Reduction of total income not agreed by the AO

I am an individual taxpayer with income only from salary and fixed deposits. In FY2016-17, I first filed my IT return, and then later I found my total income was grossly overestimated. Hence I filed a revised IT return with a revised total income. Though CPC cleared my return, it went for scrutiny and the AO didn't accept the reduction in total income. I was also charged for a penalty. Now instead of an accurate estimate of my tax liability, the AO just took the total income of the original return did all computation. The letter from AO accepts that all necessary documents were not taken into account. Hence my questions are: (a) can IT Department calculate tax without estimating the total income itself? (b) Is there any way for rectification of the assessment order without filing any appeal?