M/S. DEEPAK INDUSTRIES LTD.,KOLKATA vs. DCIT, CIRCLE 5(1), KOLKATA, KOLKATA

IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, KOLKATA Before Shri Rajesh Kumar, Accountant Member and Shri Pradip Kumar Choubey, Judicial Member ITA No 1538/KOL/2026 Assessment Year- 2018-19 M/s Deepak Industries Ltd.......................................................................................Appellant C/o. M/s Salarpuria Jajodia & Co., 7, C.R. Avenue, 3rd Floor, Kolkata- 700072 [PAN No. AAACD8676J] Vs. DCIT, Circle-5(1)......,..……………....…………………………………………..Respondent Kolkata, West Bengal- 700069 Appearances by: Siddharth Jhajharia, FCA, appeared on behalf of the Appellant. Raman Garg, CIT, DR, appeared on behalf of the Respondent. Date of concluding the hearing: July 21, 2026 Date of pronouncing the order: September 03 ,2026 ORDER Per Pradip Kumar Choubey, Judicial Member: This appeal filed by the assessee is directed against the order dated 05.03.2026 of the Office of the Principal Commissioner of Income Tax PCIT, Kolkata passed under Section 147r.w.s.143(3) of the Assessment Year 2018-19 of the Income-tax Act, 1961 (hereinafter referred to as “the Act”). 2. The brief facts of the case of the assessee is that the assessee company, M/s. Deepak Industries Limited, filed its return of income for A.Y. 2018-19 on 28.09.2018 declaring total income of Rs.54,20,47,250/-. The return was processed under section 143(1) of the Income-tax Act, 1961 (hereinafter referred as "the Act") on 15.11.2019, wherein total income was determined at Rs.54,41,76,820/- and refund of Rs.36,25,442/- was misused. Subsequently, on

ITA No.1538/Kol/2026 the basis of information available with the Department that the assessee had allegedly received a loan of Rs.20,00,000/- during the relevant previous year from a shell entity, namely M/s. Classic Media Makers Ltd, the assessment was reopened under section 147 of "the Act" after obtaining prior approval of the competent authority. Notice under section 148 of "the Act" was issued on 06.04.2022. In response to the notice under section 148, the assessee filed its return of income on 18.04.2022 declaring total income of Rs.54,20,47,250/-, being the same income as originally returned. The reassessment was completed under section 147 read with section 144B of "the Act" vide order dated 07.03.2024, determining the total income at Rs. 54,40,47,250/-. In the reassessment order, the Assessing Officer made an addition of Rs.20.00.000/- as unexplained cash credit under section 68 of "the Act and taxed the same under section 115BBE of "the Act". The Assessing Officer also initiated penalty proceedings under section 270A of "the Act for under-reporting of income in consequence of misreporting, and notice under section 270A read with section 274 of "the Act" was issued on 07.03.2024. The order of the AO has been set aside by the PCIT Kolkata under section 263 by holding thus- In view of the foregoing discussions, I hold that the assessment order dated 07-03-2024 is erroneous in sofar as it is prejudicial to the interest of there venue to the limited extent of incorrect initiation of penalty proceedings under section 270A instead of initiating penalty proceedings u/s 271AAC(1). 3. Aggrieved by the said order assessee preferred appeal before us by taking following grounds:- 1 For that in view of the facts and in the circumstances, the Ld. PCTT erred in setting aside the order u/s 147/143(3)/1448 by treating the said order as erroneous and prejudicial and in view of the facts and in the circumstances Ld. PCIT's action in such respect is bad in law and it may be held accordingly.

ITA No.1538/Kol/2026 2 Without prejudice to Ground No. 1 above, the impugned proceedings and consequent order has been passed on the alleged ground of non initiation of penalty proceedings u/s 271AAC(1) and the same cannot be ground for setting aside the underlying order and in view of the facts and in the circumstances it may be held accordingly. 3. Without prejudice to Grounds No. 1 & 2 above, the discretion to initiate penalty proceedings u/s 2718) lies with AO and mere non initiation of such penalty cannot render the underlying order as erroneous or prejudicial to the interest of revenue and in view of the facts and in the circumstances Ld. PCIT's action in sach respect is bad in law and it may be held accordingly. 4. Without prejudice to Grounds No. 1 to 3 above, the addition made u/s 68 in the underlying order u/s 147/144B itself is bad in law and consequently the initiation u/s 271ase (in such respect has no legal sanctity and as such the action of Ld. PCIT in such respect is bad in law and in view of the facts and in the circumstances it may be held accordingly. 5. For that your petitioner craves the right to put additional grounds and/or to alter/amend/modify the present grounds at the time of hearing.

