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Facts
The assessee filed a return of income for AY 2022-23, which was processed and later selected for scrutiny. During the assessment, the AO observed that the assessee offered income from seized cash under section 115BBE. The AO initiated penalty proceedings under Section 271AAB, but later rectified this to Section 271AAC via a Section 154 order, citing a typographical error.
Held
The Tribunal held that the rectification order under Section 154 was bad in law as it involved a debatable issue, which cannot be adjudicated under Section 154. The Tribunal noted that the AO's action was not a correction of a 'mistake apparent from record' but a fresh initiation of penalty, exceeding the AO's jurisdiction. The CIT(A)'s finding that no prejudice was caused was also found to be incorrect.
Key Issues
Whether the AO can rectify the initiation of penalty proceedings from Section 271AAB to Section 271AAC by invoking Section 154 when the issue is debatable and the original initiation was found unsustainable, thus amounting to a fresh initiation beyond jurisdiction.
Sections Cited
143(1), 143(3), 132A, 115BBE, 271AAB, 271AAC, 154, 292B
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, AHMEDABAD “C” BENCH
Before: Dr. BRR Kumar & Ms. Suchitra Kamble
Assessee by: Shri Anurag Sinha, A.R. Revenue by: Shri Uday Kishanrao Kakne, Sr. D.R. Date of hearing : 06-10-2025 Date of pronouncement : 09-12-2025 आदेश/ORDER Per Suchitra Kamble, Judicial Member:
This is an appeal filed against the order dated 30-06- 2025 passed by CIT(A)-11, Ahmedabad for assessment year 2022-23.
The grounds of appeal
are as under:- “1. BECAUSE, the impugned order passed by the "AO' is liable to held void-ab- initio having been passed without any statutory Notice to the appellant thereby rendering the entire proceedings null in law.
2. BECAUSE, the Ld. CIT(A) has erred in law and on facts in treating the wrongful initiation of penalty as a mere clerical error, overlooking the settled principle that initiation of penalty is not a ministerial OR mechanical act but a quasi-judicial function requiring the conscious satisfaction of the Assessing Officer, which cannot be delegated, substituted, OR retrospectively altered.
3. BECAUSE, the Ld. CIT(A) without appreciating that the "satisfaction" required for initiation of penalty proceedings necessarily presupposes due Piyush Garg, A.Y. 2022-23 application of mind to the facts and circumstances of the case, and such "satisfaction", once recorded, cannot subsequently be modified, improved, OR rectified.
4. BECAUSE, the Ld CIT(A) after having categorically held that the applicability of section 271AAC(1) in the facts of the present case is a debatable issue and therefore outside the scope of section 154 proceedings, the Ld. CIT(A) ought to have, on the same reasoning, upon such an admitted position annulled the rectification order passed under section 154 by the AO as the AO too has transgressed his jurisdiction in passing order under section 154 of the Act.
5. BECAUSE, while upholding the validity of the rectification order invoking section 271AAC(1), the Ld. CIT(A) has erred in holding that no prejudice was caused to the appellant, ignoring the material fact that such rectification was undertaken soon after the appellant had successfully demonstrated before the AO that penalty under section 271AAB, as originally initiated, cannot be levied upon the appellant.
6. BECAUSE, the Ld. CIT(A) while upholding the validity of impugned rectification order ignored the material fact that provisions of Section 271AAC(1) of the 'Act' cannot be pressed into service, as the said section may apply only when the income is determined by the AO under sections 68/69/69A, etc., and is not included in the return. In the instant case, the disclosed amount was fully included in the return and assessed accordingly.
