PODDUTURI RAJASHEKHAR REDDY,HYDERABAD vs. ITO., WARD-3(1), HYDERABAD

प्रनत रवीश सूद, जे.एम./PER RAVISH SOOD, J.M.

The present appeal filed by the assessee is directed against the order passed by the Principal Commissioner of Income-Tax,
Hyderabad–1 under Section 263 of the Income Tax Act, 1961 (for 2
Podduturi Rajasekhar Reddy short, “the Act”), dated 25.02.2025, which in turn arises from the order passed by the Assessing Officer (for short, “A.O.”) u/s 270A of the Act, dated 21.09.2022. The assessee has assailed the impugned order on the following grounds of appeal before us:
“1.That on the facts and circumstances of the case and in law, both the orders, i.e. the revision order passed by the Learned Principal
Commissioner of Income Tax, Hyderabad-1 u/s 263 of the Act dated
25-02-2025 and the penalty order passed by the Learned Assessing
Officer u/s 270A of the Act dated 21-09-2022, are bad-in-law a) As the Learned Assessing Officer has failed to mention the specific limb of the sub-sections of section 270A under which the penalty proceedings are initiated in the appellant case and b) Further the Learned Assessing Officer has no juri iction over the appellant case as the appellant is a director in a company and his juri iction falls with DCIT, Circle-2(1), Hyderabad and hence both the orders are liable to be quashed.

Without prejudice to the above Ground No.1 of the Appeal the appellant is taking the following grounds;

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Podduturi Rajasekhar Reddy notice u/s 148 of the Act, dated 31.08.2021. In compliance, the assessee filed his return of income on 25.10.2021, declaring an income of Rs. 35,95,086/- (including Rs. 20 lacs on account of declaration of undisclosed income). Thereafter, the A.O. vide his order passed u/s 147 r.w.s. 144B of the Act, dated 16.03.2022, after scaling down the assessee’s claim for deductions under Chapter VIA of the Act, viz. (i). disallowance of claim for deduction u/s 80C: Rs. 62,885/-; and (ii). disallowance of claim for deduction u/s 80D: Rs. 12,500/-, determined his income at Rs.
35,07,971/-.
4. During the course of assessment proceedings, the A.O.
observed that as the assessee had already offered the undisclosed income of Rs. 20 lacs (supra), equivalent to the amount of declaration made by him under IDS, 2016 in his return of income filed in compliance to notice u/s 148 of the Act, dated
31.03.2021, therefore, no separate addition on the said count was called for in his case.
5. The A.O. referred to “Form-1” that was submitted by the assessee under IDS, 2016, and observed that the assessee had declared the undisclosed income of Rs. 20 lacs (supra) on account

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Podduturi Rajasekhar Reddy of cash either in hand or in the bank account, and had not invested the same in any asset. The A.O. observed that as per
Section 187(3) of IDS, 2016, on the failure of the declarant to pay the tax, surcharge and penalty, in respect of the declaration made u/s 187 on or before the specified date, the declaration filed was to be deemed to have never been made under the said scheme.
The A.O. observed that as the assessee had made the declaration in IDS, 2016, therefore, it was beyond doubt that he had an undisclosed income amounting to Rs. 20 lacs (supra) during the subject year i.e. A.Y. 2017-18. 6. The A.O. further observed that though the assessee had failed to pay the tax, surcharge and penalty on the amount of Rs. 20
lacs (supra) that was disclosed by him as per the Scheme of IDS,
2016, however, he had not on his own offered the said undisclosed income for tax in his return of income for A.Y. 2017-
18. It was observed by the A.O. that the assessee had offered the undisclosed income of Rs. 20 lacs (supra) under the head “Income from other Sources” only when notice u/s 148 of the Act, dated
31.03.2021, was issued to him. Accordingly, the A.O. held a firm conviction that the assessee possessed “Income from other

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Podduturi Rajasekhar Reddy sources” of Rs. 20 lacs (supra) during the A.Y. 2017-18, which he had not disclosed at the time of filing his original return of income for the said year. The A.O., based on the aforesaid facts, was of the view that as per Section 187(3) of IDS, 2016, the assessee had made a default u/s 270A of the Act by underreporting his income by an amount of Rs. 20 lacs. Accordingly, the A.O., while framing the assessment, inter alia, initiated penalty proceedings u/s 270A of the Act for underreporting of income of Rs. 20 lacs by the assessee.
7. At this stage, we may herein observe that as the assessee in the course of the assessment proceedings had failed to substantiate his claim for deductions under Chapter VIA of the Act which, thus, had resulted to scaling down of the same by the A.O by an amount aggregating to Rs. 75,385/- viz. (i).
disallowance of claim for deduction u/s 80C: Rs. 62,885/-; and (ii). disallowance of claim for deduction u/s 80D: Rs. 12,500/-, therefore, the A.O. qua such wrong claim of deductions, had also initiated penalty proceedings for “underreporting of income in consequence of misreporting by the assessee”. Thereafter, the A.O. vide his order u/s 147 r.w.s. 144B of the Act, dated

