M/S V,V TITANIUM PIGMENTS PRIVATE LIMTIED,TISAIYANVILAI CHENNAI vs. PCIT(CENTRAL), CHENNAI -2, CHENNAI

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ITA 660/CHNY/2023Status: DisposedITAT Chennai08 September 2026AY 2017-1814 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the PCIT was not justified in exercising revisionary jurisdiction to direct the initiation of penalty proceedings under Section 271(1)(c) when the Assessing Officer had consciously chosen not to invoke it and had instead invoked other penalty provisions. The Tribunal also noted that for one assessment year, the addition itself was deleted by the CIT(A), making the penalty direction infructuous.

What were the facts?

Following a search action, assessments were completed, and penalty proceedings were initiated under Section 271AAB/270A. The PCIT revised these orders under Section 263, directing the initiation of penalty proceedings under Section 271(1)(c) instead.

What were the issues?

Whether the PCIT can direct the initiation of penalty proceedings under Section 271(1)(c) under revisionary powers when the AO had consciously not initiated them and invoked other penalty sections. Whether the revisionary order is valid when the underlying addition has been deleted.

Which sections of the Income-tax Act were involved?

Section 263,Section 132,Section 143(3),Section 153A,Section 271AAB,Section 270A,Section 271(1)(c),Section 153D

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI

Before: SHRI GEORGE GEORGE K & SHRI S.R. RAGHUNATHA

Hearing: 01.09.2026Pronounced: 08.09.2026

आदेश/ O R D E R PER GEORGE GEORGE K, VICE PRESIDENT: These appeals filed by the assessee are directed against four orders of the Principal Commissioner of Income Tax (Central), Chennai, all dated 31.03.2023 passed u/s. 263 of the Income Tax Act, 1961 (hereinafter called ‘the Act’). The relevant Assessment Years are 2014-15, 2015-16, 2016-17 & 2017-18.

ITA Nos.657 to 660/CHNY/2023 - 2 - V V Titanium Pigments Pvt. Ltd. 2. Common issues are raised in these appeals and they pertain to the same assessee, hence, they were heard together and are being disposed off by this consolidated order.

3.

Brief facts of the case are as follows: The assessee is a company. There was a search and seizure action u/s.132 of the Act in the office of the assessee company on 25.10.2018. Consequent to the search u/s.132 of the Act, assessments were completed u/s.143(3) r.w.s.153A of the Act for assessment years 2014-15 to 2017-18 making addition on account of various counts. For the said assessment years, the AO had initiated penalty proceedings u/s.271AAB of the Act for the assessment years 2014-15 to 2016-17 and for assessment year 2017-18 u/s.270A of the Act.

4.

Subsequent to the assessment orders being passed, the PCIT issued show-cause notice u/s.263 of the Act proposing to revise the said assessment orders completed for assessment years 2014-15 to 2017-18. The PCIT was of the view that the AO while completing the assessments for the AYs 2014-15 to 2017-18 had initiated penalty proceedings u/s.271AAB / 270A of the Act towards the additions made in the assessment orders. The PCIT was of the view that the additions on various count attracted penalty u/s.271(1)(c)

ITA Nos.657 to 660/CHNY/2023 - 3 - V V Titanium Pigments Pvt. Ltd. of the Act, which has been omitted to be initiated by the AO in the assessments being completed. Accordingly, the PCIT called for the assessee’s objections for the proposed setting aside the assessments directing the AO to initiate penalty proceedings u/s.271(1)(c) of the Act instead of 271AAB/270A of the Act.

5.

