2023 (1) TMI 1014 - AT - Income Tax

Revision u/s 263 - AO had failed to enquire into the applicability of the provisions of section 56(2)(viib) - initiate penalty proceedings u/s 271F - whether the Assessing Officer had examined the applicability of provisions of section 56(2)(viib) relates to the receipt of share premium in question? - HELD THAT - Appellant filed an explanation stating that the provisions of section 56(2)(viib) have no application to the facts of the present case, not being the company in which the public are substantially interested. Whereas the fact is that the appellant is a company in which the public are not substantially interested. Thus, it is apparent that the Assessing Officer accepted the claim, on the wrong premises. Therefore, the assessment order passed by the Assessing Officer is erroneous and prejudicial to the interests of the Revenue. To this extent, we confirm the power of revision exercised by the ld. PCIT u/s 263 of the Act. As regards to the direction of the PCIT to the AO to initiate the penalty proceedings u/s 271F of the Act, it is settled position of law that the penalty proceedings should be initiated based on the satisfaction reached by the Assessing Officer and the penalty proceedings cannot be initiated at the instance of the higher authorities. Moreover, we find that the penalty proceedings u/s 271F is independent of the assessment proceedings. Therefore, the ld. PCIT in exercise the power of revision vested with him u/s 263 cannot direct the Assessing Officer to initiate the penalty proceedings u/s 271F of the Act. On this score, the order of revision passed by the ld. PCIT is quashed. Appeal filed by the assessee is partly allowed.

Summary

Issues:
1. Validity of assumption of jurisdiction u/s 263 by the ld. PCIT.
2. Applicability of provisions of section 56(2)(viib) regarding share premium.
3. Direction to initiate penalty proceedings u/s 271F of the Act.

Issue 1: Validity of assumption of jurisdiction u/s 263 by the ld. PCIT:
The appeal challenged the jurisdiction of the ld. PCIT under section 263 of the Income Tax Act, which allows revision if the assessment order is found to be erroneous and prejudicial to revenue. The tribunal referred to legal precedents like Malabar Industrial Co. Ltd. vs. CIT and CIT vs. Max India Ltd. to establish that the error in the assessment order should not be debatable or plausible. It was noted that if the Assessing Officer took a plausible view, the order cannot be considered erroneous. The tribunal concluded that the ld. PCIT correctly exercised the power of revision under section 263 in this case.

Issue 2: Applicability of provisions of section 56(2)(viib) regarding share premium:
The dispute revolved around the applicability of section 56(2)(viib) concerning the receipt of share premium. The ld. PCIT found the share premium received by the appellant company to be taxable under "Income from other sources" due to non-enquiry by the Assessing Officer. The tribunal observed that the Assessing Officer had sought details and justification for the share premium, but the appellant's explanation was based on incorrect premises. As the company was not substantially of public interest, the tribunal deemed the assessment order erroneous and prejudicial to revenue. Consequently, it upheld the ld. PCIT's decision to set aside the assessment order.

Issue 3: Direction to initiate penalty proceedings u/s 271F of the Act:
The tribunal addressed the directive to initiate penalty proceedings under section 271F issued by the ld. PCIT. It clarified that penalty proceedings should be based on the Assessing Officer's satisfaction and cannot be initiated solely by higher authorities. Additionally, it emphasized that penalty proceedings are independent of assessment proceedings. Therefore, the tribunal ruled that the ld. PCIT overstepped by directing the initiation of penalty proceedings under section 271F. As a result, the tribunal quashed this part of the ld. PCIT's order.

In conclusion, the tribunal partially allowed the appeal by confirming the ld. PCIT's jurisdiction under section 263, upholding the taxability of share premium under section 56(2)(viib), but rejecting the directive to initiate penalty proceedings under section 271F.