Revision u/s 263 ordered for dropping penalty proceedings u/s 271(1)(c) set aside as AO took a view by adopting a plausible view
ABCAUS Case Law Citation:
ABCAUS 3028 (2019) (06) ITAT
Important Case Laws Cited/relied upon by the parties:
MAK Data Pvt. ltd. Vs. CIT (2013) 358 ITR 593 (SC)
Price Waterhouse Coopers Pvt. Ltd. Vs. CIT (2012) 348 ITR 306 (SC).
CIT Vs. Fine Jewellery (India) Ltd. (2015) 372 ITR 303 (Bom)
R.A. Himmat Singka & Company Vs. CIT (2012) 340 ITR 253
The instant appeal filed by the assessee was directed against the order of Pr. CIT(A) in setting side i/s 263 the order of the AO dropping the penalty proceedings under Sec. 271(1)(c) of the Income Tax Act, 1961 (the Act).
The assessee e-filed his return of income which was processed as such u/s 143(1) of the Income Tax Act, 1961 (the Act). Subsequently, the case was selected for scrutiny assessment u/s 143(2).
Thereafter, assessment was framed by the AO under Section 143(3) after making additions on the basis of un-reconciled AIR information.
The AO while framing the assessment also initiated penalty proceedings u/s 271(1)(c). However, the penalty proceedings initiated u/s 271(1)(c) were thereafter dropped by the AO by noting in the order sheet expressing satisfaction with the reply of the assessee.
However, the Pr. CIT after perusing the assessment records of the assessee, observed, that the AO in the course of the penalty proceedings had without application of his mind dropped the penalty proceedings that were initiated u/s 271(1)(c).
In fact, the Pr.CIT was of the view that the AO was in error in accepting the incorrect claim of the assessee that the inadvertent omission on his part to offer certain income in the form of cash deposits/FDRs in the return of income for the year under consideration was thereafter voluntarily rectified by him even before the same was pointed out by the AO.
The Pr. CIT held a conviction that the assessee had came forth with the disclosure of the understated income in the course of the assessment proceedings after it was gathered by him that the understated income was well within the notice of the department.
Accordingly, the Pr. CIT was of the view that it was absolutely incorrect on the part of the assessee to claim that the disclosure of the additional income was voluntarily made by him. Apart there from, the unsubstantiated claim of the assessee that it was the lapse on the part of the earlier chartered accountant which had led to the understatement of income, also did not find favour.
Accordingly, Pr. CIT issued a Show Cause notice to the assessee. In reply, it was submitted by the assessee that as he had came up with a voluntarily disclosure of the understated income which was inadvertently omitted to be offered in the return of income, therefore, the AO had after due application of mind dropped the penalty proceedings which were initiated in the assessment order under Sec. 271(1)(c).
It was thus, the claim of the assessee, that as the AO had after necessary deliberations and application of mind to the facts of the case dropped the penalty proceedings, therefore, the Pr. CIT was divested of his jurisdiction under Sec. 263, as the same would tantamount to re-examining the issue which had already been inquired into by the A.O.
However, the Pr. CIT was not persuaded to accept the aforesaid reply of the assessee. Accordingly, the Pr. CIT concluded that the assessee had not voluntarily offered the understated income in the course of the assessment proceedings.
The Pr. CIT was of the view that the A.O without proper application of mind had on the basis of a cryptic order dropped the penalty proceedings which were initiated by him while framing the assessment under Sec. 271(1)(c).
Taking support of the provisions of Explanation 2 to Section 263, he observed, that as the dropping of the penalty proceedings under Sec. 271(1)(c) by the AO without proper application of mind had resulted to an order which was erroneous and prejudicial to the interest of the revenue.
He set aside the order of the AO dropping the penalty proceedings u/s 271(1)(c), and directed him to pass a reasoned order after affording a reasonable opportunity of being heard to the assessee.
The Tribunal observed that the AIR information was made available to the assessee in the course of the assessment proceedings only at 5:45 PM whereas the reply of even date filed by the assessee with the AO during the office hours, therefore it could safely be concluded that the reply was filed prior to receipt of the AIR information from AO.
The Tribunal observed that the assessee had filed a reconciliation of cash deposits and FDRs with AIR data but due to shortage of time and to avoid protracted litigation the assessee had offered unreconciled balances as his income.
The Tribunal opined that understated income was voluntarily offered by the assessee, vide his letter prior to receipt of the AIR information from the AO. The bonafides of the assessee leading to the inadvertent understatement of income in the form of certain cash deposits/FDRs was also clearly backed by bonafide reasons. Also the bank accounts in which the aforesaid cash deposits were made by the assessee, as well as the FDRs under consideration, were duly disclosed by him in his return of income.
The Tribunal opined that imposition of penalty would be unwarranted in a case where the assessee had committed an inadvertent and bonafide error, and had not intended to or attempted to either conceal its income or furnish inaccurate particulars.
The Tribunal opined that the AO in totality of the facts of the case, had in all fairness, by adopting a plausible view dropped the penalty proceedings which were initiated by him u/s 271(1)(c). Though the Pr. CIT might not have been persuaded to subscribe to the aforesaid view so taken by the A.O, however, the same would not have justified exercise of the revisional jurisdiction by him u/s 263 for the sake of substituting his view as against that of the A.O.
With respect to reliance placed on the Explanation 2 of Section 263 was concerned, the Tribunal expressed inability to comprehend as to how the same could have been put into service for dislodging the plausible view arrived at by the A.O.
The Tribunal opined that the dropping of the penalty proceedings under Section 271(1)(c) by the AO on the basis of an “order sheet” noting though not found to be happily worded, cannot lead to an inference that there was no application of mind by the A.O while so concluding. Merely because the AO had remained silent on a point would not mean that there was no application of mind.
The Tribunal opined that the AO in the totality of the facts of the case had arrived at a plausible view that no penalty under Sec. 271(1)(c) was liable to be imposed on the assessee, and therein dropped the penalty proceedings, therefore, merely because the Pr. CIT was not satisfied with the said view of the A.O would not justify revision of his said order.
The Tribunal set aside the order u/s 263 and restored the order passed by the A.O dropping the penalty proceedings initiated in the hands of the assessee u/s 271(1)(c).