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Income Tax Appellate Tribunal, ‘D’ BENCH: CHENNAI
Before: SHRI G. MANJUNATHA, HON’BLE & SHRI ANIKESH BANERJEE
आदेश / O R D E R PER G. MANJUNATHA, ACCOUNTANT MEMBER: This appeal filed by the assessee is directed against the order of the Principal Commissioner of Income Tax, Coimbatore, dated 24.09.2021, and pertains to assessment year 2017-18.
The assessee has raised the following grounds of appeal:
The order of revision passed under section 263 of the Act by the PCIT, Coimbatore-1 in DIN and order No. ITBA/REV/F/REVS/2021- 22/1035860470(1) dated 24.09.2021 for the above assessment year is contrary to law, facts, and in the circumstances of the case.
2. The PCIT erred in directing the assessing officer to initiate the proceedings for penalty under section 270A of the Act pertaining to re-computation of capital gains without assigning proper reasons and justification.
3. The PCIT failed to appreciate that the power of revision should be reckoned as narrow and ought to have appreciated that the twin conditions of error and prejudice causing to the revenue were not satisfied cumulatively thereby vitiating the revision order completely.
The PCIT failed to appreciate that the presumption of non-application of mind in so far as in not initiating the penalty proceedings under section 270A of the Act while completing the assessment was wholly unjustified.
5. The PCIT failed to appreciate that the cleavage of opinion pointed out in the revision order on the issue on hand would oust the jurisdiction to pass the revision order and hence ought to have appreciated that the order of revision was passed out of time, invalid, passed without jurisdiction and not sustainable both on facts and in law.
6. The PCIT failed to appreciate that the order of revision in directing the Assessing Officer to initiate the penalty proceedings under section 270A of the Act was not sustainable in law and ought to have appreciated that the decision referred to being the jurisdictional High Court decision was binding and erroneously not followed by dropping the proceedings of revision.
The PCIT failed to appreciate that there was no reasonable/proper opportunity given before passing of the impugned order and any order passed in violation of the principles natural justice would be nullity in law.
8. The Appellant craves leave to file additional grounds/arguments at the time of hearing.
The brief facts of the case are that the assessee had filed his return of income for the AY 2017-18 on 22.11.2017 declaring total income of Rs.4,84,300/-. The assessment has been completed u/s.143(3) of the Act, on 23.12.2019 and determined total income of Rs.81,67,948/- by making addition towards unexplained money u/s.69A of the Act, for Rs.29,09,000/- and additions towards re-computation of long term capital gains by disallowing cost of improvement of Rs.47,74,648/-. The case has been subsequently taken up for revision proceedings and consequently, show cause notice u/s.263 of the Act, dated 28.07.2021, has been issued to the assessee and called upon the assessee to explain, as to why, the assessment order shall not be revised under the provisions of Sec.263 of the Act. In the said show cause notice, the PCIT opined that the assessment order passed by the AO is erroneous and prejudicial to the interest of the Revenue, as the order has been passed with omission to initiate penalty proceedings u/s.270A of the Act, in respect of disallowance of capital gains claim. In response to the show cause notice, the assessee submitted that the assessment order passed by the AO, is neither erroneous nor prejudicial to the interest of the Revenue, because, the AO has not initiated penalty proceedings u/s.270A of the Act, because, there is no satisfaction/finding recorded by the AO with regard to underreporting or misreporting of income as required under the law. The PCIT, however, was not satisfied with the explanation of the assessee and according to him, the assessment order passed by the AO with omission to initiate penalty proceedings u/s.270A of the Act, is erroneous in so far as prejudicial to the interest of the Revenue and thus, set aside the assessment order passed by the AO and directed the AO to re-do the assessment afresh after verification of the issues discussed in 263 proceedings. Aggrieved by the order of the PCIT, the assessee is in appeal before us.
4. The Ld.AR for the assessee submitted that the PCIT erred in revision of the assessment order u/s.263 of the Act, to initiate penalty proceedings u/s.270A of the Act. The Ld.AR further submitted that the PCIT failed to appreciate the power of revision in as much as to invoke jurisdiction u/s.263 of the Act, the order of the AO must be erroneous and prejudicial to the interest of the Revenue. In this case, although, the AO has made additions towards disallowance of long term capital gains, but chosen not to initiate penalty proceedings u/s.270A of the Act, because, he has not arrived at satisfaction to the effect that there is an underreporting or misreporting of income as contemplated u/s.270A of the Act. Therefore, on the issue of initiation of penalty proceedings, the PCIT cannot assume jurisdiction and revised assessment order. In this regard, he relied upon the decision of the Hon’ble Madras High Court in the case of CIT v. Chennai Metro Rail Ltd., reported in [2018] 92 taxmann.com 329.
The Ld.DR, on the other hand, supporting the order of the PCIT submitted that the order of the AO is erroneous in so far as prejudicial to the interest of the Revenue, because, the AO has completed assessment proceedings without initiating penalty proceedings u/s.270A of the Act, even though, he has made a specific observation with regard to non- furnishing of necessary evidences to justify claim of cost of improvement, claim against long term capital gains derived from transfer of property and this amounts to underreporting or misreporting of income as contemplated u/s.270A of the Act. Therefore, the PCIT has rightly invoked his jurisdictional power u/s.263 of the Act, and set aside the assessment order.
We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. The sole basis for the PCIT to assume jurisdiction 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.
7. 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 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 jurisdictional 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.
In the result, the appeal filed by the assessee is allowed.
Order pronounced on the 17th day of June, 2022, in Chennai.