VIVIDH KARYAKARI SEVA SAHKARI SANSTHA LIMITED RAMEGAON,LATUR vs. PCIT, NASHIK

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ITA 1696/PUN/2026Status: DisposedITAT Pune18 September 2026AY 2019-2011 pages
AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that the Principal Commissioner of Income Tax (PCIT) was justified in invoking his revisionary powers under section 263. The Tribunal distinguished the present case from those where penalty proceedings were not initiated at all. Here, the Assessing Officer (AO) had initiated penalty proceedings under an incorrect section (271AAC(1) instead of 270A). The Tribunal reasoned that an incorrect application of law, such as invoking the wrong penalty provision, renders the assessment order erroneous and prejudicial to the interest of the revenue. The Revenue cannot be left without a remedy due to the AO's mistake. The Tribunal found that the AO admittedly invoked a wrong section for penalty initiation, thus justifying the PCIT's revisionary action. The Tribunal considered the assessee's reliance on various decisions distinguishable as they pertained to situations where no penalty was initiated, unlike the current case of initiation under a wrong provision. Therefore, the Tribunal upheld the order of the PCIT. The grounds of appeal raised by the assessee were dismissed.

What were the facts?

The assessee, Vividh Karyakari Seva Sahkari Sanstha Limited, is a cooperative credit society. For Assessment Year 2019-20, it did not file a return of income. Information regarding cash deposits of Rs. 2,10,55,752/- in a cooperative bank came to the department's notice. Consequently, a notice under section 148A(b) was issued, followed by a notice under section 148. The assessee filed a return on 13.12.2023, declaring Rs. 6,85,541/- as gross total income, claiming exemption under section 80P. The Assessing Officer (AO) considered the return invalid due to late filing, disallowed the section 80P deduction, and completed the assessment under sections 147, 144, and 144B, determining the total income at Rs. 6,85,541/-. The AO also initiated penalty proceedings under section 271AAC(1). The Commissioner (Appeals) cancelled this penalty. Subsequently, the Principal Commissioner of Income Tax (PCIT) initiated revision proceedings under section 263, considering the AO's order erroneous and prejudicial to the revenue.

What were the issues?

1. Whether the Principal Commissioner of Income Tax (PCIT) can revise an assessment order on the ground of penalty initiation, when the issue of penalty has already been decided by the Commissioner (Appeals) (CIT(A))? 2. Whether the revisionary proceedings under section 263 are valid when the alleged error in the assessment order came to the PCIT's notice due to the findings of the CIT(A)? 3. Whether the assessment order is erroneous and prejudicial to the interest of the revenue, considering the AO determined the total income correctly and the choice of penalty section does not alter the tax liability? 4. Whether reassessment proceedings initiated on the issue of cash deposits and concluded on the disallowance of deduction under section 80P are bad in law, making the revision of such an order also bad in law? Assessee's Arguments: - The revision under section 263 is barred by the doctrine of merger as the penalty issue was already decided by the CIT(A). (Reliance on Explanation 1(c) to section 263(1)). - Section 263 cannot be invoked to nullify or circumvent the findings of the CIT(A). - The assessment order is not erroneous as the total income was correctly determined, and the choice of penalty section does not affect tax collection. - Reassessment proceedings are bad in law as they were initiated on cash deposits but concluded on disallowance of section 80P deduction. Revenue's Arguments: - The revision is not for the initiation of penalty per se, but for the initiation of penalty under a wrong section. - Incorrect application of law renders the assessment order erroneous under section 263.

Which sections of the Income-tax Act were involved?

Section 263,Section 148A,Section 148,Section 147,Section 144,Section 144B,Section 80P,Section 271AAC(1),Section 270A

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, PUNE BENCH “B”, PUNE

Before: SHRI R. K. PANDA & Ms. ASTHA CHANDRA

For Appellant: Shri Sarang Gudhate
For Respondent: Shri Amit Bobde, CIT-DR
Hearing: 29.07.2026Pronounced: 18.09.2026

PER R.K. PANDA, VICE PRESIDENT :

This appeal filed by the assessee is directed against the order dated 20th March, 2026 passed u/s.263 of the Income Tax Act, 1961 by the Ld. Principal Commissioner of Income Tax, Nashik -1 relating to Assessment Year 2019-20.

2.

