SAMIT ASHOK SONIMINDE,MUMBAI vs. INT TAX COMMISSIONER OF INCOME TAX-4(2)(1), MUMBAI

As per the facts of the present case, PCIT, while passing the order u/s 263 of the Act concluded that the assessee had misreported the income and AO should have initiated penalty proceedings u/s 270A of the Act

Aggrieved by the said order, assessee filed the present appeal and submitted that the PCIT had no juri iction u/s 263 of the Act to direct the AO to initiate penalty proceedings u/s 270A of the act and in this regard relied upon the decisions of CIT Vs Sudarshan talkies, [1993] 200 ITR 153 (Delhi), and in ITA No. 373/CHNY/2021, 5. Whereas, on the contrary, Ld. DR supported the orders passed by PCIT and submitted that section 263 of the Act can be invoked to direct AO for initiation of penalty proceedings u/s 270A of the act, which are mandatory in nature.

We have heard the counsels for both the parties, perused the material placed on record , judgements cited before us and also the orders passed by the revenue authorities

From the records, we noticed that orders under section u/s 263 of the act was passed by PCIT on the reasoning that assessee had “misreported” the income and AO should have initiated proceedings under section 270A of the act.

Now the question for determination before us is that as to whether the commissioner had juri iction u/s 263 to direct the AO to initiate penalty proceedings against the assessee. To our mind, the answer is “NO” as has been held by Hon’ble Delhi High Court in the case of a CIT Vs Sudarshan talkies, [1993] 200 ITR 153 (Delhi), and as per the decision of the coordinate bench of ITAT in ITA No. 373/CHNY/2021, Coimbatore Vyapari Maathesh Vs ITO

We have heard both the parties, perused the materials available on record and gone through the orders of the authority below. The sole basis for the PCIT to assume juri iction u/s.263 of the Act, is to initiate penalty proceedings u/s.270A of the Act. The provisions of Sec.270A of the Act, deals with levy of penalty for underreporting or misreporting of income. Therefore, in order to decide whether the PCIT is right in invoking the provisions of Sec.263 of the Act, and revise assessment order or not, one has to understand the additions made by the AO in the assessment order. The AO has made additions towards disallowance of cost of improvement claimed against computation of long term capital gains derived from sale of property. The AO has disallowed cost of improvement on the ground that the assessee has not furnished supporting documentary evidence to substantiate his claim towards cost of improvement. Except this, there is no observation in the assessment order regarding unsustainability of claim made by the assessee towards cost of improvement. From the above, what we understand is that although the AO has made additions towards disallowance of cost of improvement, but chosen not to initiate penalty proceedings u/s.270A of the Act, because, prima facie there is no materials with the AO to allege that there is an underreporting or misreporting of income.

In the above factual back ground, if you examine the reasons given by the PCIT to revise the assessment order u/s.263 of the Act, we find that the PCIT has set aside the assessment order only for the reasons that the AO has failed to initiate penalty proceedings u/s.270A of the Act, although, there is an observation of underreporting or misreporting of income. The PCIT had also relied upon the decision of the Hon'ble Allahabad High Court in the case of CIT v. Surendra Prasad Aggarwal reported in [2005] 275 ITR 113 (Allahabad) and held that the revisionary powers can be exercised for 5 Samit Ashok Soniminde, Mumbai initiation of penalty proceedings. We find that although the Hon'ble Allahabad High Court in the case of CIT v. Surendra Prasad Aggarwal (supra), has uphold 263 order passed by the PCIT for initiation of penalty proceedings, but the juri ictional the Hon'ble Madras High Court in the case of CIT v. Chennai Metro Rail Ltd. (supra), has taken a contrary view after considering the decision of the Hon'ble Allahabad High Court in the case of CIT v. Surendra Prasad Aggarwal (supra), and held that in the absence of any findings in the assessment order regarding underreporting or misreporting of income, the PCIT cannot revise the assessment order to initiate penalty proceedings. Therefore, we are of the considered view that the PCIT has erred in invoking revisional powers u/s.263 of the Act, and set aside the assessment order to initiate penalty proceedings u/s.270A of the Act, because, the AO has chosen not to initiate penalty proceedings. The PCIT cannot substitute his views and observed that, the AO has passed erroneous order which resulted in loss of Revenue to the Department.

In this view of the matter and considering the facts and circumstances of the case, we are of the considered view that the assessment order passed by the AO is neither erroneous nor prejudicial to the interest of the Revenue and thus, we are of the considered view that the PCIT is erred in revising the assessment order u/s.263 of the Act. Hence, we quashed the revision order passed by the PCIT u/s.263 of the Act.

We are also of the view that the proceedings for levy of penalty are proceedings independent and separate from the assessment proceedings, and even as per the facts of the present case, there are no findings recorded in the assessment order regarding misreporting of income by the assessee. Therefore, PCIT cannot substitute his views and 6 Samit Ashok Soniminde, Mumbai observe that AO has passed erroneous order, which resulted in loss of revenue to the department.

In the result the appeal filed by the assessee stands allowed.

उप/सहायक पंजीकार ( Asst.