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Facts
The assessee declared Rs. 20 lacs under the Income Declaration Scheme (IDS) 2016 but defaulted on payment, leading the A.O. to initiate penalty proceedings under Section 270A for both underreported income and misreported deductions. The A.O. subsequently imposed penalty only for misreported deductions, which prompted the Pr. CIT to revise the A.O.'s order under Section 263, directing a fresh penalty for the undisclosed income.
Held
The Tribunal held that the A.O. had taken a conscious and plausible view not to impose penalty for the Rs. 20 lacs income, as it was declared in the revised return filed in response to a Section 148 notice. Citing Supreme Court judgments, the Tribunal ruled that the Pr. CIT could not substitute his view for a possible and plausible view taken by the A.O. under Section 263. Consequently, the Pr. CIT's revision order was set aside, and the A.O.'s original penalty order was restored.
Key Issues
Whether the Pr. CIT can revise an A.O.'s penalty order under Section 263, when the A.O. took a conscious and plausible view not to impose a penalty for income declared after a Section 148 notice, even considering Explanation 2 to Section 263.
Sections Cited
263, 270A, 147, 148, 144B, 80C, 80D
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Income Tax Appellate Tribunal, Hyderabad ‘ A ‘ Bench, Hyderabad
करदाता का प्रतततितित्व/ : Shri G. Srinivasa Rao, C.A. Assessee Represented by राजस्व का प्रतततितित्व/ : DR. U. Mini Chandran, Department Represented by CIT-DR सुिवाई समाप्त होिे की ततति/ : 21.07.2025 Date of Conclusion of Hearing घोर्णध की तधरीख/ : 06.08.2025 Date of Pronouncement O R D E R प्रनत रवीश सूद, जे.एम./PER RAVISH SOOD, J.M.
The present appeal filed by the assessee is directed against the order passed by the Principal Commissioner of Income-Tax, Hyderabad–1 under Section 263 of the Income Tax Act, 1961 (for 2 Podduturi Rajasekhar Reddy short, “the Act”), dated 25.02.2025, which in turn arises from the order passed by the Assessing Officer (for short, “A.O.”) u/s 270A of the Act, dated 21.09.2022. The assessee has assailed the impugned order on the following grounds of appeal before us:
“1.That on the facts and circumstances of the case and in law, both the orders, i.e. the revision order passed by the Learned Principal Commissioner of Income Tax, Hyderabad-1 u/s 263 of the Act dated 25-02-2025 and the penalty order passed by the Learned Assessing Officer u/s 270A of the Act dated 21-09-2022, are bad-in-law a) As the Learned Assessing Officer has failed to mention the specific limb of the sub-sections of section 270A under which the penalty proceedings are initiated in the appellant case and b) Further the Learned Assessing Officer has no jurisdiction over the appellant case as the appellant is a director in a company and his jurisdiction falls with DCIT, Circle-2(1), Hyderabad and hence both the orders are liable to be quashed. Without prejudice to the above Ground No.1 of the Appeal the appellant is taking the following grounds ;
2. That on the facts and circumstances of the case and in law, the Learned Principal Commissioner of Income Tax, Hyderabad-1 has erred in imposing his own satisfaction by upholding that penalty proceedings were initiated by the Assessing Officer u/s 270A(9) of the Act even though the Assessing Officer has not mentioned the same either in the Assessment order or in the show-cause notice issued for initiation of penalty proceedings and hence the impugned revision order is liable to be quashed as the provisions of the section 263 does not empower the Hon'ble Pr CIT to do the same.
3. That on the facts and circumstances of the case and in law, the Learned Principal Commissioner of Income Tax, Hyderabad-1 has erred in invoking the revisionary powers conferred on him u/s 263 of the Act merely basing upon the change of opinion without appreciating the fact that the Learned Assessing Officer after detailed verification of record and making of necessary enquiries has consciously decided not to impose the penalty on the income voluntarily declared by the appellant in the Income Disclosure Scheme, 2016 in the penalty order passed u/s 270A of the Act dated 21-09-2022 and hence the impugned revision order is liable to quashed.
3 Podduturi Rajasekhar Reddy
4. That on the facts and circumstances of the case and in law, the Learned Principal Commissioner of Income Tax, Hyderabad-1 has erred in passing the revision order u/s 263 of the Act dated 25-02-2025 without appreciating the fact that the penalty order u/s 270A of the Act dated 21-09-2022 passed by the Learned Assessing Officer is neither erroneous nor prejudicial to the interest of revenue and hence the impugned revision order is liable to quashed.
