TaxTMI 
TaxTMI 
2025 (5) TMI 2044
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.... and brought to tax. Thus A.O. initiated penalty proceedings u/s. 271AAC(1) of the Act in respect of addition made u/s. 69A of the Act. However in the concluding part of the reassessment order the AO recorded 'Notice issued for 271(1)(c) of the Act for concealment of income' and also issued notice dated 29-03-2022 for penalty u/s. 274 r.w.s. 271(1)(c) of the Act. 2.1. In response the assessee by its letter dated 28-04-2022 replied that as against the reassessment order assessee has filed statutory appeal which is pending disposal before the Ld.CIT(A). The AO initiated penalty proceedings u/s. 271AAC(1) of the Act as mentioned in the reassessment order, whereas issued statutory notice u/s. 271(1)(c) of the Act. Thus the A.O. is not clear in charging penalty under which section of the Act. Therefore the assessee requested that the entire penalty proceedings is liable to be dropped. 2.2. Without considering the above reply and non-application of mind, the AO issued second notice u/s. 271(1)(c) of the Act dated 07-09-2023. Again, the assessee vide its reply dated 22-09-2023 requested to drop the penalty proceedings wrongly initiated or alternatively keep the penalty proceedings i....
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.... section 271(1)(c) of the Income tax Act dated 29.03.2022 for the A.Y. 2017-18 with the direction to the AO to issue a fresh penalty notice in accordance with law and after duly examining the facts of the case to the extent discussed supra after giving the assessee a reasonable opportunity of being heard." 5. Aggrieved against the Revision order the assessee in appeal before us raising the following Grounds of Appeal: 1. The Principal Commissioner of Income Tax -1, Ahmedabad, has erred in law and on facts while passing the order u/s 263 of the Income Tax Act, 1961dated 09/02/2024, Which requires to be quashed. 2. That the Ld. Principal Commissioner -1, Ahmedabad has erred in law and on facts while initiating the proceedings u/s 263 of the I.T. Act, 1961 and therefore the proceedings itself is bad in law illegal and void. 3. That the re-assessment order passed dated 29/03/2022 by National Faceless Assessment Unit is neither erroneous nor prejudicial to the Interest of revenue, however the proceedings initiated u/s 263 of the I.T. Act, 1961 by PCIT-1, Ahmedabad is bad in law which requires to be quashed. 4. While passing the Order U/s 263 by PCI....
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....ppearing for the assessee submitted that the penalty proceedings are independent and distinct from the assessment proceedings and relied upon Delhi High Court in the case of Addl. CIT v. J.K. D'Costa reported in [1982] 133 ITR 7 wherein it was held that failure to initiate or wrongful initiation of penalty proceedings does not affect the validity of the assessment order, which was later confirmed by Hon'ble Supreme Court by dismissing Revenue's SLP which is reported in [1984] 147 ITR (St.) 1. 7.1. Further Ld. Counsel relied upon Chennai Tribunal decision in ITA No.1451/Chny/2024 dated 14-08-2024 in the case of M/s. Anotra Realtors Pvt Ltd -Vs- PCIT, on identical wrong issuance of penalty notice, held that PCIT cannot direct AO to initiate penalty through revision proceedings, when the AO already applied his mind and initiated penalty, even if under the wrong section and thereby quashed the Revision proceeding by observing as follows: "...13. In the present case before us, admittedly assessment was framed u/s. 153C of the Act and the AO initiated penalty proceedings u/s. 271AAC of the Act, which is non-existent provision and the same was also approved by the Addl.CIT u/s....
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....he Commissioner clearly erred in holding that omission to record satisfaction to initiate penalty proceedings was erroneous or prejudicial to the interest of Revenue. The learned Tribunal rightly set aside the direction of the Principal Commissioner directing the Assessing Officer to initiate penalty proceedings although we may not agree with the reasoning in its entirety." 8. On the contrary, the Ld. Departmental Representative (DR) submitted that omission by the Assessing Officer to initiate penalty proceedings has squarely rendered the assessment order erroneous and prejudicial to the interest of Revenue. In support, he relied on the Hon'ble Allahabad High Court in the case of CIT v. Surendra Prasad Agrawal [2005] 142 Taxman 653 (Allahabad). 9. We have heard rival submissions at length and perused the relevant material on record including the Paper Book and Case Laws filed by the parties. The case law relied by the assessee namely J.K. D'Costa was considered by Delhi High Court in the case of Achal Kumar Jain [1982] 11 Taxman 228 and Allahabad High Court in the case of CIT v. Surendra Prasad Agrawal [2005] 142 Taxman 653. The above case laws were considered by the Mumbai B....
