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Facts
The assessee, an AOP, did not file its return for AY 2018-19. A notice u/s 148 was issued, and a NIL return was filed claiming deduction u/s 80P. The AO disallowed the deduction and completed assessment u/s 144 r.w.s 147. Penalty proceedings u/s 271(1)(c) were also initiated. The Pr.CIT invoked Section 263, setting aside the assessment order and directing the AO to initiate penalty u/s 270A instead of 271(1)(c).
Held
The Tribunal held that the CIT's action under Section 263 to direct the initiation of penalty proceedings was beyond the scope of Section 263. The power to direct penalty initiation does not lie with the CIT, as penalty proceedings are separate from assessment proceedings and the CIT's revisional powers are limited to correcting erroneous and prejudicial assessment orders, not initiating new proceedings.
Key Issues
Whether the CIT has the power under Section 263 to direct the Assessing Officer to initiate penalty proceedings, particularly when the original penalty proceedings were initiated under a different section or not at all?
Sections Cited
263, 148, 80P, 144, 147, 271(1)(c), 270A, 10B, 271(1)(a), 273(2)(c), 271AAC, 271AAB, 154, 275, 139
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Income Tax Appellate Tribunal, JAIPUR BENCHES,”B” JAIPUR
Before: DR. S. SEETHALAKSHMI, JM & SHRI RATHOD KAMLESH JAYANTBHAI, AM vk;dj vihy la-@ITA. No. 1283/JPR/2024
PER DR. S. SEETHALAKSHMI, J.M. The assessee has filed this appeal challenging the Revisional order dated 12.12.2023, passed by the learned Principal Commissioner of Income Tax Jaipur-1, for the assessment year 2018-19.
2. The assessee has raised following grounds:
1. – “1. On the facts and circumstances of the case, Ld. Pr.CIT has erred in law as well as on facts in invoking the provisions of section 263 of the Act, and therefore the impugned order dated12.12.2023 passed u/s 263 of the Act deserves to be quashed.
2. That the Ld. Pr.CIT Jaipur has erred in law as well as on facts of the case in assuming jurisdiction u/s 263 of the Act by wrongly and incorrectly holding Dubbi Gram Sewa Sahkari Samiti Ltd. Dausa. that the ld. AO had wrongly initiated penalty proceedings u/s 271(1)(c) of the Act, instead of section 270A of the Act which was applicable from 01.04.2017, hence the assessment order passed by the AO u/s 144/147 was erroneous and prejudicial to the interest of revenue. Appellant prays that the very assumption of jurisdiction is contrary to the provisions of law and facts. The proceeding so initiated u/s 263 of the Act and the impugned Order dated 12.12.2023 deserves to be quashed.
3. The appellant reserves the right to add, amend or alter of or any of the grounds of the appeal on or before the date of hearing.”
3. During the course of hearing, the Registry has pointed out that there is a delay of 251 days in filing the present appeal before the Tribunal. The assessee has filed an application explaining the cause of such delay which is supported by an Affidavit.
4. We have gone through the averments made in the affidavit and thus, we are of the opinion that the assessee is prevented in filing the appeal in time and we are satisfied that the delay in filing the appeal is due to reasonable cause. Thus, the delay of 251 days in filing the appeal by the assessee is condoned in view of the decision of Hon'ble Supreme Court in the case of Collector, Land Acquisition vs. Mst. Katiji and Others, 167 ITR 471 (SC) as the assessee is prevented by sufficient cause. Consequently, we condone the delay of 251 days in filing the present appeal and admit the same for adjudication on merit.
Succinctly, the facts as culled out from the records are that the assessee is an AOP working in the field of cooperative movement in the form of promoting welfare of its members from agriculture background.
Dubbi Gram Sewa Sahkari Samiti Ltd. Dausa. The assessee had not filed it's return of income for AY 2018-19. The case for selected for reopening and notice u/s 148 of the Act was issued on07.02.2020. The assessee, in compliance to the notice u/s 148, filedits return of income on28.08.2021 declaring NIL income, after claiming deduction of Rs.1,39,783/- u/s 80P of the Act. The AO disallowed the claim of deduction of Rs.1,39,783/- u/s 80P holding that the assessee neither filed the original return of income u/s 139 nor filed ITR within 30 days in response to notice issued u/s 148 of the Act. The assessment was completed u/s 144 r.w.s. 147 at an income of Rs.1,97,008/- Penalty proceedings u/s 271(1)(c) were also initiated by the AO as per the assessment order. The case was reviewed by Pr.CIT and an order under section 263 was passed holding the order to be erroneous in so far as it is prejudicial to the interest of revenue, setting aside the case to the file of AO with the direction to initiate penalty u/s 270A instead of 271(1)(c).
