Meena Lalit Jain Vs PCIT (ITAT, Mumbai Bench)
No Addition, No Penalty, No Revision: Once Section 69 Foundation Fell, PCIT’s Section 263 Tower Built on Sections 115BBE & 271AAC Collapsed
Facts of the Case
The assessee’s assessment was completed u/s 143(3) r.w.s. 153C on 30.03.2024. In the assessment, the AO made an addition of ₹1,50,000 u/s 69 as unexplained investment/money & subjected the amount to the special rate of tax prescribed u/s 115BBE.
While concluding the assessment, the AO recorded satisfaction for initiating penalty proceedings u/s 270A. A show-cause notice dated 30.03.2024 was also issued u/s 274 r.w.s. 270A.
However, where an addition under sections 68 to 69D is subjected to tax u/s 115BBE, the specific penalty provision ordinarily applicable is section 271AAC, not the general provision governing under-reporting or misreporting of income u/s 270A.
AO Issued a Corrigendum
After examining the assessment record, the AO issued a corrigendum dated 15.09.2024.
The corrigendum specifically stated that section 270A had been mentioned inadvertently instead of section 271AAC. It directed that the references to section 270A in paragraphs 11 & 13 of the assessment order should be read as references to section 271AAC.
The penalty notice originally issued u/s 270A was also directed to be treated as a notice issued u/s 271AAC.
Thus, according to the AO, the incorrect statutory reference was only an inadvertent mistake which stood corrected through the subsequent corrigendum.
PCIT Invokes Revision u/s 263
The PCIT nevertheless initiated proceedings u/s 263. He observed that the AO had made an addition u/s 69 taxable u/s 115BBE but had initially invoked section 270A instead of the specifically applicable section 271AAC.
According to the PCIT, selection of an inapplicable penalty provision demonstrated non-application of mind. The assessment order was therefore erroneous insofar as it was prejudicial to the interests of the Revenue.
The assessee argued that the alleged defect had already been corrected before initiation of the revisional proceedings. Therefore, no surviving error or prejudice existed when the PCIT assumed jurisdiction u/s 263.
The assessee also pointed out that the underlying addition of ₹1.50 lakh was under challenge before the Tribunal.
The PCIT rejected both objections. He held that the corrigendum could not cure the defect embedded in the original assessment order. He further reasoned that assessment & penalty proceedings were separate, and pendency of the quantum appeal did not prevent revision.
The AO was consequently directed to take action in accordance with the applicable penalty provision.
Assessee’s Case Before the ITAT
Before the Tribunal, the assessee emphasised two subsequent developments.
First, the AO had issued the corrective order on 15.09.2024, much before the PCIT initiated revision. Therefore, the sole error perceived by the PCIT had already been noticed & addressed by the AO.
Secondly, the Coordinate Bench, through its order dated 20.04.2026, had deleted the additions made u/s 69 for AYs 2017-18, 2018-19 & 2019-20, including the disputed addition of ₹1,50,000.
The addition had been deleted because it was founded upon third-party statements & electronic data without supplying the complete material to the assessee, establishing a reliable year-wise nexus or producing corroborative evidence of the alleged cash payments.
Accordingly, the very income upon which the proposed penalty depended had ceased to exist.
Was the Corrigendum Valid?
The Tribunal noted that, when the PCIT assumed jurisdiction, the mistake identified by him had already been addressed through the corrigendum.
Whether a corrigendum could ultimately support a valid penalty levy was, however, a different issue. That question would arise only if a penalty were actually imposed & separately challenged.
For the limited purpose of section 263, the PCIT could not establish prejudice by referring to a defect which, according to the AO himself, had already been corrected before commencement of the revision.
Significantly, the Tribunal did not finally rule upon the wider legal validity of converting a satisfaction & notice from section 270A to section 271AAC through a corrigendum.
Deletion of Addition Destroyed the Penalty Foundation
The Tribunal held that the later deletion of the quantum addition was even more fundamental.