5. The appellant craves leave to add/alter/modify the grounds of appeal as may be required for proper adjudication of the case.”
2. Succinctly stated, the assessee had filed his return of income for A.Y. 2017-18, declaring an income of Rs. 15,95,086/-. The assessee during the F.Y. 2016-17, had made a declaration of Rs. 20 lacs under the Income Declaration Scheme (for short “IDS”), 2016, and was required to pay Rs. 9 lacs, including surcharge and penalty. However, the assessee only paid Rs. 4,50,000/- and thus, became a defaulter.
3. The A.O. based on the aforesaid facts observed that as the assessee had failed to pay the tax, surcharge and penalty on the declaration made under IDS, 2016, therefore, as per its Section 197(b), the subject undisclosed income was to be brought to tax in the previous year in which such declaration was made. The A.O., observing that the assessee had failed to pay the tax, surcharge and penalty as per IDS, 2016, and also not offered any such income in his return of income for A.Y. 2017-18, issued 4 Podduturi Rajasekhar Reddy notice u/s 148 of the Act, dated 31.08.2021. In compliance, the assessee filed his return of income on 25.10.2021, declaring an income of Rs. 35,95,086/- (including Rs. 20 lacs on account of declaration of undisclosed income). Thereafter, the A.O. vide his order passed u/s 147 r.w.s. 144B of the Act, dated 16.03.2022, after scaling down the assessee’s claim for deductions under Chapter VIA of the Act, viz. (i). disallowance of claim for deduction u/s 80C: Rs. 62,885/-; and (ii). disallowance of claim for deduction u/s 80D: Rs. 12,500/-, determined his income at Rs. 35,07,971/-.
4. During the course of assessment proceedings, the A.O. observed that as the assessee had already offered the undisclosed income of Rs. 20 lacs (supra), equivalent to the amount of declaration made by him under IDS, 2016 in his return of income filed in compliance to notice u/s 148 of the Act, dated 31.03.2021, therefore, no separate addition on the said count was called for in his case.
The A.O. referred to “Form-1” that was submitted by the assessee under IDS, 2016, and observed that the assessee had declared the undisclosed income of Rs. 20 lacs (supra) on account 5 Podduturi Rajasekhar Reddy of cash either in hand or in the bank account, and had not invested the same in any asset. The A.O. observed that as per Section 187(3) of IDS, 2016, on the failure of the declarant to pay the tax, surcharge and penalty, in respect of the declaration made u/s 187 on or before the specified date, the declaration filed was to be deemed to have never been made under the said scheme. The A.O. observed that as the assessee had made the declaration in IDS, 2016, therefore, it was beyond doubt that he had an undisclosed income amounting to Rs. 20 lacs (supra) during the subject year i.e. A.Y. 2017-18.
The A.O. further observed that though the assessee had failed to pay the tax, surcharge and penalty on the amount of Rs. 20 lacs (supra) that was disclosed by him as per the Scheme of IDS, 2016, however, he had not on his own offered the said undisclosed income for tax in his return of income for A.Y. 2017- 18. It was observed by the A.O. that the assessee had offered the undisclosed income of Rs. 20 lacs (supra) under the head “Income from other Sources” only when notice u/s 148 of the Act, dated 31.03.2021, was issued to him. Accordingly, the A.O. held a firm conviction that the assessee possessed “Income from other 6 Podduturi Rajasekhar Reddy sources” of Rs. 20 lacs (supra) during the A.Y. 2017-18, which he had not disclosed at the time of filing his original return of income for the said year. The A.O., based on the aforesaid facts, was of the view that as per Section 187(3) of IDS, 2016, the assessee had made a default u/s 270A of the Act by underreporting his income by an amount of Rs. 20 lacs. Accordingly, the A.O., while framing the assessment, inter alia, initiated penalty proceedings u/s 270A of the Act for underreporting of income of Rs. 20 lacs by the assessee.
At this stage, we may herein observe that as the assessee in the course of the assessment proceedings had failed to substantiate his claim for deductions under Chapter VIA of the Act which, thus, had resulted to scaling down of the same by the A.O by an amount aggregating to Rs. 75,385/- viz. (i). disallowance of claim for deduction u/s 80C: Rs. 62,885/-; and (ii). disallowance of claim for deduction u/s 80D: Rs. 12,500/-, therefore, the A.O. qua such wrong claim of deductions, had also initiated penalty proceedings for “underreporting of income in consequence of misreporting by the assessee”. Thereafter, the A.O. vide his order u/s 147 r.w.s. 144B of the Act, dated 7 Podduturi Rajasekhar Reddy 16.03.2022, had framed the assessment in the hands of the assessee at Rs. 35,07,971/-.