Facts of the case, in brief, are that the assessee is a primary Agricultural and Cooperative Credit Society registered with the Assistant Registrar of Cooperative Societies, Osmanabad under the Maharashtra Cooperative Societies Act, 1960. It is engaged in providing credit facilities to its Members. The assessee has not filed its return of income. Information was available with the Department that the assessee during the impugned assessment year has made

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Cash Deposits of Rs.2,10,55,752/- in Latur District Coop. Bank Ltd. Since the assessee had not filed its return of income, therefore, the source of such transactions/sum generated out of the above transactions was treated as undisclosed income which needs to be brought to tax. Accordingly, the Assessing Officer issued a notice u/s.148A(b) of the Act on 25.01.2023. Since there was no compliance from the side of the assessee the Assessing Officer passed an order u/s.148A(d) of the Act on 26.03.2023. Accordingly, the notice u/s.148 of the Act was issued on 26.03.2023. The assessee in response to the same filed the return of income on 13.12.2023 declaring gross total income of Rs.6,85,541/- and claimed the same as exempt u/s.80P of the Act.

3.

The Income Tax Return was considered as invalid since the same was not filed within the prescribed time mentioned in notice u/s.148 of the Act. Subsequently, the Assessing Officer issued a show cause notice asking the assessee to explain as to why the cash deposits of Rs.2,10,55,752/- should not be treated as unexplained money and also proposed to initiate penalty under the relevant section. Subsequently, the Assessing Officer on the basis of details filed by the assessee completed the assessment u/s.147 r.w.s.144 r.w.s.144B of the Act determining the total income of the assessee at Rs.6,85,541/- where the claim of deduction u/s.80P of the Act was disallowed.

4.

The Assessing Officer in the assessment order initiated penalty proceedings u/s.271AAC(1) of the Act. The assessee challenged the penalty levied by the Assessing Officer u/s.271AAC(1) of the Act and the

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ld.CIT(A)/NFAC vide order dated 17.11.2025 cancelled the penalty so levied by the Assessing Officer.

5.

Subsequently, ld. PCIT called for the record and noted that the Assessing Officer has completed the assessment without making due verification and enquiries which were warranted in the facts and circumstances of the case. He had initiated penalty u/s.271AAC(1) of the Act instead of under section 270A of the Act. He observed from the record that the income determined at Rs.6,85,541/- was not an amount representing unexplained money, investment, expenditure or entry falling under any of the deeming provisions contained in sections 68 to 69D. The assessment order does not record any such finding nor was any such income brought to tax. The only variation made related to non allowance of deduction due to failure or furnish a valid return within time. According to the ld.PCIT, when the assessed income does not contain or include any unexplained income covered u/s.68, 69, 69A, 69B, 69C or 69D, the essential condition precedent for invoking section 271AAC(1) was not satisfied. The correct provision that should have been invoked by the Assessing Officer is section 270A of the I.T. Act. He, therefore, was of the opinion that the assessment order passed u/s.147 r.w.s.144 r.w.s.144B of the Act by the Assessing Officer is erroneous in so far as it is prejudicial to the interest of the Revenue because the assessment has been made without making inquiries or verification which should have been made. He therefore issued a show cause notice to the

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assessee asking it to explain as to why the order passed by the Assessing Officer should not be set aside to the extent of initiation of penalty.

6.

The assessee submitted that the assessment order cannot be subject to revision on the ground of penalty as the issue has already been decided by the ld.CIT(A)/NFAC. It was argued that revision cannot be done at the instance of ld.CIT(A)/NFAC’s order. It was argued that the assessment order is not erroneous since the order determined the total income correctly and the choice of penalty section (even if arguably incorrect) does not change the tax liability determined in the assessment. Relying on various decisions, it was argued that the proposed revision is uncalled for.

7.

However, the ld.PCIT was not satisfied with the arguments advanced by the assessee and held that the order passed by the Assessing Officer on 26.02.2024 for the impugned assessment year 2019-20 is erroneous in so far as it is prejudicial to the interest of Revenue to the extent of initiation of penalty.

8.

Aggrieved with such order of ld.PCIT, the assessee is in appeal before the Tribunal by raising the following grounds :

“1. Under the given facts and circumstances of the case and in law, Assessment Order cannot be subject to revision on the ground of Penalty as it is already decided by the Ld CIT(A). 2. Under the given facts and circumstances of the case and in law, Ld. Principal Commissioner of Income Tax is erred in passing Revision Order u/s 263 in instance of CIT(A) order.

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3.