6. Feeling dissatisfied with the above finding of the ld. PCIT the assessee filed the present appeal before this tribunal on the grounds as reiterated herein above. To support the grounds so raised the ld. AR appearing on behalf of the assessee has placed reliance on the written submission which is extracted herein below:-
Dubbi Gram Sewa Sahkari Samiti Ltd. Dausa. “The assessee is an AOP working in the field of cooperative movement in form of promoting welfare of its members from agriculture background. As per information available it was noticed that assessee had not filed return of income for A.Y. 2018-19. The case was selected for Reopening and notice u/s. 148 was issued on 07.02.2020. The assessee in compliance to the notice u/s 148 of the Act filed return of income on 28-08-2021 declaring total income to the tune of Rs. Nil. The assessee had claimed deduction of Rs. 1,39,783/- under section 80P of the Act in the ITR filed. In view of the same the Assessing officer had disallowed claim of deduction of Rs. 1,39,783/- u/s. 80P of the Act in view of the fact that assessee has neither filed the original return of income within the stipulated time nor the assessee has filed return within 30 days in response to notice issued u/s 148 of the L.T. Act. The assessment order u/s. 147 r.w.s 144 read with section 144B of the Income tax Act was finalized on 21.09.2021 assessing total income to the tune of Rs. 1,97,008/-. The penalty proceedings u/s. 271(1)(c) were also initiated by the assessing officer as per the assessment order. The case was reviewed by the PCIT as per provision of section 263 of the Act resultantly an Order u/s 263 of the Act was passed on 12.12.2023. As per the order passed the case was set aside and was sent to the file of AO with a direction to address the issue of initiation of penalty u/s. 271(1)(c) instead of Penalty u/s. 270A of the Act for underreporting/misreporting of income. The present appeal is against the revisionary order passed u/s 263 of the Act, wherein the assessee has challenged the order u/s 263 of the Act as being bad in law and without jurisdiction. A combined submission is made for all the grounds raised in the memorandum of appeal for the sake of convenience as under: At the outset it is humbly submitted that there is a delay in filing the appeal before the Hon'ble bench. It is submitted that the trustees of samiti being not so educated and unaware of legal procedures and deadlines, could not seek prompt legal advice and therefore there was a significant delay in filing of appeal. An affidavit duly affirming on oath the above facts have already been filed along with the appeal-memo, and humbly prayed that the same may please be considered and the appeal may please be accepted in view of natural justice and oblige. On merits of the matter the assessee humbly submits as under:
1. The action of Ld. CIT is beyond the Scope of Revisionary Powers u/s 263: To give directions to initiate penalty is beyond the scope of provisions of sec 263: It is submitted that no doubt Ld. Pr. CIT/CIT "may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue.....". Thus, from a bare perusal of provision it is evident that the law Dubbi Gram Sewa Sahkari Samiti Ltd. Dausa. contemplates existence of any proceeding and also essentially order passed therein which, if examined by the Pr. CIF/CIT and is found to be erroneous and prejudicial then only he can invoke S.263. In other words, the existence of the proceedings and passing of the order therein are the conditions precedent, in absence of which, one cannot think of invoking S.263. If the AO has not initiated any proceeding during the course of assessment proceedings and till the conclusion of the assessment order, no proceedings can now be contemplated/conceived by the Pr. CIT for the purposes of S.263 which, otherwise are non-existent. Thus, for the purposes of S.263, the law never contemplated revision and examination of non-existent proceedings /non-existent order. Whereas the revisional jurisdiction of the CIT starts only after the conclusion of assessment proceedings, resulting into assessment order, therefore, as a sequel thereto, it is not open to CIT to exercise the revisional powers to create a non-existent proceeding under S. 263 by holding the assessment proceeding as erroneous in so far as prejudicial to the interest of revenue. Since Sec. 263 regulates the revisionary powers of the CIT hence, the strict fulfilment of the requirements of a jurisdictional provision cannot be compromised. There must exist some order, which is sought to be revised by the PCIT. If there is no order, question of revising the order does not arise. He cannot pass an order u/s 263 to pass an order, where there is none. In the instant case, admittedly there is no order in so far as penalty proceedings are concerned. If there is no order, there is no question of its being erroneous or pre-judicial as submitted.
