2023 (12) TMI 581 - AT - Income Tax

Revision u/s 263 - as per CIT AO did not initiate penalty proceedings u/s 271(1)(c) as the same is prejudicial to the interest of the Revenue, if any, has to be proved with reference to the assessment order only - HELD THAT - Having regard to the contentions on either side, we find the issue that arises for consideration in these appeals is, whether the PCIT, in exercise of power u/s 263 of the Act, while holding the order of the AO to be erroneous and prejudicial to the interest of the Revenue for AO not initiating penalty proceedings while completing assessment u/s 143(3) of the Act. This issue is no longer res integra. In the case of Sri Adithya Homes Private Limited 2023 (7) TMI 1330 - ITAT HYDERABAD a Co-ordinate Bench of the Tribunal having noticed the decision in the case of Rakesh Nain Trivedi 2015 (12) TMI 979 - PUNJAB AND HARYANA HIGH COURT and also the line of decisions following the view of Indian Pharmaceuticals 1978 (10) TMI 12 - MADHYA PRADESH HIGH COURT and ACIT vs. Kantilal Jain 1979 (10) TMI 37 - MADHYA PRADESH HIGH COURT etc., relied on the decision of Vegetable Products Ltd 1973 (1) TMI 1 - SUPREME COURT held the issue in favour of the assessee, stating that in case of more than one interpretation of taxing statute is possible, then the interpretation which favours the assessee, more particularly when it pertains to penalty, has to be adopted. Since the facts are identical, respectfully following the view taken by the Co-ordinate Bench of the Tribunal in the case of Sri Adithya Homes Private Limited 2023 (7) TMI 1330 - ITAT HYDERABAD and the decision of Rakesh Nain Trivedi 2015 (12) TMI 979 - PUNJAB AND HARYANA HIGH COURT we hold the issue in favour of the assessee.

Issues involved:
The judgment deals with the issue of whether the order of the learned Assessing Officer was erroneous and prejudicial to the interest of Revenue for not initiating penalty proceedings while completing assessment under Section 143(3) of the Income Tax Act, 1961.

Comprehensive Details:

1. Background of the case: The learned Principal Commissioner of Income Tax (Central)- Hyderabad found the assessment orders for the assessment years 2010-11 and 2013-14 to be erroneous as they did not initiate penalty proceedings for undisclosed income, which was considered prejudicial to the interest of Revenue.

2. Assessee's challenge: The assessee contended that the failure to initiate penalty proceedings does not render the assessment order erroneous, as penalty proceedings are separate and distinct from the assessment process. The assessee relied on legal precedents and argued that penalty proceedings should not be automatically initiated based on the assessment order.

3. Revenue's argument: The Revenue argued that the assessment order was indeed erroneous and prejudicial to Revenue's interest as per the principles established in previous court decisions. They emphasized the importance of initiating penalty proceedings in cases where undisclosed income is assessed.

4. Judgment: The Tribunal examined the contentions of both parties and considered relevant legal precedents. Referring to the decision in CIT vs. Rakesh Nain Trivedi, the Tribunal held in favor of the assessee. They emphasized that if multiple interpretations of a taxing statute are possible, the one favoring the assessee should be adopted, particularly in matters concerning penalties.

5. Decision and Conclusion: Citing the decision in the case of Sri Adithya Homes Private Limited, the Tribunal ruled in favor of the assessee, aligning with the interpretation that favors the assessee in matters related to penalties. The appeals of the assessee were allowed based on this reasoning.

6. Final Verdict: The Tribunal pronounced the order in favor of the assessee, allowing both appeals. The judgment highlighted the importance of interpreting tax statutes in a manner that benefits the assessee, especially in penalty-related matters.

7. Judicial Precedents: The judgment referenced various court decisions, including the Hon'ble High Court of Punjab and Haryana and the Hon'ble Apex Court, to support the interpretation that favors the assessee in cases involving penalty proceedings.

8. Legal Interpretation: The Tribunal emphasized the need to consider the distinct nature of penalty proceedings separate from the assessment process, and the importance of adopting an interpretation that benefits the assessee when multiple interpretations are possible in tax statutes.

9. Date of Judgment: The order was pronounced on the 29th day of November, 2023, by the Appellate Tribunal ITAT Hyderabad, with Vice President Shri Rama Kanta Panda and Judicial Member Shri K. Narasimha Chary presiding over the case.

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