2023 (5) TMI 629 - AT - Income Tax

Revision u/s 263 - Correct penalty provisions for addition u/s 69A - As per CIT AO erred in initiating penalty proceedings u/s 270A instead u/s 271AAC as addition made in the assessment was on account of unexplained money u/s 69A r.w.s.115BBE which attracts penalty u/s 271AAC and not u/s 270A - HELD THAT - The law is very well settled that penalty proceedings and the assessment proceedings are completely distinct and separate even though the penalty proceeding emanates out of the quantum assessment proceedings. We hold that the Ld. PCIT had invoked his revisionary jurisdiction u/s 263 of the Act and had sought to revise only the initiation of penalty proceedings under the wrong section, forgetting the fact that there was no such penalty order that was even passed by the ld AO. In any case, the penalty order could not be passed beyond 30.06.2020. Hence, the revisionary jurisdiction initiated u/s 263 by the Ld PCIT deserves to be quashed on this count itself. In any case, we find that the law is very well settled that penalty proceedings and assessment proceedings are distinct and separate. Moreover, in our considered opinion, the Ld PCIT by invoking his revision jurisdiction u/s 263 of the Act cannot direct the ld AO to initiate any penalty proceedings. This aspect is no longer res integra in view of the order of the Rakesh Nain 2015 (12) TMI 979 - PUNJAB AND HARYANA HIGH COURT . When the power of the Ld PCIT in the revision order u/s 263 of the Act is curtailed to even direct the ld AO to initiate penalty proceedings, obviously the Ld PCIT could not have any power, as authorized by law, in directing the ld. AO to initiate penalty proceedings under the correct section. The assessee s case stand in a much better footing than the facts of the case that prevailed before the Hon ble Jurisdictional High Court referred supra. Appeal of the assessee is allowed.

Summary

Issues Involved:
1. Legality of the order under Section 263 of the Income Tax Act.
2. Revival of Penalty Proceedings under Section 271AAC.

Summary:

Issue 1: Legality of the Order under Section 263 of the Income Tax Act
The assessee, a partnership firm running a petrol pump, filed its return of income for AY 2017-18, which was assessed under Section 143(3) of the Income Tax Act, 1961. The assessment included an addition for unexplained cash deposits, and penalty proceedings under Section 270A were initiated but not concluded. The Principal Commissioner of Income Tax (Pr. CIT) invoked revision jurisdiction under Section 263, deeming the assessment order erroneous and prejudicial to the revenue because the penalty should have been initiated under Section 271AAC instead of Section 270A. The Tribunal held that penalty proceedings and assessment proceedings are distinct and separate. Since no penalty order was passed by the Assessing Officer (AO) within the stipulated time, the revisionary jurisdiction under Section 263 was deemed invalid. The Tribunal cited the Hon'ble Punjab and Haryana High Court's decision in CIT (Central), Ludhiana Vs. Rakesh Nain Trivedi, which established that the CIT cannot direct the AO to initiate penalty proceedings under a specific section through revisionary powers.

Issue 2: Revival of Penalty Proceedings under Section 271AAC
The Tribunal noted that the Pr. CIT's grievance was solely about the initiation of penalty proceedings under the wrong section. However, since no penalty order was passed within the legally permissible time frame, the Tribunal quashed the revision order under Section 263. The Tribunal emphasized that the Pr. CIT does not have the authority to direct the AO to initiate penalty proceedings under a specific section, reaffirming the principle that penalty proceedings are independent of assessment proceedings.

Conclusion:
The Tribunal allowed the appeal of the assessee, quashing the revision order passed by the Pr. CIT under Section 263 of the Income Tax Act. The appeal was pronounced in the open court on 24/04/2023.