Assessment & Penalty proceedings are separate and distinct: The law is well settled that penalty proceedings are separate and distinct from the assessment proceedings and the two cannot be merged or taken as one. For a penalty proceeding the AO must bring more material to establish positive concealment. Reliance is placed on Anwar Ali 76 ITR 696 (SC), Durga Kamal Rice Mills vs. CIT 265 ITR 25 (Cal.), CIT vs. Ishtiaq Hussain 232 ITR 673/148 CTR 367 (APP), T. Ashok Pai (2007) 292 ITR 11 (SC) and CIT &Anr. v. Manjunatha Cotton and Ginning Factory 359 ITR 565 (Karn). 5.2 The proceedings in respect of assessment and penalty are different and distinct notwithstanding the precondition that later has to be initiated in the course of former proceedings. Though the expression 'assessment' is used in the Act with different meanings in different context - in so far as S.263 is concerned, it refers to that particular proceeding which is being considered by the CIT. It is not possible to expand the scope of assessment proceeding and assessment, which is subject matter of revision, for the purposes of initiating a new and distinct penalty proceedings of onerous nature. Failure of AO to initiate or impose penalty cannot be a factor capable of vitiating the assessment order in any respect.
Dubbi Gram Sewa Sahkari Samiti Ltd. Dausa.
It is settled law that basic ingredients are to be fulfilled before invoking section 263 which has been explained by the Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. Vs. CIT reported in 243 ITR 83 (SC) in the following words: "A bare reading of section 263 of the Income Tax Act, 1961, makes it clear that the prerequisite for the exercise of jurisdiction by the Commissioner suo motu under it, is that the order of the Income Tax Officer is erroneous in so far as it is prejudicial to the interests of the Revenue. The Commissioner has to be satisfied of twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent if the order of the Income Tax Officer is erroneous but is not prejudicial to the Revenue or if it is not erroneous but is prejudicial to the Revenue recourse cannot be had to section 263(1) of the Act." The pre-requisites to the exercise of jurisdiction by the Commissioner u/s 263, is that the order of the Assessing Officer is established to be erroneous in so far as it is prejudicial to the interest of the Revenue. The Commissioner has to be satisfied of twin conditions, namely (i) The order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If any one of them is absent ie. if the assessment order is not erroneous but it is prejudicial to the Revenue, Sec.263 cannot be invoked. This provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer, it is only when an order is erroneous as also prejudicial to revenue's interest, that the provision will be attracted. An incorrect assumption of the fact or an incorrect application of law will satisfy the requirement of the order being erroneous. The phrase 'prejudicial to the interest of the revenue' has to be read in conjunction with an erroneous order passed by the AO. Every loss of Revenue as a consequence of the order of the AO cannot be treated as prejudicial to the interest of the Revenue. For example, if the AO has adopted one of the two or more courses permissible in law and it has resulted in loss of revenue, or where two views are possible and AO has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the Revenue, unless the view taken by the AO is totally unsustainable in law. Reliance is also placed on the decision in the case of CTT v/s Max India Ltd. (2007) 295 ITR 282 (SC) wherein it is held that "The phrase "prejudicial to the interests of the Revenue" in section 263 of the Income Tax Act, 1961, has to be read in conjunction with the expression "erroneous" order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the Revenue. For example, when the Assessing Officer adopts one of two courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Assessing Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the Revenue, unless the view taken by the Assessing Officer is unsustainable in law."
Dubbi Gram Sewa Sahkari Samiti Ltd. Dausa.
