TaxTMI 
TaxTMI 
2026 (1) TMI 989
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..... The assessee filed his return of income for AY 2020-21 on 13th February, 2021 admitting an income of Rs. 13,53,93,940/-. The case of the assessee was selected for scrutiny vide CASS under complete scrutiny category for the following reasons as enumerated in para 3 as extracted below: - "3. Complete description of issues (issue wise) The assessee's case was selected for scrutiny for the following reasons: 1. Large value receipt or repayment of loans other than through banking channels 2. As per New Schedule AL-1, the company has invested substantial part of its funds in assets like Residential House, Land or Building, Capital Contribution to other entities, Loans and Advances, Motor Vehicles, Aircrafts etc. 3. Deduction from Total Income (Chapter VI-A) (Business ITR)" 3. The assessee was asked to furnish various details item wise as under: - "1. Donation u/s 80G-Rs. 54,90,452/- 2. Non-Current investments: Rs. 59,53,24,036/- 3. Cash Deposits: Rs. 3,97,06,452/- 4. Purchases: Rs. 4,04,91,936/- 5. Rental Income: Rs. 8,86,14,791/- 6. Sales of service: Rs. 9,66,05,036/- 7. ....
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....sic Clothing Pvt. Ltd. As per said report, these repayments were made otherwise than account payee cheque, bank draft or use of electronic clearing system through a bank account. Thus, the above transaction violates the 'Modes of repayment of certain loans or deposits as prescribed u/s. 269T of the Act. The Ld. PCIT was of the opinion that violation of provisions of section 269T of the Act attracts penalty provision of section 271E of the Act. The said penalty was neither initiated nor imposed during the assessment proceeding and thus, said omission resulted into non-levy of penalty of Rs. 11,00,000/- u/s 271E of the Act. Hence, the Ld. PCIT was of the opinion that the assessment u/s 143(3) r.w.s. 144B vide assessment order dated 31.08.2022 appeared to be erroneous as well as prejudicial to the interest of revenue and accordingly, issued a show cause notice u/s 263 of the Act. 7. In reply to the show cause notice, the assessee submitted that Rs. 11,00,000/- is an adjustment of Security Deposit out of total deposit of Rs. 1 crore received during A.Y. 2018-19 towards minimum guarantee amount receivable from Basic Clothing Pvt. Ltd. The said amount of Rs. 1 Crore was appearing unde....
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....ordance with the provisions of Section 271E of the Act, as the said penalty proceedings were not initiated by AO during the assessment proceedings, leading to potential revenue loss (equal to loan amount i.e.Rs.11,00,000/-). In other words, the assessment order passed by AO was found erroneous in so far as it was found to be prejudicial to the interest of revenue. Accordingly in the present proceedings u/s 263 of the Act, the assessee was asked to explain why the assessment order passed by AO should not be held as erroneous in so far as it is observed to be prejudicial to the interest of revenue, in as much as AO, during the assessment proceedings, has failed to initiate penalty proceedings u/s 271E of the Act. The first contention of the assessee in its written submission is that in the instant case, there is no violation of provisions of Section 269T of the Act as the amount of Rs 11,00,000/-, mentioned by the Auditor in Tax Audit Report as amount of repayment of loan or deposit other than by way of account payee cheque/RTGS, is in reality just an adjustment of Security Deposit out of total deposit of Rs. 1 Crore received from Basic Clothing Pvt Ltd. during AY 2018-19, t....
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....sessee that the said amount is just an adjustment entry and that auditor has incorrectly reported the said sum in the audit report as the repayment of loan and deposit made in violation of Section 269T of the Act, are not acceptable on merit. If the said reporting by the tax auditor was incorrect, the assessee had sufficient time at its disposal to obtain a certificate from the tax auditor stating that incorrect reporting has occurred in the tax audit report or the assessee could even make attempt to obtain a revised tax audit report. The tax audit reports are prepared by the tax auditors after going through voluminous records submitted by the assessee itself before the tax auditor. The reporting made by the tax auditors in such statutory tax audit reports cannot be taken casually as it is a specialised task. Any incorrect reporting in such reports must be got corrected using a formal route. At this stage, it is very difficult to examine the claims made by the assessee that the said sum Rs. 11,00,000/-was just an adjustment entry, and it did not involve any violation of the provisions of Section 269T of the I. T. Act. In view of the above, placing complete reliance on the ....
