) िनधा��रती �ारा/Assessee by: Shri P. Murali Mohan Rao, CA राज� व �ारा/Revenue by: Dr. Sachin Kumar, Sr. AR सुनवाई की तारीख/Date of Hearing: 17/11/2025 घोषणा की तारीख/Date of 26/11/2025 Pronouncement: आदेश / ORDER PER. RAVISH SOOD, J.M: The present appeal filed by the assessee is directed against the rectification order dated 28.03.2025 passed by the CIT (Appeals) under section 154 of the Income-tax Act, 1961 (for short, “Act"), dated 28.03.2025, which in turn arises from the order passed by the CIT(A) disposing of the assessee’s appeal, vide his order dated 29.01.2025. The assessee has assailed the impugned order passed by the CIT(A) under Section 154 of the Act, on the following grounds of appeal before us:
“1. The order of the Ld. CIT (A) u/s 154 of the Act dt. 28.03.2025 is erroneous both on facts and in law to the extent the order is prejudicial to the interests of the appellant.
2. The Ld. CIT(A), having allowed the appeal in full vide his order dated 29.01.2025, grossly erred in passing the Rectification order u/s 154 of the Act dated 28.03.2025 dismissing the appeal for the year under consideration. The Ld. CIT(A) ought to have appreciated that the order passed u/s 154 of the Act dated 28.03.2025 is invalid ab-initio.
3. The Ld. CIT(A) ought to have appreciated that Rectification order is in violation of the provisions of section 154(1A) of the Act. The Ld. CIT(A) ought to have appreciated that the impugned matter in the appeal has been thoroughly considered and decided vide his order dated 29.01.2025 after considering not only the appellant's submissions in respect of all the grounds of appeal
taken before him but also the two Remand Reports of the Assessing officer dated 03.10.2024 and 16.12.2024.
4. The Ld. CIT(A) ought to have appreciated that the AO's request letter u/s 154 of the Act dated 07.02.2025 is misleading on the facts of the case of the appellant. The Ld. CIT(A) ought to have appreciated that Rectification order passed u/s 154 of the Act is hit by the provisions of section 154(1A) of the Act on the ground that the matter decided in the Rectification order is not the matter other than the matter which has been considered and decided in his order dated 29.01.2025.
5. Without prejudice to other grounds, the Ld. CIT(A) ought to have annulled the very assessment order passed u/s 143(3) r.w.s 153C of the Act dated 20.03.2023. Without prejudice to other grounds, the Ld. CIT(A) ought to have appreciated that the assessment order is barred by limitation.
6. Without prejudice to other grounds, the Ld. CIT(A) ought to have appreciated that the date of handing over of the seized material u/s 153C to the Assessing Officer having jurisdiction over the appellant is to be taken as 02.02.2021 which date is same as the date of receipt of the seized material for the same Assessing officer that has completed the assessments u/s 153A of the Act in respect of the assessees in whose case the search has taken place.
7. Without prejudice to other grounds, the Ld. CIT(A) ought to have appreciated that the time limit for completion of the assessment in the appellant's case for the asst. year under consideration has expired on 31.03.2022 as per clause (ii) of third proviso to section 153B of the IT Act, 1961 whereas the assessment has been completed on 20.03.2023.
8. Without prejudice to other grounds, the Ld. CIT(A) ought to have appreciated on the facts and circumstances of the appellant's case that the provisions of section 68 or section 69 or section 69A or section 69B or section 69C or section 69D of the Act are not applicable to the appellant's case and that charging of tax u/s 115BBE of the Act in the appellant's case is unlawful.
9. Without prejudice to other grounds, the Ld. CIT(A) ought to have appreciated that the impugned amount of income which has been brought to tax as per the provisions of section 115BBE of the Act, has been duly admitted by the appellant in his return of income filed u/s 139(1) of the Act on 02.02.2021 i.e, well before the date of issue of notice u/s 153C of the Act i.e, 30.09.2021.
10. Without prejudice to other grounds, the Ld. CIT(A) ought to have appreciated that where there is no need to maintain Books of Accounts and the due date for filing of the Return of income has not expired, the disclosure of income in the return filed u/s 139(1) does not attract the provisions of section 115BBE of the Act.