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....i Raj Kapoor, leamed counsel for the respondent. 6. The learned counsel for the Revenue submitted that the Tribunal was not justified in holding that the Commissioner of Income Tax could not have assumed jurisdiction under section 263 of the Act in a case in which there was no order passed by the Income Tax Officer under the Act in as much as omission to initiate penalty proceedings while passing the assessment order was erroneous as also prejudicial the interest of the Revenue. He further submitted that the Commissioner of Income Tax has remanded the matter and if the order was erroneous and prejudicial on two points, the Commissioner had the power to remand the matter and direct for initiation of penalty proceedings also. He relied upon the following decisions 1. Saraiya Distillery's case (supra) 2. Malabar Industrial Co. Lid. v. CIT (2000).243 ITR 83-(SC). 7. Shri R.R. Kapoor learned counsel for the respondent submitted that omission to initiate penalty proceedings under section 273(1) of the Act by the Income Tax Officer while passing the assessment order did not amount to an order which could be revised by the Commissioner of Income Tax ....
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.... that the assessee is guilty of concealment or other default for which penalty action is called for. Indeed, in certain cases it is possible for the ITO to issue a penalty notice or initiate penalty proceedings even long before the assessment is completed though the actual penalty order cannot be passed until the assessment is finalized. We, therefore, agree with the view taken by the Tribunal that the penalty proceedings do not form part of the assessment proceedings and that the failure of the ITO to record in the assessment order his satisfaction or the lack of it in regard to the leviability of penalty cannot be said to be a factor vitiating the assessment order in any respect. An assessment cannot be said to be erroneous or prejudicial to the interest of the revenue because of the failure of the ITO to record his opinion about the leviability of penalty in the case..." (p. 11) 9. The aforesaid decision has been consistently followed by the Delhi High Court in the cases of Achal Kumar Jain (supra), P.C. Puri v. CIT (1985) 151 ITR 584 (Delhi), Addl. CIT v. Precision Metal Works (1985) 156 MIR 6934, CWT v. A.N. Sarvaria (1986) 161 ITR 694, Addl. CIT v. Sudershan Talkies ....
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....e the ITO during the pendency of the proceedings has omitted to take notice of facts attracting section 271(1)(a) of the Act during the pendency of the proceedings which ultimately ended in an order of assessment, the order would be erroneous and in this view of the matter, the Commissioner was right in exercising jurisdiction conferred on him under section 263 of the Act. The other decision of the M.P.High Court has followed its earlier decision in the case of Indian Pharmaceutical (supra). The Delhi High Court in the case of Achal Kumar Jain (supra) had considered the decision of the Madhya Pradesh High Court in the case of Indian Pharmaceuticals (supra), Shri Kanti Lal Jain (supra), NathoolalBalaram (supra) and Narain Singh Malkhan Singh (supra) and while disagreeing has held as follows: "On a cursory examination, it appeared to us that the view of the Madhya Pradesh High Court as indicated in the abovementioned decisions is correct, but on closer scrutiny we respectfully disagree with the same. In any case, the matter is not res integra as far as this court is concerned. In Addl. CIT v. J.K.D. Costa, Income-tax Reference No. 82 of 1974, disposed of by us on 27th April,....
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.... (c) has concealed the particulars of "his income or so*** "furnished inaccurate particulars of 81/such income, or/7" (d)................. he may direct that such person shall pay by way of penalty.- (1)[****] 84 (ii) in the cases referred to in clause (b), & in addition to tax, if any, payable) by him, la sum of ten thousand rupees) for each such failure ;) ST (iii) in the cases referred to in clause (c) & or clause (d)], in addition to tax, if any, payable by him, a sum which shall not be less than, but which shall not exceed three times), the amount of tax sought to be evaded by reason of the concealment of particulars of his income 9 or fringe benefits) or the furnishing of inaccurate particulars of such income or fringe benefits). Section 270A 270A. (1) The Assessing Officer or the Commissioner (Appeals) or the Principal Commissioner or Commissioner may, during the course of any proceedings under this Act, direct that any person who has underreported his income shall be liable to pay a penalty in addition to tax, if any, on the under-reported income. 6.3 Since, both the penalty u/s 271(1) of the Act as wel....