2015 (12) TMI 979 - HC - Income Tax

Revision u/s 263 - ITAT cancelling the order u/s 263 by holding that the order passed by the Assessing Officer is not erroneous and prejudicial to the interest of revenue where the Assessing Officer had failed to initiate penalty proceedings while completing assessment under Section 153A - Held that - Initiation of proceedings under Section 263 of the Act was not justified and we uphold the order of the Tribunal cancelling the revisional order passed by the CIT as where the CIT finds that the Assessing Officer had not initiated penalty proceedings under Section 271(1)(c) of the Act in the assessment order, he cannot direct the Assessing Officer to initiate penalty proceedings under Section 271(1)(c) of the Act in exercise of revisional power under Section 263 of the Act. See Commissioner of Income Tax v. Subhash Kumar Jain (2010 (9) TMI 772 - Punjab and Haryana High Court) - Decided in favour of assessee

Summary

Issues:
1. Whether the order passed by the Assessing Officer was erroneous and prejudicial to the interest of revenue regarding penalty proceedings under Section 271(1)(c) of the Income Tax Act, 1961?
2. Could the Commissioner of Income Tax direct the Assessing Officer to initiate penalty proceedings under Section 271(1)(c) of the Act in exercise of revisional power under Section 263 of the Act?

Analysis:
1. The appeal was filed by the revenue challenging the order passed by the Income Tax Appellate Tribunal, Amritsar Bench, regarding penalty proceedings under Section 271(1)(c) of the Income Tax Act, 1961. The Commissioner of Income Tax set aside the assessment order, citing errors related to non-deduction of TDS and non-initiation of penalty proceedings. The Tribunal partly allowed the appeal, stating that penalty proceedings under Section 271(1)(c) are separate and not related to the assessment proceedings. The Tribunal held that the CIT cannot direct the initiation of penalty proceedings and that the assessment was not affected by the alleged errors.

2. The main issue for consideration was whether the CIT, under Section 263 of the Act, could declare the Assessing Officer's order as erroneous and prejudicial to the revenue's interest for not initiating penalty proceedings under Section 271(1)(c) during assessment. The High Court referred to various judgments, including those of Delhi, Rajasthan, Calcutta, and Gauhati High Courts, which held that penalty proceedings are separate from assessment proceedings. The Court disagreed with the Allahabad High Court's view and upheld the decision of the Tribunal, stating that the CIT cannot direct the initiation of penalty proceedings under Section 271(1)(c) in a revisional order under Section 263.

3. The Court emphasized that penalty proceedings are independent of assessment proceedings and do not form part of the assessment. The failure to initiate penalty proceedings does not render the assessment erroneous or prejudicial to revenue's interest. Therefore, the initiation of proceedings under Section 263 was deemed unjustified, and the Tribunal's decision to cancel the revisional order was upheld. Consequently, the appeal by the revenue was dismissed, affirming the Tribunal's ruling.