Section 271AAC operates with reference to income determined under sections 68 to 69D & taxed u/s 115BBE. Once the addition u/s 69 was deleted, no income of the prescribed nature remained upon which section 271AAC could operate.
The ITAT acknowledged that assessment & penalty proceedings are legally distinct. However, that distinction cannot preserve a penalty where the penalty is inextricably linked to a specific addition & that addition no longer survives.
The deletion of the addition therefore removed the entire substratum of the proposed penalty as well as the consequential direction issued by the PCIT.
ITAT’s Decision
Without deciding the broader validity of the corrigendum, the Tribunal held that the revisional order had become unsustainable because the underlying section 69 addition stood deleted.
The PCIT’s order dated 25.03.2026 passed u/s 263 was quashed & the assessee’s appeal was allowed.
Authors’ Comments
The decision demonstrates that the twin conditions of section 263—an erroneous order & prejudice to Revenue—must exist in real & operative terms. Revision cannot continue as an academic exercise after its factual foundation disappears.
The ruling does not approve the practice of changing the penalty provision through a corrigendum. That contentious question was expressly left open.
The decisive principle is narrower but powerful: although penalty proceedings are separate, a penalty tied exclusively to an addition cannot outlive the deletion of that addition. Once the section 69 income vanished, sections 115BBE, 271AAC & the consequential revision had nothing left to act upon.
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT, MUMBAI BENCH
The aforesaid appeal has been filed by the assessee against the impugned order dated 25.03.2026 passed by the learned Principal Commissioner of Income Tax (Central), Mumbai–2, under section 263 of the Income-tax Act, 1961, for the Assessment Year 2017–18.
2. The assessee has challenged the assumption of revisional jurisdiction principally on the ground that the learned PCIT failed to appreciate that the inadvertent reference to section 270A in the assessment order and the consequential penalty notice had already been corrected by the Assessing Officer through a corrigendum, whereby the penalty proceedings were directed to be read as having been initiated under section 271AAC. It has further been contended that, in any event, the very addition under section 69 which constituted the substratum of the proposed penalty has since been deleted by the Tribunal in the quantum appeal.
3. The brief facts are that the assessment was completed under section 143(3) read with section 153C of the Act vide order dated 30.03.2024. In the said assessment, the Assessing Officer made an addition of ₹1,50,000 under section 69, which was subjected to tax under section 115BBE. While concluding the assessment, the Assessing Officer recorded satisfaction for initiation of penalty proceedings under section 270A and also issued notice dated 30.03.2024 under section 274 read with section 270A of the Act.
4. Subsequently, upon examination of the record, the Assessing Officer issued a corrigendum dated 15.09.2024, specifically recording that penalty proceedings under section 270A had been mentioned inadvertently in place of section 271AAC. By the said corrigendum, the reference to section 270A in paragraphs 11 and 13 of the assessment order was directed to be read as initiation of penalty proceedings under section 271AAC; and the show-cause notice earlier issued under section 270A was also directed to be treated as a notice under section 271AAC.
5. The learned PCIT, however, initiated proceedings under section 263 on the premise that, once the addition had been made under section 69 and the income was chargeable to tax under section 115BBE, the applicable penalty provision was section 271AAC and not section 270A. According to him, invocation of an inapplicable penalty provision reflected non-application of mind and rendered the assessment order erroneous insofar as it was prejudicial to the interests of the Revenue. The assessee pointed out before the learned PCIT that the inadvertent reference had already been corrected by the Assessing Officer through the aforesaid corrigendum and, therefore, no error survived which could occasion any prejudice to the Revenue. It was also submitted that the quantum addition was under challenge before the Tribunal.
6. The learned PCIT did not accept the explanation of the assessee. He held that the subsequent corrigendum could not cure the defect embedded in the assessment order and that the pendency of the quantum appeal did not preclude exercise of revisional jurisdiction, since assessment and penalty proceedings were distinct. On this reasoning, he treated the assessment order as erroneous and prejudicial to the interests of the Revenue and directed the Assessing Officer to take consequential action in accordance with the applicable penalty provision.
