2025 (8) TMI 428 - AT - Income Tax

Penalty under Section 270A requires valid AO initiation; CIT(A) cannot impose penalty without proper jurisdiction

The ITAT Mumbai held that penalty proceedings under section 270A require valid initiation by the AO at the time of assessment to assume jurisdiction. The ... Penalty u/s 270A - Power of CIT(A) - underreported income in consequence of misreporting - as argued assessed income u/s 143[3] was less than income processed u/s 143[1] - Non of issuance of a specific show cause notice detailing the charge of under-reporting or misreporting of income. HELD THAT:- It is settled legal position that penalty levied under the provisions of the Act are generally in the nature of a civil liability; albeit a strict liability. At the same time, it cannot be disputed that assessee ought to be granted an effective opportunity to defend the allegations against him. There can be no dispute that the opportunity of being heard granted to the assessee must be effective and not merely empty formality. Therefore, the assessee must be given effective opportunity to defend the charge of under-reporting as well as the quantum of penalty proposed to be levied for such charge. Therefore, he should be communicated the charge of under-reporting as well as the reason or quantum of levying penalty. AO must direct initiation of penalty u/s 270A of the Act while passing the assessment/reassessment order and thereby, assume jurisdiction. Since proper initiation of penalty proceeding is the foundation of jurisdiction in the matters of penalty, strict observance of the same is absolutely necessary. In this case, a valid jurisdiction was already assumed by the Assessing officer, though penalty proceeding was kept pending. The jurisdiction was apparently with regard to the surrendered income which was the consequence of survey u/s 133A and was disclosed as additional income by way of Revised return by the assessee. CIT(A) was not justified in assuming dual jurisdiction for levying penalty on the same set of facts and circumstances. The reliance on the case of Shri Ajit Ramchandra Jadhav [2016 (1) TMI 980 - ITAT PUNE] is misplaced and does not support the action of the ld.CIT(A). In this order also, there was no reference and justification to any dual jurisdiction adopted by the CIT(A). Rather,it was categorically observed that once the AO initiated penalty proceedings by issuing show cause, only he would pass the penalty order. The penalty notice u/s 274 r.w.s.270A followed by passing of penalty order u/s 270A of the Act by the ld.CIT(A) without assuming a valid jurisdiction, the levy of penalty therefore, is vitiated and is held bad in law. Appeal of the assessee is allowed. ISSUES: Whether the Commissioner of Income Tax (Appeals) had jurisdiction to initiate and impose penalty under section 270A of the Income Tax Act, 1961, when penalty proceedings were already initiated and pending before the Assessing Officer.Whether penalty under section 270A can be levied without issuance of a specific show cause notice detailing the charge of under-reporting or misreporting of income.Whether the penalty imposed at 200% of tax payable on under-reported income was justified when the assessed income under section 143(3) was less than the income processed under section 143(1). RULINGS / HOLDINGS: On jurisdiction: The penalty proceedings initiated and penalty order passed by the Commissioner of Income Tax (Appeals) were held invalid as the Assessing Officer had already initiated penalty proceedings which were pending; therefore, the Commissioner of Income Tax (Appeals) 'was not justified in passing penalty order without having jurisdiction for the same.'On initiation of penalty: The Assessing Officer must assume jurisdiction by issuing a show cause notice under section 270A, which is the 'foundation of jurisdiction in the matters of penalty,' and strict observance of this procedure is 'absolutely necessary.'On penalty quantum and notice: Without going into the merits of penalty quantum or absence of specific charge in the notice, the penalty order was quashed solely on jurisdictional grounds. RATIONALE: The Court applied section 270A(1) of the Income Tax Act, 1961, which empowers the Assessing Officer or specified appellate authorities to levy penalty for under-reporting of income.The Court emphasized settled legal principles that penalty proceedings are civil liabilities requiring effective opportunity of hearing, including proper communication of charges and reasons.The Court rejected the reliance on a coordinate bench decision that supported penalty initiation by the Commissioner of Income Tax (Appeals) after Assessing Officer's initiation, holding that such dual jurisdiction is impermissible where the AO has already assumed jurisdiction.The Court recognized that penalty proceedings once initiated by the AO and kept pending cannot be re-initiated or assumed by the Commissioner of Income Tax (Appeals) on the same facts.