7. The ‘appellant’ craves leave to add, alter OR vary the grounds of appeal before OR at the time of hearing.”
3. The original return of income was filed on 31-07-2022 declaring total income of Rs. 77,80,409/-. The same was processed u/s. 143(1) of the Act on 15-11-2016. The case of the assessee for assessment year 2022-23 was selected for scrutiny on the basis of requisition action u/s. 132A of the Act as carried out by the Department in the case of the assessee on 27-07- 2021. Subsequently, assessment order u/s. 143(3) of the Act was finalized on 08-02-2024 determining total income of Rs. 77,80,409/-. The Assessing Officer observed that the assessee offered Rs. 62,00,000/- pertaining to cash seized during the course of requisition action as carried in the case of the assessee on 27-07-2021 in his return of income for the year under consideration under the provisions of special slab rate u/s. 115BBE of the Act. The said income was reflected. Consequently, while passing assessment order u/s. 143(3) of the Act in the case of the assessee for the year under consideration, the penalty proceedings u/s. 271AAB of the Act was initiated in 2 Piyush Garg, A.Y. 2022-23 the case of the assessee for the year under consideration. The penalty u/s. 271AAB instead of 271AAC of the Act is applicable on aforesaid amount of seized cash as found by the Assessing Officer and therefore due to the typographical error, penalty u/s. 271AAB of the Act was initiated for assessment year 2022-23 instead penalty u/s. 271AAC of the Act. Thus, this mistake was rectified by passing order u/s. 154 of the Act dated 08-04-2025.
Being aggrieved by the rectification order dated 08-04-2025 u/s. 154 of the Act, the assessee filed appeal before the CIT(A). The CIT(A) dismissed the appeal of the assessee.
The ld. A.R. submitted that the CIT(A) while holding so omitted to consider that in the impugned order the A.O. had given life to a legally dead order. The AO through the impugned order has not merely changed the section of Penalty, but has changed his satisfaction statutorily required for initiation of penalty, which is not permissible under section 154 of the Act. The Ld. A.R. relied upon the decision of the Tribunal in case of Smt Kanta Vs ITO (2024) 111 ITR 77 (SN) (Delhi) (Trib). Since the penalty proceedings, initiated originally under section 271AAB upon furnishing of submission by the Assessee, was found unsustainable in law and therefore, the AO after 14 months of passing Assessment order rectified the initiation and changed the section to 271AAC. Contrary to the observation of the Ld. CIT(A) of initiation of penalty is not a clerical job but a quasi-judicial function requiring conscious application of mind by the Assessing Officer. Therefore, branding such a jurisdictional defect to be a clerical mistake cannot be appreciated at all. Further, recording of satisfaction by the AO for initiation of penalty is a jurisdictional requirement and such Piyush Garg, A.Y. 2022-23 an act of the AO cannot be delegated, substituted, or retrospectively altered. The Ld CIT(A) further went wrong in holding that the AO, while passing 154 order is not trying to correct non-applicable section but omitting to ignore that the AO has done exactly the same. The AO had initially initiated penalty under section 271AAB (which section is not at all applicable) and upon being objected in writing the AO arbitrarily taking aid of 154, initiated penalty under section 271AAC. The CIT(A) was unjustified in allowing advantage of section 292B of the Act which may have been claimed, had the AO proceeded further with original initiation of section 271AAB. However, having himself changed the initiation to section 271AAC and admitted his mistake the AO cannot fall back upon the same. Notice initiating Penalty under section 271AAB which as per AO's own admission was not correct and stands vacated by him. In the present case, the AO had admittedly initiated penalty proceedings wrongly, which the Ld. CIT(A) has wrongly attributed to be a "clerical error." With due respect, such amendment/rectification cannot be permitted in law because satisfaction for penalty initiation is a jurisdictional fact and not a mere formality. Once recorded satisfaction cannot be altered/improved. Therefore, the Ld. CIT(A)'s finding that the defective initiation could be ignored as "clerical" cannot be upheld. Such defect is jurisdictional and fatal, not clerical or procedural. The Ld. CIT(A) has himself categorically recorded a finding that the applicability of section 271AAC(1) to the facts of the present case is a debatable issue, and hence, outside the scope of 3 section 154 proceedings. Having so held, the Ld. CIT(A) ought to have applied the same reasoning to its logical conclusion by annulling the rectification order passed under section 154 by the Assessing Officer, since the AO too had Piyush Garg, A.Y. 2022-23 clearly exceeded his jurisdiction in invoking section 154 for adjudicating a matter