7. Before us, the learned counsel submitted that the entire premise of the impugned revision has ceased to survive, as the addition of ₹1,50,000 made under section 69 has been deleted by the Tribunal in the assessee’s quantum appeal. Our attention was invited to the order of the Tribunal dated 20.04.2026, wherein the additions made under section 69 for Assessment Years 2017–18, 2018–19 and 2019–20 were deleted on merits. It was further submitted that, even prior to the initiation of proceedings under section 263, the Assessing Officer had issued the corrigendum dated 15.09.2024 substituting section 271AAC in place of section 270A. Thus, according to the learned counsel, neither any operative error nor any prejudice to the interests of the Revenue subsisted when the revisional jurisdiction was invoked.
8. The learned CIT–DR, relying upon the impugned order and the written submissions placed on record, contended that the validity of the revision has to be examined with reference to the assessment order as it stood at the time of its passing. Since the Assessing Officer had invoked section 270A instead of the specific provision contained in section 271AAC, the assessment order suffered from an incorrect application of law. It was further submitted that the corrigendum could not retrospectively cure the absence of proper satisfaction in the original assessment order and that the quantum and penalty proceedings are separate and independent.
9. We have heard the rival submissions and perused the material placed before us. It is an undisputed fact that the sole foundation of the revisional proceedings is the Assessing Officer’s reference to section 270A, instead of section 271AAC, while initiating penalty proceedings in respect of the addition of ₹1,50,000 made under section 69 and subjected to tax under section 115BBE. It is equally undisputed that, much prior to the issuance of notice under section 263, the Assessing Officer had issued a specific corrigendum dated 15.09.2024 stating that the reference to section 270A in the assessment order was inadvertent and that the penalty proceedings as well as the notice should be read as having been initiated under section 271AAC. Thus, as on the date when the learned PCIT assumed revisional jurisdiction, the error perceived by him had already been noticed and addressed by the Assessing Officer. Whether such a corrigendum would ultimately sustain a valid levy of penalty is an altogether different issue, which could arise for examination only if a penalty were levied and challenged in accordance with law. However, for the purposes of section 263, prejudice to the Revenue cannot be founded upon a defect which, according to the Assessing Officer himself, already stood corrected before the revisional proceedings were initiated.
10. There is yet another and more fundamental development which goes to the very root of the matter. The coordinate Bench of the Tribunal, vide order dated 20.04.2026 passed in the quantum appeals, has deleted the additions made under section 69, including the addition of ₹1,50,000 for the year under consideration. The Tribunal held that the additions were founded upon third-party statements and electronic data without furnishing the complete material to the assessee, without establishing a reliable year-wise nexus and without bringing any corroborative evidence on record to prove the alleged cash payments. The addition forming the basis of the proposed penalty under section 271AAC, therefore, no longer survives.
11. It is trite that penalty proceedings may be distinct from assessment proceedings; however, where the penalty is inextricably founded upon a particular addition, its very foundation disappears once that addition is deleted. Section 271AAC operates with reference to income determined under sections 68 to 69D and subjected to tax under section 115BBE. Once the addition under section 69 itself has been deleted, there remains no income of the nature contemplated under section 115BBE upon which the machinery of section 271AAC could operate. The distinction between assessment and penalty proceedings cannot preserve a penalty consequence after the very income which was to sustain such consequence has ceased to exist.
12. Consequently, once the addition under section 69, which formed the sole foundation of the proposed penalty under section 271AAC, has been deleted by the Tribunal, the direction contained in the impugned revisional order is left with no surviving substratum. The distinction between assessment and penalty proceedings cannot preserve a penal consequence after the underlying addition itself has ceased to exist. We, therefore, without entering into the wider question regarding the validity of the corrigendum, hold that the impugned order dated 25.03.2026 passed under section 263 cannot be sustained and is, accordingly, quashed.
13. In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 04th September 2026.