In response to the show-cause notice dated 29.07.2021, the assessee contended that the observation in the assessment order that “penalty proceedings have been initiated separately” does not form part of the assessment proceedings, as penalty proceedings are independent and distinct proceedings, and therefore any error in such recording cannot render the assessment order erroneous and prejudicial to the interests of the Revenue. In support of its contention, the assessee relied upon the decision of the Hon’ble Karnataka High Court in the case of CIT v. Manjunatha Cotton & Ginning Factory [2013] 35 taxmann.com 250 (Karnataka). The assessee further relied upon various judicial pronouncements to contend that failure of the AO to initiate penalty proceedings in the assessment order would not, by itself, render the assessment order erroneous and prejudicial to the interests of the Revenue under section 263 of the Act. It was submitted that the satisfaction as to whether the assessee had concealed particulars of income or

ITA Nos.657 to 660/CHNY/2023 - 4 - V V Titanium Pigments Pvt. Ltd. furnished inaccurate particulars of income has to be arrived at during the course of assessment proceedings and cannot be recorded subsequently. The assessee also contended that the assessment order passed u/s.153A r.w.s.143(3) of the Act, after obtaining approval of the Joint Commissioner u/s. 153D of the Act, could not be revised u/s. 263 of the Act. In support of this contention, reliance was placed on the decision of the Delhi Bench of the Tribunal in the case of Abha Bansal v. PCIT [2021] 132 taxmann.com 231 (Delhi-Trib.).

6.

However, the objections raised by the assessee was rejected and the PCIT passed the impugned orders for assessment years 2014-15 to 2017-18 by setting aside the assessments completed u/s.143(3) r.w.s.153A of the Act. The PCIT directed the AO to initiate the penalty proceedings u/s.271(1)(c) of the Act. The relevant findings of the PCIT in assessment year 2014-15 reads as under:- “9. On a careful consideration of the facts on record, assessee's submissions. relevant provisions of the Income tax Act and the judicial precedent, discussed in paragraph Supra, I hold that the order u/s.143(3) r.w.s.153A dated 18.02.2021 passed by the assessing officer for the AY 2014-15 is erroneous and prejudicial to the interest of the revenue to that extent that the order had been passed initiating penalty by invoking penalty u/s 271AAB instead of penalty u/s 271(1)(c). Accordingly, in exercise of powers conferred u/s.263(1) of the Act, do hereby modify the order passed u/s.143(3) r.w.s.153A dated 18.02.2021 with a direction to

ITA Nos.657 to 660/CHNY/2023 - 5 - V V Titanium Pigments Pvt. Ltd. the assessing officer to invoke the penalty provisions of section 271(1)(c) for concealment of income by the assessee for the AY 2014-15.”

7.

Aggrieved, assessee has filed the present appeals before the Tribunal. The assessee has raised identical grounds in all these appeals. The grounds raised for assessment year 2014-15 reads as follows:- 1. The Order of the PCIT (Central), Chennai-2 is contrary to the law, facts and circumstances of the case. 2. The PCIT (Central), Chennai-2 has erred in exercising his power u/s.263 on a subject matter which was not part of the assessment order. 3. The PCIT (Central), Chennai-2 has erred in relying on the CIT Vs. Chennai Metro Rail Limited to support his action u/s.263. 4. The PCIT (Central), Chennai-2 has erred in not considering the submissions made by the authorized representative of the appellant dated 20/02/2023. 5. The PCIT (Central), Chennai-2 erred in holding that the facts in the case of Smt. Abha Bansal Vs. PCIT are totally different without pointing out such difference in his order dated 31/03/2023. 6. The PCIT (Central), Chennai-2 erred in holding that Explanation (1)(a) to Section 263 will include an order passed u/s.153A with the prior approval of Joint Commissioner. 7. The PCIT (Central), Chennai-2 erred in not recognizing that he does not have power to direct the assessing officer to have a satisfaction in terms of section 271(1)(c) after completion of the assessment proceedings. 8. For these and such other grounds that may be permitted to be raised during the hearing of the appeal.

8.

