Penalty proceedings need not be recorded in the assessment order; omission alone does not justify revision.

Penalty proceedings under section 271(1)(c) are distinct from assessment proceedings, and their initiation during assessment is a matter of convenience rather than a legal requirement to be recorded in the assessment order. On that basis, an assessment order is not rendered erroneous or prejudicial to the interests of revenue merely because it does not initiate penalty proceedings in the order itself. Since the absence of such a recording does not by itself justify supervisory revision, action under section 263 is unwarranted. Where two interpretations are possible, the view more favourable to the assessee is preferred.

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Issues: Whether an assessment order can be revised under section 263 of the Income-tax Act, 1961 on the ground that the Income-tax Officer did not initiate penalty proceedings under section 271(1)(c) of the Income-tax Act, 1961 in the assessment order.

Analysis: Penalty proceedings are distinct from assessment proceedings and may be initiated during the course of assessment; recording the initiation of penalty in the assessment order is a matter of convenience and not a legal requirement. Where the law admits of conflicting views, the interpretation more favourable to the assessee is to be adopted.

Conclusion: The assessment order was not erroneous or prejudicial to the interests of revenue merely because penalty proceedings under section 271(1)(c) were not initiated in the assessment order, and revision under section 263 was unwarranted.

Ratio Decidendi: Failure to record or initiate penalty proceedings in the assessment order does not, by itself, make the assessment order erroneous or prejudicial to the interests of revenue for the purpose of revision.

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