S. 263 Non initiation of penalty proceedings during assessment renders it erroneous

Jyoti Ranjan Roy Vs. Pr. CIT (ITAT Kolkata)

The limited issue for our adjudication is that Ld. CIT u/s 263 of the Act held the assessment order passed by the AO as erroneous in so far as prejudicial to the interest of Revenue on the ground that penalty proceeding was not initiated in the assessment order. In this regard, we find that Hon’ble Allahabad High Court in the case of CIT vs. Surendra Prasad Agrawal (2005) reported in 275 ITR 113 (All) after considering the judgment of Hon’ble Delhi High Court in the case of CIT vs. Surendra Talkies reported 200 ITR 153 (Del) as well as CIT vs. C.R. K. Swami reported in 254 ITR 158 (Del) has held that non initiation of penalty proceedings in the assessment order amounts to error causing prejudice to the interest of Revenue. The relevant extract of the order reproduced below:-

“It is well established that the Assessing Officer has to initiate proceedings for imposition of penalty during the course of assessment itself. If he fails to initiate or record his satisfaction for the initiation of the penalty proceedings during the course of the assessment proceedings it would be a case where the assessment order can be said to be erroneous as he has not decided a point nor recorded a finding on an issue which ought to have been done or decides it wrongly. Thus, the omission of the ITO to initiate penalty proceedings during the course of the assessment renders the assessment order erroneous and prejudicial to the interest of the revenue. [Para 18]

Therefore, the Tribunal was not justified in holding that the failure to initiate penalty proceedings in the course of the assessment did not render the assessment order erroneous and prejudicial to the interest of the revenue. The Commissioner had the jurisdiction to revise such an order.

From the above proposition, we observe that non initiation of penalty proceedings during assessment proceedings renders the assessment order erroneous and prejudicial to the interest of Revenue. Thus, in view of the above, we find no infirmity in the order passed by Ld. Pr. CIT u/s 263 of the Act.

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Name: CA Sandeep Kanoi

Qualification: CA in Job / Business

Company: Taxguru Consultancy

Location: Mumbai, Maharashtra

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