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Facts
The assessee, a non-filer, purchased an immovable property, leading to reassessment proceedings under Section 147/148. The assessee subsequently filed a return, and the AO assessed the income as declared. However, the Pr.CIT initiated revisionary proceedings under Section 263, deeming the AO's order erroneous for not initiating penalty proceedings under Section 271(1)(c) against the assessee for income concealment.
Held
The tribunal, relying on High Court precedents, held that the Pr.CIT exceeded jurisdiction under Section 263 by directing the AO to initiate penalty proceedings under Section 271(1)(c). It clarified that penalty proceedings are independent of assessment proceedings, and the assessment order is not rendered erroneous or prejudicial merely due to the AO's failure to record an opinion on penalty. Consequently, the Pr.CIT's order was set aside.
Key Issues
Whether the Pr.CIT can invoke Section 263 to direct the AO to initiate penalty proceedings under Section 271(1)(c) when the AO did not do so in the original assessment; and whether such a non-initiation renders the assessment order erroneous and prejudicial to the interest of the revenue.
Sections Cited
147, 144, 144B, 148A(d), 148, 263, 271(1)(c), 149, 143(3), 273(b)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, VISAKHAPATNAM “DIVISION” BENCH, VISAKHAPATNAM
Before: SHRI RAVISH SOOD, HON’BLE & SHRI S BALAKRISHNAN, HON’BLE
आदेश /O R D E R
PER SHRI S BALAKRISHNAN, ACCOUNTANT MEMBER:
This appeal is filed by the assessee against order of Principal Commissioner of Income Tax (in short “Ld.Pr.CIT”) vide DIN & Order No.ITBA/REV/F/REV5/2024-25/1074739507(1) dated 20.03.2025 for the I.T.A.No.332/VIZ/2025 Koti Narasimha Reddy Guttikonda A.Y.2016-17 arising out of order passed under section 147 r.w.s. 144 of Income Tax Act, 1961 (in short ‘Act’) dated 06.03.2023.
Brief facts of the case are, assessee being a non-filer has not filed returns of income for any of the assessment year. It was noticed that assessee has purchased immovable property for a total value of Rs.28,20,000/- wherein assessee’s 1/3rd share amounts to Rs.9,40,000/-. Assessee has also paid the proportionate registration charges of Rs.47,733/-. Assessee is a Second-grade School Teacher at MPP School, Achampeta. The case was reopened based on the order under section 148A(d) of the Act, after issuing notice under section 148 of the Act. Subsequently, assessee filed his return of income on 26.11.2021 admitting total income at Rs.3,98,650/-. Ld. Assessing Officer [hereinafter in short “Ld. AO"] considering the submissions of the assessee, assessed the total income as per the return of income filed by the assessee on 25.11.2021.
Ld.Pr.CIT in exercising his powers under section 263 of the Act found that Ld. AO has failed to initiate penalty provisions under section 271(1)(c) of the Act as the assessee concealed his income particulars. Ld.Pr.CIT therefore considered assessment order passed under section 147 r.w.s. 144 r.w.s. 144B of the Act dated 06.03.2023 is erroneous and prejudicial to the interest of the revenue. Thereafter he issued notice on 15.10.2024 requesting the assessee to explain the assessment order should not be revised under section 263 of the Act. In response to the show-cause notice, assessee furnished his reply on Page. No 2
I.T.A.No.332/VIZ/2025 Koti Narasimha Reddy Guttikonda 04.11.2024. After perusing the reply of the assessee another notice dated 05.02.2025 was issued and served on the assessee. In response, assessee furnished his reply through his Authorized representative on 18.02.2025. Considering the submissions of the assessee that, assessee has challenged the issuance of notice under section 148 of the Act, Ld.Pr.CIT rejected the contentions of the assessee. Ld.Pr.CIT directed the Ld.AO to initiate penalty proceedings by setting-aside the assessment order partially, after providing reasonable opportunity of being heard to the assessee in accordance with law.
On being aggrieved by the order of the Ld.Pr.CIT, assessee is in appeal before us by raising following grounds of appeal: -.
“1. In the facts and circumstances of case, learned PCIT ought to have considered the fact that the assessment order subjected to Revision was by itself without jurisdiction and non-est, and the same wouldn't have been revised u/s.263.
2. Learned PCIT erred in not considering the appellant's objection to the assumption of jurisdiction that as per the Hon'ble Supreme Court judgment dt.3.10.2024, in the case of "Union of India vs. Rajeev Bansal (Civil Appeal Nos. 8629, 8631 of 2024 & Others)", the reassessment based on the Notice dt.30.6.2022 u/S.148 issued as per the Hon'ble CBDT Instruction No.1 of 2022 (on which the learned PCIT relied), for AY:2016- 17, where the alleged escapement of income was much below Rs.50 lakhs was bad in law and the consequential assessment was non-est. Without prejudice to the above Grounds: 3. Learned PCIT erred in not following the Hon'ble Supreme Court's instruction in "Union of India vs. Ashish Agarwal" s case (Civil Appeal Nos. 3005 to 3017, 3019-3020 of 2022), that the S.148 Notice dt. 25.6.2021 was to be considered as a 'Show cause Notice u/S.148A(b)' and after the judgment date (4.5.22), a fresh Sec. 148A(b) Notice shall be issued to assessee, with reasons for re-opening, pass order u/S.148A(d) and issue fresh Notice u/s.148; as per the said judgment, learned AO issued a fresh Notice dt. 30.6.2022 u/s.148.