The appellant may add or alter or amend or modify or substitute or delete and/ or rescind all or any of the grounds of appeal at any time before or at the time of hearing of the appeal.”
Search and seizure operations under section 132 were carried out on 22.10.2019 in the case of M/s Skill Promoters Pvt. Ltd. and others. During the course of the search proceedings, certain material pertaining to the assessee was seized from the premises of Shri B. Sarat Gopal Boppana, i.e., the searched person.
During post-search proceedings, the statement of Shri B. Sarat Gopal Boppana (supra) was recorded on 04.12.2019, wherein it was stated by him that the assessee had purchased agricultural land at Mamidipally vide registered Sale deed Nos. 9478/2019 and 10 335/2019, dated 22.07.2019, and had made substantial cash payments over and above the consideration that was mentioned in the registered deeds. Thereafter, the assessee filed an “affidavit” dated 17.01.2020 with the DDIT(Inv.) admitting payment of cash for the purchase of land and by way of a voluntary declaration offered the balance amount of purchase consideration as his income for the AY 2020-21.
Thereafter, the assessee filed his return of income under section 139(1) of the Act on 02.02.2021, declaring his total income at Rs. 4,05,32,630/-, which included the amount of additional income that was offered by him in his “affidavit”, dated 17.01.2020.
In the meantime, the seized material was handed over by the Investigation Wing to the AO on 01.09.2020. Thereafter, in response to the “satisfaction note” recorded under Section 153C(2)(b) of the Act, the AO issued notice under Section 153C of the Act on 30.09.2021. In compliance, the assessee filed his return of income (the original return of income that was filed earlier on 02.02.2021 was relied upon and treated as the return of income under Section 153C of the Act). As the assessee on being queried about the source of the purchase consideration of the agricultural land of Rs. 213.65 lacs that was paid by him over and above the amount recorded in the registered deeds was able to submit sources to the extent of Rs.40,00,000/- only, therefore, the AO held the balance investment of Rs. 1,73,65,000/- as an unexplained investment under Section 69 of the Act. Thereafter, the AO completed the assessment under Section 153C of the Act on 20.03.2023
The assessee assailed the order passed by the AO under Section 153C of the Act, dated 20.03.2023, before the CIT(A). The AO, in the course of the proceedings before the CIT(A), had filed “remand reports” dated 03.10.2024 and 16.12.2024, wherein in the latter report it was stated by him, as under:
The preliminary issue for adjudication before the CIT(A) was whether the assessment order dated 20.03.2023 passed under Section 153C was within the statutory limitation prescribed by Section 153B of the Act. The CIT(A) observed that Section 153B provided the time limits for completing assessments under Sections 153A and 153C of the Act. By virtue of the “proviso” applicable, where the last of authorisations for search under Section 132 was executed on or after 01.04.2019, the time for completion of assessment in respect of “other persons”, i.e., Section 153C cases was the period of twelve months from the end of the financial year in which the last authorisation for search under Section 132 was executed; or twelve months from the end of the financial year in which books of account or documents or assets seized or requisitioned were handed over under Section 153C to the AO having jurisdiction over such other person, whichever was later.
The CIT(A), referring to the facts of the case, observed that the date of initiation of search in the case of M/s Skill Promoters group was 22.10.2019. Search was concluded on 20.12.2019. It was observed by him that the seized material was handed over by the Investigation Wing to the AO on 01.09.2020. Further, the “satisfaction note” under Section 153C(2)(b) was recorded, and the notice was issued by the AO on 30.09.2021. Thereafter, the assessment order was passed under Section 153C of the Act, dated 20.03.2023.
The CIT(A) observed that the “proviso” to Section 153B required computing two alternative limitation dates and selecting whichever was later, viz. (i) twelve months from the end of the financial year in which the last authorisation for search was executed, which date in the present case was 20.12.2019, i.e., falling in the financial year 2019-20. Accordingly, twelve months from the end of that financial year ending 31.03.2020 provided the period of limitation up to 31.03.2021; and (ii). twelve months from the end of the financial year in which the seized materials were handed over to the AO having jurisdiction over the other person, i.e., the assessee, which date in the present case was 01.09.2020, i.e., falling in the financial year 2020-21. Accordingly, twelve months from the end of that financial year provided for the period of limitation up to 31.03.2022.
