Kamalkant Bhagwatiprasad Oza Vs PCIT (Central) (ITAT Ahmedabad)
ITAT Ahmedabad allowed the assessee’s appeal against the PCIT’s Section 263 revision for A.Y. 2022-23. The assessee had declared income of Rs.6,06,500/- and contractual receipts of Rs.3,38,54,329/-, with TDS credit of Rs.3,38,545/-. Following a Section 132 search concerning Urmin Group, the AO treated the contractual receipts and payments as bogus, rejected the books under Section 145(3), disallowed the TDS credit and completed assessment under Section 143(3) at Rs.9,45,045/-. The PCIT invoked Section 263, holding that the AO’s failure to initiate penalty proceedings under Section 270A rendered the assessment erroneous and prejudicial to Revenue, and directed initiation of penalty proceedings. The Tribunal observed that the PCIT had not established how the assessment was erroneous and prejudicial to Revenue. It held that there was no under-reporting of income, as the TDS amount was already included in the returned income, and the Section 270A(3) penalty mechanism did not operate in the circumstances. It further held that initiation of Section 270A penalty proceedings was discretionary based on the AO’s satisfaction, not mandatory. The Section 263 order was therefore quashed and the assessee’s appeal allowed.
Core Issue: Whether an assessment order can be revised under section 263 merely because the AO did not initiate penalty proceedings under section 270A, where no statutory under-reporting of income was actually established and initiation of penalty proceedings is dependent upon the AO’s satisfaction.
