SATYA VENKATA KRISHNA RAVI PRASAD KODURI,RAJAHMUNDRY vs. ACIT, CIRCLE - 1, RAJAHMUNDRY

Page No. 3 & 291/VIZ/2025 Veera Venkata Ramakrishna Mohana Rao Koduri & 294/VIZ/2025 Satya Venkata Krishna Ravi Prasad Koduri the returned income filed in response to notice under section 153C of the Act. However, the Ld. AO has not recorded any satisfaction regarding the initiation of penalty proceedings.

Page No. 4 & 291/VIZ/2025 Veera Venkata Ramakrishna Mohana Rao Koduri & 294/VIZ/2025 Satya Venkata Krishna Ravi Prasad Koduri 6. On being aggrieved by the order of the Ld.Pr.CIT, assessee is in appeal before us by raising following grounds of appeal: - “1. That under the facts and circumstances of the case, the order passed by the Ld. Principal Commissioner of Income-tax (in short 'Ld. PCIT') u/s 263 of the IT Act dt. 11-03-2025, is not in accordance with the provisions of law:

2. Ld.PCIT erred in invoking the provisions of section 263 of the IT Act to revise the assessment order passed u/s 153C r.ws 143(3) of the IT Act dt.27-09-2022stating that.Ld.AO failed to initiate penalty u/s 270A of the IT Act in the said assessment order.

3. Ld.PCIT erred in invoking the provisions of section 263 of the IT Act with view of initiating penalty u/s 270A, in the absence of any satisfaction being recorded bythe Ld. Assessing Officer in his order passed u/s 153C r.W.s 143(3) to initiate levy of penalty u/s 270A of the IT Act.

4. Ld.PCIT ought to have appreciated that the levy or non-levy of penalty is at the discretion of Ld.AO and that the same cannot be intervened by the Ld. PCIT invoking the powers u/s 263 of the IT Act, as held by Judiciary in several cases.

5. Ld.PCIT erred in invoking the provisions of section 263 of the IT Act for the sole reason to initiate levy of penalty u/s 270A of the IT Act, without appreciating the fact that penalty proceedings is different from assessment proceedings and theunderlying assessment order cannot be revised for the reason of non-initiation of penalty.

6. Without prejudice to the above grounds,Ld.PCIT failed to appreciate that the penalty u/s 270A is not leviable in the present case, considering the facts that the returned income u/s 153C has been accepted by AO while completing the assessment, which case does not fall under any of the 7 clauses of 270A(2) (a) to(g) to be termed as under-reporting of income, and hence, the intention of Ld. PCIT to initiate penalty u/s 270A is not in accordance with law: 7. For these and other reasons that are to be urged at the time of hearing of the appeal the appellant prays that there is no error in the order passed by AO and in fact the order passed by Ld. PCIT itself is erroneous both on fact and as well as in law, therefore, the same needs to be set aside in the interest of justice.”

Page No. 5 & 291/VIZ/2025 Veera Venkata Ramakrishna Mohana Rao Koduri & 294/VIZ/2025 Satya Venkata Krishna Ravi Prasad Koduri 7. Ground Nos. 1 & 7 are general in nature and needs no adjudication.

Page No. 6 & 291/VIZ/2025 Veera Venkata Ramakrishna Mohana Rao Koduri & 294/VIZ/2025 Satya Venkata Krishna Ravi Prasad Koduri Rajasthan High Court in the case of CIT v. Keshrimal Parashmal [27 Taxman 447 (Rajasthan)]. She also placed reliance on the following cases: i. ACIT v. Achal Kumar Jain reported in (1983) 142 ITR 606 (Delhi) ii. CIT V. Chennai Metro Rail Ltd. reported in [2018] 92taxmann.com 329 (Madras) iii. Mumbai ITAT in the case of G M Builders in ITANo.2192/MUM/2024 iv. Raipur ITAT in the case of Savitri Verma V. PCIT in v. Mr. Combatore Vaiyapuri Maathesh V. ITO in ITANo.373/Chny/2021 vi. Gujarat High Court in the case of CIT vs. Parmanand M. Patelreported in 278 IT 3 (Gujarat) vii. Ahmedabad ITAT in the case of Vijay D. Patel V, ACIT in I.T.A No. 2022/Ahd/2015. viii. Ahmedabad ITAT in the case of Easy Transcription & Software Pvt. Ltd. V. PCIT in ITA No.759/Ahd/2015. ix. Calcutta High Court in the case of PCIT V. UDAY CHAKRABORTY in ITAT NO.411 of 2017 x. Mumbai ITAT In Habibullah Khanyari reported in [2007] 108ITD 321 (MUM.)

