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2023 (7) TMI 1330 - AT - Income TaxRevision u/s 263 - non-imposition of penalty by the AO u/s 271(1)(c) - CIT setting aside the assessment order passed u/s 153A r.w.s 143(3) to the file of the AO and the ACIT for the limited purpose of initiating penalty proceedings u/s 271(1) (c) therefore the impugned order is liable to be quashed - PCIT set aside the orders of Assessing Officer for the limited purpose of initiating the penalty proceedings by the AO - Bar of limitation for imposing penalties. Assessee argued that the time period for initiation and completion of penalty proceedings had lapsed after 6 months from the end of the month of passing of the order, therefore, the ld.PCIT is precluded from revising the order u/s 263 - HELD THAT - From the reading of the head note of section 275 of the Act, it is abundantly clear that section only provides a bar of limitation for imposing the penalty. In case the order of the Assessing Officer is the subject matter of revision under section 263, then the limitation for imposition of penalty as provided by section 275(1)(b) is six months from the end of the month in which such order is received. The provision of the Act, is clear and unambiguous, it does not either restrict the power of the ld.PCIT or to the AO to pass an order for imposition of penalty in any way. In the present case, the assessment order was passed on 12.07.2021 and the ld.PCIT had passed the order u/s 263 of the Act on 22.02.2023 and therefore, the order passed by the Assessing Officer, pursuant to the direction of ld.PCIT would not be barred by limitation. Failure to furnish returns, comply with notices, concealment of income, etc.- From the reading of section 271 of the Act, it is abundantly clear that the penalty can be initiated by the AO or Commissioner (Appeals) or the Ld.PCIT on being satisfied that there is a failure on the part of the assessee that he has concealed the particulars of his income or furnished inaccurate particulars of such income. Undoubtedly, the power has been given to the Assessing Officer or the Commissioner (Appeals) or the Principal Commissioner or Commissioner on being satisfied during any proceedings under the Act to initiate penalty proceedings. The above said proceedings are required to be initiated by such officers themselves after due recording of the satisfaction. In our considered opinion, once the ld.PCIT has recorded satisfaction, then the penalty proceedings or penalty notice should have been issued by the office of Ld.PCIT only. Ultimately, the penalty could be imposed by such officer only and hence, the Ld.PCIT, in our view, cannot record his satisfaction for initiation of penalty and direct the Assessing Officer to issue notice for levying the penalty. PCIT in his order, had relied upon the provisions of section 271(1) of the Act and held that after 01.06.2002 the PCIT/CIT is empowered by section 271(1) of the Act to record satisfaction and impose penalty and hence, the PCIT/CIT has power to direct the Assessing Officer to record satisfaction while exercising revisionary powers u/s 263 of the Act . In our view, the above said finding is self-contradictory, as the ld.PCIT himself records that PCIT has the power to record the satisfaction and impose the penalty. In the present case, the ld.PCIT has not recorded satisfaction in the impugned order nor he had initiated and imposed the penalty himself. We do not agree with the above said direction issued by the ld.PCIT to the AO to initiate the penalty proceedings under section 271(1)(c) of the Act. The law does not permit the delegation of authority by the ld.PCIT to AO for the purpose of imposition of penalty. Firstly, it is for the ld.PCIT to record satisfaction and then initiate penalty proceedings. Since no satisfaction has been recorded by the ld.PCIT, therefore, it would not be appropriate for him to direct the Assessing Officer to record his satisfaction and initiate the penalty proceedings against the assessee. Considering diversified views on issue we fruitfully rely upon the decision of Hon'ble Supreme Court in the case of CIT Vs. Vegetable Products Limited 1973 (1) TMI 1 - SUPREME COURT as held that in case more than one interpretation of a taxing statute is possible then we have to adopt the interpretation which favours the assessee, more particularly when it pertains to penalty. In view of the above foregoing reasoning, we cancel the order of ld.PCIT passed u/s 263 of the Act and thereby confirm the order of Assessing Officer. In our view, if the ld.PCIT records his satisfaction then penalty proceedings should also be completed by him alone and he cannot direct the Assessing Officer after recording his satisfaction to complete the proceedings - we cancel the order of ld.PCIT passed u/s 263 of the Act and thereby confirm the order of Assessing Officer. Thus, the appeal of the assessee is allowed.
Issues Involved:
1. Legality of the Principal Commissioner of Income Tax (PCIT) invoking section 263 of the Income Tax Act, 1961. 2. Whether the PCIT can direct the initiation of penalty proceedings under section 271(1)(c) after the lapse of the statutory period. 3. Whether the PCIT has the jurisdiction to direct the Assessing Officer (AO) to initiate penalty proceedings. Summary: Issue 1: Legality of invoking section 263 by the PCIT The appeals arise from the orders of the PCIT invoking section 263 to set aside the assessment orders for the limited purpose of initiating penalty proceedings under section 271(1)(c). The assessee contended that the PCIT erred in law and on facts by setting aside the assessment orders solely because the AO did not initiate penalty proceedings. The PCIT cannot assume jurisdiction under section 263 merely because the AO did not initiate penalty proceedings, as penalty proceedings are distinct and independent from assessment proceedings. The PCIT's order was challenged for being erroneous and prejudicial to the interests of the Revenue without proper justification. Issue 2: Time limit for initiating penalty proceedings The assessee argued that the PCIT's direction to initiate penalty proceedings was illegal and unsustainable as the time limit for initiating penalty proceedings under section 271(1)(c) had expired before the PCIT assumed jurisdiction under section 263. The PCIT cannot revive penalty proceedings that are barred by limitation under section 275(1). The Tribunal agreed with the assessee, stating that the limitation for imposing penalties is six months from the end of the month in which the order of revision is passed. Since the PCIT passed the order under section 263 after the limitation period, the direction to initiate penalty proceedings was not valid. Issue 3: Jurisdiction to direct the AO to initiate penalty proceedings The Tribunal held that section 271(1) allows the AO, Commissioner (Appeals), or PCIT to initiate penalty proceedings if satisfied that there is a failure on the part of the assessee. However, the PCIT must record satisfaction and initiate penalty proceedings himself, not direct the AO to do so. The PCIT cannot delegate his authority to the AO for imposing penalties. The Tribunal cited several judgments supporting the view that penalty proceedings are independent of assessment proceedings and cannot be initiated by the AO on the PCIT's direction. The Tribunal concluded that the PCIT's direction to the AO to initiate penalty proceedings was not permissible under the law. Conclusion: The Tribunal allowed the appeals of the assessee, canceling the orders of the PCIT passed under section 263 and confirming the assessment orders. The PCIT's directions to initiate penalty proceedings were found to be invalid due to the expiration of the limitation period and the improper delegation of authority. The appeals were allowed in favor of the assessee.
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