2019 (8) TMI 51

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....the assessee has filed the return showing income of Rs. 7,43,010/- and attached the tax audit report along with the return. Assessment u/s 143(3)/ 147 was completed vide order dated 30.03.2016. Addition of Rs. 1,00,000/- was made in this assessment. Notice u/s 263 of the Income Tax Act, 1961 was issued by the Principle Commissioner of Income Tax-2, Bhopal on 02.02.2018 for the reasons that the assessee in the return filed in compliance to notice u/s 148 of the Act has increased his income by Rs. 4,05,697/- but the Assessing Officer has not initiated penalty proceedings u/s 271 (1)(c) of the Act. Ld. PCIT also observed that Interest of Rs. 1,229/- received by the assessee u/s 244A on Income Tax refund for A.Y. 2008-09 has been not offered for taxation. After considering the submissions of the assessee the Ld. PCIT framed order u/s 263 of the Act directing the Ld. A.O to frame the assessment denovo as per the finding given in the order u/s 263 of the Act. 3. Aggrieved assessee is now in appeal before the Tribunal raising following grounds of appeal; 1. That on the facts and in the circumstances of the case, the order passed u/s 263 of the Act by the Principle Commissio....

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....eturn of income at Rs. 10,22,892/-. Additions were made by Ld. A.O but he failed to initiate penalty proceedings u/s 271(1)(c) of the Act. Subsequently Ld. PCIT exercising power u/s 263 of the Act observed that the Ld. A.O failed to initiate penalty proceedings u/s 271(1)(c) of the Act and also the assessee has not offered the interest income of income tax refund for taxation. On the basis of these two observations Ld. PCIT held the order of the Ld. A.O as erroneous and gave direction to pass the assessment order afresh. 7. Now we have to adjudicate the issue that whether the failure on the part of Ld. A.O to initiate penalty proceedings is a sufficient reason for the Ld. PCIT to pass an order u/s 263 of the Act for revising the assessment order. 8. Ld. Counsel for the assessee fairly accepted that the similar issue has been decided by the Hon'ble jurisdictional High Court in favour of the revenue in the case of ACIT v/s Indian Pharmaceuticals (supra). The relevant extract of the judgment of Hon'ble jurisdictional High Court is extracted below; "7. In CIT v. Bhikaji Dadabhai and Co. [1961] 42 ITR 123, their Lordships of the Supreme Court were considering the provisio....

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.... when by Section 44, it is declared that the partners or members of the association shall be jointly and severally liable to assessment, it is only intended to declare the liability to computation of income under Section 23 and not to the application of the procedure for declaration and imposition of tax liability and the machinery for enforcement thereof...By Section 28, the liability to pay additional tax which is designated penalty is imposed in view of the dishonest or contumacious conduct of the assessee. " and on this basis allowed the appeal. It is, therefore, clear that according to the view of their Lordships of the Supreme Court the word "assessment" is not used in the Indian I.T. Act in the narrow sense of computing income only but is used in a wider perspective and, therefore, when proceedings for assessment are pending before the ITO, if facts attracting the provisions of Section 271(1)(a) come to his notice while proceeding with the assessment, it is necessary for the ITO to invoke the provisions for the recovery of penalty. 8. Learned counsel for the assessee referred to the Note at page 1207 in Kanga and Palkhivala's " The Law and Practice of I....

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....ake action under Section 271(1)(a) could not be said to be an error if the order of assessment otherwise is found to be in order. This contention of learned counsel for the assessee cannot be accepted in view of the wide meaning given to the term "assessment" as laid down by their Lordships of the Supreme Court in the cases referred to above. It is also not disputed before us that the proceedings of assessment are, not only computation of income and tax but various other things which fall within the scheme of Chap- XIV which talks of procedure for assessment. And it also could not be disputed that when Section 271(1) talks of "proceedings pending" it will include the proceedings for assessment within the scheme of Chap. XIV of the Act, and the proceedings of assessment under the scheme of this law ultimately culminating in an order of assessment. Section 263(1) of the Act reads : " 263. (1) The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Income-tax Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunit....