Loading judgment…
Facts
The assessee filed an appeal against an ex-parte order passed by the Principal Commissioner of Income Tax (PCIT) under Section 263 of the Income Tax Act for AY 2016-17. The PCIT had directed the Assessing Officer (AO) to modify the assessment order and initiate penalty proceedings under Section 271(1)(c) instead of Section 270A, deeming the AO's initial action erroneous and prejudicial to the revenue.
Held
The Tribunal held that the PCIT erred in exercising revisionary powers under Section 263 to change the penalty provision invoked by the AO, especially when penalty proceedings under Section 270A had already been initiated. The Tribunal noted that the PCIT cannot determine which penalty section should have been invoked as part of the revisionary power and that the assessment order cannot be deemed erroneous solely on this basis. Furthermore, the Tribunal emphasized the mandatory hearing requirement before passing orders related to penalties.
Key Issues
Whether the PCIT has the jurisdiction under Section 263 to revise an assessment order by directing the AO to invoke a different penalty provision (Section 271(1)(c) instead of Section 270A) and if the assessment order was indeed erroneous and prejudicial to the revenue on this ground.
Sections Cited
147, 144, 144B, 68, 263, 270A, 271(1)(c), 275, 246, 246A, 253
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, SURAT “DB”BENCH, SURAT
Before: DR. BRR KUMAR & MS. SUCHITRA KAMBLE
IN THE INCOME TAX APPELLATE TRIBUNAL SURAT “DB”BENCH, SURAT BEFORE DR. BRR KUMAR, VICE PRESIDENT & MS. SUCHITRA KAMBLE, JUDICIAL MEMBER I.T.A. No.816/Srt/2025 (Assessment Year: 2016-17) Alpesh Umeshchandra Jariwala, Vs. Income Tax Officer, 3/3942, Kanbi Sheri, Navapura, Ward-1(2)(1), Surat-395003 Surat [PAN No.AFJPJ4518C] (Appellant) .. (Respondent) Shri V I Rudalal, AR with Shri Rushi Parekh, Appellant by : CA Respondent by: Shri Mukesh Jain, CIT-DR Date of Hearing 19.01.2026 Date of Pronouncement 06.04.2026 O R D E R PER SUCHITRA KAMBLE - JUDICIAL MEMBER: The appeal filed by the assessee is against the order passed by the Ld. Principal Commissioner of Income Tax-1, (in short “Ld. PCIT”), Surat on 22.01.2025 for A.Y. 2016-17.
The assessee has raised the following grounds of appeal:
“1. That the learned Principal Commissioner of lncome-tax-1, Surat erred by passing ex-parte order u/s-263 without considering our submission dtd.17/12/2024. 2. That the learned Principal Commissioner of Income-tax-1, Surat erred in law as well as on the facts of the case in assuming jurisdiction u/s 263 of the Act by wrongly and incorrectly holding that the AO instead of initiating penalty proceeding u/s 270(1)(c) initiated the penalty proceedings u/s 270A of the Act, hence, the assessment order passed by the AO on dated 03/03/2023 u/s 147 r.w.s.144 r.w.s.144B, erroneous and prejudicial to the interest of revenue. Hence, the proceedings so initiated u/s 263 of the Act and the impugned order passed u/s- 263 of the Act. deserves to be quashed. 3. That the order passed by learned Principal Commissioner of Income-tax- 1, Surat, u/s-263 of IT Act setting aside the assessment framed u/s-147 r.w.s144
ITA No. 816/Srt/2025 AlpeshUmeshchandra vs. ITO Asst. Year –2016-17 - 2– r.w.s.144B of the Act as erroneous and prejudicial to the interest of the revenue is without jurisdiction, bad in law and void ab-initio. 4. The appellant craves leave to add, amend, alter, vary and' or withdraw any or all the above grounds of Appeal.” 3. The assessee filed return of income for A.Y. 2016-17 on 17.08.2016 declaring total income of Rs. 4,12,940/-. As per the information the assesee’s case was reopened in respect of investing unaccounted money in commodity market and properties. The case of the assessee was reopened under Section 147 of the Act. During the assessment proceedings, it was found that commodity market entries amounting to Rs. 1,56,00,753/- was reflecting in assessee’s bank account maintained with Tamilnadu Mercantile Bank. The assessee did not reply any statutory notices, therefore, the assessment was passed under Section 147 r.w.s. 144 r.w.s. 144B of the Act after making addition of Rs. 1,56,00,753/- treating the said amount as unexplained credits under Section 68 of the Act. The PCIT observed that the Assessing Officer has not initiated penalty under Section 271(1)(c) and initiated penalty under Section 270A of the Act. The show cause notice under Section 263 dated 05.03.2024 was issued and served upon the assessee. The assessee has not filed any reply, therefore, the PCIT directed the Assessing Officer under Section 263 to modify the assessment order thereby initiating the correct penalty proceedings under Section 271(1)(c) of the Act. The assessee filed present appeal in respect of the same before us.
