2022 (12) TMI 336 - AT - Income Tax

Revision u/s 263 by CIT - Bogus share transactions - AO has dropped the penalty proceedings u/s 271(1)(c) - failure to levy penalty was because the assessee surrendered an income - capital gain surrendered u/s 143(3) - HELD THAT - Facts on record and even the notesheet entry made by the Ld. AO would reveal that the explanation offered by the assessee in penalty proceedings was acceptable to the Ld. AO. If that be so, dropping of penalty proceedings initiated by him cannot be branded as erroneous - when the Ld. AO examined and considered the issue of imposing the impugned penalty or not, though not mentioned in so many words, his decision to drop the penalty proceedings cannot be said to be erroneous. A mere possibility of a different view does not justify assumption of revisional jurisdiction. Decision by the Ld. AO not to levy penalty and drop the penalty proceedings cannot be said to be prejudicial to the interest of the Revenue as penalty which is not levied cannot be put on par with income that has not been brought to tax. Hon ble Supreme Court has observed in Malabar Industrial Co. Ltd. 2000 (2) TMI 10 - SUPREME COURT that the scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the Revenue. If due to an erroneous order of the AO, the Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interest of Revenue. In the case before us the Ld. AO has collected tax and interest relatable to the impugned addition. Assessment and penalty proceedings are distinct and separate. To our mind, when the Ld. AO has dropped the penalty proceedings after due consideration of facts and circumstances of the case, the direction of the Ld. Pr. CIT to consider levying penalty under section 271(1)(c) afresh was not in order. We are of the view that in the case before us the twin conditions to assume jurisdiction suo moto by the Ld. Pr. CIT, namely that the order of the Ld. AO is erroneous in so far as it is prejudicial to the interest of Revenue are not satisfied. In CIT vs. Subhash Kumar Jain 2010 (9) TMI 772 - PUNJAB AND HARYANA HIGH COURT held that where failure to levy penalty was because the assessee surrendered an income, subject to no penalty being levied, there can be no justification for a revisional order for purposes of levy of penalty. The impugned order of the Ld. Pr. CIT under section 263 of the Act is hereby vacated. - Decided in favour of assessee.

Issues Involved:
1. Jurisdiction under Section 263 of the Income Tax Act.
2. Validity of show cause notice under Section 263.
3. Dropping of penalty proceedings under Section 271(1)(c).
4. Direction to re-compute tax liability under Section 115BBE.

Issue-wise Detailed Analysis:

1. Jurisdiction under Section 263 of the Income Tax Act:
The primary issue was whether the Principal Commissioner of Income Tax (Pr. CIT) correctly assumed jurisdiction under Section 263 of the Income Tax Act. The Pr. CIT initiated proceedings under Section 263, contending that the Assessing Officer (AO) had dropped penalty proceedings under Section 271(1)(c) without proper application of mind. The Tribunal noted that the AO had considered the detailed reply from the assessee before deciding to drop the penalty proceedings. The Tribunal held that the AO's decision was not erroneous or prejudicial to the interest of the Revenue, thus invalidating the Pr. CIT's assumption of jurisdiction under Section 263.

2. Validity of Show Cause Notice under Section 263:
The assessee argued that the show cause notice issued under Section 263 was illegal and without jurisdiction as it pertained to assessment proceedings, whereas the revisionary proceedings related to penalty proceedings under Section 271(1)(c). The Tribunal found that the show cause notice was indeed connected to the penalty proceedings and not the assessment proceedings. Therefore, the notice was deemed invalid and bad in law.

3. Dropping of Penalty Proceedings under Section 271(1)(c):
The AO had initially initiated penalty proceedings under Section 271(1)(c) for concealment of income and furnishing inaccurate particulars. However, the AO later dropped these proceedings after considering the assessee's detailed reply and the payment of tax along with interest. The Pr. CIT argued that the AO's decision was cryptic and lacked application of mind. The Tribunal disagreed, stating that the AO had duly considered the facts and the assessee's explanation before dropping the penalty proceedings. The Tribunal emphasized that the AO's decision was not erroneous and did not result in any loss of tax revenue, thus invalidating the Pr. CIT's order to reconsider the penalty proceedings.

4. Direction to Re-compute Tax Liability under Section 115BBE:
The Pr. CIT directed the AO to re-compute the tax liability under Section 115BBE. The assessee contended that no show cause notice was issued regarding this direction, denying them the opportunity to present their case. The Tribunal noted that the AO had already applied the provisions of Section 115BBE, and thus, only the penalty part of the impugned order needed consideration. The Tribunal found that the direction to re-compute tax and interest under Section 115BBE was invalid and without jurisdiction.

Conclusion:
The Tribunal vacated the impugned order of the Pr. CIT under Section 263, holding that the AO's decision to drop the penalty proceedings was neither erroneous nor prejudicial to the interest of the Revenue. The appeal of the assessee was allowed, and the order was pronounced in the open court on 6th December 2022.

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