2018 (3) TMI 1586 - HC - Income Tax

Penalty u/s 271(1)(c) - revision u/s 263 - Principal Commissioner jurisdiction to pass such order - Held that - Principal Commissioner, we find, has recorded a finding that on examination of the records, it is found that the Assessing Officer had in the assessment order established that the Assessee had concealed his income by filing inaccurate particulars . There is no such finding in the order of assessment. The Principal Commissioner seems to have distorted the order of assessment. The finding of the Principal Commissioner is to that extent perverse. In the absence of any finding of the Assessing Officer with regard to concealment of income or with regard to furnishing of inaccurate particulars of income, the Commissioner clearly erred in holding that omission to record satisfaction to initiate penalty proceedings was erroneous or prejudicial to the interest of Revenue. The learned Tribunal rightly set aside the direction of the Principal Commissioner directing the Assessing Officer to initiate penalty proceedings although we may not agree with the reasoning in its entirety. - Decided in favour of assessee.

Summary

Issues Involved:
1. Jurisdiction of the Principal Commissioner under Section 263 of the Income Tax Act.
2. Validity of the Principal Commissioner's direction to initiate penalty proceedings under Section 271(1)(c) of the Income Tax Act.
3. Examination of the Assessing Officer's findings on concealment of income and furnishing inaccurate particulars.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Principal Commissioner under Section 263 of the Income Tax Act:
The Principal Commissioner of Income Tax, Chennai-I, exercised the power under Section 263 of the Income Tax Act, which allows the Principal Commissioner to revise any order passed by the Assessing Officer if it is deemed erroneous and prejudicial to the interests of the revenue. The Principal Commissioner found that the Assessing Officer failed to initiate penalty proceedings under Section 271(1)(c) despite establishing that the Assessee had concealed income by filing inaccurate particulars. The Principal Commissioner held that this omission rendered the assessment order erroneous and prejudicial to the revenue. The High Court acknowledged that Section 263 empowers the Principal Commissioner to enhance, modify, cancel, or direct a fresh assessment, which includes the assessment of penalties.

2. Validity of the Principal Commissioner's direction to initiate penalty proceedings under Section 271(1)(c) of the Income Tax Act:
The Income Tax Appellate Tribunal (ITAT) held that the Principal Commissioner could not direct the Assessing Officer to initiate penalty proceedings under Section 271(1)(c) as it is the discretion of the officer before whom the proceedings are pending. The ITAT reasoned that while the Principal Commissioner can levy penalties during revisional proceedings if the Assessee has furnished inaccurate particulars or concealed income, they cannot direct the Assessing Officer to initiate such proceedings. The High Court concurred with the ITAT, stating that in the absence of any finding by the Assessing Officer regarding concealment of income or furnishing inaccurate particulars, the Principal Commissioner erred in holding that the omission to record satisfaction to initiate penalty proceedings was erroneous or prejudicial to the interest of the revenue.

3. Examination of the Assessing Officer's findings on concealment of income and furnishing inaccurate particulars:
The High Court noted that the Principal Commissioner had recorded a finding that the Assessing Officer had established in the assessment order that the Assessee had concealed income by filing inaccurate particulars. However, upon examination, the High Court found no such finding in the assessment order. The Principal Commissioner's assertion was deemed a distortion of the assessment order, making the finding perverse. The High Court emphasized that without any specific finding by the Assessing Officer on the concealment of income or furnishing inaccurate particulars, the Principal Commissioner's direction to initiate penalty proceedings was unjustified.

Conclusion:
The High Court dismissed the appeal by the Commissioner of Income Tax, Chennai, upholding the ITAT's decision to set aside the Principal Commissioner's direction to the Assessing Officer to initiate penalty proceedings under Section 271(1)(c). The High Court concluded that the Principal Commissioner overstepped by directing the initiation of penalty proceedings without any conclusive findings by the Assessing Officer on the concealment of income or furnishing inaccurate particulars. The appeal was dismissed with no costs.