LALIT KUMAR JINDAL,MOHALI vs. THE ASSESSING AUTHORITY, GANDHINAGAR

The present appeal has been preferred by the Assessee against the Order, dated 19/03/2026, passed by the LearnedPrincipal Commissioner of Income Tax Ahmedabad-3 [hereinafter referred to as the ‘PCIT’] under Section 263 of Income-Tax Act, 1961 (for short ‘the Act’) whereby the Assessment Order, dated 28/03/2024, of the Act for the Assessment Year 2019-2020 was set aside.

The Assessee has raised following grounds of appeal:

The relevant facts in brief are that the Assessing Officer completed the assessment for the Assessment Year 2019-2020 vide Assessment Order, dated 28/03/2024, under Section 147 r.w.s. 144B of the Act determining total assessed income at INR.1,00,56,920/- after making an addition of INR.31,50,000/- as unexplained investment under Section 69 of the Act. While completing the assessment, the Assessing Officer initiated penalty proceedings under Section 270A of the Act for under-reporting of income. On verification of the assessment records, the Learned PCIT noticed that the addition made in the assessment order pertained to income assessed under Section 69 of the Act. Under the statutory provisions of Section 271AAC(1) of the Act, where addition has been made, inter alia, under Section 69 of the Act penalty is leviable under Section 271AAC(1) of the Act. Furthermore, Section 271AAC(2) of the Act explicitly bars the imposition of penalty under Section 270A in respect of income referred to in Section 271AAC(1). Therefore, the Learned PCIT formed a view that the Assessing Officer had incorrectly initiated penalty proceedings under Section 270A instead of Section 271AAC of the Act rendering the Assessment Order, dated 28/03/2024, erroneous in so far as it is prejudicial to the interests of the Revenue. Consequently, a show cause notice under Section 263 of the Act dated 17/02/2026 was issued to the Assessee. In response, vide Reply, dated 26/02/2026, the Assessee submitted that appeal against the Assessment Order, dated 28/03/2024, has already been filed and was pending before the appellate authority, and therefore, a parallel revision proceedings under Section 263 were not maintainable. The Learned PCIT rejected the objections raised by the Assessee vide Order, dated 19/03/2026, passed under Section 263 of the Act. The Learned PCIT held that mere pendency of appeal before the Commissioner (Appeals) does not attract the doctrine of merger on issues not decided, as per Clause (c) of Explanation 1 to Section 263. The PCIT further observed that initiation of penalty under Section 271AAC is a separate and independent statutory issue from the quantum addition under Section 69 pending before the CIT(A). Relying on the decisions of the Hon’ble Supreme Court in CIT v. Paville Projects (P.) Ltd. [2023] 149 Taxmann 115 (SC), the Hon’ble Allahabad High Court in CIT v. Surendra Prasad Agarwal: 142 Taxman 653 (Allahbad), the Hon’ble Madhya Pradesh High Court in Addl. CIT v. Indian Pharmaceuticals:123 ITR 874, and Explanation 2(a) to Section 263(1) of the Act, the Learned PCIT set-aside the Assessment Order, dated 28/03/2024, and directed the Assessing Officer to pass a fresh assessment order and record proper satisfaction for initiating penalty proceedings under Section 271AAC of the Act. Being aggrieved by the above order passed by the PCIT under Section 263 of the Act, the Assessee has preferred the present appeal on the grounds reproduced in paragraph 2 above.

We have heard the rival submissions and have perused the material on record.

The issue that arises for consideration is whether in the facts and circumstances of the present case, the Learned PCIT was justified in holding that the Assessment Order was erroneous in so far as prejudicial to the interest of Revenue since the Assessing Officer had initiated penalty proceedings under incorrect provisions contained in Section 270A of the Act instead of Section 271AAC of the Act.

It is admitted position that addition was made by the Assessing Officer under Section 69 of the Act. Section 271AAC was inserted as a specific provision for imposing penalty where the income determined includes any income referred to in, inter alia, Section 69 of the Act. Sub-section (2) of Section 271AAC clearly provides that no penalty under the provisions of Section 270A shall be imposed upon the assessee in respect of income referred to in Section 271AAC(1) of the Act. In the present case, the Assessing Officer made a quantum addition of INR.31,50,000/- as unexplained investment under Section 69 of the Act. However, in the assessment order, the Assessing Officer initiated penalty proceedings under Section 270A for under-reporting of income, instead of Section 271AAC. The action of the Assessing Officer was clearly in violation of the provisions of Section 271AAC(1)/(2) of the Act. An order passed by the assessing officer without applying the correct provisions of law constitutes an erroneous order. The bar on levying penalty under Section 270A of the Act contained in Section 271AAC(2) of the Act makes the Assessment Order prejudicial to interest of revenue. The Hon’ble Allahabad High Court in CIT v. Surendra Prasad Agarwal [142 Taxman 653] and the Hon’ble Madhya Pradesh High Court in Addl. CIT v. Indian Pharmaceuticals [123 ITR 874] has held that the term 'assessment' encompasses the whole procedure laid down under the Act, including the consideration of liability for penalty. While reference has been made to some decision of the Tribunal by the Learned Authorised Representative for the Assessee, we note that the aforesaid judgments of the Hon’ble High Court were neither brought to the attention nor considered. We hold that in the facts and circumstances of the present case the action of the Assessing Officer of initiating penalty proceedings under Section 270A of the Act rendered the assessment order erroneous and prejudicial to the interest of Revenue, conferring valid jurisdiction on the PCIT under Section 263 of the Act. Therefore, we find no infirmity in the revision order passed by the Learned PCIT under Section 263 of the Act. Consequently, answering the issue in favour of the Revenue we dismiss all the grounds raised by the Assessee.

In result, the present appeal preferred by the Assessee is dismissed.

""यथ"/ The Respondent. 3. संबंिधतआयकरआयु"/ Concerned CIT 4. आयकरआयु"(अपील) / The CIT(A) 5. िवभागीय"ितिनिध, आयकरअपीलीयअिधकरण/ DR, ITAT, 6. गाड"फाईल /Guard file. आदेशानुसार/BY ORDER, उप/सहायकपंजीकार (Dy./Asstt.