11. The CIT(A) observed that, as per the “proviso” to Section 153B of the Act, the later of the above two dates was the relevant time-limit for the framing of the assessment. Accordingly, the CIT(A) concluded that 31.03.2022 was the date by which the assessment in the case of the assessee ought to have been completed. Thereafter, the CIT(A), observing that the AO had completed the assessment on 20.03.2023, which was clearly beyond the outer limit of 31.03.2022, thus held the consequent order passed after the expiry of the prescribed period as void for want of jurisdiction. Accordingly, the CIT(Appeals), vide his order dated 29.01.2025, allowed the appeal, inter alia, holding that the assessment was barred by limitation.
Thereafter, the AO, filed an application dated 07.02.2025 with the CIT (Appeals) under Section 154 of the Act, seeking rectification of the order passed by him on the ground that there was an inadvertent factual error in the “remand report” regarding the date on which the seized material was handed over and that the correct date for the purpose of computing the period of limitation should be the date of recording of the “satisfaction note” i.e. 30.09.2021, and not 01.09.2020.
The CIT (Appeals) acted upon the aforesaid application and issued notice to the assessee under section 154(1A) of the Act, and passed a rectification order dated 28.03.2025 modifying his earlier order dated 29.01.2025, and dismissed the appeal on the ground that the assessment was within time.
The assessee appellant being aggrieved with the CIT(A) order has assailed before us the rectification order passed by him under Section 154 of the Act, dated 28.03.2025 on the ground, viz. (i) the scope of section 154 of the Act does not permit the CIT(Appeals) to alter a reasoned appellate order on the merits; (ii) the alleged "inadvertent error" based on which the order had been rectified is neither a mistake apparent on the face of the record nor a clerical/arithmetical mistake; and (c) the purported rectification is vitiated by legal infirmity and is therefore unsustainable.
We have heard the Ld. Authorised Representatives of both parties, perused the orders of the authorities below and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by the Ld. AR.
We find that our indulgence in the present appeal has been sought for adjudicating as to whether or not the CIT(Appeals) is justified in invoking Section 154 of the Act, based on which he had varied his reasoned order dated 29.01.2025.?
Before proceeding further, we deem it apposite to observe that Section 154 of the Act confers a limited power to rectify mistakes which are glaring, apparent, obvious and apparent on the face of the record, i.e., clerical or arithmetical errors or factual mistakes, and is not intended to permit rehearing or reconsideration of the merits of a matter which has been adjudicated after hearing. In our view, the power under section 154 cannot be exercised to substitute a new adjudicatory conclusion in place of an earlier reasoned decision, unless the change is strictly confined to the removal of a patent error which is apparent on the face of the record and neither requires elaborate inquiry nor a long-drawn process of reasoning. In a case where the mistake asserted is not plain or demonstrable from the record but depends on evidence, factual re- appreciation, or countervailing inferences, rectification is not permissible, and the proper remedy, if any, is by way of appeal or revision in accordance with law.
Coming back to the facts of the present case, we find that the appellate order dated 29.01.2025 was a reasoned decision in which the CIT (Appeals), after considering, viz. (i). the “remand report” filed by the AO; (ii). the chronology of events supplied by the Department; (iii). the written submissions of the appellant; and (iv). legal provisions concerning the computation of the period of limitation under Section 153B of the Act, had concluded that the order of assessment was barred by limitation and allowed the appeal.
We are of firm conviction that the AO’s subsequent communication dated 07.02.2025, had sought the rectification on the ground of an "inadvertent factual error" in the “remand report” regarding the relevant date for computing limitation. The AO, had submitted that the handing over of seized material for the purpose of Section 153C of the Act to the AO of the "other person" ought to be taken as 30.09.2021, i.e., the date of “satisfaction note” and not 01.09.2020, i.e., the date of receipt of the seized material by the AO of the assessee from the Investigation Wing, which was a clear shift of the legal characterization that had a strong bearing on the computation of the period of limitation.
