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Facts
During a Section 133A survey, the assessee (Nemichand Jain HUF) surrendered additional income of Rs. 65,66,144/-, which was accepted and taxed by the AO under Section 115BBE. The Principal CIT initiated Section 263 revision proceedings, contending that the AO's failure to initiate penalty under Section 271AAC(1) for the surrendered income made the assessment order erroneous and prejudicial to the revenue.
Held
The Tribunal found that Section 271AAC(1) provides discretion to the AO for penalty initiation, meaning it is not mandatory. Citing a similar ITAT decision and the Supreme Court's view on 'prejudicial to the interests of the revenue', the Tribunal concluded that the AO's order was not erroneous and quashed the PCIT's revision order.
Key Issues
Whether the AO's non-initiation of penalty proceedings under Section 271AAC(1) for surrendered income makes the assessment order erroneous and prejudicial to the revenue, justifying revision under Section 263.
Sections Cited
263, 143(3), 133A, 115BBE, 271AAC(1), 271AAB, 68, 69, 69A, 69B, 69C, 69D, 139, 270A, 274, 275
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Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Before: SHRI B.M. BIYANI & SHRI UDAYAN DAS GUPTA
आदेश/ O R D E R
Per B.M. Biyani, A.M.:
Feeling aggrieved by revision-order dated 07.03.2024 passed by learned Pr. Commissioner of Income-Tax (Central), Bhopal [“PCIT”] u/s 263 of Income- tax Act, 1961 [“the Act”] which in turn arises out of assessment-order dated 15.09.2021 passed by learned DCIT, Central Circle-2, Bhopal [“AO”] u/s 143(3) of the act for Assessment-Year [“AY”] 2019-20, the assessee has filed this appeal on the grounds raised in Appeal-Memo (Form No. 36).
The background facts leading to present appeal are such that the assessee-HUF is engaged in the business of trading of gold and silver ornaments/articles and money lending business. A survey u/s 133A was conducted upon business premises of assessee on 07.03.2019 during financial year 2018-19 relevant to AY 2019-20 wherein the assessee surrendered additional income of Rs. 65,66,144/- on account of excess stock of gold and silver items. Subsequently, the assessee filed return of AY 2019-20 on 23.07.2019 showing total income of Rs. 79,75,950/- including the surrendered income of Rs. 65,66,144/- offered during survey. The case of assessee was selected for scrutiny assessment. While completing assessment, the AO accepted returned income of assessee but, however, taxed the surrendered income of Rs. 65,66,144/- as per higher rate of tax u/s 115BBE.
Subsequently, Ld. PCIT examined the record of assessment- proceeding and viewed that the assessment-order passed by AO is erroneous in so far it is prejudicial to the interest of revenue which attracts revisionary-jurisdiction u/s 263. Accordingly, the PCIT issued show-cause notice dated 05.02.2024 and finally passed revision-order dated 07.03.2024 setting aside AO’s order. Aggrieved by such revision-order, the assessee has come in this appeal before us.
Ld. Representatives of both sides are ad idem to accept that the Ld. PCIT has invoked revisionary jurisdiction u/s 263 precisely for the reason that the AO, while passing assessment-order, has failed to initiate penalty
Page 2 of 5 proceeding u/s 271AAC(1) qua the income of Rs. 65,66,144/- surrendered by assessee during survey. Therefore, according to Ld. PCIT, the non- initiation of penalty proceedings u/s 271AAC(1) has rendered the assessment-order as erroneous-cum-prejudicial to the interest of revenue.
5. Ld. Representatives further agree that an identical case having same facts has already been decided by ITAT, Indore in Sriyans Kumar Jain HUF Vs. PCIT (Central), Bhopal, order dated 08.10.2024 in assessee’s favour. The relevant paras of ITAT’s order are as under:
“4. On hearing learned Representatives of both sides and perusing the orders of lower-authority, we find that the Ld. PCIT has invoked revisionary jurisdiction u/s 263 precisely for the reason that the AO, while passing assessment-order, has failed to initiate penalty proceeding u/s 271AAC(1) qua the income of Rs. 33,86,608/- surrendered by assessee during survey. Therefore, according to Ld. PCIT, the non-initiation of penalty proceedings u/s 271AAC(1) has rendered the assessment-order as erroneous-cum-prejudicial to the interest of revenue.
However, the provision of section 271AAC(1) reads as under: “Penalty in respect of certain income. 271AAC. (1) The Assessing Officer or the Commissioner (Appeals) may, notwithstanding anything contained in this Act other than the provisions of section 271AAB, direct that, in a case where the income determined includes any income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D for any previous year, the assessee shall pay by way of penalty, in addition to tax payable under section 115BBE, a sum computed at the rate of ten per cent of the tax payable under clause (i) of sub-section (1) of section 115BBE: Provided that no penalty shall be levied in respect of income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D to the extent such income has been included by the assessee in the return of income furnished under section 139 and the tax in accordance with the provisions of clause (i) of sub-section (1) of section 115BBE has been paid on or before the end of the relevant previous year. (2) No penalty under the provisions of section 270A shall be imposed upon the assessee in respect of the income referred to in sub-section (1). (3) The provisions of sections 274 and 275 shall, as far as may be, apply in relation to the penalty referred to in this section.”
A careful reading of above section 271AAC clearly reflects that the imposition of penalty is not compulsory in every case, the use of words “may direct” shows discretion available to the AO. Therefore, the AO may or may not impose penalty as per his analysis. When it is so, it cannot be said that there is any error in the order of AO. We are mindful of the following view taken by Hon’ble Supreme Court in Malabar Industrial Co. Ltd. v. Commissioner of Income Tax, (2000) 243 ITR 83 (SC): “The phrase prejudicial to the interests of the revenue has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of Assessing Officer cannot be treated as prejudicial to the interests of the revenue, for example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the Income-tax Officer has taken one 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.”
Therefore, in present case, the order passed by AO cannot be said to be erroneous for non-initiation of penalty proceeding when the imposition of penalty is not mandatory and one of the discretion of AO. In the circumstance, we are inclined to quash the revision order passed by PCIT wrongly holding that the AO’s order is erroneous. We order accordingly to quash the revision- order and restore the AO’s order. The assessee succeeds in this appeal.” 6. As there is no change in facts, we adopt the view already taken by ITAT, Indore and accordingly quash the impugned revision-order passed by Ld. PCIT and restore the AO’s order. The assessee succeeds in this appeal.
7. Resultantly, this appeal is allowed.