Varun Srinivasan Vs CIT (ITAT Chennai)
Chennai ITAT Quashes Section 263 Revision of Penalty Order; PCIT Cannot Revise Order That Has Merged with CIT(A)’s Appellate Decision
The Chennai ITAT held that the Principal Commissioner of Income-tax (PCIT) could not invoke revisionary jurisdiction under section 263 to revise a penalty order under section 270A once that order had merged with the appellate order passed by the CIT(A). The Tribunal noted that, in the quantum appeal, the CIT(A) had deleted the addition of ₹80 lakh after holding that the amount stood explained and could not be treated as income from other sources. While deciding the penalty appeal, the CIT(A) specifically relied upon these findings and allowed the assessee’s appeal by holding that the assessee was entitled to the corresponding deduction. Thus, the Tribunal held that the penalty order had merged with the appellate order, leaving no scope for the PCIT to exercise revisionary powers under section 263 by treating the original penalty order as erroneous and prejudicial to the interests of the Revenue. Following the doctrine of merger and its earlier decision in Anotra Realtors Pvt. Ltd., the Tribunal set aside the section 263 order, holding that the assumption of revisionary jurisdiction was without authority of law.
Cases Discussed
- Anotra Realtors Pvt. Ltd. (ITAT Chennai), ITA No. 1451/Chny/2024 dated 14.08.2024
FULL TEXT OF THE ORDER OF ITAT CHENNAI
This appeal filed by the assessee is directed against the order dated 08.01.2026 passed by the ld. Commissioner of Income Tax (Appeal), Chennai-16 for the assessment year 2017-18.
2. At the outset, it was argued by the ld. AR, Mr. D. Anand, Advocate, that the order of the ld. PCIT under section 263 is not maintainable in holding that the order dated 08.12.2023 passed under section 270A of the Income-tax Act, 1961 (for short, “the Act”), is erroneous and prejudicial to the interest of the Revenue due to the fact that the AO has wrongly 8considered the under-reported income as ₹80,00,000 instead of the entire income disclosed by the assessee in the return of income in response to the notice under section 148 of the Act amounting to ₹1,58,74,960. The ld. AR drew our attention to the penalty order at page Nos. 3 to 5 of the paper book and argued that the said order merged with the order of the ld. CIT(A) passed on 22.08.2024 at page Nos. 15 to 19 of the paper book. He vehemently argued that the ld. CIT(A), vide para No. 3.2, held that the assessee is eligible to claim expenses of ₹80,00,000 being premium paid under section 57 of the Act as per the order dated 22.08.2024 passed by the ld. CIT(A) in the quantum appeal. He vehemently argued that since the assessee is eligible to claim expenses on account of premium paid, which clearly shows the merger of the penalty order in the quantum appeal, the ld. PCIT has no jurisdiction to hold that the penalty order dated 08.12.2023 is erroneous and prejudicial to the interest of the Revenue. He referred to the order of this Tribunal in the case of Anotra Realtors Pvt. Ltd. in ITA No. 1451/Chny/2024 dated 14.08.2024 and argued that the Tribunal held that the revision order passed by the PCIT under section 263 of the Act is invalid.
3.3 Ld. DR, Ms. R. Anita, CIT, drew our attention to para No. 5 of the quantum appeal order dated 22.08.2024 passed by the ld. CIT(A), Chennai-16, and submits that the computation of taxable income, credit of prepaid taxes, eligible deduction, payable net tax liability, etc., are dealt with in the computation sheet and demand notice under section 156 of the Act, which form part of the assessment order and are also enclosed for payment of tax. She argued that the argument of the ld. AR is not acceptable for the reason that the penalty proceedings as well as the assessment proceedings are independent of each other. The ld. PCIT rightly exercised his jurisdiction under section 263 of the Act in treating the penalty order as erroneous and prejudicial to the interest of the Revenue.
4. Heard both the parties and perused the relevant records. On perusal of the quantum appeal order dated 22.08.2024, which is at page Nos. 6 to 14 of the paper book, we note that the ld. CIT(A) clearly held that the addition made by the AO to the extent of ₹80,00,000 stands explained and cannot be construed as income from other sources, thereby, the ld. CIT(A) directed the AO to delete the said addition. Further, the ld. CIT(A), while dealing with the penalty appeal, took cognizance of the findings of the ld. CIT(A) in the quantum appeal in respect of the eligibility to claim expenses of ₹80,00,000 and decided the penalty appeal in favour of the assessee by allowing the substantive grounds vide para No. 3.2 of the said order, which is at page No. 18 of the paper book. Therefore, we find force in the arguments of the ld. AR that since the penalty order merged with the order of the ld. CIT(A), no revision can be invoked under section 263 of the Act in treating the penalty order passed under section 270A of the Act vide order dated 08.12.2023 as erroneous and prejudicial to the interest of the Revenue. Thus, the order of the ld. PCIT invoking the jurisdiction under section 263 of the Act is not justified and is accordingly set aside. Thus, the grounds raised by the assessee are allowed.
5. In the result, the appeal of the assessee is allowed.
Order pronounced on 21stJuly, 2026 at Chennai.
