No fault in invoking Revisionary jurisdiction u/s 263 to direct AO to issue correct penalty notice by modifying the reassessment order – ITAT
In a recent judgment, ITAT Ahmadabad has held that the revisionary jurisdiction invoked u/s 263 by directing the Assessing Officer to issue correct penalty notice by modifying the reassessment order is well within the provisions of law, not requiring any interference.
ABCAUS Case Law Citation:
4581 (2025) (05) abcaus.in ITAT
In the instant case, the assessee had challenged the order passed by the Principal Commissioner of Income Tax arising out of the reassessment order passed under section 147 r.w.s. 144B of the Income Tax Act, 1961 (the Act).
The assessee was an individual filed his original Return of Income for the relevant Assessment Year. The assessment was reopened for understatement of sale consideration on purchase of residential villa had escaped assessment and brought to tax. Thus A.O. initiated penalty proceedings u/s. 271AAC(1) of the Act in respect of addition made under section 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 for penalty u/s. 274 r.w.s. 271(1)(c) of the Act.
In response the assessee replied that as against the reassessment order assessee has filed statutory appeal which is pending disposal before the CIT(A). The AO initiated penalty proceedings u/s 271AAC(1) of the Act as mentioned in the reassessment order, whereas issued statutory notice under section 271(1)(c) of the Act. Thus, the AO was not clear in charging penalty under which section of the Act. Therefore the assessee requested that the entire penalty proceedings was liable to be dropped.
Without considering the above reply and non-application of mind, the AO issued second notice u/s 271(1)(c) of the Act. Again, the assessee vide its reply requested to drop the penalty proceedings wrongly initiated or alternatively keep the penalty proceedings in abeyance till the disposal of the appeal.
Thereafter PCIT issued a Show Cause Notice stating that the order u/s 147 r.w.s. 144B was passed in the case of the assessee while making addition u/s 69A of the Act, penalty proceedings u/s 271AAC were initiated. However, in the concluding para of the assessment order it was incorrectly mentioned that “Notice issued for 271(1)(c) of the Act.
In view of the above, the PCIT held that the assessment order passed by the Assessing officer u/s 147 r.w.s. 144B had become erroneous insofar as prejudicial to the interest of revenue within the meaning of section 263 of the Act and hence, it was a fit case for revision u/s. 263 of the Act.
After considering the objections of the asseseee, the PCIT directed the AO to issue fresh notice u/s.271AAC(1) of the Act.
The Tribunal observed that the sole basis for invoking section 263 by the PCIT in the instant case was that the penalty notice was issued under section 271(1)(c) instead of the penalty provision rightly applicable section 271AAC(1) of the Act, as discussed in the body of the reassessment order. No doubt that it was an erroneous order with reference to issuance of penalty notice u/s.271(1)(c) instead of the correct penalty notice ought to have been issued u/s.271AAC(1) of the Act.
Before the Tribunal the assessee submitted that the penalty proceedings are independent and distinct from the assessment proceedings and relied upon Delhi High Court 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 of the Revenue.
Further, the assessee relied upon Chennai Tribunal decision on identical wrong issuance of penalty notice, wherein it was 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.
On the contrary, the Departmental 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, reliance was placed on the decision of the Hon’ble Allahabad High Court.
The Tribunal observed that case law relied by the assessee was considered by Delhi High Court and Allahabad High Court. The above case laws were further considered by the Mumbai Bench of the Tribunal which observed that Delhi High Court had held that penalty proceedings do not from part of assessment proceedings and failure of the Assessing Officer or ITO to record in the assessment order, his satisfaction or lack of it in regard to the leviability of the penalty, cannot be said to be a factor vitiating the assessment order in any respect. However, the Co-ordinate Bench further observed that the Allahabad High Court after considering the decision of the Hon’ble Delhi High court held that non-initiation of penalty proceedings u/s 271(1)(c) of the Act rendered, the assessment order erroneous in so far as prejudicial to the interest of the Revenue.
The Co-ordinate Bench held that issue in dispute was in relation to penalty u/s 270A of the Act which is more or less ‘pari materia’ with section u/s 271(1)(c) of the Act. It was held that Since, both the penalty u/s 271(1) of the Act as well as penalty u/s 270A of the Act could be initiated if the Assessing Officer or other authority prescribed may consider so under the proceeding of the Act. Therefore, the issue decided by Hon’ble Allahabad High Court being pari materia, the grounds raised by the assessee were dismissed.
The Tribunal further noted that the case laws of Chennai Tribunal was not applicable to the present case, since in that case in the assessment order, the A.O. had not recorded the satisfaction for initiation of penalty proceedings. In that circumstances, the Chennai Tribunal held that Revision proceedings cannot be invoked, solely for the reasons that penalty proceedings initiated on a wrong penalty proceedings, whereas in the instant case, the A.O. had consciously and correctly invoked Section 271AAC(1) in the reassessment order, however wrongly issued penalty notice u/s. 271(1)(c) of the Act.
Therefore, the Tribunal opined that the revisionary jurisdiction invoked u/s. 263 by directing the Assessing Officer to issue correct penalty notice by modifying the reassessment order was well within the provisions of law, which does not require any interference.
Accordingly, appeal filed by the Assessee was dismissed.
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