The Ld.AR’s limited submission is that for initiation of penalty u/s.271(1)(c) of the Act, the same has to be recorded by the AO during the course of assessment proceedings and not at any time thereafter. It was contended by the Ld.AR that when the AO has

ITA Nos.657 to 660/CHNY/2023 - 6 - V V Titanium Pigments Pvt. Ltd. not initiated penalty proceedings u/s.271(1)(c) of the Act during the course of assessment proceedings and on the contrary initiated penalty proceedings u/s.271AAB/271A of the Act, the PCIT in exercising the revisionary powers cannot direct the AO to initiate penalty proceedings u/s.271(1)(c) of the Act. In support of his contention, the Ld.AR relied on the following judgments:- i. Hon’ble Madras High Court in the case of CIT vs. Chennai Metro Rail Ltd., [2018] 92 taxmann.com 329 (Madras) ii. Hon’ble Madras High Court in the case of CIT vs. C.R.K. Swamy, [2002] 254 ITR 158 (Madras) iii. Hon’ble Delhi High Court in the case of Addl.CIT vs. Sudharshan Talkies, [1993] 200 ITR 153 (Delhi) iv. Hon’ble Delhi High Court in the case of Addl.CIT vs. J.K. D’Costa, [1982] 133 ITR 7 (Delhi)

9.

Further, the Ld.AR submitted that for assessment year 2014-15, addition towards unaccounted cash receipts amounting to Rs.1,36,81,250/- has been deleted by the CIT(A) vide appellate order dated 05.03.2024. Hence, no penalty u/s.271AAB or u/s.271(1)(c) of the Act could be imposed. Therefore, it was stated that the order u/s.263 of the Act directing the AO to initiate penalty u/s.271(1)(c) of the Act has become infructuous and deserves to the quashed on this ground alone.

10.

The Ld.DR strongly supported the order of PCIT passed u/s.263 of the Act.

ITA Nos.657 to 660/CHNY/2023 - 7 - V V Titanium Pigments Pvt. Ltd. 11. We have heard the rival submissions and perused the material available on record. As stated earlier, for assessment years 2014-15 to 2016-17, the AO had initiated penalty proceedings u/s. 271AAB of the Act, whereas for assessment year 2017-18, penalty proceedings were initiated u/s. 270A of the Act while completing the assessments u/s. 143(3) r.w.s.153A of the Act. The PCIT, in exercise of his revisionary jurisdiction u/s. 263 of the Act, set aside the respective assessment orders for the limited purpose by directing the AO to initiate penalty proceedings u/s. 271(1)(c) of the Act.

12.

It is a settled proposition of law that assessment proceedings and penalty proceedings are separate and independent proceedings. The failure of the AO to initiate penalty proceedings, by itself, does not render the assessment order erroneous so as to attract the provisions of section 263 of the Act. This proposition is supported by the judgment of the Hon’ble Delhi High Court in the case of Addl.CIT v. J.K. D’Costa reported in [1982] 133 ITR 7 (Delhi). In the said case, the AO had failed to initiate penalty proceedings u/s. 271(1)(a) and 273(b) of the Act while completing the assessment. The Addl. Commissioner invoked his revisionary jurisdiction u/s. 263 of the Act, set aside the assessment order with a direction to the AO

ITA Nos.657 to 660/CHNY/2023 - 8 - V V Titanium Pigments Pvt. Ltd. to make a fresh assessment after considering the question of levy of penalty. On appeal against the order passed u/s.263 of the Act, the Tribunal held that the Addl. Commissioner could not, in exercise of jurisdiction u/s. 263 of the Act, direct the AO to levy penalty and accordingly modified the order passed u/s. 263 of the Act. On further appeal by the Revenue, the Hon’ble Delhi High Court dismissed the appeal, observing as under:- "so far as section 263 is concerned, it refers to a particular proceeding that is being considered by the Commissioner and it is not possible when the Commissioner is dealing with the assessment proceedings and the assessment order to expand the scope of these proceedings and to view the penalty proceedings also as part of the proceedings which are being sought to be revised by the Commissioner. There is no identity between the assessment proceedings and the penalty proceedings; the latter are separate proceedings that may, in some cases, follow as a consequence of the assessment proceedings.

13.

