2010 (7) TMI 479 - AT - Income Tax

Revision - Scrutiny - Addition - Penalty - Time barred limitation - Whether in the facts and circumstances of the case, the Commissioner of Income-tax is justified on merits to set aside the Order of the Assessing Officer dropping the penalty proceedings imposed under section 271(1)(c), even though, the Commissioner of Income-tax has rightly exercised his jurisdiction under section 263 - Held that - a joint reading of sections 275(1)(a) and 275(1A) are capable of being interpreted in more than one way. It is a possible view that section 275(1A) allows the Assessing Authority to impose penalty even after the appeal is determined by the Hon ble High Court. The above view has been adopted by the Assessing Authority. It is a settled position of law that where two views are possible, the view adopted by the Assessing Officer cannot be held to be erroneous. - the order could be revised only if it is not only prejudicial to the interests of the revenue but also erroneous. - In the present case, the order cannot be held to be erroneous. Therefore, the Revision order passed by CIT is not sustainable in law.

Issues Involved:
1. Assumption of jurisdiction under section 263 by the Commissioner of Income-tax.
2. Legality of dropping penalty proceedings by the Assessing Officer under section 275(1A).
3. Whether the Assessing Officer's action was erroneous and prejudicial to the interest of revenue.
4. Applicability and interpretation of section 275(1A) of the Income-tax Act.

Issue-wise Detailed Analysis:

1. Assumption of Jurisdiction under Section 263 by the Commissioner of Income-tax:
The Commissioner of Income-tax invoked section 263 to revise the order of the Assessing Officer, who had dropped penalty proceedings. The Commissioner argued that the Assessing Officer misinterpreted section 275(1A) and failed to impose the penalty within the prescribed time limit, making the order erroneous and prejudicial to the revenue. Both the Judicial Member and the Accountant Member agreed that the assumption of jurisdiction under section 263 was justified, citing relevant Supreme Court decisions supporting the Commissioner's authority to correct erroneous orders.

2. Legality of Dropping Penalty Proceedings by the Assessing Officer under Section 275(1A):
The Assessing Officer dropped the penalty proceedings, believing they could be revived depending on the outcome of the assessee's appeal before the High Court, relying on section 275(1A). The Commissioner argued that section 275(1A) only allows modification of an already passed penalty order and does not permit keeping penalty proceedings in abeyance. The Judicial Member initially found the Assessing Officer's action justified, interpreting section 275(1A) as allowing the deferral of penalty proceedings. However, the Accountant Member disagreed, emphasizing that section 275(1A) does not provide for the revival of penalty proceedings if no order was passed within the time limit.

3. Whether the Assessing Officer's Action was Erroneous and Prejudicial to the Interest of Revenue:
The Judicial Member concluded that the Assessing Officer's action was not prejudicial to the revenue, as the penalty proceedings were merely kept in abeyance. Conversely, the Accountant Member found the action erroneous and prejudicial, as it resulted in the loss of revenue due to the incorrect application of section 275(1A). The Accountant Member stressed that without a penalty order passed within the prescribed time, section 275(1A) could not be invoked to revive the proceedings.

4. Applicability and Interpretation of Section 275(1A) of the Income-tax Act:
The Judicial Member interpreted section 275(1A) as allowing the Assessing Officer to keep penalty proceedings in abeyance until the High Court's decision, viewing it as a possible interpretation of the law. The Accountant Member, supported by the Commissioner, argued that section 275(1A) only applies to modifying existing penalty orders and does not permit the initiation or revival of penalty proceedings after the statutory time limit has expired. The Third Member, Dr. O.K. Narayanan, agreed with the Judicial Member's conclusion that the order was not erroneous, emphasizing that the Assessing Officer's interpretation of section 275(1A) was a possible view and thus not subject to revision under section 263.

Conclusion:
The Third Member sided with the Judicial Member, concluding that the Assessing Officer's order was not erroneous and therefore not subject to revision under section 263. Consequently, the appeal filed by the assessee was allowed, and the stay petition was dismissed as infructuous.

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