2017 (3) TMI 1567 - AT - Income Tax

Tribunal rules in favor of Assessee, Commissioner lacked power to initiate penalty proceedings.

Dharmanandan Diamonds Pvt. Ltd Versus The Addl. Commissioner of Income Tax Range – 5 (1) Mumbai

The Tribunal allowed the Assessee's appeal, holding that the Commissioner lacked the power to direct the initiation of penalty proceedings under section ... Penalty u/s 271(1)(c) - Commissioner's power u/s 263 to direct the Assessing Officer to initiate penalty proceedings u/s 271(1)(c) - CIT-A passed order u/s 263 holding that the omission on the part of the Assessing Officer to initiate penalty proceedings during the course of assessment has rendered the assessment order erroneous and prejudicial to the interest of the revenue - Held that:- There are divergent views of the High Courts on the subject. Therefore, following the order of the Hon’ble Supreme Court in the case of CIT Vs. Vegetable Products [1973 (1) TMI 1 - SUPREME Court] when two views are possible, the view in favour of the Assessee is to be followed. Therefore CIT v. Paramanand M Patel [2005 (7) TMI 72 - GUJARAT High Court] and in the case of CIT v. Subhash Kumar Jain [2010 (9) TMI 772 - Punjab and Haryana High Court] we set aside the order of the Commissioner passed u/s 263 in directing the Assessing Officer to initiate penalty proceedings u/s 271(1)(c) of the Act. Issues:1. Jurisdiction of CIT to direct AO to initiate penalty proceedings under section 271(1)(c) of the Act.Analysis:The appeal was filed by the Assessee against the order of the Ld. CIT-5, Mumbai dated 17.12.2013 passed under section 263 of the Income Tax Act. The Ld. Counsel for the Assessee contended that the Assessing Officer did not initiate penalty proceedings under section 271(1)(c) of the Act, which was omitted while passing the assessment order. The Ld. CIT directed the Assessing Officer to initiate penalty proceedings, considering the omission as rendering the assessment order erroneous and prejudicial to the revenue's interest. The Assessee argued that the Assessing Officer's discretion not to initiate penalty proceedings should be respected, citing relevant case laws. The Ld. DR supported the Ld. Commissioner's decision. The Tribunal analyzed the issue of whether the Ld. Commissioner had the power under section 263 to direct the initiation of penalty proceedings. The Tribunal referred to conflicting decisions of different High Courts, ultimately following the principle that when two views are possible, the view in favor of the Assessee should be adopted. Consequently, the Tribunal set aside the Ld. Commissioner's order directing the initiation of penalty proceedings under section 271(1)(c) of the Act.In conclusion, the Tribunal allowed the Assessee's appeal, emphasizing the importance of respecting the Assessing Officer's discretion in initiating penalty proceedings and following the view favorable to the Assessee when faced with conflicting decisions of High Courts. The Tribunal's decision highlighted the need for a balanced approach in tax matters and the significance of upholding the principles of natural justice and procedural fairness in assessments and penalty proceedings.