The Hon’ble Apex Court had dismissed the SLP from the above judgment of the Hon’ble Delhi High Court [Reported in 147 ITR (St) 1 (SC)]. The judgment of the Hon’ble Delhi High Court in the case of J.K. D’Costa, supra was subsequently followed by the Hon’ble Delhi High Court in the case of Addl.CIT v. Sudharshan Talkies [1993] 200 ITR 153 (Delhi). The ratio laid down in the said decision was thereafter followed by the Hon’ble Jurisdictional High Court in the case of CIT v. C.R.K. Swamy [2002] 254 ITR 158

ITA Nos.657 to 660/CHNY/2023 - 9 - V V Titanium Pigments Pvt. Ltd. (Madras). The relevant portion of the judgment of the Hon’ble Madras High Court reads as under:- "2. Moreover, as held by a Bench of the Delhi High Court in the case of Addl. CIT v. Sudershan Talkies [1993] 200 ITR 153, failure on the part of the assessing authority to initiate penalty proceedings would not give jurisdiction to the Commissioner of Income-tax to pass an order under section 263 of the Income-tax Act, 1961 ('the Act') and to direct initiation of such proceedings. We are in respectful agreement with that view." 14. We further find that the judgment of the Hon’ble Jurisdictional High Court relied upon by the PCIT in his revisionary order, namely, CIT v. Chennai Metro Rail Ltd. [2018] 92 taxmann.com 329 (Madras), is, in substance, in favour of the assessee. In the said case, the AO, while completing the assessment u/s. 143(3) of the Act, had made an addition of Rs.5,32,60,536/- under the head “Income from Other Sources”. However, the AO did not initiate penalty proceedings u/s. 271(1)(c) of the Act. The PCIT, Chennai-1, in exercise of his powers u/s. 263 of the Act, held that the assessee had furnished inaccurate particulars of income and, therefore, the provisions of section 271(1)(c) of the Act were attracted. According to the PCIT, the failure of the AO to initiate penalty proceedings rendered the assessment order erroneous and prejudicial to the interests of the Revenue. On appeal, the Tribunal allowed the appeal of the assessee and held that the PCIT was not justified in directing the AO

ITA Nos.657 to 660/CHNY/2023 - 10 - V V Titanium Pigments Pvt. Ltd. to initiate penalty proceedings u/s. 271(1)(c) of the Act. On further appeal by the Revenue, the Hon’ble Jurisdictional High Court upheld the order of the Tribunal and held that, on the facts of the case, the Tribunal was justified in quashing the revisionary order passed u/s. 263 of the Act. The Hon’ble High Court further observed that the provisions of section 271(1)(c) of the Act are discretionary, as the section uses the expression “may”, and initiation of penalty proceedings requires satisfaction of the AO. Therefore, in the absence of such satisfaction, it would be reasonable to presume that the AO had exercised his discretion not to initiate penalty proceedings u/s. 271(1)(c) of the Act.

15.

In the instant case, the assessments were completed pursuant to a search conducted u/s. 132 of the Act and, according to the AO, the assessee had earned undisclosed income. The Act has specifically provided a separate and self-contained scheme for levy of penalty in cases where a search has been initiated, namely, section 271AAB of the Act, which is specifically titled “Penalty where search has been initiated”. Explanation (c) to section 271AAB of the Act defines “undisclosed income” as “any income …….found in the course of search”. Further, section 271AAB(1) of the Act begins with a non-obstante clause and, therefore, operates

ITA Nos.657 to 660/CHNY/2023 - 11 - V V Titanium Pigments Pvt. Ltd. notwithstanding anything contained in any other provision of the Act, which would include the provisions of sections 271(1)(c) and 270A of the Act. More importantly, section 271AAB(2) of the Act expressly provides that no penalty under the provisions of section 271(1)(c) or section 270A shall be imposed upon the assessee in respect of the undisclosed income referred to in section 271AAB.

16.

For assessment year 2014-15, the Ld. AR submitted that the addition of Rs.1,36,81,250/- made in the assessment completed u/s. 153A of the Act towards unaccounted cash receipts has already been deleted by the CIT(A) vide order dated 05.03.2024. It was, therefore, contended that, once the quantum addition itself has been deleted, the direction of the PCIT to the AO to initiate penalty proceedings u/s. 271(1)(c) of the Act has become infructuous. Accordingly, the Ld. AR submitted that the revisionary order passed u/s. 263 of the Act, insofar as assessment year 2014-15 is concerned, deserves to be quashed on this ground alone.

