Revision u/s 263 for non initiation of penalty proceedings. It is not open to CIT to exercise revisional powers to create a non existent proceedings
ABCAUS Case Law Citation:
ABCAUS 3187 (2019) (11) ITAT
Important case law relied upon by the parties:
Easy Transcription & Software Pvt.Ltd. vs. CIT
Revision u/s 263 for non initiation of penalty proceedings
In the instant case, the appeal by the assessee was directed against the revisional order passed by the Principal Commissioner of Income Tax under Ssection 263 of the Income Tax Act, 1961 (the Act) arising as a consequence of assessment order passed by the Assessing Officer (AO) under s.143(3) r.w.s. 254 of the Act.
The contention of the assessee was that the said assessment order framed under s.143(3) r.w.s. 254 of the Act passed by the AO cannot be termed as ‘erroneous and prejudicial to the interest of the Revenue’ to put Section 263 in motion.
In the given case, the assessment u/s 143(3) of the Act was framed whereby the AO inter alia disallowed the claim u/s 10B of the Act. The aforesaid action of the AO was subjected to judicial scrutiny at various levels and eventually the matter was restored to the AO for readjudication.
The order passed by the AO in the second round of proceedings was once again remitted back by the ITAT to the AO with certain directions. An assessment order under s.143(3) r.w.s. 254 of the Act was consequently passed in the third round of proceedings. The AO maintained its original stance of disallowance of claim of deduction u/s 10B of the Act.
However, while denying deduction claimed under s.10B of the Act, the AO did not choose to initiate penalty under s.271(1)(c) of the Act while passing the impugned order u/s 143(3) r.w.s. 254 of the Act.
The failure of the AO to initiate penalty proceedings u/s 271(1)(c) of the Act on denial of deduction u/s 10B of the Act while passing the assessment order prompted the Pr.CIT to exercise its jurisdiction u/s 263 of the Act to correct the aforesaid failure of the AO.
Maintainability of revisional action u/s 263 for lapse/failure by AO to initiate penalty proceedings
Thus, the controversy arose on maintainability of the revisional action of the Pr. CIT for lapse/failure on the part of the AO to initiate penalty proceedings in the course of assessment proceedings.
The Tribunal found that the issue is no longer res integra and is squarely covered in favour of the assessee by the decision of the co-ordinate bench of Tribunal wherein it was held that the designated authority u/s 263 of the Act is not entitled to correct the alleged lapse of the AO in failure to initiate the penalty proceedings u/s 271(1)(c) of the Act.
The Tribunal noted that it was held in the aforesaid case that;
(i) Assessment and Penalty proceedings are separate and distinct. Except initiation, they are not dependent on assessment order.
(ii) It is not open to CIT to exercise the revisional powers to create a nonexistent proceedings under S. 263 by holding the assessment proceeding as erroneous in so far as prejudicial to the interest of revenue.
(iii) ‘Satisfaction’ required by s.271(1)(c) of the Act cannot be formed post conclusion of assessment proceedings.
(iv) There must exist an order, which is sought to be revised by the Commissioner. If there is no order, question of revising the order does not arise.
Since in the instant case, there was no order in so far as penalty proceedings were concerned. The Tribunal in the light of the ratio of the decision of the Coordinate Bench held that there was an inherent lack of authority of Pr.CIT to exercise jurisdiction conferred under s.263 of the Act for the purposes of initiation of penalty proceedings under s.271(1)(c) of the Act.
Accordingly, the revisional order was set aside and quashed.
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