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Podduturi Rajasekhar Reddy

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Podduturi Rajasekhar Reddy had rendered his order as erroneous insofar it was prejudicial to the interest of revenue u/s 263 of the Act.
10. The Pr. CIT vide his “Show Cause Notice” (SCN) issued u/s 263 of the Act, dated 17.12.2021, called upon the assessee to explain why the order passed by the A.O. u/s 270A of the Act, dated 21.09.2022, may not be revised. As the reply filed by the assessee did not find favour with the Pr. CIT, therefore, he set aside the order passed by the A.O. u/s 270A of the Act, dated
21.09.2022, with a direction to pass a fresh penalty order regarding the issue of penalty on underreporting of income of Rs.
20 lacs (supra), as per the provisions of law, after affording a proper opportunity to the assessee.
9. The assessee, being aggrieved with the order passed by the Pr.
CIT u/s 263 of the Act, dated 25.02.2025, has carried the matter in appeal before us.
10. We have heard the learned Authorized Representatives of both parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by the Ld.
AR to drive home his contentions.

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Podduturi Rajasekhar Reddy

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Podduturi Rajasekhar Reddy penalty proceedings u/s 270A of the Act for the undisclosed income of Rs. 20 lacs (supra) that was offered by the assessee for tax only in his return of income filed in response to notice issued u/s 148 of the Act, dated 31.03.2021, but had not imposed any penalty on the said issue vide his order u/s 270A of the Act, dated
21.09.2022, therefore, the Pr. CIT in exercise of the juri iction vested with him under “Explanation 2(a)” of Section 263 of the Act, taking cognizance of the said omission, had remaining well within his juri iction, revised the order and directed the A.O. to pass a fresh order on the issue in hand.
14. We have thoughtfully considered the contentions advanced by the learned Authorized Representatives of both parties in the backdrop of the order passed by the Pr. CIT u/s 263 of the Act, dated 25.02.2025. 15. Apropos, the Ld. AR’s claim that as the A.O. while initiating the penalty proceedings, had failed to specify the specific limb/default for which the penalty was sought to be imposed upon the assessee, viz. (i). under reporting of income; or (ii). under reporting of income in consequence of misreporting, therefore, he had in the absence of any valid assumption of juri iction passed

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Podduturi Rajasekhar Reddy the order u/s 270A of the Act, dated 21.09.2022, which, thus, being an invalid order, could not have been revised by the Pr. CIT u/s 263 of the Act, we are unable to persuade ourselves to concur with the same. We say so, for the reason that on a careful perusal of the assessment order passed by the A.O. u/s 147 r.w.s. 144B of the Act, dated 16.03.2022, it transpires that he had initiated the penalty proceedings u/s 270A of the Act, viz. (i). for under reporting of income: Rs. 20 lacs; and (ii). for underreporting of income in consequence of misreporting of claim of deductions u/s 80C and u/s 80D of the Act: Rs. 75,385/- (aggregate amount).
Also, we find that the A.O. had vide his SCN’s, dated 16.03.2022,
08.08.2022 and 29.08.2022 (reminder letter) had after taking cognizance of the fact that penalty u/s 270A of the Act was initiated for both the aforesaid issues, thus, in that context, had observed that the assessee had “under reported his income as well as under reported his income as a consequence of mis-reporting of income”. We, thus, are unable to concur with the Ld. AR that the A.O., while initiating the penalty proceedings u/s 270A of the Act, had failed to specify the default/limb for which the penalty was sought to be imposed by him.

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Podduturi Rajasekhar Reddy to the assessee’s undisclosed income of Rs. 20 lac (supra), therein confined the imposition of penalty u/s 270A of the Act only for the wrong claim of deductions that were raised by the assessee u/s 80C and u/s 80D of the Act. For the sake of clarity, we deem it apposite to cull out the observations of the A.O. in his order passed u/s 270 of the Act, which read as under:
“3. During the course of the assessment proceedings statutory notice(es), letter(s), reminder(s), show cause etc were issued from time to time. In response to the notice issued u/s 148 of the I.T.Act, 1961 on 31.03.2021 to file the true and correct return of income for the year under consideration. The assessee filed his ITR on 25.10.2021
declaring its income at Rs.35,95,086/- which includes
Rs.20,00,000/- on account of declaration of undisclosed Income.
After verifying the submissions made by the assessee for deduction claimed in ITR filed under section 80C & 80D of Rs.1,62,500/- only an amount of R.87,115/- was allowed. Accordingly, a total disallowance of Rs.75,385/- was made and added to the income of the assessee and assessment was completed u/s 147 rws 144B of the I.T.Act on 16/03/2022. 4. Initiation of Penalty Proceedings: In light of the foregoing facts penalty proceedings were initiated u/s 270A for under reporting of income on account of above mentioned additions on 16/03/2022. Subsequently, show cause notice u/s 274 r.w.s. 270A of the Income
Tax Act, 1961 dated 08/08/2022 and 29/08/2022 were issued to the assessee and were duly served.”