17.

On consideration of the contentions advanced by the Ld. AR and the material available on record, we find that the issue before us is confined to the validity of the revisionary jurisdiction exercised by the PCIT u/s.263 of the Act. In the impugned revisionary orders,

ITA Nos.657 to 660/CHNY/2023 - 12 - V V Titanium Pigments Pvt. Ltd. the PCIT has merely referred to the additions made by the AO and observed that the same attracted levy of penalty u/s.271(1)(c) of the Act, which, according to him, had been inadvertently omitted to be initiated by the AO. The PCIT further observed that the AO had inadvertently initiated penalty proceedings u/s.271AAB/270A of the Act. However, we find that the PCIT, in the impugned orders, has not recorded any finding as to how the conditions prescribed for invoking section 271(1)(c) of the Act, namely, concealment of particulars of income or furnishing of inaccurate particulars of income, were satisfied in the present case. The AO, while completing the assessments u/s.143(3) r.w.s.153A of the Act, had specifically recorded that penalty proceedings u/s.271AAB/270A of the Act were initiated separately in respect of the additions made. Thus, the AO had consciously invoked the applicable penalty provisions and did not initiate proceedings u/s.271(1)(c) of the Act. It is not in doubt that the Principal Commissioner is empowered to impose penalty u/s.271(1)(c) of the Act. However, such power has to be exercised in accordance with the statutory requirements and during the course of proceedings under the Act. Ordinarily, where the AO is satisfied during the course of assessment proceedings that the assessee has concealed particulars of income or furnished inaccurate particulars of income, the AO is required to record such

ITA Nos.657 to 660/CHNY/2023 - 13 - V V Titanium Pigments Pvt. Ltd. satisfaction and initiate appropriate penalty proceedings. Likewise, the appellate authority, during the course of appellate proceedings, may initiate penalty proceedings where the statutory conditions are satisfied for invoking penalty proceedings u/s.271(1)(c) of the Act.

18.

In the present case, the AO had specifically initiated penalty proceedings u/s.271AAB/270A of the Act and, after considering the facts of the case, had consciously not initiated penalty proceedings u/s.271(1)(c) of the Act. In our considered view, the PCIT cannot, by exercising revisionary jurisdiction u/s.263 of the Act, direct the AO to initiate penalty proceedings u/s.271(1)(c) merely because, in his opinion, such proceedings ought to have been initiated, particularly when the statutory conditions for invoking the said provision have neither been examined nor recorded in the impugned revisionary orders. Therefore, having regard to the facts of the present case and relying on the judicial pronouncements cited supra, we hold that the PCIT was not justified in exercising jurisdiction u/s.263 of the Act and directing the AO to initiate penalty proceedings u/s. 271(1)(c) of the Act. Accordingly, the impugned revisionary orders passed u/s. 263 of the Act are quashed. Since we have quashed the revisionary orders on the above issue, the other legal grounds/issues raised by the assessee

ITA Nos.657 to 660/CHNY/2023 - 14 - V V Titanium Pigments Pvt. Ltd. are not adjudicated upon and are left open. It is ordered accordingly.

19.

In the result, the appeals filed by the assessee in ITA Nos. 657 to 660/CHNY/2023 are partly-allowed.

Order pronounced in the open court on 8th September,2026 at Chennai.

Sd/- Sd/- (एस.आर. रघुनाथा) (जॉज� जॉज� के) (GEORGE GEORGE K) (S.R. RAGHUNATHA) लेखा सद�य/ACCOUNTANT MEMBER उपा�य� /VICE PRESIDENT चे�नई/Chennai, �दनांक/Dated, the 8th September, 2026 RSR, Sr.PS आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 2. ��यथ�/Respondent 3. आयकर आयु�त /CIT, Chennai 4. �वभागीय ��त�न�ध/DR 5. गाड� फाईल/GF. By Order Digitally signed by REKHA REKHA SENTHIL RAJ SENTHIL RAJ Date: 2026.09.10 11:10:23 +05'30'

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