AO exceeded jurisdiction in dropping penalty on issues pending in quantum appeal-ITAT

AO exceeded jurisdiction in dropping penalty on issues pending in quantum appeal-ITAT upholds exercise of revisional powers by CIT u/s 263

ABCAUS Case Law Citation:
ABCAUS 2666 (2018) (12) ITAT

The appellant assessee had contested the invocation of revisional jurisdiction u/s 263 of the Income Tax Act, 1961 ( the Act ) by Principal Commissioner of Income Tax (PCIT) holding that order passed by the Assessing Officer (AO) dropping penalty proceedings u/s 271(1)(c) was erroneous and prejudicial to the revenue.

The assessee had not filed any return income for the impugned AY u/s 139(1). In reassessment proceedings, the following quantum additions were made by the AO.

(a) Interest Income

(b) Income from foreign Bank Account

(c) Unexplained credit in Bank Account

Consequently, penalty proceedings u/s 271(1)(c) were initiated against quantum additions and notice u/s 274 was issued to the assessee.

In response, the assessee drew attention to the fact that the high pitched quantum additions was being agitated before first appellate authority. The attention was further drawn to the fact that the amount of unexplained credit in Bank was in fact, overdraft granted by the bank against the units of overdraft account. The assessee furnished the copy of the bank overdraft account and communication in the form of email from the bank. Convinced with the same, AO dropped the penalty proceedings.

Subsequently, the order dropping the penalty proceedings was subjected to the revisional jurisdiction by the PCIT for the reasons that the assessee, during assessment proceedings, had categorically stated that the amount credited in the bank account was remitted from abroad in sharp contrast to the submissions during penalty proceedings that the said amount was nothing but overdraft facility from the Bank. Another reason to invoke the powers u/s 263 was that in the Assessment Order, there was discussion as to penalty against other two other additions.

Accordingly, a show cause notice was issued to the assessee. In response, the assessee submitted that at the time of assessment, final clarification from the bank was not available. However, the same was made available by the bank by a subsequent email which was submitted to the AO, who after due application of mind, dropped the penalty proceedings.

It was  further submitted that that pendency of appeal before appellate authority could not prevent the AO to accept the truth of the submissions and therefore, the order dropping the penalty was fair and justified.

However, not convinced, the PCIT observed that the assessee, qua unexplained credit, took divergent stands in assessment proceedings and penalty proceedings. He further noted that AO accepted the assessee’s submissions merely on the basis of email communication without carrying out any further inquiry or examining requisite documentary evidences including copy of sanction letter of the said overdraft facility.. It was further noted that no discussion, whatsoever, was made with respect to penalty on other two quantum additions.

Therefore, by invoking the provisions of Section 263, the order dropping the penalty was treated as erroneous and prejudicial to the interest of the revenue and AO was directed to decide the same afresh after due verification.

The Tribunal opined that the AO, in the process of adjudication of penalty, went ahead  to examine the additional documents submitted by the assessee that contested the very validity of quantum additions made in the quantum proceedings. The issue on merit was already pending before the first appellate authority and therefore, AO was ousted with jurisdiction to re-examine the same during penalty proceedings.

The Tribunal observed that the AO dropped the penalty upon reaching a conclusion that the said deposit was merely an overdraft without appreciating the outcome of the adjudication made by first appellate authority.

The Tribunal explained that it could give rise to unwarranted situation where the quantum additions were confirmed by the first appellate authority whereas the penalty was dropped by AO by considering the merits of the addition on the basis of additional documents submitted by the assessee during penalty proceedings.

Therefore, the Tribunal opined that the AO AO, by delving into the merits, transgressed the power vested in higher authority at relevant point of time.  Therefore, the same being erroneous and prejudicial to the interest of the revenue, had rightly been subjected to revisional jurisdiction u/s 263 by the PCIT.

Accordingly, the Tribunal dismissed the appeal.

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