Case Law Details
Harish Jain Vs PCIT (ITAT Jaipur)
The limited issue before us that the ld. AO has mentioned in the assessment order that “Penalty u/s. 271(1)(c) of the Income Tax Act is initiated for concealment of income by way of issue of notice u/s. 274 r.w.s. 271(1)(c) of the Act. Penalty notice u/s. 274 r.w.s. 271(1)(c) of the Act issued accordingly. I am satisfied that the assessee has not included the income offered during the search in statement u/s. 132(4) hence penalty proceeding u/s. 271AAB(1A) is initiated. Penalty notice u/s. 274 r.w.s. 271AAB(1A) of the Act issued accordingly.” Against this finding of the ld. AO the PCIT taken a view that the assessing officer had failed to correctly initiate penalty. Hence the ld. PCIT has noted penalty erroneously initiated penalty u/s. 271AAB(1A) of the Act which came into statue w.e.f. 15.12.2016.The ld. PCIT has noted that ld. AO did not take conscious decision relating to non-initiation / incorrect initiation of penalty. The ld. AO wanted to initiate the penalty under the rightly applicable provisions of the Act. 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. The ld. PCIT, thus viewed that this error has caused prejudice to Revenue. He did not agree with the submission of the assessee and thus in exercise of powers conferred upon him u/s. 263 the ld. PCIT directed the AO to initiate and levy penalty under the requisite sections as detailed in the show cause notice given in the proceedings u/s. 263 of the Act. Based on this he noted that the taxpayer will not unduly suffer as penalty will be levied or not levied is to be based on the satisfaction of the assessing officer. He further noted that the he is not disturbing the assessment that has been completed and only passing an order for initiation / levy of penalty. The bench has noted that there is no error on the part of the assessing officer in computing the taxable income of the assessee for the year under consideration the only error as pointed out by the PCIT is that though the ld. AO has recorded his finding in the order for initiation of penalty u/s. 271(1)(c) but has issued the notice u/s. 271AAB(1A). Since that the section came in to statute from 15.12.2016 the levy of penalty should be u/s. 271(1)(c) of the Act. The ld. AR of the assessee submitted that even though this may be the error on the part of the ld. AO or his conscious decision, the provision of section 263 of the Act does not empower the PCIT to correct that mistake and that is error / mistake does not come under the scope of provision of section 263. The bench also noted from the factual report of the ld. AO that the notices were already issued and served upon the assessee u/s. 271AAB(1A), the ld. AO submitted that except for A. Y. 2018-19 assessee has submitted reply for all the years from 2012-13 to 2017-18 and the proceeding in this regard is pending in the system. The ld. AO has also reported that the proceeding-initiatedu/s. 271(1)(c) pursuant to proceeding u/s. 263 is also pending. We have also persuaded the provision of section 292BB of the Act and decisions relied upon by the ld. DR supporting the action of the ld. PCIT. We have noted that the provision of section 292BB empowers the ld. AO to take remedial action under that section where the proceedings are pending before him and in fact the same is pending before him as reported by him in his factual report submitted.
Now the mute question before us is that whether the PCIT can correct the mistake of non-initiation or incorrect initiation of penalty under provisions of section 263 of the Act or not. For this we have gone through the competing contentions raised by both the parties before us. Before us revenue has relied upon certain judgements as listed here in above, we have considered all these judgements and found that all the decisions relied upon by the revenue are on different provisions of the act and provisions of section 292BB is for the AO but not at the help of the PCIT in the proceeding u/s. 263 and it is for the assessing officer to be considered before the proceeding before him. Against the submission of applicable judgement placed on record by the ld. AR of the assessee, ld. DR did not pinpointed any controverting judgements against the various direct and binding judgment presented for service in this case. The bench also noted that the pre-requisites to the exercise of jurisdiction by the Commissioner u/s 263, is that the order of the Assessing Officer is established to be erroneous in so far as it is prejudicial to the interest of the Revenue. The Commissioner has to be satisfied of twin conditions, namely (i) The order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If any one of them is absent i.e. if the assessment order is not erroneous but it is prejudicial to the Revenue, Sec.263 cannot be invoked. This provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer; it is only when an order is erroneous as also prejudicial to revenue’s interest, that the provision will be attracted. An incorrect assumption of the fact or an incorrect application of law will satisfy the requirement of the order being erroneous. The phrase ‘prejudicial to the interest of the revenue’ has to be read in conjunction with an erroneous order passed by the AO. Every loss of Revenue as a consequence of the order of the AO cannot be treated as prejudicial to the interest of the Revenue. The revisional jurisdiction of the PCIT starts only after the conclusion of assessment proceedings, resulting into assessment order, therefore, as a sequel thereto, it is not