We find that the decisive question involved in present appeal for which our indulgence has been sought, is whether the change sought by the AO involved correction of a patent clerical/factual error apparent on the face of the record which can be corrected under Section 154 of the Act; or whether it amounted to revisiting a matter of adjudication and factual re-appreciation that was already considered and decided by the CIT (Appeals) after hearing the parties.
On examination of the record and the chronology of events, including the date 01.09.2020, i.e., the date of receipt of seized material by the AO, which is a part of the “remand report” that was explicitly placed before the CIT(Appeals) and considered by him while passing the appellate order dated 29.01.2025, we are of a firm conviction that the AO's subsequent contention that the operative date for "handing over under section 153C" should be 30.09.2021 is not a simple clerical mistake in the “remand report”, but a substantive recharacterization of the facts, i.e., a clear attempt to seek an alternative view based on the substitution of the aforesaid dates and, thus, a review of the order passed by the CIT(A).
We are afraid that the exercise of power under Section 154 of the Act by the CIT (Appeals) to change the reasoning of the appellate order travels beyond the correction of a patent error, and intrudes into the domain of re-adjudication on merits. In our view, as Section 154 cannot be used as a means to substitute a different conclusion on limitation which had been arrived at after necessary deliberations, therefore, the CIT(A), in our view, had clearly exceeded the jurisdiction that was vested with him in exercise of the powers under Section 154 of the Act. We say so, for the reason that the power under Section 154 of the Act is confined to patent and self-evident mistakes on the face of the record, but in the case before us, the "mistake" for which the application was filed by the AO required fresh legal characterization and fact-finding, which falls beyond the scope and ken of Section 154 of the Act. Our aforesaid view is supported by the judgment of the Hon’ble Supreme Court in the case of T.S Balaram, Income-Tax Officer Vs. Volkart Brothers (1971) 82 ITR 50 (SC), wherein it was held as under:
“It was not open to the Income-tax Officer to go into the true scope of the relevant provisions of the Act in a proceeding under section 154 of the Income- tax Act, 1961. A mistake apparent on the record must be an obvious and patent mistake and not something which can be established by a long drawn process of reasoning on points on which there may conceivably be two opinions. As seen earlier, the High Court of Bombay opined that the original assessments were in accordance with law though in our opinion the High Court was not justified in going into that question. In Satyanarayan Laxminarayan Hegde v. MallikarjunBhavanappa Tirumale [I960] 1 SCR 890, this court while spelling out the scope of the power of a High Court under article 226 of the Constitution ruled that an error which has to be established by a long drawn process of reasoning on points where there may conceivably be two opinions cannot be said to be an error apparent on the face of the record. A decision on a debatable point of law is not a mistake apparent from the record—see Sidhramappa AndannappaManvi v. Commissioner of Income-tax [1952] 21 ITR 333 (Bom.). The power of the officers mentioned in section 154 of the Income-tax Act, 1961, to correct "any mistake apparent from the record" is undoubtedly not more than that of the High Court to entertain a writ petition on the basis of an "error apparent on the face of the record." In this case it is not necessary for us to spell out the distinction between the expressions "error apparent on the face of the record" and "mistake apparent from the record". But suffice it to say that the Income-tax Officer was wholly wrong in holding that there was a mistake apparent from the record of the assessments of the first respondent.” (emphasis supplied by us) 23. We, thus, are of a firm conviction that as the CIT(A) had in the garb of the powers vested with him under Section 154 of the Act, had traversed beyond the scope of his jurisdiction and had revised the order passed by him while disposing of the appeal, which we are afraid is not permissible as per the mandate of law, therefore, the order passed by him cannot be sustained and is liable to be quashed. Once again, we may herein reiterate that the remedy available to the revenue was not to seek correction of the impugned mistake under the limited scope of the procedure of rectification, but to get the redressal, if any, by carrying the appellate order in further appeal.
Accordingly, the impugned rectification order dated 28.03.2025 passed by the CIT (Appeals) under Section 154 of the Act is hereby quashed and set aside to the extent it purports to modify the appellate order dated 29.01.2025.
Order pronounced in the open court on 26th November, 2025.