4. Recording of satisfaction by the AO (not by the CIT) is a condition precedent: A bare perusal of sec. 271(1)(c)/270A requires an AO [or CIT(A) but not CIT(Admin) to derive 'satisfaction' during the course of the proceedings pending before him. The language of s. 263 is not capable of and does not empower the CIT to set aside an assessment order to ask AO to have satisfaction, post assessment to initiate a distinct penalty proceeding. In this case the AO initiated penalty proceedings after his own satisfaction. The CIT cannot impose his own satisfaction upon satisfaction recorded by the AO. Non-initiation/wrong initiation of penalty proceedings, both, while framing assessment is not a legally valid ground for invoking revisionary powers.
5. Penalty proceedings already stands barred by limitation: Another indicator provided in S. 275 which has put a bar of limitation for imposing penalty and u/s 275(1)(b), the prescribed period is expiry of two years from the end of the financial year in which the proceedings, in the course of which action for imposition of penalty has been initiated, are completed. Thus, as and when either the AO/CIT(A), in the course of any proceedings, records satisfaction and initiates penalty proceedings, from the end of the financial year in which such initiation takes place, penalty proceedings are required to be completed within a period of two years. On the expiry of the limitation period, a right is vested in the assessee which, cannot be taken away merely by exercising of revision powers u/s 263 unless there is a clear indication showing a different legislative intent on a plain reading of provision of S.270(1)(c), 270A r/w 263. Therefore, the AO cannot be compelled to act beyond the prescribed period of limitation by extending such limitation on exercise of revisional powers.
Covered issue: The law is well settled by the various decisions of the Hon'ble Supreme Court, High Courts and Tribunals that the CIT acting u/s 263, cannot direct the AO to initiate penalty proceedings us 271(1)(c)/270A/271AAB. The issue involved is no longer Res Integra in as much as identical issue is directly covered by the binding decision in case of CIT vs Keshrimal Parasmal [1986] 27 Taxmann 447 (Raj) (DPB 1-3), holding that: "In J.K. D'Costa's case (supra), it was held that the Commissioner was not entitled to set aside the assessment order passed by the ITO on the ground that there was no mention of initiation of penalty proceedings in the order and that he could not direct the ITO to make fresh assessment to initiate penalty proceedings. The Supreme Court has dismissed the special leave petition in the said case in Special Leave Petition (Civil) Nos. 11391 and 11392 of 1981, dated 2-3-1984 [1984] 147 ITR (St.) 1. As the position was concluded and settled by the Supreme Court, the question which was sought to be referred could not be said to be a substantial question of law arising out of the Tribunal's order. It was only a question of academic nature."
This Hon'ble bench has taken the same view in the case of Harish Jain and others in to 223 & 281 to 283/JP/2022 dated 25.11.2022, wherein it has been held that "invocation of provision of 263 to correct the section under which the Dubbi Gram Sewa Sahkari Samiti Ltd. Dausa. penalty is leviable or not is beyond the power vested under section 263 of the Act, when there are other options available with the Id. AO." The Hon'ble bench has observed that penalty initiated by AO under an incorrect section can be and needs to be rectified by the AO himself by taking shelter under the available remedies by way of sec 154 of the Act. The administrative CIT/PCIT do not have the powers by way of invoking provisions of sec 263 to rectify or direct to rectify such incorrect initiation of penalties.
8. Support is further derived from another decision of this bench 263 in the case of Smt.RekhaShekawat V Pr. CIT (2022) 36 NYP TTJ 987 (Jp) (para 3DPB 4-9), holding as under: "In ground No. 3, the assessee has challenged the assumption of jurisdiction under s. 263 for not initiating penalty proceedings under s. 271AAC of the Act. The learned CIT held that the additional income was also subject to penalty under s. 271AAC of the Act and accordingly set aside the subject assessment order. 3.2 After hearing both the parties and perusing the materials available on record as well as judicial pronouncements cited by both the parties, we at the outset have no hesitation to hold that the issue involved is no more res integra in as much as the Hon'ble Rajasthan High Court in the case of CIT vs. Keshrimal Parasmal (1985) 48 CTR (Raj) 61: (1986) 27 Taxman 447 (Raj), held as under: X XXX There are several other decisions cited by the learned Authorised Representative of the assessee for which no contrary decision was brought to our notice. Hence, we are of the considered view that the learned Principal CIT acted beyond jurisdiction in holding that the additional income was subject to penalty under s. 271AAC of the IT Act. Thus, ground No. 3 of the assessee is allowed.
