2018 (6) TMI 1744 - AT - Income Tax

Appeal Allowed: Tribunal Quashes Order Under Section 263, Cites Procedural Lapses

The Tribunal concluded that the order passed by the Principal Commissioner of Income Tax (Pr. CIT) under Section 263 was not justified and quashed it. The ... Revision u/s 263 - AO initiated penalty proceedings u/s 271AAB without specifying any clause (a), (b) or (c) of section 271AAB(1) - no satisfaction has been recorded by the Ld. Assessing Officer with respect to any default of the assessee in terms of clause (a), (b) or (c) of section 271AAB(1) - HELD THAT:- Certificate issued in terms of clauses of Direct Tax Dispute Resolution Scheme, 2016, the issue regarding levy of penalty U/s 271AAB of the Act got finalize. From the order of the ld. Pr.CIT that during the proceedings U/s 263 of the Act, ld. Pr.CIT has not arrived at a clear and final conclusion that penalty levied by the Assessing Officer @ 10% was not justified in view of the materials collected and statement recorded during the search. Ld. Pr.CIT in his order U/s 263 of the Act has directed that the penalty order dated 20/08/2015 is set aside on this issue with a direction to the A.O. to pass the same in the case of assessee de novo in accordance with law after making the necessary examination and verification regarding issue under discussion. Thus, the ld Pr.CIT had not given clear finding on the issue. The Assessing Officer have levied penalty @ 10% and ld. Pr.CIT wants to levy 30% of penalty U/s 271AAB of the Act. The 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 AO 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 - Decided in favour of assessee. Issues Involved:1. Validity of the order passed under Section 263 of the Income Tax Act, 1961.2. Jurisdiction and authority of the Principal Commissioner of Income Tax (Pr. CIT) in revising the penalty order.3. Application and interpretation of Section 271AAB of the Income Tax Act, 1961.4. Impact of the Direct Tax Dispute Resolution Scheme, 2016 on the penalty proceedings.5. Procedural lapses in the initiation and imposition of penalty.Detailed Analysis:1. Validity of the Order Passed Under Section 263 of the Income Tax Act, 1961:The primary issue revolves around the validity of the order passed by the Pr. CIT under Section 263 of the Income Tax Act, 1961. The assessee argued that the order was void ab-initio and should be quashed. The Tribunal noted that the Pr. CIT's order was based on the observation that the Assessing Officer (AO) had levied a penalty at 10% instead of the mandated 30% under Section 271AAB of the Act. The Pr. CIT held that the AO's application of the wrong clause resulted in a short levy of penalty, thereby rendering the order erroneous and prejudicial to the interest of the revenue.2. Jurisdiction and Authority of the Pr. CIT in Revising the Penalty Order:The Pr. CIT exercised the powers conferred under Section 263 to revise the penalty order, directing the AO to re-examine and verify the issue and impose the correct penalty. The Tribunal observed that the Pr. CIT did not arrive at a clear and final conclusion that the penalty levied by the AO at 10% was unjustified based on the materials collected during the search. The Tribunal emphasized that the Pr. CIT's order lacked a clear finding and was more of a directive for the AO to re-assess the penalty, which was not sufficient to invoke Section 263.3. Application and Interpretation of Section 271AAB of the Income Tax Act, 1961:The Tribunal examined the application of Section 271AAB, which deals with penalties in cases where a search has been initiated. The AO had levied a penalty at 10% under clause (a) of Section 271AAB, but the Pr. CIT argued that the penalty should have been 30% under clause (c). The Tribunal noted that the AO had not specified the sub-clause under which the penalty was initiated, which led to procedural lapses. The Tribunal held that the Pr. CIT could not conclude the applicability of clause (c) without a clear finding and proper examination.4. Impact of the Direct Tax Dispute Resolution Scheme, 2016 on the Penalty Proceedings:The assessee had availed the benefit of the Direct Tax Dispute Resolution Scheme, 2016, under which a certificate was issued by the Pr. CIT (Central), Jaipur, granting immunity from prosecution. The Tribunal noted that the certificate issued under the scheme was conclusive and the matter could not be reopened under any other proceeding. Therefore, the Tribunal held that the Pr. CIT could not invoke Section 263 to revise the penalty order once the issue had attained finality under the scheme.5. Procedural Lapses in the Initiation and Imposition of Penalty:The Tribunal highlighted several procedural lapses in the initiation and imposition of the penalty. The AO had not specified the clause under Section 271AAB while initiating the penalty proceedings, nor was there any satisfaction recorded in the assessment order regarding the specific default committed by the assessee. The Tribunal emphasized that the initiation of penalty proceedings should be lawful and specific to the provisions of the Act. The Tribunal cited various case laws to support the principle that penalty proceedings must comply with the principles of natural justice and proper procedural requirements.Conclusion:The Tribunal concluded that the order passed by the Pr. CIT under Section 263 was not justified and quashed it. The Tribunal held that the procedural lapses in the initiation and imposition of the penalty, along with the finality attained under the Direct Tax Dispute Resolution Scheme, 2016, precluded the Pr. CIT from invoking Section 263. Consequently, the appeal of the assessee was allowed.