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TMI Blog2022 (8) TMI 623X X X X Extracts X X X X X X X X Extracts X X X X ..... is to be initiated. The mandate under section 263 of the Act do not give any power to CIT to impose his satisfaction over the satisfaction of AO as to whether the penalty proceedings are toinitiated or not and if initiated under which section/clause. In our view, on examination of assessment record, the PCIT cannot direct initiation of penalty proceedings because penalty proceedings are not part of assessment proceedings. Thus, the PCIT s revisionary decision relating to non-initiation/incorrect initiation of penalty which without holding that assessment order passed by the AO as erroneous and prejudicial to the interest of revenueis vague and bad in law. Respectfully, following the jurisdictional High Court in the case of CIT Vs. Keshrimal Parasmal [ 1985 (5) TMI 34 - RAJASTHAN HIGH COURT] we hold that the PCIT is not entitled to direct the AO to initiate penalty proceedings. Accordingly, the order passed under s. 263 is quashed. - Decided in favour of assessee. - ITA No. 132/JP/2022 - - - Dated:- 10-8-2022 - Shri Sandeep Gosain, JM And DR. M. L. Meena, AM For the Assessee : Shri P.C. Parwal (C.A..) For the Revenue : Shri Avdhesh Kumar (CIT) ORDER ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 271AAB(1A) and 271AAC 3. The Ld. PCIT issued notice u/s 263 dt.03.03.2022 stating that the assessment order passed by AO is considered as erroneous in so far as the same is prejudicial to the interest of revenue for the reason that in the assessment order penalty proceeding is initiated u/s 271AAB(1A) whereas same ought to have been initiated u/s 271(1)(c) of the Act. In response to the same assessee filed the reply vide letter dt.10.03.2022. 4. The Ld. PCIT, however, held that in the order passed by AO, he did not take a conscious decision relating to non-initiation/ incorrect initiation of penalty as detailed in the show cause notice. It was an inadvertent error on AO's part whereby the penalty which had to be initiated and which he had wanted to initiate was not done. If penalty is not initiated at the time of assessment order, then the same cannot be initiated once the assessment order has been passed. Thus, the error relating to non-initiation/incorrect initiation of penalty by the AO has caused prejudice to the interests of revenue. Accordingly, in exercise of powers as per provisions of section 263 of the Income Tax Act 1961, the AO is dire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have been initiated remained uninitiated in the assessment order. If penalty is not initiated at the time of assessment order, then the same cannot be initiated once the assessment order has been passed. Accordingly, the error relating to non-initiation/ incorrect initiation of penalty by the Assessing Officer has caused prejudice to the interests of Revenue. Accordingly, in exercise of powers conferred upon me as per provisions of section 263 of the Income Tax Act 1961, I direct the assessing officer to initiate and levy penalty under the requisite sections as detailed in the show cause notice as reproduced earlier, after arriving at due satisfaction independently. Needless to say, that the assessing officer will initiate penalty based upon his own satisfaction, and will give full opportunity to the taxpayer before proceeding to levy the penalty, which he chooses to levy (or not levy). As such, in my view, the taxpayer will not unduly suffer. Penalty will be levied or not levied, based upon the satisfaction of the assessing officer. For the proposition that the taxpayer will not suffer (as he will be given due opportunity at the time of levy or non-levy of penalty), I rely u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s 263 pertaining to penalty. In this connection, reliance is placed on the following cases:- CIT Vs. Rakesh Nain Trivedi (2016) 128 DTR 309 (P H) (HC) (PB 11-14) In this decision after considering the decisions of various High Courts, both in favour and against the assessee, it was held that CIT cannot direct the AO u/s 263 of the Act to initiate the penalty proceedings.The relevant Para 5 to 8 of the order is reproduced as under:- 5. After hearing learned counsel for the parties, we find the issue that arises for consideration of this Court in this appeal is could the CIT in exercise of power under s. 263 of the Act hold the order of the AO to be erroneous and prejudicial to the interest of the Revenue where the AO had failed to initiate penalty proceedings while completing assessment under s. 153A of the Act. 6. It may be noticed that the said issue is no longer res integra. This Court in CIT vs. Subhash Kumar Jain (supra) agreeing with the view of High Courts of Delhi in Addl. CIT vs. J.K. D'Costa (supra), CIT vs. Sudershan Talkies (1993) 112 CTR (Del) 165: (1993) 201 ITR 289 (Del) and CIT vs. Nihal Chand Rekyan (1999) 156 CTR (Del) 59 : (2000) 242 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nalty proceedings are concerned, is that they should be initiated in the Court of the proceedings for assessment. It is sufficient if there is some record somewhere, even apart from the assessment order itself, that the ITO has recorded his satisfaction that the assessed is guilty of concealment or other default for which penalty action is called for. Indeed, in certain cases it is possible for the ITO to issue a penalty notice or initiate penalty proceedings even long before the assessment is completed though the actual penalty order cannot be passed until the assessment finalised. We, therefore, agree with the view taken by the Tribunal that the penalty proceedings do not form part of the assessment proceedings and that the failure of the ITO to record in the assessment order his satisfaction or the lack of it in regard to the leviability of penalty cannot be said to be a factor vitiating the assessment order in any respect. An assessment cannot be said to be erroneous or prejudicial to the interest of the Revenue because of the failure of the ITO to record his opinion about the leviability of penalty in the case. 10. Special leave petition against the said decision was dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibunal cancelling CIT's order u/s 263 whereby the CIT set aside the assessment order to be made de novo for initiation of penalty proceedings is justified. Though these cases are with reference to the power of CIT u/s 263 as to the non-initiation of penalty proceedings by AO in the assessment order, the principle laid down in these cases equally applies where the AO has initiated the penalty proceedings under a different section. 3. The Ld. CIT without distinguishing the case laws relied by the assessee on this issue has incorrectly observed at Para 6 of the order that AO did not take a conscious decision relating to non initiation/ incorrect initiation of penalty though he always wanted to initiate the penalty and thus, it was an inadvertent error on AO s part which caused prejudice to the revenue. It may be noted that section 263 can be invoked only when the assessment order is erroneous in so far as prejudicial to the interest of the revenue. The Ld. CIT has nowhere held the assessment order to be erroneous in as much as he has categorically stated that he is not disturbing the assessment that has already been made. Thus, once no error is found in the income determ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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