In the result, the appeal of the assessee is allowed" 9.1.3 The recent decision of this Hon'ble ITAT in case of Suresh Kumar Dapkara v. PCIT (Central), Jaipur in vide order dated 02.06.2022 (Para 6) is also a direct decision on the facts of given case. Similarly, in one more very recent decision of Dheeraj Singh Sisodiya v. PCIT (Central), Jaipur in dated 10.08.22 (Para 7) and the facts of both the cases are almost similar to the facts in present case and observed that, "The mandate under section 263 of the Act do not give any power to CIT to impose his satisfaction over the satisfaction of AO as to whether the penalty proceedings are to initiated or not and if initiated under which section/clause. Ld. PCIT cannot direct initiation of penalty proceedings because penalty proceedings are not part of assessment proceedings. Thus, the PCIT's revisionary decision relating to non- initiation /incorrect initiation of penalty which without holding that assessment order passed by the AO as erroneous and prejudicial to the interest of revenue is vague and bad in law. Notifying both the cases, penalties were initiated by AO under wrong/incorrect provisions of law (as per PCIT), and as against the correct provisions suggested by PCIT. Earlier also, a similar view was taken in the case of Agencies Rajasthan V AOITA No. 196/JP/2020 AY 2015-16 vide order dated 11.09.2020 Dubbi Gram Sewa Sahkari Samiti Ltd. Dausa. 9.2The case of Addl. CIT v. J.K. D'Costa [1982] 133 ITR 7 (Delhi) (DPB 18-21) has been followed in ACIT v. Achal Kumar Jain (1983) 142 ITR 606 (Delhi)and CIT v. Nihal Chand Rekyan [2000] 242 ITR 45 (Delhi) and in Addl. CIT v. Sudarshan Talkies (1993) 200 ITR 153 (Delhi); also by Hon'ble Madras High Court in CIT v. C. R. K. Swami (2002) 254 ITR 158(Cal) (DPB II 28-29); Sarda Prasad Singh v. CIT (1998) 173 ITR 510 (Gauhati), wherein it has been consistently held that if the CIT finds, while examining the records of an assessment order under S. 263, that the Assessing Officer has not initiated penalty proceedings, he cannot direct initiation of penalty proceedings because penalty proceedings are not a part of assessment proceedings. The CIT cannot pass an order u/s 263 pertaining to penalty. The Hon'ble Supreme Court has dismissed Special Leave Petition against the Delhi High Court decision in Addl.CIT v. J. K. D'Costa [(1984) 147 ITR (St) 1) dated 02.03.1984]. 9.4In the case of CIT v. Dr. Suresh G.Shah (289) ITR 110 (Guj) following its earlier judgement in the case of CIT v. ParmanandM.Patel (2005) 198 CTR (Guj) 641/278 ITR 3 (Guj), Hon'ble Gujarat High Court has held that while exercising powers under S. 263, CIT is not competent to direct initiation of penalty proceedings under s.271(1)(a) or s.273(2)(c) of the Act. In the case of CIT v. 17 to 223 & 281 to 283/JP/2022 Harish Jain & Ors Parmanad M.Patel (supra), the High Court has held that the CIT is not empowered to record satisfaction by invoking s.271(1)(c) of the Act and if he is not entitled to do so, on his own, he cannot do it by directing the assessing authority. The Court observed that in other words, what the CIT himself cannot do, he cannot get it done though the assessing authority by exercising revisional powers. CIT vs. Rakesh Nain Trivedi (2016) 282 CTR 205 (P&H) (DPB 22-25) "Revision-Erroneous and prejudicial order Failure of AO to initiate penalty proceedings-Where the CIT finds that the AO had not initiated penalty proceedings under s. 271(1)(c) in the assessment order, he cannot direct the AO to initiate penalty proceedings under s. 271(1)(c) in exercise of revisional power under s. 263-CIT vs. Subhash Kumar Jain (2011) 335 ITR 364 (P&H) followed; CIT vs. Surendra Prasad Agrawal (2005) 194 CTR (All) 161: (2005) 275 ITR 113 (All) dissented from." 9.6 Easy Transcription & Software (P) Ltd. (2017) 185 TTJ 504 (Ahd) "Revision- Jurisdiction of CIT-Jurisdiction to direct AO to initiate penalty proceedings under s. 271(1)(c) It is not open to CIT to exercise the revisional powers to create a non- existent proceeding under s. 263by holding the assessment as erroneous in so far as prejudicial to the interest of Revenue Sec. 263 is a substantive provision and howsoever clear the legislative intent may be, the requirements of a substantive provision cannot be bypassed as the legislative casus omissius cannot be supplied by interpretational fiat-Arriving at 'satisfaction' is the foundation of initiation of proceedings under s. 271(1)(c) which was to be recorded by AO in the course of assessment proceedings-Consequently, once the assessment is concluded, the CIT becomes functus officio as regards initiation of penalty under s. 271(1)(c)-Non- initiation of penalty proceedings under s. 271(1)(c) while framing assessment is not a good ground for invoking revisional powers under s. 263 Sec. 271(1)(c) read in Dubbi Gram Sewa Sahkari Samiti Ltd. Dausa. conjunction with s. 263, gives an unmistakable impression that while in the wake of amendment under s. 271(1)(c) w.e.f 1st June, 2002, it may be lawful for the Administrative CIT to impose penalty, that by itself would not be sufficient to hold that the CIT is entitled to exercise revisional powers by treating the assessment order as erroneous and prejudicial to the interest of Revenue-CIT is not competent to direct the AO to redo the assessment with a view to initiate and levy penalty under s. 271(1)(c) in respect of erroneous claim of deduction under s. 10B." In context of humble submissions made above the grounds raised