10. She also reiterated in her written submissions the various scenario under which the penalty under section 270A leviable, which is reproduced below: - Scenarios Applicability for assessee’s case a. when the assessed income is Not Applicable since there is no greater than the returned income; difference between assessed income and (refer 270A(2)) returned income b. where return was filed and Not Applicable since there is no assessed income is more than processing of return u/s 143(1) income as per return processed u/s 143(1) (refer 270A(3)(a)) c. where no return was filed at all Not Applicable since assessee filed his by assessees; (refer 270A(3)(b)) return u/s 153C d. where return was filed for the Not Applicable since assessee's case is first time in response to notice not a case of notice issued u/s148 us. 148 of the IT Act. (refer 270A (3)(b)) 11. She argued that assessee case does not fall in any of the above categories and hence even on merits penalty cannot be levied in the instant case.

Page No. 8 & 291/VIZ/2025 Veera Venkata Ramakrishna Mohana Rao Koduri & 294/VIZ/2025 Satya Venkata Krishna Ravi Prasad Koduri 12. Per contra, Ld. Departmental Representative [hereinafter in short “Ld.DR”] submitted that as per section 270A, the return furnished under section 148 is on the same footing as the return has been furnished under section 153C of the Act and hence provisions of sub-section 3 of section 270A of the Act are squarely applicable to the assessee’s case and hence invoking provisions of section 263 of the Act by the Ld.Pr.CIT is valid in law. He prayed for upholding the same.

Page No. 10 & 291/VIZ/2025 Veera Venkata Ramakrishna Mohana Rao Koduri & 294/VIZ/2025 Satya Venkata Krishna Ravi Prasad Koduri Surendra Prasad Agrawal [2005] 142 Taxman 653.However, the Principal Commissioner, we find, has recorded a finding that "on examination of the records, it is found that the Assessing Officer had in the assessment order established that the Assessee had concealed his income by filing inaccurate particulars". There is no such finding in the order of assessment. The Principal Commissioner seems to have distorted the order of assessment. The finding of the Principal Commissioner is to that extent perverse.

15. In our view, in the absence of any finding of the Assessing Officer with regard to concealment of income or with regard to furnishing of inaccurate particulars of income, the Commissioner clearly erred in holding that omission to record satisfaction to initiate penalty proceedings was erroneous or prejudicial to the interest of Revenue. The learned Tribunal rightly set aside the direction of the Principal Commissioner directing the Assessing Officer to initiate penalty proceedings although we may not agree with the reasoning in its entirety.”