Under the given facts and circumstances of the case and in law, Assessment Order is not "Erroneous" as assessment order determined the total income correctly and the choice of penalty section does not change the tax liability determined in the assessment. Therefore, the assessment order is not "erroneous" in a way that affects tax collection. 4. Under the given facts and circumstances of the case and in law, Re- assessment Proceedings are initiated on issue of Cash Deposit and concluded on disallowance of deduction u/s 80P, violating mandate of re- assessment and also judicial precedences, Hence Re-Assessment Proceedings is bad in law and revision of the same is also bad in law. 5. The appellant craves the permission to add, amend, modify, revise, substitute, delete or alter any/all of the above grounds of appeal if deemed necessary at the time of hearing of the appeal.”

9.

Ld. Counsel for the assessee submitted that the assessment order cannot be revised u/s.263 on an issue relating to penalty as the same has already been considered and decided by the ld.CIT(A)/NFAC. He submitted that since the ld.CIT(A)/NFAC in the instant case has already adjudicated the issue on 17.11.2025 and deleted the penalty levied by the Assessing Officer u/s.271AAC(1) of the Act, therefore, the assumption of jurisdiction u/s.263 is barred by the Doctrine of Merger as laid down in Explanation 1(c) to section 263(1) of the I.T. Act.

9.1 In his second plank of argument, ld. Counsel for the assessee submitted that the revisionary proceedings u/s.263 have been initiated solely because the ld.CIT(A)/NFAC while deciding the penalty appeal has observed that the provisions of section 271AAC(1) were inapplicable. Thus, the alleged error in the assessment order came to the notice of ld.PCIT on account of the finding recorded by the appellate authority. He submitted that provisions of section 263

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of the Act cannot be invoked to nullify/circumvent or indirectly overcome the findings recorded by the ld.CIT(A)/NFAC.

9.2 In his third plank of argument, ld. Counsel for the assessee submitted that the assessment order is not erroneous as the Assessing Officer has determined the total income correctly and the choice of penalty does not change the tax liability determined in the assessment, therefore, the assessment order is not erroneous in a way that affects the tax collection.

9.3 Finally, he submitted that the reassessment proceedings are initiated on the issue of cash deposit and concluded on disallowance of deduction u/s.80P of the Act, violating the mandate of reassessment and also judicial precedents. Hence, the reassessment proceedings are bad in law and therefore the revision of the same is also bad in law. Relying on various decisions, ld. Counsel for the assessee submitted that the ld.PCIT is not justified in invoking his revisionary powers u/s.263 of the I.T. Act.

10.

The ld. Departmental Representative on the other hand heavily relied on the order of the ld.PCIT. He submitted that the ld.PCIT in the instant case has exercised independent revisionary jurisdiction and not at the instance of ld.CIT(A)/NFAC. He submitted that when the Assessing Officer has invoked wrong section for levy of penalty, the PCIT was within his powers to revise the order u/s.263 of the I.T. Act. So far as various decisions relied on by the ld. Counsel for the assessee are concerned, he submitted that the same are

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distinguishable and not applicable to the facts of the present case since all those decisions relate to revision by the PCIT for non-initiation of penalty proceedings whereas this is a case of initiation of penalty under a wrong section. Relying on various decisions, he submitted that incorrect application of law renders the assessment erroneous within the meaning of section 263 of the I.T. Act. He accordingly submitted that the order passed by the ld.PCIT being in accordance with law should be upheld and the grounds raised by the assessee should be dismissed.

11.

We have heard the rival arguments made by both the sides and perused the orders of the Assessing Officer and the ld.PCIT and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the Assessing Officer in the instant case completed the assessment u/s.147 r.w.s.144 r.w.s.144B of the Act on 26.02.2024 determining the total income of the assessee at Rs.6,85,541/- where the claim of deduction u/s.80P of the Act was disallowed. The Assessing Officer in the said order initiated penalty proceedings u/s.271AAC(1) of the Act instead of section 270A of the Act. We find the assessee challenged the penalty levied by the Assessing Officer which was decided in favour of the assessee by the ld.CIT(A)/NFAC who held that provisions of section 271AAC(1) are not applicable to the facts of the present case. However, he held that the Assessing Officer is at liberty to take appropriate action in accordance with law under the correct provision after giving due opportunity of being heard to the assessee. We find the ld.PCIT called for

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the record and examined the same and noted that the Assessing Officer has invoked a wrong section for initiation of penalty, i.e. 271AAC(1) instead of 270A. He, therefore, held that the order passed by the Assessing Officer is erroneous in so far as it is prejudicial to the interest of Revenue. Rejecting the various explanations given by the assessee he set aside the order passed by the Assessing Officer to the extent of initiation of penalty.