(emphasis supplied by us)

Act, dated 31.03.2021, had taken a conscious view and not imposed any penalty on the said issue u/s 270A of the Act, therefore, the Pr. CIT could not have thereafter revised the order for seeking substitution of his view as against the possible and plausible view arrived at by the A.O.
18. Our aforesaid view that the Pr. CIT, while exercising the juri iction vested with him u/s 263 of the Act, cannot seek the substitution of a possible and plausible view arrived at by the A.O. is supported by the landmark judgment of the Hon’ble Apex
243 ITR 83 (SC). In the aforesaid judgment, it was held by the Hon’ble Apex Court that where an Income-Tax Officer had adopted one of the courses permissible in law with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the view taken by the Income Tax Officer is unsustainable in law.
The aforesaid view was thereafter reiterated by the Hon’ble
213 CTR 266 (SC). Once again, it was observed that where two views are possible and the Income-Tax Officer has taken one of 16
Podduturi Rajasekhar Reddy the view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue, unless the view taken by the Income-Tax Officer is unsustainable in law.
19. Now, coming to “Explanation 2” to Sec. 263 as had been made available on the statute vide the Finance Act, 2015 w.e.f
01.06.2015, the same in a way expands the scope of the term
“erroneous” as provided in the statutory provision. Ostensibly, the rationale for inserting the “Explanation 2”, specifically clause (a), was to render the assessment orders which had been passed without making inquiries or verification, which should have been made, amenable for revision under the said statutory provision.
Undeniably, the A.O. in the course of the penalty proceedings in the present case before us, had after deliberating on the fact that the subject income of Rs. 20 lacs (supra) was included by the assessee in his return of income filed in compliance of the notice issued under Section 148 of the Act, had arrived at a possible view that no penalty regarding the said amount was called for u/s 270A of the Act. We are of a firm conviction that “Explanation 2”
in a way expands the scope of the term “erroneous” provided in 17
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Sec. 263 of the Act, but the same only being in nature of a tool to aid in construing the said statutory provision, thus, can by no means be allowed to distort the set of pre-conditions which are necessarily required to be satisfied for triggering the exercise of juri iction therein vested. Now, when the A.O. in the case before us had taken a conscious view on the issue in hand, i.e, not to impose penalty on the income of Rs. 20 lac (supra) that was disclosed by the assessee in his return of income filed under Section 148 of the Act, then, the Pr. CIT could not have sought the substitution of the said possible view in the garb of the powers vested with him under Sec. 263 of the Act. In case the claim of the department that the Pr. CIT remaining well within his juri iction had revised the assessment order u/s 263 r.w “Explanation 2” is accepted, then, we are afraid that the same would militate with the mandate of Sec. 263 of the Act, and resultantly, render every reasoned order though passed after necessary examination and verification by the A.O prone to revision.
20. We thus, in terms of our aforesaid deliberations, are of the firm conviction that the Pr. CIT had traversed beyond the scope of his juri iction and revised the order passed by the A.O. u/s 18
Podduturi Rajasekhar Reddy

270A of the Act, dated 21.09.2022. Accordingly, the order passed by the Pr. CIT u/s 263 of the Act, dated 25.02.2025, is set aside, and the order passed by the A.O. u/s 270A of the Act dated
21.09.2022, is restored.
21. Resultantly, the appeal filed by the assessee is allowed in terms of our aforesaid observations.
Order pronounced in the Open Court on 06th August, 2025. (मंजूनाथ जी)
(MANJUNATHA G.)
लेखा सदस्य/ACCOUNTANT MEMBER (श्री रवीश सूद)
(RAVISH SOOD)
न्यायिक सदस्य/JUDICIAL MEMBER Hyderabad, dated 06.08.2025. *TYNM/sps

आदेशकी प्रनतनलनप अग्रेनर्त/ Copy of the order forwarded to:-

आदेशधिुसधर / BY ORDER

Sr. Private Secretary
ITAT, Hyderabad