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2017 (1) TMI 1445 - AT - Income TaxPenalty proceedings u/s 271(1)(c) - CIT exercising revisionary powers u/s 263 - Held that - Non-initiation of penalty is neither erroneous nor prejudicial to the interest of revenue as has been opined by the CIT and the exercise of revisionary power under section 263 of the Act by the CIT was wrong and against the provisions of the Act. We are not convinced with the conclusion drawn by the CIT on this issue. We have also perused the ratio laid down by the Hon ble Apex Court in the case of Malabar Hills (2000 (2) TMI 10 - SUPREME Court) wherein it has been held that the reopening and revisionary can only powers could be exercised under section 263 of the Act only in the case of where the order passed by the AO is erroneous and prejudicial to the interest of revenue. But in the present case, the order of the AO is neither erroneous nor prejudicial to the interest of revenue and therefore the ratio has wrongly been applied by the CIT. Accordingly, we set aside the proceedings u/s 263 of the Act and the consequent order of the ld.CIT. Appeal of the assessee is allowed.
Issues:
Challenge to order under section 263 of the Income Tax Act for failure to initiate penalty proceedings under section 271(1)(c). Analysis: The appeal filed by the assessee contested the order passed by the Commissioner of Income Tax, Mumbai for the assessment year 2007-08, specifically focusing on the revisionary powers exercised under section 263 of the Income Tax Act due to the failure to initiate penalty proceedings under section 271(1)(c) of the Act. The assessment completed by the Assessing Officer (AO) included disallowances of expenses, leading to a disagreement regarding the initiation of penalty proceedings. The Commissioner issued a show cause notice under section 263, questioning the non-initiation of penalty proceedings and considering the assessment order as erroneous and prejudicial to the revenue's interest. The Commissioner, after evaluating the submissions by the assessee, concluded that the AO's order was indeed erroneous and prejudicial to revenue, citing the decision in Malabar Industrial Co. Ltd. The Commissioner set aside the assessment order, directing the AO to re-examine the disallowance of expenses and consider penalty proceedings under section 271(1)(c). The assessee argued that the initiation of penalty proceedings is solely within the AO's discretion, supported by the Supreme Court's decision in CIT vs. Reliance Petroproducts Pvt Ltd. The dispute revolved around the absence of penalty proceedings in the assessment order, leading to the Commissioner's intervention under section 263. The Tribunal noted that the AO's discretion in initiating penalty proceedings is crucial, emphasizing that the absence of a mention in the assessment order does not imply non-consideration. The Tribunal highlighted the debatable nature of penalty imposition and the lack of a fixed formula for its levy under section 271(1)(c). Additionally, the Tribunal referenced the Supreme Court's ruling in CIT vs. Reliance Petroproducts Pvt Ltd to support the argument that mere disagreement with a claim does not warrant penalty imposition. Ultimately, the Tribunal disagreed with the Commissioner's assessment, finding the AO's order neither erroneous nor prejudicial to revenue. Citing the Malabar Hills case, the Tribunal emphasized that revisionary powers under section 263 should only be exercised when the AO's order meets specific criteria, which was not the case here. Consequently, the Tribunal allowed the appeal, setting aside the proceedings under section 263 and the Commissioner's order. In conclusion, the Tribunal's detailed analysis centered on the discretionary nature of penalty proceedings, the significance of AO's assessment discretion, and the legal precedents supporting the assessee's position against the Commissioner's decision under section 263 of the Income Tax Act.
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