12.

It is the submissions of the ld. Counsel for the assessee that ld. PCIT cannot revise the order on an issue relating to penalty since the issue has already been considered and decided by the ld.CIT(A)/NFAC and therefore the doctrine of merger applies. It is also his argument that an assessment order cannot be revised only for initiation of penalty. Further, when the reopening was made on the basis of cash deposit but the conclusion was on account of disallowance of deduction u/s.80P of the Act, therefore, such reassessment proceedings not being in accordance with law has to be quashed and revision of such illegal order is also bad in law.

13.

It is the submission of the ld. DR that it is not a case of revision for initiation of penalty but revision for initiation of penalty under a wrong section. According to the ld.CIT-DR incorrect application of law renders the assessment order erroneous within the meaning of section 263 of the I.T. Act.

14.

It is an admitted fact that Assessing Officer has determined the total income of the assessee at Rs.6,85,541/- by rejecting the claim of deduction

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u/s.80P and initiated the penalty proceedings u/s.271AAC(1) instead of correct penalty provision. There is no dispute to the fact that in various decisions it has been held that non-initiation of penalty proceedings cannot be the subject matter of revision u/s.263 of the I.T. Act. However, initiation of penalty under an incorrect section in our opinion cannot be placed in the same position. It has been held in various decisions that an incorrect assumption of fact or an incorrect application of law will satisfy the requirement of the order being erroneous in so far as it is prejudicial to the interest of the Revenue. In the instant case, it is an admitted fact that the Assessing Officer instead of initiating penalty proceedings u/s.270A has initiated penalty proceedings u/s.271AAC(1) of the Act. In our opinion, if the Assessing Officer does not follow the correct procedure and makes a mistake the ld. PCIT is fully justified in invoking his revisionary powers. The Revenue in our opinion cannot be remediless for the act of the Assessing Officer by invoking a wrong provision for initiation of penalty which is liable to be quashed by the ld.CIT(A) when challenged. Since the Assessing Officer in the instant case has admittedly invoked a wrong section for initiation of penalty, therefore, the ld. PCIT in our opinion was fully justified in invoking his revisionary powers. The various decisions relied on by the ld. Counsel for the assessee are distinguishable and not applicable to the facts of the present case. Since all those cases relate to the power of ld. PCIT for revision u/s.263 where the Assessing Officer has not initiated penalty proceedings whereas in the instant case it is initiation of penalty proceedings under a wrong provision. We therefore

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uphold the order of the ld. PCIT. Grounds of appeal raised by the assessee are accordingly dismissed.

15.

In the result, the appeal filed by the assessee is dismissed. Order pronounced in the open Court on 18th September, 2026.

Sd/- Sd/- (ASTHA CHANDRA) (R. K. PANDA) JUDICIAL MEMBER VICE PRESIDENT पुणे Pune; दिन ांक Dated : 18th September, 2026 Satish Digitally signed by Satish Satish Kumar Kumar Madishetty Madishetty Date: 2026.09.18 16:42:33 +05'30'

आदेश की प्रतितिति अग्रेतिि/Copy of the Order is forwarded to: अपीलार्थी / The Appellant; 1. 2. प्रत्यर्थी / The Respondent 3. The concerned Pr.CIT, Pune 4. DR, ITAT, ‘B’ Bench, Pune 5. गार्ड फाईल / Guard file. आदेशानुसार/ BY ORDER, // True Copy // Assistant Registrar आयकर अपीलीय अधिकरण , पुणे / ITAT, Pune

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S.No. Details Date Initials Designation 1 Draft dictated on 16.09.2026 Sr. PS/PS 2 Draft placed before author 17.09.2026 Sr. PS/PS Draft proposed & placed before the 3 JM/AM Second Member Draft discussed/approved by Second 4 AM/AM Member 5 Approved Draft comes to the Sr. PS/PS Sr. PS/PS 6 Kept for pronouncement on Sr. PS/PS 7 Date of uploading of Order Sr. PS/PS 8 File sent to Bench Clerk Sr. PS/PS Date on which the file goes to the Office 9 Superintendent 10 Date on which file goes to the A.R. 11 Date of Dispatch of order

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