2024 (8) TMI 1020 - AT - Income Tax

Revision u/s 263 - assessment order passed u/s. 153C is erroneous insofar as prejudicial to the interest of Revenue - AO has initiated penalty proceedings u/s. 271AAC of the Act instead of initiating penalty u/s. 271(1)(c) - HELD THAT -Admittedly assessment was framed u/s. 153C of the Act and the AO initiated penalty proceedings u/s. 271AAC which is non-existent provision and the same was also approved by the Addl.CIT u/s. 153D of the Act. But there is no recording of any satisfaction that the assessee has concealed the particulars of income or furnished inaccurate particulars of income. Once there is no satisfaction recorded in the order, the order cannot be subject matter of revision u/s. 263 by the PCIT in view of another decision of Hon ble High Court of Madras in the case of CIT vs. Chennai Metro Rail Ltd. 2018 (3) TMI 1586 - MADRAS HIGH COURT considering the decision of Surendra Prasad Agarwal 2004 (9) TMI 45 - ALLAHABAD HIGH COURT concurred with the decision of Hon ble Allahabad High Court but given a finding that the AO has to record his satisfaction or establish that the assessee has concealed his income by filing inaccurate particulars of income. In the absence of the same, the Hon ble High Court held that the Tribunal has rightly set aside the directions of CIT directing the AO to initiate penalty proceedings although they have not agreed with the reasoning s in its entirety. Even the authorities can levy penalty i.e., AO or CIT(A) or PCIT or CIT in the course of assessment proceedings under section 271(1) - Revenue contended that these authorities have power to initiate penalty proceedings and hence, the PCIT u/s. 263 has jurisdiction in directing the AO to initiate penalty proceedings u/s. 271(1)(c) of the Act - We do not agree with the contentions raised by ld.CIT-DR for the reason that section 271(1)(a), (b) or (c) is for levy of penalty, it gives power for levy of penalty in the proceedings before him and the revisionary power u/s. 263 of the Act is entirely distinct and different power which upset the assessment completed and creates uncertainty. For that, this power cannot be exercised for directing the AO to initiate penalty under this provision. In our view, if the proceedings are pending before PCIT or CIT(A) or the AO like assessment proceedings, they are well within the power to initiate and levy penalty. But for that, that authority has to initiate and levy the penalty. Hence, in our view, this argument of Revenue fails. There is no finding in the assessment order to the effect that there is concealment of income or furnishing of inaccurate particulars of income. Hence, the impugned action of the PCIT cannot be countenanced. For such a proposition, we rely on the ratio of decisions of Chennai Metro Rail Ltd. 2018 (3) TMI 1586 - MADRAS HIGH COURT and C.R.K.Swamy 2001 (11) TMI 56 - MADRAS HIGH COURT Hence, we are inclined to set aside the impugned revision order. Assessee appeal allowed.

Summary

Issues Involved:
1. Validity of the revision order passed by PCIT under Section 263 of the Income Tax Act.
2. Correctness of the penalty proceedings initiated under Section 271AAC instead of Section 271(1)(c) of the Income Tax Act.
3. Jurisdiction of the PCIT to revise the assessment order based on the non-initiation of penalty under the correct provision.

Detailed Analysis:

1. Validity of the Revision Order Passed by PCIT under Section 263 of the Income Tax Act:
The appeal by the assessee challenges the revision order issued by the Principal Commissioner of Income-Tax (PCIT) under Section 263 of the Income Tax Act. The PCIT held that the assessment order dated 28.03.2022 was erroneous and prejudicial to the interest of Revenue because the penalty proceedings were initiated under Section 271AAC instead of Section 271(1)(c). The PCIT's revision order directed the Assessing Officer (AO) to initiate penalty proceedings under Section 271(1)(c).

2. Correctness of the Penalty Proceedings Initiated under Section 271AAC Instead of Section 271(1)(c) of the Income Tax Act:
The assessee was subjected to a search under Section 132, and the assessment was framed under Section 153C. The AO initiated penalty proceedings under Section 271AAC, which was noted in the assessment order. The PCIT argued that Section 271AAC was not applicable for the relevant assessment year (2016-17) as it was introduced from 01.04.2017. The PCIT cited the case of CIT vs. Surendra Prasad Agarwal to support the argument that non-initiation of penalty under the correct provision renders the assessment order erroneous and prejudicial to the interest of Revenue.

3. Jurisdiction of the PCIT to Revise the Assessment Order Based on the Non-Initiation of Penalty Under the Correct Provision:
The assessee's counsel argued that the issue was covered by the decision of the Jaipur Bench of ITAT in the case of Harish Jain & Others, where similar facts were present. The Tribunal in that case held that the PCIT could not invoke Section 263 to direct the initiation of penalty proceedings under the correct provision.

The Revenue's counsel relied on the decisions of the Madhya Pradesh High Court in the cases of Addl.CIT vs. Indian Pharmaceuticals and Anjis Developers Pvt. Ltd., which supported the PCIT's jurisdiction to revise the assessment order.

Tribunal's Findings:
The Tribunal noted that the AO initiated penalty proceedings under Section 271AAC, which was non-existent for the relevant assessment year. The Tribunal agreed with the PCIT that the AO should have initiated penalty proceedings under Section 271(1)(c) and that the AO had not carried out the necessary exercise to determine concealment of income or furnishing inaccurate particulars of income.

The Tribunal discussed various case laws, including the decision of the Hon'ble Supreme Court in the case of D.M. Manasvi vs. CIT, which emphasized that satisfaction regarding concealment must be recorded during the assessment proceedings. The Tribunal concluded that the AO failed to record such satisfaction, making the initiation of penalty proceedings under Section 271AAC incorrect.

The Tribunal also considered the decision of the Hon'ble Delhi High Court in the case of Addl.CIT vs. J.K.D'Costa, which held that the PCIT could not revise an assessment order to direct the initiation of penalty proceedings. The Tribunal noted that this decision was upheld by the Supreme Court.

The Tribunal further noted that the approval for the assessment order was granted by the Addl.CIT under Section 153D, indicating an application of mind. However, the Tribunal found that there was no recording of satisfaction regarding concealment of income, which is necessary for initiating penalty proceedings under Section 271(1)(c).

The Tribunal concluded that the PCIT's revision order was not justified as there was no finding in the assessment order regarding concealment of income or furnishing inaccurate particulars. Therefore, the Tribunal set aside the revision order passed by the PCIT.

Conclusion:
The Tribunal allowed the appeal filed by the assessee, setting aside the revision order passed by the PCIT under Section 263 of the Income Tax Act. The Tribunal held that the AO's failure to record satisfaction regarding concealment of income or furnishing inaccurate particulars rendered the initiation of penalty proceedings under Section 271AAC incorrect. The Tribunal also held that the PCIT could not revise the assessment order to direct the initiation of penalty proceedings under Section 271(1)(c).