Page No. 11 & 291/VIZ/2025 Veera Venkata Ramakrishna Mohana Rao Koduri & 294/VIZ/2025 Satya Venkata Krishna Ravi Prasad Koduri are two aspects which form an integral part of the assessment orders which the Commissioner is seeking to revise. The Tribunal has held, so far as the question of interest is concerned, that it is a part of the proceedings of assessment and that the direction to charge interest can also be said to be an integral part of the assessment order. So far as this part of the Commissioner's order is concerned, it has not been challenged by the assessee in the reference and we are not concerned with this part of the Commissioner's order. The only question before us is whether the Tribunal was right in revoking the order of the Addl. Commissioner in so far as it pertains to the question of penalties under sections 271(1)(a) and 273(b). Here, we find ourselves in complete agreement with the view taken by the Tribunal. It is well established that proceedings for the levy of a penalty whether under section 271(1)(a) or under section 273(b) are proceedings independent of and separate from the assessment proceedings. Though the expression "assessment" is used in the Act with different meanings in different contexts, so far as section 263 is concerned, it refers to a particular proceeding that is being considered by the Commissioner and it is not possible when the Commissioner is dealing with the assessment proceedings and the assessment order to expand the scope of these proceedings and to view the penalty proceedings also as part of the proceedings which are being sought to be revised by the Commissioner. There is no identity between the assessment proceedings and the penalty proceedings; the latter are separate proceedings that may, in some cases, follow as a consequence of the assessment proceedings. As the Tribunal has pointed out, though it is usual for the ITO to record in the assessment order that penalty proceedings are being initiated, this is more a matter of convenience than of legal requirement. All that the law requires, so far as the penalty proceedings are concerned, is that they should be initiated in the course of the proceedings for assessment. It is sufficient if there is some record somewhere, even apart from the assessment order itself, that the ITO has recorded his satisfaction that the assessee is guilty of concealment or other default for which penalty action is called for. Indeed, in certain cases it is possible for the ITO to issue a penalty notice or initiate, penalty proceedings even long before the assessment is completed though the actual penalty order cannot be passed until the assessment is finalised. We, therefore, agree with the view taken by the Tribunal that the penalty proceedings do not form part of the assessment proceedings and that the failure of the ITO to record in the assessment order his satisfaction Or the lack of it in regard to the leviability of penalty cannot be said to be a factor vitiating the assessment order in any respect. An assessment cannot be said to be erroneous or prejudicial to the interest of the revenue because of the failure of the. ITO to record his opinion about the leviability of penalty in the case. We, therefore, answer the first question referred to us in the affirmative and in favour of the assessee.”

Page No. 12 & 291/VIZ/2025 Veera Venkata Ramakrishna Mohana Rao Koduri & 294/VIZ/2025 Satya Venkata Krishna Ravi Prasad Koduri 16. Following the decision of the Hon’ble Madras High Court and Hon’ble Delhi High Court, the Co-ordinate Bench of the Mumbai in the case of M/s.G.M. Builders v. Pr.CIT in ITA No. 2192/MUM/2024 dated 12.03.2025 in Paragraph No. 18 observed as follows; _ “18. Therefore, in view of the facts and circumstances of the present case and the decisions of the Hon’ble Delhi High Court and the Hon’ble Madras High Court as noted above, we are of the considered view that the learned PCIT erred in invoking the provisions of section 263 of the Act, and directing the AO to initiate penalty proceedings under section 270A of the Act, as the AO has chosen not to initiate the penalty proceedings. Therefore, we are of the considered view that such being the facts, the learned PCIT cannot substitute his views and observe that the AO has passed erroneous order which is prejudicial to the interest of the Revenue. Thus, the impugned revision order passed by the learned PCIT under section 263 is quashed. As a result, the grounds raised by the assessee are allowed.”

Page No. 13 & 291/VIZ/2025 Veera Venkata Ramakrishna Mohana Rao Koduri & 294/VIZ/2025 Satya Venkata Krishna Ravi Prasad Koduri 6. It may be noticed that the said issue is no longer res integra. This Court in Subhash Kumar Jain case(supra) agreeing with the view of High Courts of Delhi in Additional J.K.D.'s Costa case (supra), CIT v.Sudershan Talkies [1993] 201 ITR 289 (Delhi) and CIT v. Nihal Chand Rekyan [2000] 242 ITR 45/[2002] 123Taxman 353 (Delhi), Rajasthan in CIT v. Keshrimal Parasmal [1986] 157 ITR 484/27 Taxman 447 (Raj.),Calcutta in CIT v. Linotype & Machinery Ltd. [1991] 192 ITR 337 (Cal.) and Gauhati in Surendra PrasadSingh v. CIT [1988] 173 ITR 510/40 Taxman 346 (Gau.) whereas dissenting with the diametrically opposite approach of Madhya Pradesh High Court in Addl. CIT v. Indian Pharmaceuticals [1980] 123 ITR 874 (MP.),Addl. CIT v. Kantilal Jain [1980] 125 ITR 373/[1981] 5 Taxman 92 (MP.) and Addl. CWT v. NathoolalBalaram [1980] 125 ITR 596/3 Taxman 170 (MP.) had concluded that where the CIT finds that the Assessing Officer had not initiated penalty proceedings under Section 271(1)(c) of the Act in the assessment order, he cannot direct the Assessing Officer to initiate penalty proceedings under Section 271(1)(c) of the Act in exercise of revisional power under Section 263 of the Act. The relevant observations recorded therein read thus:- "9. Now adverting to the second limb, it may be noticed that the Delhi High Court in judgment reported in Addl. CIT vs. J.K.D.'Costa (1981) 25 CTR (Del) 224 : (1982) 133 ITR 7 (Del) has held that the CIT cannot pass an order under s. 263 of the Act pertaining to imposition of penalty where the assessment order under s. 143(3) is silent in that respect. The relevant observations recorded are: "It is well established that proceedings for the levy of a penalty whether under s. 271(1)(a) or unders. 273(b) are proceedings independent of and separate from the assessment proceedings. Though the expression "assessment" is used in the Act with different meanings in different contexts, so far as s. 263 is concerned, it refers to a particular proceeding that is being considered by the Commissioner and it is not possible when the Commissioner is dealing with the assessment proceedings and the assessment order to expand the scope of these proceedings and to view the penalty proceedings also as part of the proceedings which are being sought to be revised by the Commissioner. There is no identity between the assessment proceedings and the penalty proceedings; the latter are separate proceedings, that may, in some cases, follow as a consequence of the assessment proceedings. As the Tribunal has pointed out, though it is usual for the ITO to record in the assessment order that penalty proceedings are being initiated, this is more a matter of convenience than of legal requirement. All that the law requires, so far as the penalty

