2019 (6) TMI 732 - AT - Income Tax

Revision u/s 263 - Penalty u/s 271(1)(c) dropped - voluntarily disclosure of the income that was on account of bonafide reasons understated by him in his return of income - HELD THAT - AO 's finding favour with the claim of the assessee that there was a bonafide mistake on his part in understating the income which thereafter, in the course of the assessment proceedings was voluntarily offered by him for tax, had thus, dropped the penalty proceedings which were initiated by him u/s 271(1)(c) while framing the assessment. We are of the considered view that the A.O in totality of the facts of the case, had in all fairness, by adopting a plausible view dropped the penalty proceedings which were initiated by him u/s 271(1)(c). As such, we are of a strong conviction that though the Pr. CIT might not have been persuaded to subscribe to the aforesaid view so taken by the A.O, however, we are afraid that the same at least would not have justified exercise of the revisional jurisdiction by him u/s 263 for the sake of substituting his view as against that of the A.O. Insofar the Explanation 2 of Sec.263 relied upon by the Pr. CIT is concerned, we are unable to comprehend as to how the same could have been put into service for dislodging the plausible view arrived at by the A.O. Admittedly, the dropping of the penalty proceedings u/s 271(1)(c) by the A.O on the basis of an order sheet noting is not found to be happily worded, however, the same cannot lead to an inference that there was no application of mind by the A.O while so concluding. At this stage, it would be relevant to point out that the Pr. CIT while rushing to the view that there was no proper application of mind by the A.O while dropping the penalty proceedings, had however, failed to consider the reply of the assessee that was filed by him in the course of the penalty proceedings. Perusal of the order sheet noting dated 28.04.2016 of the A.O reveals that he had only after being satisfied with the reply dated 01.04.2016 filed by the assessee, therein concluded that the penalty proceedings initiated u/s 271(1)(c) were to be dropped. Our aforesaid view that merely because the A.O had remained silent on a point would not mean that there was no application of mind on his part is fortified by the judgment of CIT Vs. Fine Jewellery (India) Ltd. 2015 (2) TMI 732 - BOMBAY HIGH COURT A.O in the totality of the facts of the case had arrived at a plausible view that no penalty u/s 271(1)(c) was liable to be imposed on the assessee, and therein dropped the penalty proceedings, therefore, merely because the Pr. CIT was not satisfied with the said view of the A.O would not justify revision of his said order. - Decided in favour of assessee.

Issues Involved:
1. Whether the Principal Commissioner of Income Tax (Pr. CIT) erred in concluding that the Assessing Officer (A.O) did not apply his mind while dropping the penalty under Section 271(1)(c) of the Income Tax Act, 1961.
2. Whether the Pr. CIT unlawfully assumed jurisdiction under Section 263 of the Income Tax Act to substitute her subjective view in place of the A.O's judicious view.
3. Whether the Pr. CIT ignored the sequence of events considered by the A.O while dropping the penalty proceedings.
4. Whether the Pr. CIT treated the assessee's submissions as unsubstantiated without any cogent material on record.
5. Whether the dropping of penalty proceedings by the A.O on the basis of an 'order sheet' noting could be revised under Section 263.

Detailed Analysis:

Issue 1: Application of Mind by the A.O
The Pr. CIT observed that the A.O dropped the penalty proceedings under Section 271(1)(c) without proper application of mind, based on a single statement in the proceeding sheet, which lacked a detailed speaking order. The A.O had noted that the reply from the assessee's representative was satisfactory and thus dropped the penalty. The Pr. CIT believed the A.O erred in accepting the assessee's claim that the omission was rectified voluntarily before being pointed out by the A.O, which was factually incorrect. The Pr. CIT issued a show cause notice to the assessee to explain why the order dropping the penalty should not be revised under Section 263.

Issue 2: Assumption of Jurisdiction under Section 263
The assessee argued that the Pr. CIT unlawfully assumed jurisdiction under Section 263 to substitute her subjective view for the A.O's judicious view. The assessee contended that the A.O had applied his mind and dropped the penalty after considering the facts and circumstances of the case. The Pr. CIT, however, was not persuaded by this argument and maintained that the A.O had not properly applied his mind, leading to an erroneous and prejudicial order to the revenue.

Issue 3: Sequence of Events
The Pr. CIT ignored the sequence of events leading to the A.O's decision to drop the penalty proceedings. The assessee had e-filed his return of income, which was processed under Section 143(1) and later selected for scrutiny under Section 143(2). The A.O framed the assessment under Section 143(3) and initiated penalty proceedings under Section 271(1)(c). The assessee claimed that the understated income was voluntarily disclosed before the AIR information was provided by the A.O. The Pr. CIT, however, concluded that the disclosure was not voluntary and was made only after the department had detected the understated income.

Issue 4: Unsubstantiated Submissions
The Pr. CIT treated the assessee's submissions as unsubstantiated without bringing any cogent material on record. The assessee argued that the disclosure of the understated income was voluntary and made without any detection or issuance of a show cause notice by the department. The Pr. CIT, however, rejected this claim, stating that the disclosure was made only after the AIR details were provided to the assessee.

Issue 5: Revision of 'Order Sheet' Noting under Section 263
The assessee argued that the dropping of penalty proceedings by the A.O on the basis of an 'order sheet' noting could not be revised under Section 263. The Pr. CIT, however, held that the A.O's action of dropping the penalty proceedings without a reasoned order was erroneous and prejudicial to the interest of the revenue. The Pr. CIT set aside the A.O's order and directed him to pass a reasoned order after affording a reasonable opportunity of being heard to the assessee.

Conclusion:
The Tribunal concluded that the A.O had applied his mind and adopted a plausible view in dropping the penalty proceedings under Section 271(1)(c). The Tribunal found that the assessee had voluntarily disclosed the understated income before receiving the AIR information from the A.O. The Tribunal held that the Pr. CIT's exercise of revisional jurisdiction under Section 263 was not justified merely because she did not agree with the A.O's view. The Tribunal quashed the order passed by the Pr. CIT under Section 263 and restored the A.O's order dropping the penalty proceedings. The appeal of the assessee was allowed.

← Previous Next →