Radheshyam Agarwal Vs PCIT (ITAT Indore)
Failure to Initiate Penalty u/s 271AAC Makes Assessment Erroneous: ITAT Indore Upholds PCIT’s Section 263 Revision
The Indore Bench of the ITAT upheld the revision order passed by the PCIT under Section 263, holding that the Assessing Officer’s failure to examine and initiate penalty proceedings under Section 271AAC(1) rendered the reassessment order erroneous and prejudicial to the interests of the Revenue.
In the assessee’s case, survey under Section 133A revealed excess stock and undisclosed interest income, which were surrendered and offered in the return filed pursuant to reopening under Sections 148 / 147. The AO completed the assessment by taxing the surrendered income under Sections 69 / 69A read with Section 115BBE, but did not initiate penalty proceedings under Section 271AAC(1).
The PCIT invoked Section 263 on the ground that once income is taxed under Section 115BBE, initiation of penalty under Section 271AAC(1) was required to be examined and omission to do so amounted to lack of enquiry and non-application of mind. He set aside the assessment to the limited extent of examining penalty and directed the AO to reframe the assessment accordingly.
Before the Tribunal, the assessee argued that penalty initiation is discretionary, that penalty proceedings are independent of assessment, and that mere non-mention of penalty in the assessment order cannot justify revision. Reliance was placed on Delhi High Court decisions and the Supreme Court ruling in Vegetable Products.
The Tribunal rejected the assessee’s contentions and held that the scope of “assessment” is wide and includes examination of penalty liability. Following the decisions of the Madhya Pradesh and Allahabad High Courts, the Tribunal ruled that omission to consider and initiate penalty where applicable constitutes an error prejudicial to the Revenue within the meaning of Section 263 and Explanation 2(a).
Accordingly, the revision order passed by the PCIT was upheld and the assessee’s appeal was dismissed.
FULL TEXT OF THE ORDER OF ITAT INDORE