Thereafter, the A.O vide his order passed u/s 270A of the Act, dated 16.03.2022, imposed a penalty of Rs. 11,647/- regarding the disallowance of the assessee’s claim for deductions under Section 80C and Section 80D of the Act.
The Pr. CIT, after culmination of the aforesaid proceedings, called for the records of the assessee. It was observed by him that though the A.O., while framing the assessment, had initiated penalty proceedings u/s 270A of the Act, viz. (i) for underreporting of income: Rs. 20 lacs; and (ii). for underreporting of income in consequence of misreporting regarding the wrong claims for deduction raised u/s 80C and u/s 80D of the Act: Rs. 75,385/-, but, thereafter, he had vide his order passed u/s 270A of the Act, dated 21.09.2022 imposed penalty on the assessee only for the underreporting of his income regarding the wrong claim for deductions raised u/s 80C and u/s 80D of the Act. The Pr. CIT based on his aforesaid observations, held a firm conviction, that the failure on the part of the A.O. to levy penalty u/s 270A for the underreporting of income of Rs. 20 lacs (supra) by the assessee 8 Podduturi Rajasekhar Reddy had rendered his order as erroneous insofar it was prejudicial to the interest of revenue u/s 263 of the Act.
10. The Pr. CIT vide his “Show Cause Notice” (SCN) issued u/s 263 of the Act, dated 17.12.2021, called upon the assessee to explain why the order passed by the A.O. u/s 270A of the Act, dated 21.09.2022, may not be revised. As the reply filed by the assessee did not find favour with the Pr. CIT, therefore, he set aside the order passed by the A.O. u/s 270A of the Act, dated 21.09.2022, with a direction to pass a fresh penalty order regarding the issue of penalty on underreporting of income of Rs. 20 lacs (supra), as per the provisions of law, after affording a proper opportunity to the assessee.
9. The assessee, being aggrieved with the order passed by the Pr. CIT u/s 263 of the Act, dated 25.02.2025, has carried the matter in appeal before us.
We have heard the learned Authorized Representatives of both parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by the Ld. AR to drive home his contentions.
9 Podduturi Rajasekhar Reddy 11. Admittedly, it is a matter of fact borne from the record that the A.O., while framing the assessment vide his order passed u/s 147 r.w.s.144B of the Act, dated 16.03.2022, had initiated penalty proceedings u/s 270A of the Act, viz. (i) for underreporting of income by the assessee: Rs. 20 lacs; and (ii). for underreporting of income in consequence of misreporting regarding the wrong claims for deduction raised by the assessee u/s 80C and u/s 80D of the Act: Rs. 75,385/-. However, the A.O., thereafter, had, vide his order passed u/s 270A of the Act, dated 21.09.2022, imposed penalty on the assessee only for the underreporting of his income regarding the wrong claim for deductions raised u/s 80C and u/s 80D of the Act.
Shri G. Srinivasa Rao, C.A., the learned Authorized Representative (for short “Ld.AR”) for the assessee, at the threshold of hearing of the appeal, submitted that the Pr. CIT had grossly erred in law and on facts of the case in revising the order passed by the A.O. u/s 270A of the Act, dated 21.09.2022. Elaborating on his contention, the Ld. AR had come forth with two contentions, viz. (i) that as the A.O. had after necessary deliberations and application of mind taken a possible view and 10 Podduturi Rajasekhar Reddy not imposed penalty u/s 270A of the Act, regarding the income of Rs. 20 lacs (supra) that was disclosed by the assessee in his return of income filed in compliance to notice u/s 148 of the Act dated 31.03.2021, therefore, the Pr. CIT in the garb of his revisional jurisdiction could not have sought for substitution of his view by directing the A.O to take a view to the contrary; and (ii). that as the A.O. had while framing the assessment vide his order u/s 147 r.w.s. 144B of the Act, dated 16.03.2022 read along with the “Show Cause Notices” (SCN’s), dated 16.03.2022, 08.08.2022 and 29.08.2022 (reminder letter) had failed to specify the default/limb for which the penalty was sought to be imposed, therefore, he had in absence of valid assumption of jurisdiction passed the order u/s 270A of the Act, dated 21.09.2022 which, thus, being an invalid order could not have been revised by the Pr. CIT vide his order passed under Section 263 of the Act, dated 25.02.2025.
