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2016 (2) TMI 429 - AT - Income TaxRevision u/s 263 - No levy of penalty under section 271(1)(c) on disallowance u/s under section 14A by AO - Held that - The assessment was completed under section 143(3) of the Act, under which the disallowance was made by the Assessing Officer under section 14A of the Act read with Rule 8D of the Rules at ₹ 40,92,835/-, as against suo-moto disallowance made by the assessee of ₹ 4,35,012. In respect of the aforesaid addition, the Assessing Officer had issued a notice for levy of penalty under section 271(1)(c) of the Act. However, after considering the submissions filed by the assessee during penalty proceedings, the Assessing Officer dropped the said proceedings vide order dated 20.06.2012. The Assessing Officer thus, exercised a view of not levying the penalty under section 271(1)(c) of the Act on the issue of disallowance under section 14A of the Act read with Rule 8D of the Rules. This view expressed by the Assessing Officer cannot be disturbed by the Commissioner while exercising jurisdiction under section 263 of the Act. - Decided in favour of assessee
Issues Involved:
1. Validity of the order passed by the Commissioner under Section 263 of the Income-tax Act, 1961. 2. Whether the Commissioner was justified in invoking Section 263 against the dropping of penalty proceedings under Section 271(1)(c) of the Act. Detailed Analysis: 1. Validity of the Order Passed by the Commissioner under Section 263: The primary issue in this case revolves around the exercise of jurisdiction by the Commissioner under Section 263 of the Income-tax Act, 1961. The Commissioner can invoke this jurisdiction if the order passed by the Assessing Officer (AO) is both erroneous and prejudicial to the interest of Revenue. The Hon'ble Supreme Court in Malabar Industrial Co. Ltd. Vs. CIT, (2000) 243 ITR 83 (SC) clarified that an erroneous order is one that deviates from the law, and it must also be prejudicial to the interest of Revenue. The Commissioner must provide a clear and unambiguous finding that the AO's order is erroneous. An order cannot be deemed erroneous simply because it resulted in a loss of revenue. The Commissioner must demonstrate that the AO's view is unsustainable in law. 2. Justification for Invoking Section 263 Against Dropping of Penalty Proceedings under Section 271(1)(c): The Commissioner issued a show cause notice to the assessee, stating that the penalty order dated 20.06.2012 was erroneous and prejudicial to the interest of Revenue. The Commissioner observed that the AO dropped the penalty proceedings without discussing the merit and legality of the issue involved. The Commissioner argued that the AO should have levied a penalty for furnishing inaccurate particulars of income since the assessee did not appeal against the addition made under Section 14A read with Rule 8D. However, the assessee contended that the AO had already considered their submissions and decided to drop the penalty proceedings. The decision to levy or not levy a penalty is a possible view that the AO can take, and the Commissioner cannot disturb this view under Section 263. The assessee relied on the judgments of the Hon'ble Supreme Court in CIT Vs. Max India Ltd. (2007) 295 ITR 282 (SC) and Malabar Industrial Co. Ltd. Vs. CIT (2000) 243 ITR 83 (SC), which support the principle that the Commissioner cannot substitute his judgment for that of the AO unless the AO's view is unsustainable in law. The Tribunal found that the Commissioner failed to provide a clear finding on why the AO's order was erroneous. The Commissioner merely directed a fresh examination by the AO without establishing that the AO's original decision was unsustainable in law. The Tribunal emphasized that the quantum and penalty proceedings are independent, and merely because an addition is made does not automatically result in a penalty for concealment. Conclusion: The Tribunal concluded that the Commissioner was not justified in invoking Section 263 of the Act. The AO had taken a possible view after considering the assessee's submissions, and the Commissioner failed to demonstrate that this view was unsustainable in law. Therefore, the order of the Commissioner was set aside, and the appeal of the assessee was allowed. Order: The appeal of the assessee is allowed. Order pronounced on this 20th day of January, 2016.
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