2018 (6) TMI 1743 - AT - Income Tax

ITAT quashes Pr. CIT order under Section 263, citing lack of jurisdiction post-final certificate

Shri Ram Das Maheshwari Versus Pr. Commissioner of Income Tax, Jaipur-1, Jaipur.

The ITAT quashed the order passed under Section 263 by the Pr. CIT, holding that the Pr. CIT lacked jurisdiction after the issuance of the final ... Revision u/s 263 - Levy of penalty u/s 271AAB - Non specification of sub clause of the provisions of Section 271AAB under which penalty imposed - HELD THAT:- AO initiated the penalty proceedings U/s 271AAB by issuing notice U/s 274 read with Section 271 of the I.T. Act, 1961 on 13/03/2015 wherein the penalty has been initiated “on assessed undisclosed income” as evident from copy of notice scanned at page No. 9 of this order. The Assessing Officer has not specified under which sub clause of Section the notice has been issued. Thus, it is clear from records that the assessee has not been sufficiently noticed about the sub clause of the provisions of Section 271AAB. A.O. has not specified the sub clause in notice. In such a factual situation, in our considered view, the ratio laid down by the Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. v. CIT [2000 (2) TMI 10 - SUPREME COURT] that an incorrect assumption of fact or an incorrect application of law will satisfy the requirement of the order being erroneous, shall not be applicable in this case. In absence of a clear cut finding of ld. Pr.CIT on the basis of documents found and seized and statements recorded during the search, the Pr.CIT. was not justified in issuing such direction. The Pr.CIT cannot reach at a conclusion that the provisions of Section 271AAB (1)(c) are applicable in assessee’s case without clear and final finding on this issue. We would also like to hold that once the assessee has preferred the appeal against the order of Assessing Officer for levy of penalty u/s 271AAB of the Act, there is no scope for the ld. Pr.CIT to invoke the provisions of Section 263 of the Act to cover any legal lacuna. Moreover, in a situation where the assessee has been granted certificate under the Direct Tax Dispute Resolution Scheme, 2016 which continues to be valid then also provisions of Section 263 could not be invoked. We would also like to mention that once the certificate issued under DRS Scheme is withdrawn in future then the appeal of assessee before CIT(A) shall revive. In such a situation also the Pr.CIT shall not have jurisdiction to invoke provisions of Section 263 of the Act. There is no scope for treating the penalty order passed by the Assessing Officer as erroneous and prejudicial to the interest of revenue. Accordingly, the order U/s 263 of the Act passed by the ld. Pr.CIT is hereby quashed. Issues Involved:1. Validity of the order passed under Section 263 of the Income Tax Act, 1961.2. Jurisdiction of the Principal Commissioner of Income Tax (Pr. CIT) after the issuance of a final certificate under the Direct Tax Dispute Resolution Scheme, 2016.3. Determination of whether the penalty under Section 271AAB should be levied at 10% or 30%.4. Adequacy of the assessee's substantiation of undisclosed income.5. Correct application of the provisions of Section 271AAB by the Assessing Officer (AO).Detailed Analysis:1. Validity of the Order Passed Under Section 263:The main issue in the appeal is the validity of the order passed under Section 263 of the Income Tax Act by the Principal Commissioner of Income Tax (Pr. CIT). The Pr. CIT held that the Assessing Officer (AO) erred in levying a penalty at 10% instead of the mandated 30% under Section 271AAB. The Pr. CIT argued that the AO's decision was erroneous and prejudicial to the interest of revenue, citing the Supreme Court's judgment in Malabar Industrial Co. Ltd. v. CIT, which states that an incorrect application of law satisfies the requirement of an order being erroneous.2. Jurisdiction of the Pr. CIT After Issuance of Final Certificate Under Direct Tax Dispute Resolution Scheme, 2016:The assessee argued that the Pr. CIT lacked jurisdiction to pass the order under Section 263 after the issuance of a final certificate under the Direct Tax Dispute Resolution Scheme, 2016. The certificate, issued by the Pr. CIT (Central), Jaipur, granted immunity from prosecution and stated that the matter could not be reopened in any other proceeding under the Income Tax Act or any other law. The ITAT agreed with the assessee, noting that the certificate had not been withdrawn and thus the issue regarding the levy of penalty had attained finality.3. Determination of Penalty Under Section 271AAB:The Pr. CIT directed the AO to levy a penalty at 30% instead of 10%, as initially imposed. The ITAT found that the AO had not specified the sub-clause of Section 271AAB under which the penalty was levied. The ITAT held that without a clear finding from the Pr. CIT based on documents and statements recorded during the search, the provisions of Section 271AAB(1)(c) could not be applied. The ITAT emphasized that the Pr. CIT could not reach a conclusion without a clear and final finding on the issue.4. Adequacy of Assessee's Substantiation of Undisclosed Income:The Pr. CIT's order was based on the AO's observation that the assessee failed to substantiate the undisclosed income during the assessment proceedings. However, the ITAT found no such finding in the assessment order. The ITAT noted that the assessee was not afforded an opportunity to substantiate the income during the assessment proceedings, and no questions were posed to the assessee regarding the substantiation of income during the statement recorded under Section 132(4).5. Correct Application of Provisions of Section 271AAB:The ITAT observed that the AO had levied the penalty at 10%, indicating that the penalty was levied under Section 271AAB(1)(a). The ITAT found that the AO did not specify the sub-clause of Section 271AAB in the notice issued under Section 274 read with Section 271. The ITAT held that the AO's failure to specify the sub-clause rendered the penalty order unlawful. The ITAT also noted that the Pr. CIT's direction to levy a penalty at 30% was not justified without a clear finding on the applicability of Section 271AAB(1)(c).Conclusion:The ITAT quashed the order passed under Section 263 by the Pr. CIT, holding that the Pr. CIT lacked jurisdiction after the issuance of the final certificate under the Direct Tax Dispute Resolution Scheme, 2016. The ITAT also found that the penalty proceedings were initiated unlawfully and that the AO had not specified the sub-clause of Section 271AAB, rendering the penalty order void. The appeal of the assessee was allowed.