Per contra, Dr. U. Mini Chandran, CIT-Departmental Representative (for short, “Ld. CIT-DR”) relied upon the order passed by the Pr. CIT u/s 263 of the Act, dated 25.02.2025. The Ld. CIT-DR submitted that as the A.O. had, inter alia, initiated 11 Podduturi Rajasekhar Reddy penalty proceedings u/s 270A of the Act for the undisclosed income of Rs. 20 lacs (supra) that was offered by the assessee for tax only in his return of income filed in response to notice issued u/s 148 of the Act, dated 31.03.2021, but had not imposed any penalty on the said issue vide his order u/s 270A of the Act, dated 21.09.2022, therefore, the Pr. CIT in exercise of the jurisdiction vested with him under “Explanation 2(a)” of Section 263 of the Act, taking cognizance of the said omission, had remaining well within his jurisdiction, revised the order and directed the A.O. to pass a fresh order on the issue in hand.
We have thoughtfully considered the contentions advanced by the learned Authorized Representatives of both parties in the backdrop of the order passed by the Pr. CIT u/s 263 of the Act, dated 25.02.2025.
Apropos, the Ld. AR’s claim that as the A.O. while initiating the penalty proceedings, had failed to specify the specific limb/default for which the penalty was sought to be imposed upon the assessee, viz. (i). under reporting of income; or (ii). under reporting of income in consequence of misreporting, therefore, he had in the absence of any valid assumption of jurisdiction passed 12 Podduturi Rajasekhar Reddy the order u/s 270A of the Act, dated 21.09.2022, which, thus, being an invalid order, could not have been revised by the Pr. CIT u/s 263 of the Act, we are unable to persuade ourselves to concur with the same. We say so, for the reason that on a careful perusal of the assessment order passed by the A.O. u/s 147 r.w.s. 144B of the Act, dated 16.03.2022, it transpires that he had initiated the penalty proceedings u/s 270A of the Act, viz. (i). for under reporting of income: Rs. 20 lacs; and (ii). for underreporting of income in consequence of misreporting of claim of deductions u/s 80C and u/s 80D of the Act: Rs. 75,385/- (aggregate amount). Also, we find that the A.O. had vide his SCN’s, dated 16.03.2022, 08.08.2022 and 29.08.2022 (reminder letter) had after taking cognizance of the fact that penalty u/s 270A of the Act was initiated for both the aforesaid issues, thus, in that context, had observed that the assessee had “under reported his income as well as under reported his income as a consequence of mis-reporting of income”. We, thus, are unable to concur with the Ld. AR that the A.O., while initiating the penalty proceedings u/s 270A of the Act, had failed to specify the default/limb for which the penalty was sought to be imposed by him.
13 Podduturi Rajasekhar Reddy 16. Apropos the Ld. AR’s claim that as the assessee in compliance to the notice u/s 148 dated 31.03.2021 had filed his return of income on 25.10.2021, which, inter alia, included the undisclosed income of Rs. 20 lacs (supra) that was earlier disclosed by him under IDS, 2016, therefore, the A.O., taking cognizance of the fact that as the subject income of Rs. 20 lacs (supra) was disclosed by the assessee in his return of income, thus, taken a conscious view that no penalty u/s 270A of the Act on the said amount was called for in the hands of the assessee, we find substance in the same. Although the A.O., while framing the assessment vide his order u/s 147 r.w.s. 144B of the Act, dated 16.03.2022, had, inter alia, initiated penalty proceedings u/s 270A of the Act for underreporting of income of Rs. 20 lacs (supra) by the assessee, but thereafter, taking cognizance of the fact that the assessee in his return of income filed in compliance to notice issued u/s 148 of the Act, dated 31.03.2021, had disclosed the aforesaid amount of Rs. 20 lacs (supra) in his returned income, thus, taken a conscious view that no penalty on the said amount was called for in his hands. On a careful perusal of the order passed by the A.O. u/s 270A, dated 21.09.2022, we find that he had after specifically referring to the facts pertaining 14 Podduturi Rajasekhar Reddy to the assessee’s undisclosed income of Rs. 20 lac (supra), therein confined the imposition of penalty u/s 270A of the Act only for the wrong claim of deductions that were raised by the assessee u/s 80C and u/s 80D of the Act. For the sake of clarity, we deem it apposite to cull out the observations of the A.O. in his order passed u/s 270 of the Act, which read as under:
“3. During the course of the assessment proceedings statutory notice(es), letter(s), reminder(s), show cause etc were issued from time to time. In response to the notice issued u/s 148 of the I.T.Act, 1961 on 31.03.2021 to file the true and correct return of income for the year under consideration. The assessee filed his ITR on 25.10.2021 declaring its income at Rs.35,95,086/- which includes Rs.20,00,000/- on account of declaration of undisclosed Income. After verifying the submissions made by the assessee for deduction claimed in ITR filed under section 80C & 80D of Rs.1,62,500/- only an amount of R.87,115/- was allowed. Accordingly, a total disallowance of Rs.75,385/- was made and added to the income of the assessee and assessment was completed u/s 147 rws 144B of the I.T.Act on 16/03/2022.
