HONER PRIME HOUSING LLP,HYDERABAD vs. DCIT, CENTRAL CIRCLE-2(1), HYDERABAD

ITA 2167/HYD/2025Status: DisposedITAT Hyderabad07 October 2026AY 2022-2344 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the assumption of jurisdiction by the learned PCIT under Section 263 was unsustainable in law. The Tribunal noted that the revision proceedings were not undertaken to correct any error affecting the assessed income or tax liability, but solely to enable the initiation of independent penalty proceedings which were not initiated in the original assessment. The Tribunal relied on various High Court decisions, including those of the Delhi, Rajasthan, and Punjab & Haryana High Courts, which held that the CIT could not direct the initiation of penalty proceedings under Section 263 when the AO had not initiated them. The Tribunal further held that the omission of the AO to record satisfaction for initiating penalty proceedings under Section 271D, in the facts and circumstances, does not render the assessment order erroneous insofar as it is prejudicial to the interests of the Revenue. The Tribunal also observed that Section 263 cannot be invoked merely to set aside a completed assessment to enable the Department to initiate or revive penalty proceedings, especially where it would circumvent the statutory limitation prescribed under Section 275(1)(c). Consequently, the impugned order passed by the PCIT under Section 263 was quashed, and the assessment order passed by the AO was restored.

What were the facts?

The assessee, Honer Prime Housing LLP, engaged in real estate, filed its return for AY 2022-23. Following a search operation on October 14, 2022, its case was selected for scrutiny. The Assessing Officer (AO) completed the assessment under Section 143(3) on September 5, 2024, determining a total income of Rs. 281,83,07,820/-, including additions for undisclosed income and unaccounted cash receipts. Subsequently, the Principal Commissioner of Income Tax (PCIT) issued a show-cause notice under Section 263 on August 26, 2025, proposing to revise the assessment order. The PCIT believed the order was erroneous and prejudicial to revenue due to the AO's failure to initiate penalty proceedings under Section 271D for alleged violations of Section 269SS, which attracts penalties for accepting cash deposits above a certain limit.

What were the issues?

1. Whether the learned Principal Commissioner erred in assuming jurisdiction under Section 263 of the Income Tax Act, 1961, to revise the assessment order passed under Section 143(3) for the Assessment Year 2022-23, on the ground that the Assessing Officer failed to record satisfaction for initiating penalty proceedings under Section 271D for alleged violations of Section 269SS. The Assessee contended that penalty proceedings under Section 271D are independent of assessment proceedings, and the AO's failure to record satisfaction for penalty does not vitiate the assessment order or make it erroneous and prejudicial to the revenue. The assessee argued that the PCIT's show-cause notice was invalid as it was based on the premise of non-initiation of penalty proceedings. The Revenue, represented by the CIT-DR, argued that the assessment order was erroneous and prejudicial to the interest of revenue because the AO failed to record satisfaction regarding the violation of Section 269SS, which would attract penalty under Section 271D. The Revenue contended that the scope of assessment includes consideration of facts indicating potential penalty liabilities.

Which sections of the Income-tax Act were involved?

Section 132,Section 143(3),Section 263,Section 269SS,Section 271D,Section 274,Section 275

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, Hyderabad “A” Bench, Hyderabad

For Respondent: DR. Seema Meena

PER MANJUNATHA G., A.M: The appeal filed by the assessee is directed against the order passed by the Ld. Principal Commissioner of Income Tax (Central), Hyderabad, dated 10.11.2025 under section 263 of the Income Tax Act, 1961, for the Assessment Year 2022-23

The order continues below.

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