open to PCIT to exercise the revisional powers to create a non-existent proceeding under S. 263 by holding the assessment proceeding as erroneous in so far as prejudicial to the interest of revenue. The provision of section 263 regulates the revisional powers of the PCIT hence, the strict fulfillment of the requirements of a jurisdictional provision cannot be compromised. On the issue the CBDT in its circular No. 09/DV/2016(Departmental view) dated 26.04.2016 (DPB 26-27) is also of this view that a mere mention of the penalty in the assessment order is of no value. The notice is to be issued by the competent officer who is powered under the act. The only proceeding and consequent order, is the assessment order and not the penalty proceedings because the same were not existing hence no proceedings u/s 263 could be invoked to correct the section under which the penalty can be levied or not by the AO. There must exist some order, which is sought to be revised by the PCIT. If there is no order, question of revising the order does not arise. He cannot pass an order u/s 263 to pass an order, where there is none. In the instant case, admittedly there is no order in so far as penalty proceedings are concerned. If there is no order, there is no question of its being erroneous or pre-judicial as submitted there are other provision such as 147, 154, 292BB or filling an appeal etc. It may be clarified whether the AO has initiated penalty proceedings at all or it is a case of wrong initiation of penalty, in both the situations the PCIT has got no jurisdiction at all because no order has been passed by the AO till the examination by the PCIT u/s 263 in the proceedings under examination. The PCIT cannot find fault in the mere proceedings alone but passing of an order in those proceedings, is a condition precedent. Therefore, non-initiation of/wrong initiation of penalty proceedings cannot be much emphasized or stressed upon because there is no order at all in those proceedings hence there cannot be any question of finding any error/prejudice therein u/s 263.There is one more reason why the PCIT should not be permitted to invoke revisional powers for initiation of penalty proceedings. Sec. 271(1) specifically empowers the AO or the appellate authority to record satisfaction. It is well-settled that once an appeal has been preferred against an order of assessment the entire assessment is open before the appellate authority. The appellate authority is entitled to do all that the AO could have done. The powers of the appellate authority are co-extensive and co-terminus with the powers of the AO. It is equally well-settled that the PCIT cannot exercise revisional jurisdiction qua proceedings before an appellate authority. The order of assessment does not have any independent existence and stands merged with the order of the appellate authority. Hence, to read s. 263 as being applicable only in case of an AO for the purposes of initiation and levy of penalty and not being applicable to the appellate authority, cannot be the legislative intent. To the contrary, the inherent indication under s. 271(1) makes it clear that the Pr. CIT / CIT does not have any powers to direct either of the authorities, the AO or the appellate authority, to initiate and levy penalty. The section requires the AO or the appellate authority to be satisfied in the course of ‘any proceedings’. This means, any proceedings before either of the specified authority. The Pr. CIT / CIT cannot create proceedings. If he is not permitted to direct the appellate authority (and this is an accepted position) he cannot be permitted to substitute jurisdiction/powers of only the AO by his satisfaction by creating proceedings where none exist— assessment having already been completed.
Relying on the above jurisdictional high court decision this bench respectfully followed the said findings in the case Smt. Rekha Shekawat V Pr. CIT (2022) in ITA NO. 7/JP/2021, Suresh Kumar Dapkara v. PCIT (Central), Jaipur in ITA No. 141/JP/2022 and in the recent decision in the case of Dheeraj Singh Sisodiya v. PCIT (Central), Jaipur in ITA no. 132/JP/2022 dated 10.08.22 (Para 7 DPB II 39-50), and the facts of both the cases are almost similar to the facts in present case and the relied upon finding is as under :
7. We have heard the rival contentions, perused the material available on record, assessment order and impugned order and the case laws cited before us. Admittedly, the AO has initiated penalty proceedings u/s 271 AAB(1A) with the observations that the amount of investment made by the assessee for purchase of motorcycle in cash i.e. Rs.1,25,000/- is added to his total income treated as unexplained investment u/s 69 and tax is charged as per provisions of section 115BBE of the I.T. Act. The assessee has offered Rs.1,25,000/- for taxation during search proceedings in statement u/s 132(4), however, the assessee has not included Rs.1,25,000/- in the return filed u/s 153A, therefore, penalty proceedings u/s 271AAB(1A) is initiated accordingly. The Ld. AR argued that the AO has taken conscious decision to initiate the penalty proceedings u/s 271AAB(1A) of the Act. It may be noted that both u/s 271(1)(c) and u/s 271AAB it is the AO who is to satisfy himself whether on the additions made, penalty proceedings is required to be initiated or not and also the section under which it 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 to initiated 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 revenue is vague and bad in law.
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