ITA No.1538/Kol/2026 has addressed to the bench that orders should be passed on merit by living aside the legal grounds raised by the assessee. The Ld DR has agreed that he is ready to argue the issue on merit. 5. Upon hearing the submission of the counsel of the respective parties and on perusal of the impugned order we find that the impugned order u/s 263 has been passed by the Ld. PCIT by holding that unexplained income of Rs. 20,00,000/- has been considered u/s 68 with Section 115BBE of the Act. Hence penalty u/s 271AAC(1) of the act is leviable on the unexplained income and accordingly the assessment order is partly set aside. The impugned order passed only on the issue of correct section to be mentioned in the penalty i.e u/s 270A or 271AAC(1) of the Act. The Ld. AR submits that non-initiation of penalty proceedings u/s 271 AAC(1) of the Act cannot by itself render the assessment order erroneous or prejudicial to the interest of the Revenue. He has brought to the following decision in which findings had been given:- CIT V. Linotype & Machinery Ltd. [1991] 192 itr 337 (Cal.) The Hon'ble Calcutta High Court has held that penalty proceedings do not form part of assessment proceedings, and that recording of satisfaction or a direction to initiate penalty is not an integral part of the assessment order, so that failure to record such satisfaction does not render the assessment order ipso facto erroneous or prejudicial to the interest of the Revenue. It has further been held that in the context of the revisional power, the Commissioner cannot expand his jurisdiction over the assessment order and the assessment proceedings to also cover penalty proceedings which are not before him. Addl. CTT v. J.K. D'Costa [1982] 133 ITR 7 (Delhi)

ITA No.1538/Kol/2026 The Hon'ble Delhi High Court held that penalty proceedings under sections 271(1)(a)/273(b) are independent of and separate from assessment proceedings, that recording of satisfaction as to leviability of penalty is a matter of convenience rather than legal requirement, and that an assessment cannot be treated as erroneous or prejudicial to Revenue merely because the Assessing Officer failed to record his opinion on the levibility of penalty. This decision, it is respectfully submitted, was affirmed by the Hon'ble Supreme Court on dismissal of the Special Leave Petition filed by the Revenue [(1984) 147 ITR (St.) 1]. Mukul Rohatgi v. PCITITA No. 2427/Del/2025, order dated 16.2.2026 (ITAT Delhi) The Tribunal held that where there was no material before the Ld. PCIT to form even a prima facie opinion that the assessment order was erroneous and prejudicial to the interest of theRevenue including on the issue of non-initiation of penalty proceedings under section 271C-the revision order lacked material and did not stand the test of law, and was accordingly quashed. GM Builders v. PCIT-ITA No. 2192/Mum/2024, order dated 12.3.2025 (ITAT Mumbai) Following the decisions of the Hon'ble Delhi and Madras High Courts, the Tribunal held that the Ld. PCIT erred in invoking section 263 and directing initiation of penalty proceedings under section 270A merely because the Assessing Officer had chosen not to initiate the same, holding that the PCIT cannot substitute his own view for that of the Assessing Officer on this count, and quashed the revision order. CTT v. Keshrimal Parasmal [1986] 27 Taxmann 447 (Raj.)

ITA No.1538/Kol/2026 The Hon'ble Rajasthan High Court has taken a consistent view on the same proposition, which has been noted with approval in the later decisions of the Hon'ble Punjab & Haryana High Court referred to above. Nemichand Jain (HUF) v. PCITITA No. 223/1nd/2024 (ITAT Indore) . The Tribunal, following the line of authority discussed above, has taken the view that mere non-initiation of penalty proceedings by the Assessing Officer does not, without more, clothe the Ld. PCIT with jurisdiction to invoke section 263. Shantanu Kr. Jain (HUF) v. PCIT-ITA No. 289/Ind/2024, order dated 8.10.2024 (TITAT Indore) 26. A co-ordinate Bench of the Tribunal has taken a similar view on the point, reinforcing the proposition that the discretion whether or not to initiate penalty proceedings rests with the Assessing Officer and cannot be substituted by the Ld. PCIT in exercise of revisional jurisdiction. 7. Going over the order passed by the several Tribunals and the Hon’ble High Court we do not any hesitation to hold that mere non initiation of penalty proceeding cannot render the assessment order erroneous or prejudicial to the interest of the Revenue. Accordingly, the order passed by the PCIT u/s 263 is hereby set aside. In the result, the appeal of the assessee is allowed on merit. Kolkata, the 3rd September , 2026.

Sd/- Sd/- [Rajesh Kumar] [Pradip Kumar Choubey] Accountant Member Judicial Member

ITA No.1538/Kol/2026

Dated: 03 .09.2026. Copy of the order forwarded to: 1. Appellant - 2. Respondent - 3. CIT(A)- 4. CIT- 5. CIT(DR)

//True copy// By order Manish Bhoi, Deputy Registrar, Kolkata