2017 (8) TMI 475 - AT - Income Tax

Revision u/s 263 - unexplained investments - A.O. in the re-assessment order did not initiate penalty proceedings u/s 271(1)(c) - Held that - In this case, the assessment was completed u/s 143(3) r.w.s. 147 of the Act. A survey u/s 133A of the Act was conducted and during the course of survey, evidence was found regarding unexplained investment in the form of deposits made in the bank account. Consequently re-assessment was made by the A.O. The A.O. in the re-assessment order did not initiate penalty proceedings u/s 271(1)(c) of the Act. Therefore, the CIT called for the record u/s 263 of the Act and held that though it is a prima facie case for initiation of penalty proceedings, the A.O. has not initiated the penalty proceedings. Therefore, held that omission to initiate penalty proceedings during the course of assessment proceedings renders the assessment order erroneous and prejudicial to the interest of the revenue. In the instant case, the CIT has set aside the order u/s 143(3) of the Act only with a limited purpose of initiating penalty proceedings u/s 271(1)(c) of the Act, therefore, the facts of the case relied upon by the assessee are not applicable to the assessee s case. Hon ble Allahabad High Court in 2004 (9) TMI 45 - ALLAHABAD High Court relied upon by the CIT held that non-initiation of penalty proceedings renders the assessment as erroneous and prejudicial to the interest of the revenue. Similarly, in the case of CIT Vs. Ashok Construction Limited 2005 (1) TMI 18 - ALLAHABAD High Court held that non-initiation of penalty u/s 271B of the Act render the order erroneous and prejudicial to the interest of the revenue and upheld the revision u/s 263 of the Act. Therefore, we hold that the CIT(A) has rightly exercised the power u/s 263 of the Act and directed the A.O. to initiate penalty proceedings and no interference is called for. Appeal filed by the assessee is dismissed.

Summary

Issues:
Delay in filing appeal, Direction to initiate penalty proceedings u/s 271(1)(c) of the Income Tax Act, 1961, Powers of CIT under section 263 of the Act, Non-initiation of penalty proceedings during assessment, CIT's authority to set aside assessment order for initiating penalty proceedings.

Delay in filing appeal:
The appeal was filed with a delay of 28 days, which the assessee explained in an affidavit. The Tribunal considered the explanations and condoned the delay after hearing both parties.

Direction to initiate penalty proceedings u/s 271(1)(c) of the Income Tax Act, 1961:
The grounds of appeal were related to the CIT's direction to initiate penalty proceedings under section 271(1)(c) of the Act. The CIT found that the A.O. failed to initiate penalty proceedings despite evidence of unexplained deposits, leading to the assessment being set aside for the limited purpose of initiating penalty proceedings.

Powers of CIT under section 263 of the Act:
The CIT, under section 263, can call for and examine records of any proceeding and pass orders if an assessing officer's order is found erroneous and prejudicial to revenue. In this case, the CIT directed the A.O. to initiate penalty proceedings as required under section 271(1)(c) of the Act.

Non-initiation of penalty proceedings during assessment:
The A.O. completed the assessment without initiating penalty proceedings under section 271(1)(c) of the Act. The CIT held that failure to initiate penalty proceedings during assessment renders the order erroneous and prejudicial to revenue, supporting the direction to initiate penalties.

CIT's authority to set aside assessment order for initiating penalty proceedings:
The CIT, empowered by section 263, set aside the assessment order for the limited purpose of initiating penalty proceedings. The Tribunal upheld the CIT's decision, citing relevant case laws and amendments to the Act empowering the CIT to initiate penalty proceedings under section 271(1)(c).

In conclusion, the Tribunal dismissed the appeal, affirming the CIT's authority to direct the initiation of penalty proceedings under section 271(1)(c) of the Act, as the failure to do so during assessment was deemed erroneous and prejudicial to revenue. The detailed analysis highlighted the legal framework, case laws, and procedural aspects supporting the CIT's decision under section 263 of the Act.