in the present appeal may please be allowed.
7. Per contra, the Ld. DR supported the order of the Pr.CIT.
8. We have heard the rival contentions and perused the material placed on record, as well as the relevant provisions of law and the case laws cited by the Ld.AR in support of his case. Now the mute question before us is that whether the Pr.CIT can correct the mistake of incorrect initiation of penalty under provisions of section 263 of the Act or not. For this we have gone through the competing contentions raised by both the parties before us. Against the submission of applicable judgments placed on record by the ld. AR of the assessee, ld. DR did not pinpoint any controverting judgments. The bench also noted that the pre- requisites to the exercise of jurisdiction by the Commissioner u/s 263, is that the order of the Assessing Officer is established to be erroneous in so far as it is prejudicial to the interest of the Revenue. The Commissioner has to be satisfied of twin conditions, namely (i) The order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If any one of them is Dubbi Gram Sewa Sahkari Samiti Ltd. Dausa. absent i.e. if the assessment order is not erroneous but it is prejudicial to the Revenue, Sec.263 cannot be invoked. This provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer; it is only when an order is erroneous as also prejudicial to revenue’s interest, that the provision will be attracted. An incorrect assumption of the fact or an incorrect application of law will satisfy the requirement of the order being erroneous. The phrase 'prejudicial to the interest of the revenue' has to be read in conjunction with an erroneous order passed by the AO. Every loss of Revenue as a consequence of the order of the AO, cannot be treated as prejudicial to the interest of the Revenue. The revisional jurisdiction of the PCIT starts only after the conclusion of assessment proceedings, resulting into assessment order, therefore, as a sequel thereto, it is not open to PCIT to exercise the revisional powers to create a non-existent proceeding under S. 263 by holding the assessment proceeding as erroneous in so far as prejudicial to the interest of revenue. The provision of section 263 regulates the revisional powers of the PCIT hence, the strict fulfillment of the requirements of a jurisdictional provision cannot be compromised. The notice of penalty is to be issued by the competent officer who is powered under the act. The only proceeding and consequent order, is the assessment order and not the Dubbi Gram Sewa Sahkari Samiti Ltd. Dausa. penalty proceedings because the same were not existing, hence no proceedings u/s 263 could be invoked to correct the section under which the penalty can be levied or not by the AO. There must exist some order, which is sought to be revised by the PCIT. If there is no order, question of revising the order does not arise. There is one more reason why the PCIT should not be permitted to invoke revisional powers for initiation of penalty proceedings. Sec. 271(1) specifically empowers the AO or the appellate authority to record satisfaction. It is well-settled that once an appeal has been preferred against an order of assessment, the entire assessment is open before the appellate authority. The appellate authority is entitled to do all that the AO could have done. The powers of the appellate authority are co-extensive and co- terminus with the powers of the AO. It is equally well settled that the PCIT cannot exercise revisional jurisdiction qua proceedings before an appellate authority. The order of assessment does not have any independent existence and stands merged with the order of the appellate authority. Hence, to read s. 263 as being applicable only in case of an AO for the purposes of initiation and levy of penalty and not being applicable to the appellate authority, cannot be the legislative intent. To the contrary, the inherent indication under s. 271(1) makes it clear that the Pr. CIT / CIT does not have any powers to direct either of the Dubbi Gram Sewa Sahkari Samiti Ltd. Dausa. authorities, the AO or the appellate authority, to initiate and levy penalty. The section requires the AO or the appellate authority to be satisfied in the course of ‘any proceedings’. This means, any proceedings before either of the specified authority.
