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2012 (10) TMI 778 - AT - Income TaxJurisdiction power u/s 263 by CIT(A) - Failure of AO to initiate penalty proceedings while completing assessment under Section 143(3) - Held that - The Assessing Officer while passing the assessment order under Section 143(3) had given an office note that the surrender of the agricultural income which was made by the assessee was subject to no penal action under Section 271(1)(c). A perusal of the same clearly shows that the assessee had made surrender with a clear condition that no penal action under Section 271(1)(c) would be initiated. The office note further depicts that the offer of the assessee was accepted by the department since the department had no documentary evidence against the assessee except the report of the Inspector. Once that was so, the department could not take somersault and seek to levy penalty. The penalty imposeable under sec. 271(1)(c) or under section 273(b) are independent proceedings then the assessment order. The penalty imposeable under sec. 273-B is to be imposed for false statement of/or failure to pay advance tax. Both these penalties are not dependent upon the assessment order but relying on decision taken in Additional Commissioner Of Income-Tax, Madhya Pradesh Versus Indian Pharmaceuticals 1978 (10) TMI 12 - MADHYA PRADESH HIGH COURT AO has exercised his discretion for not visiting the assessee with the penalty. His order cannot be termed as erroneous and, therefore, no action under sec. 263 is justifiable - in favour of assessee.
Issues Involved:
1. Legality of the Commissioner of Income Tax (CIT) invoking Section 263 of the Income-tax Act, 1961. 2. Non-initiation of penalty proceedings under Section 271(1)(c) by the Assessing Officer (AO). Issue-wise Detailed Analysis: 1. Legality of the Commissioner of Income Tax (CIT) invoking Section 263 of the Income-tax Act, 1961: The appeal was filed by the assessee against the order of the CIT, who invoked Section 263 of the Income-tax Act, 1961, to cancel the assessment order and direct the AO to reframe it. The CIT's action was based on the belief that the assessment order was erroneous and prejudicial to the interest of the revenue because the AO did not initiate penalty proceedings under Section 271(1)(c). The assessee argued that the assessment order was neither erroneous nor prejudicial to the revenue's interest, citing a precedent from the jurisdictional High Court in the case of Subhash Kumar Jain and the Delhi High Court in ACIT vs. J.K. D'costa. The CIT, however, relied on the Allahabad High Court's decision in CIT vs. Surrender Prasad Aggarwal to support his stance. The ITAT examined the principles established in various authoritative pronouncements, including the Supreme Court's decision in Malabra Industries, and summarized that the CIT must record satisfaction that the order of the AO is erroneous and prejudicial to the interest of the revenue. The ITAT found that the AO had issued notices under Sections 143(2) and 142(1), examined the accounts, and accepted the income declared by the assessee, including the surrendered amount of Rs. 63 lakhs. The ITAT concluded that the AO's assessment was not erroneous, as the AO had exercised his quasi-judicial power properly. 2. Non-initiation of penalty proceedings under Section 271(1)(c) by the Assessing Officer (AO): The CIT's primary grievance was that the AO did not initiate penalty proceedings under Section 271(1)(c) despite the assessee's surrender of Rs. 1 crore during the search. The assessee contended that the surrender was made subject to the condition that no penalty or prosecution would be initiated, and the AO's decision not to initiate penalty proceedings was in line with this understanding. The ITAT referred to the jurisdictional High Court's decision in Subhash Kumar Jain, which held that an agreement between the assessee and the income tax authorities regarding non-imposition of penalty should be honored. The ITAT also cited the Delhi High Court's decision in J.K. D'costa, which established that penalty proceedings are independent of assessment proceedings and the failure to initiate penalty proceedings does not make the assessment order erroneous or prejudicial to the revenue's interest. The ITAT observed that the AO's decision not to initiate penalty proceedings was a discretionary power exercised judiciously, considering the circumstances and the assessee's statement. The ITAT found that the CIT did not provide any material evidence to show that the AO's discretion was not exercised properly. Therefore, the ITAT concluded that the AO's assessment order could not be termed erroneous, and the CIT's invocation of Section 263 was unjustified. Conclusion: The ITAT allowed the appeal of the assessee and quashed the order passed by the CIT, stating that the AO's decision not to initiate penalty proceedings was within his discretionary power and did not render the assessment order erroneous or prejudicial to the revenue's interest. The decision was pronounced in the open court on 12.10.2012.
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