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....d that the action of AO was in violation of CBDT Circular no. 09/DV/2016 dated 26.04.2016 advising Assessing Officer to make a reference to the Range Head regarding violation of provisions of Section 269SS and 269T during the course of assessment proceedings itself. The said judgement was delivered in the context of penal provisions u/s 271D of the Act, on account of violation of provisions of Section 269SS of the Act. The relevant part of the judgement, being para 11.6 of the judgement is reproduced as under: "11.6 We have considered the judicial pronouncements and principles laid down by the Hon'ble Supreme Court and also the judgement of various Hon'ble High Courts and as per the above judicial pronouncements, the Assessing Officer has to record his satisfaction before initiating penalty under section 271D of the Act in respect of violation of the provisions of section 269SS of the Act. In this case, the assessment order was passed on 30.12.2017 and reference was made by the Assessing Officer to the Addl. CIT on 14.03.2021 to initiate penalty proceedings. There is a time gap of more than three years In the assessment order dated 30.12.2017, the Assessing Officer....
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.... as it is prejudicial to the interest of revenue under the ambit of the provisions of section 263 of the I. T. Act, 1961. 9. The Assessing Officer is directed to revise order u/s 143(3)/144B of the I.T. Act, 1961 dated 31.08.2022 in this case as held in this order and take appropriate action for initiation of penalty proceedings u/s 271E of the I. T. Act for levy of penalty amounting of Rs. 11,00,000 for A.Y. 2020-21, for violation of provisions of Section 269T of the Act." 8. Aggrieved by the impugned order, the assessee has filed the present appeal and has raised following grounds of appeal: - "1. That the learned Pr. CIT has erred in law & on facts in assuming jurisdiction under Section 263 of the Act without satisfying the mandatory conditions that the original assessment order was erroneous & prejudicial to the interest of the revenue. 2.That the directions given by the learned Principal Commissioner of Income Tax (PCIT) to initiate penalty proceedings under section 271E are contrary to the provisions of law & are beyond the scope of powers vested under section 263 of the Income-tax Act, 1961. The power under section 263 is limited to revising err....
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....es of the case, the Appellate Tribunal was right in law in quashing the direction given by the Commissioner of Income Tax u/s 265 of the Income Tax Act, 1961, to the Income Tax Officer to initiate penalty proceedings u/s 271(1)(a) of the Act, against the assessed for the assessment year 1970- 71?" 2. In so far as this court is concerned the issue raised is no longer res integra. The scope of powers of the Commissioner u/s 263 of the Act came up for consideration before this court in Addl Commissioner of Income Tax, Delhi-I Vs. J.K.D''costa, and it was held that even if, while examining the records of an assessment order in exercise of his powers of revision under the said section, the Commissioner finds that the Assessing Officer has not initiated penalty proceedings, he cannot direct initiation of penalty proceedings because penalty proceedings are not a part of assessment proceedings. It was, thus, held that the Commissioner cannot pass an order u/s 263 of the Act pertaining to penalty. 3. Following the said judgment, with which we are in respectful agreement, the question is answered in the affirmative, i.e., in favor of the assessed and against the Rev....
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....t be so for the simple reason that when the original assessment order itself was set aside, the satisfaction recorded therein for the purpose of initiation of the penalty proceeding under Section 271E would also not survive. This according to us is the correct proposition of law stated by the High Court in the impugned order. 5. As pointed out above, insofar as, fresh assessment order is concerned, there was no satisfaction recorded regarding penalty proceeding under Section 271E of the Act, though in that order the Assessing Officer wanted penalty proceeding to be initiated under Section 271(1)(c) of the Act. Thus, insofar as penalty under Section 271E is concerned, it was without any satisfaction and, therefore, no such penalty could be levied." 11. The Ld. Sr. DR on the other hand, supported the judgment of Ld. PCIT. 12. We have considered the rival submission and examined the record and the case laws referred to by the parties. The Ld. PCIT has distinguished the case of the Hon'ble Delhi High Court in CIT vs. Nihal Chand Rekyan (supra) by observing as under: - "The second contention of the assessee is that in proceedings u/s 263 of I.T. Act, the Commissi....