An identical issue was dealt by Hon’ble Rajasthan High Court in case of CIT vs. Keshrimal Parasmal [1986] 27 Taxmann 447 (Raj) wherein it was held – “5. On the other hand, Mr. R. Balia, the learned counsel appearing for the assessee, has stoutly opposed the submission and urged that no referable question of law arises out of the order of the Tribunal dated 26-11-1982, for the special leave petition by the department against the judgment in J.K. D'Costa's case (supra) was dismissed by the Supreme Court in CIT v. J.K. D'Costa [Special Leave Petition (Civil) Nos. 11391 and 11392 of 1981 dated 2-3- 1984]. In [1984] 147 ITR (St.) 1, it is stated as under :"Revision : Commissioner in revision in assessment order whether can direct initiation of penalty proceedings. – Their Lordships P.N. Bhagwati and A.N. Sen, JJ. dismissed, as not being a fit case in which the question arising in the special leave petition should be decided, a special leave petition by the department against the judgment dated 27-4-1981 of the Delhi High Court in IT Reference No. 82 of 1974, reported in 133 ITR 7, whereby the High Court, on a reference, held that the Commissioner in a suo motu revision under section 263 of the Income-tax Act, 1961, of an assessment proceeding, was not entitled to set aside the assessment order on the ground that there was no mention of initiation of penalty proceedings in the assessment order, and to direct the ITO to make fresh assessment and to initiate penalty proceedings : “CIT v. J.K. Da Costa : Special Leave Petition (Civil) Nos. 11391-11392 of 1981." Thus, the position boils down to this that the view taken in J.K. D'Costa's case (supra) has been Dubbi Gram Sewa Sahkari Samiti Ltd. Dausa. confirmed by the Supreme Court and according to J.K. D'Costa's case ( supra) the Commissioner is not entitled to set aside the assessment order passed by the ITO on the ground that there was no mention of initiation of penalty proceedings in the assessment order and the Commissioner in the proceedings under section 263 cannot direct the ITO to make fresh assessment to initiate penalty proceedings. As the position stands concluded and settled by the Supreme Court, the question which is now sought to be referred by the Commissioner cannot be said to be a substantial question of law arising out of the Tribunal's order. It is only a question of academic nature.
6. In this view of the matter, it cannot be said that the decision of the Tribunal rejecting the reference application by its order dated 12-8-1983 is incorrect.
7. For the reasons aforesaid, no referable question of law arises out of the order dated 26-11-1982 of the Tribunal.
The reference application under section 256(2) filed by the Commissioner is, therefore, dismissed.
Relying on the above binding decision of the jurisdictional High Court, the Jaipur Bench, time and again, has quashed the revisional proceedings, under similar facts and circumstances, in the following cases-Smt. Rekha Shekawat vs. Pr.CIT in Suresh Kumar Dapkara vs. PCIT (Central), Jaipur in and Dheeraj Singh Sisodiya vs. PCIT (Central), Jaipur in ITA no.132/JP/2022. Also in the case of Harish Jain & others vs. Pr.CIT (Central) in ITA No.214 to 223 & 281 to 283/JP/2022.
Being consistent, as there is no contrary finding brought before us by the revenue, we are of the considered opinion that the invocation of provision of 263 by the Pr.CIT to correct the section under which the Dubbi Gram Sewa Sahkari Samiti Ltd. Dausa. penalty is leviable, is beyond the power vested under the said section. Therefore, we quash the order u/s 263 dated 12.12.2023 passed by the Pr.CIT. In the result, the appeal of the assessee is allowed.
Order pronounced in the open Court on 09/09/2025.