which is admittedly debatable and controversial. It is a settled principle of law that the jurisdiction under section 154 is confined only to mistakes which are apparent from the record. A mistake is said to be apparent when it is obvious, patent and self-evident, and does not require elaborate reasoning, long-drawn arguments, or detailed examination of facts and law. Further, it is an admitted position (as noted by the Ld. CIT(A) himself) that the applicability of section 271AAC(1) is a debatable issue. The Hon'ble Supreme Court in T.S. Balaram, ITO v. Volkart Bros. (1971) 82 ITR 50 (SC) and CIT v. Hero Cycles (P) Ltd. (228 ITR 463, SC) has categorically laid down that issues which are debatable cannot be rectified under section 154. Thus, the very assumption of jurisdiction by the AO under section 154 was bad in law. If the issue is debatable and requires discussion of law or facts, it falls outside the scope of section 154. In the present case, the AO has passed the rectification order under section 154 only by invoking section 271AAC(1), the very applicability of which was found by the Ld. CIT(A) to be debatable. Therefore, the rectification order is without jurisdiction and liable to be annulled. The Ld. CIT(A) has erred in law and on facts in holding that no prejudice was caused to the appellant by the rectification order passed under section 154 substituting penalty u/s 271AAC(1), whereas the very timing and circumstances of such rectification show clear prejudice and jurisdictional overreach. In the case of Parshuram Pottery Works Co. Ltd Vs CIT (1977) 106 ITR 1 (SC) The Hon'ble Supreme Court has held as under: "It has been said that the taxes are the price that we pay for civilization. If so, it is essential that those who are entrusted with the task of calculating and realising that Piyush Garg, A.Y. 2022-23 price should familiarise themselves with the relevant provisions and become well versed with the law on the subject. Any remissness on their part can only be at the cost of the national exchequer and must necessarily result in loss of revenue. At the same time, we have to bear in mind that the policy of law is that there must be a point of finality in all legal proceedings, that state issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity." The factual position is that the penalty was originally initiated u/s 271AAB. The appellant successfully demonstrated before the Assessing Officer that penalty under section 271AAB was not leviable in his case. This position stood accepted. However, soon thereafter, the AO invoked section 154 and substituted penalty u/s 271AAB with penalty u/s 271AAC(1) that too after a long period of time much after limitation ended for initiation and imposition of penalty. The prejudice to the appellant is evident and direct. Having already escaped an untenable penalty u/s 271AAB, the appellant immediately subjected to another penalty provision (271AAC) by way of rectification. This deprived the appellant of finality of relief and exposed him to fresh penal consequences which the law does not permit under section 154. The finding of the Ld. CIT(A) that "no prejudice was caused" is therefore factually incorrect and legally unsustainable. The prejudice is writ large in the fact that the AO misused section 154 to change the penalty provision itself, which is not a rectification but a fresh initiation of penalty under a different provision, wholly beyond his jurisdiction. The Ld. CIT(A) ignored (i) the AO determines income u/s 68-69D, and (ii) such income is not included in the return.
The ld. D.R. relied upon the assessment order and the order passed u/s. 154 of the Act and also the order of the CIT(A).
We have heard both the parties and perused all the relevant material available on record. It is pertinent to note that the penalty whether should be imposed/initiated u/s. 271AAB/271AAC cannot be the matter of typographical error as appreciated by the Hon’ble Delhi High Court in case of CIT vs. J.K. D’Costa (1982) 133 ITR 7, it is clearly held that when issues are debatable, the same cannot be rectified u/s. 154. But in the present case Section 271AAB was wrongly mentioned instead of Section 271AAC. This can be rectified as there was mistake apparent on record and there was no debate in imposing penalty u/s. 271AAC in present assessee’s case. Thus, the Assessing Officer rightly rectified the same. The contention of Ld. A.R. that Section 154 order was passed after 14 months of assessment order and that too after assessee’s submission in response of Section 271AAB proceedings cannot sustain as the Assessing Officer when realised the mistake apparent from record has to rectify the same u/s. 154 of the Act which the Assessing Officer has done in present case. Thus, the case laws relied by Ld. A.R. will not be applicable factually in present case. Therefore, CIT(A) was right in upholding rectification order passed u/s. 154 of the Act. Thus, the appeal of the assessee is dismissed.