Page No. 14 & 291/VIZ/2025 Veera Venkata Ramakrishna Mohana Rao Koduri & 294/VIZ/2025 Satya Venkata Krishna Ravi Prasad Koduri proceedings are concerned, is that they should be initiated in the court of the proceedings for assessment. It is sufficient if there is some record somewhere, even apart from the assessment order itself, that the ITO has recorded his satisfaction that the assessed is guilty of concealment or other default for which penalty action is called for. Indeed, in certain cases it is possible for the ITO to issue a penalty notice or initiate penalty proceedings even long before the assessment is completed though the actual penalty order cannot be passed until the assessment finalised. We, therefore, agree with the view taken by the Tribunal that the penalty proceedings do not form part of the assessment proceedings and that the failure of the ITO to record in the assessment order his satisfaction or the lack of it in regard to the leviability of penalty cannot be said to be a factor vitiating the assessment order in any respect. An assessment cannot be said to be erroneous or prejudicial to the interest of the revenue because of the failure of the ITO to record his opinion about the leviability of penalty in the case.

Page No. 15 & 291/VIZ/2025 Veera Venkata Ramakrishna Mohana Rao Koduri & 294/VIZ/2025 Satya Venkata Krishna Ravi Prasad Koduri 13. Accordingly, it is held that the initiation of proceedings under s. 263 was not justified. The Tribunal was right in holding that after examining the record of the assessment in exercise of powers under s.263, where the CIT finds that the AO had not initiated penalty proceedings, he cannot direct the AO to initiate penalty proceedings under s. 271(1)(c) of the Act."

8. Accordingly, it is held that the initiation of proceedings under Section 263 of the Act was not justified, and we uphold the order of the Tribunal cancelling the revisional order passed by the CIT.”

9. Respectfully following the aforesaid decision in the case of Rakesh Nain Trivedi (supra), we find merits in the contentions raised under the ground of present appeal by the assessee that the Ld PCIT has erred in passing the order u/s 263 of the IT Act, as the reopening proceedings are initiated only for directing the Ld AO to initiate penalty proceedings u/s 271(1)(c) of the IT Act against settled principle of law.

Page No. 16 & 291/VIZ/2025 Veera Venkata Ramakrishna Mohana Rao Koduri & 294/VIZ/2025 Satya Venkata Krishna Ravi Prasad Koduri ITA No. 291/VIZ/2025 (A.Y. 2019-20)

by the assessee (Satya Venkata Krishna Ravi Prasad Koduri) in these appeals are identical to facts and grounds raised in the case of Veera Venkata Ramakrishna Mohana Rao Koduri in and our decision in the aforesaid paragraphs, shall mutatis mutandis apply to these grounds also. Accordingly, grounds raised by the assessee are allowed.

24. In the result, appeals filed by the assessee are allowed.