The Ld. AR submitted that the PCIT has passed ex-parte order under Section 263 of the Act without cognizance of the assessee’s submission dated 17.12.2024. The Ld. AR submitted that the PCIT has
ITA No. 816/Srt/2025 AlpeshUmeshchandra vs. ITO Asst. Year –2016-17 - 3– issued the jurisdiction under Section 263 of the Act wrongly. The initiation of penalty proceedings under Section 270A in respect of 271(1)(c) of the Act is not a revisional power and cannot be initiated under Section 263 of the Act. The Ld. AR relied upon the decision of Paramanand M. Patel which was related to the pre-amendment. The Ld. AR further relied upon Section 275 which is related to barred of limitation. The Ld. AR further submitted that there is a delay of 128 days in filing the present appeal for which the delay of condonation application has been filed. Hence, the delay is condoned.
The Ld. DR relied upon the assessment order and the order passed under Section 263 of the Act. The Ld. DR further submitted that as per Section 275 no order imposing of penalty under Chapter 21 shall be passed in case where the relevant assessment order other order is subject matter of an appeal to the CIT(A) under Section 246 or Section 246A or an appeal to the Appellate Tribunal under Section253 after the expiry of the Financial Year in which the proceedings in the course of which action for the imposition of penalty has been initiated are completed or six months from the end of the month in which the order of the Joint Commissioner (Appeals) or the Commissioner of Appeals or as the case may be the Appellate Tribunal is received by the PCIT or Commissioner whichever period expires later.
We have heard both the parties and perused all the relevant material available on record. It is pertinent to note that Section 275 categorically mentions in First Proviso that no order of imposing or enhancing or reducing or cancelling penalty or dropping the proceedings for imposition of penalty shall be passed unless the
ITA No. 816/Srt/2025 AlpeshUmeshchandra vs. ITO Asst. Year –2016-17 - 4–
assessee has been heard, or has been given reasonable opportunity of being heard. In the present case the penalty under which section has to be initiated cannot be determined under Section 263 which is a revisionary power as the Assessing Officer has initiated penalty under Section 270A and in fact the penalty has already been initiated. Thus, the revisionary power cannot be exercised merely on the fact that the penalty proceedings were not rightly invoked / initiated. Assessment order on the very same basis cannot held as erroneous in so far as prejudicial to the interest of Revenue be held.
In result, the appeal of the assessee is allowed. Order pronounced under proviso to Rule 34 of ITAT Rules, 1963 on 06/04/2026
Sd/- Sd/- (DR. BRR KUMAR) (SUCHITRA KAMBLE) VICE PRESIDENT JUDICIAL MEMBER Ahmedabad; Dated 06/04/2026 TANMAY, Sr. PS TRUE COPY आदेश की �ितिलिप अ�ेिषत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��थ� / The Respondent. 3. संबंिधत आयकर आयु� / Concerned CIT 4. आयकर आयु�(अपील) / The CIT(A)- 5. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, सूरत / DR, ITAT, Surat 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER,
उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपीलीय अिधकरण, सूरत / ITAT, Surat
Date of dictation 01.03.2026 2. Date on which the typed draft is placed before the Dictating Member 01.04.2026 3. Other Member………………… 4. Date on which the approved draft comes to the Sr.P.S./P.S .04.2026 5. Date on which the fair order is placed before the Dictating Member for pronouncement 06.04.2026 6. Date on which the fair order comes back to the Sr.P.S./P.S 06.04.2026 7. Date on which the file goes to the Bench Clerk 06.04.2026 8. Date on which the file goes to the Head Clerk…………………………………... 9. The date on which the file goes to the Assistant Registrar for signature on the order…………………….. 10. Date of Dispatch of the Order……………………………………