Initiation of Penalty Proceedings: In light of the foregoing facts penalty proceedings were initiated u/s 270A for under reporting of income on account of above mentioned additions on 16/03/2022. Subsequently, show cause notice u/s 274 r.w.s. 270A of the Income Tax Act, 1961 dated 08/08/2022 and 29/08/2022 were issued to the assessee and were duly served.” (emphasis supplied by us)
On the basis of the aforesaid facts, we concur with the Ld. AR, that as the A.O. while imposing the penalty u/s 270A of the Act, dated 21.09.2022 had, after deliberating on the inclusion of the undisclosed income of Rs. 20 lacs (supra) by the assessee in his return of income filed in compliance to notice u/s 148 of the 15 Podduturi Rajasekhar Reddy Act, dated 31.03.2021, had taken a conscious view and not imposed any penalty on the said issue u/s 270A of the Act, therefore, the Pr. CIT could not have thereafter revised the order for seeking substitution of his view as against the possible and plausible view arrived at by the A.O.
Our aforesaid view that the Pr. CIT, while exercising the jurisdiction vested with him u/s 263 of the Act, cannot seek the substitution of a possible and plausible view arrived at by the A.O. is supported by the landmark judgment of the Hon’ble Apex Court in the case of Malabar Industrial Co. Ltd. Vs. CIT (2000) 243 ITR 83 (SC). In the aforesaid judgment, it was held by the Hon’ble Apex Court that where an Income-Tax Officer had adopted one of the courses permissible in law with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the view taken by the Income Tax Officer is unsustainable in law. The aforesaid view was thereafter reiterated by the Hon’ble Supreme Court in the case of CIT Vs. Max India Ltd. (2007) 213 CTR 266 (SC). Once again, it was observed that where two views are possible and the Income-Tax Officer has taken one of 16 Podduturi Rajasekhar Reddy the view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue, unless the view taken by the Income-Tax Officer is unsustainable in law.
Now, coming to “Explanation 2” to Sec. 263 as had been made available on the statute vide the Finance Act, 2015 w.e.f 01.06.2015, the same in a way expands the scope of the term “erroneous” as provided in the statutory provision. Ostensibly, the rationale for inserting the “Explanation 2”, specifically clause (a), was to render the assessment orders which had been passed without making inquiries or verification, which should have been made, amenable for revision under the said statutory provision. Undeniably, the A.O. in the course of the penalty proceedings in the present case before us, had after deliberating on the fact that the subject income of Rs. 20 lacs (supra) was included by the assessee in his return of income filed in compliance of the notice issued under Section 148 of the Act, had arrived at a possible view that no penalty regarding the said amount was called for u/s 270A of the Act. We are of a firm conviction that “Explanation 2” in a way expands the scope of the term “erroneous” provided in 17 Podduturi Rajasekhar Reddy Sec. 263 of the Act, but the same only being in nature of a tool to aid in construing the said statutory provision, thus, can by no means be allowed to distort the set of pre-conditions which are necessarily required to be satisfied for triggering the exercise of jurisdiction therein vested. Now, when the A.O. in the case before us had taken a conscious view on the issue in hand, i.e, not to impose penalty on the income of Rs. 20 lac (supra) that was disclosed by the assessee in his return of income filed under Section 148 of the Act, then, the Pr. CIT could not have sought the substitution of the said possible view in the garb of the powers vested with him under Sec. 263 of the Act. In case the claim of the department that the Pr. CIT remaining well within his jurisdiction had revised the assessment order u/s 263 r.w “Explanation 2” is accepted, then, we are afraid that the same would militate with the mandate of Sec. 263 of the Act, and resultantly, render every reasoned order though passed after necessary examination and verification by the A.O prone to revision.
We thus, in terms of our aforesaid deliberations, are of the firm conviction that the Pr. CIT had traversed beyond the scope of his jurisdiction and revised the order passed by the A.O. u/s 18 Podduturi Rajasekhar Reddy 270A of the Act, dated 21.09.2022. Accordingly, the order passed by the Pr. CIT u/s 263 of the Act, dated 25.02.2025, is set aside, and the order passed by the A.O. u/s 270A of the Act dated 21.09.2022, is restored.
Resultantly, the appeal filed by the assessee is allowed in terms of our aforesaid observations.