Page. No 3 I.T.A.No.332/VIZ/2025 Koti Narasimha Reddy Guttikonda In this background, the appellant submits that he paid theentire tax on 26.11.2021 and filed his ITR on 26.11.2021, i.e., before theissue of Sec.148 Notice dt.30.6.2022, and is entitled to immunity from Sec. 271(1)(c) penalty as per Explanation.4(c) to the said Section.
4. Learned PCIT erred in not considering the submission that no prejudice to the interests of the Revenue was caused by the assessment order, as income-tax was realized from the appellant, even when the reassessment couldn't have been initiated as per Sec.149, but still the assessee paid taxes.
The appellant craves leave to add or amend any Ground of Appeal.”
5. Assessee has challenged the notice issued under section 148 of the Act and has claimed immunity as per Explanation 4C to section 271(1)(c) of the Act. Ld.AR submitted that the assessee has paid the entire tax on 26.11.2021 whereas notice under section 148 of the Act was issued on 30.06.2022 and hence assessee is covered under the Explanation 4C to section 271(1)(c) of the Act. Ld.AR also challenged the validity of the re-assessment proceedings by relying on the decision of the Hon’ble Supreme Court in the case of UOI v. Rajeev Bansal (167 taxmann.com 70 SC). He also submitted that Ld.AO has not initiated any penalty proceedings due to the fact that the assessee has discharged the tax liability.
Per contra, Ld. Departmental Representative [hereinafter in short “Ld.DR”] relied on the orders of the Revenue Authorities.
We have heard both the sides and perused the material available on record. The sole issue in the instant case is with respect to assumption of Page. No 4
I.T.A.No.332/VIZ/2025 Koti Narasimha Reddy Guttikonda jurisdiction by the Ld.Pr.CIT under section 263 of the Act directing the Ld. AO to initiate the penalty proceedings under section 271(1)(c) of the Act. On this issue the Hon’ble Punjab & Haryana High Court in the case of CIT v. Rakesh Nain Trivedi [2017] 80 taxmann.com 238, in Para No. 6 to 8 held as follows: -
“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] 123 Taxman 353 (Delhi), Rajasthan in CIT v. KeshrimalParasmal [1986] 157 ITR 484/27 Taxman 447 (Raj.), Calcutta in CIT v. Linotype & Machinery Ltd. [1991] 192 ITR 337 (Cal.) and Gauhati in Surendra Prasad Singh 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. Nathoolal Balaram [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 under s. 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 Page. No 5 I.T.A.No.332/VIZ/2025 Koti Narasimha Reddy Guttikonda 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 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."
10. Special leave petition against the said decision was dismissed by the Apex Court ((1984) 147 ITR (St) 1. The same view was reiterated by the Delhi High Court in CIT vs. Sudershan Talkies (1993) 112 CTR (Del) 165 : (1993) 201 ITR 289 (Del) and followed in CIT vs. Nihal Chand Rekyan (1999) 156 CTR (Del) 59 : (2000) 242 ITR 45 (Del). The Rajasthan High Court in CIT vs. Keshrimal Parasmal [1985] 48 CTR (Raj) 61 : [1986] 157 ITR 484 (Raj), Gauhati High Court in Surendra Prasad Singh & Ors. vs. CIT (1988) 71 CTR (Gau) 125 : (1988) 173 ITR 510 (Gau) and Page. No 6 I.T.A.No.332/VIZ/2025 Koti Narasimha Reddy Guttikonda Calcutta High Court in CIT vs. Linotype & Machinery Ltd. (1991) 192 ITR 337 (Cal) have followed the judgment of Delhi High Court in J.K.D's Costa's case (supra).
However, Madhya Pradesh High Court in Addl. CIT vs. Indian Pharmaceuticals (1980) 123 ITR 874 (MP) which has been followed by the same High Court in Addl. CIT vs. Kantilal Jain (1980) 125 ITR 373 (MP) and Addl. CWT vs. Nathoolal Balaram (1980) 125 ITR 596 (MP) has adopted diametrically opposite approach.
We are in agreement with the view taken by the High Courts of Delhi, Rajasthan, Calcutta and Gauhati, and express our inability to subscribe to the view of Madhya Pradesh High Court.
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."
7. In view of the above, equally we are unable to subscribe to the view adopted by Allahabad High Court in Surendra Prasad Aggarwal's case (supra) where judgment of Madhya Pradesh High Court in Indian Pharmaceuticals' case (supra) noticed hereinbefore has been concurred with.
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.”
Respectfully following the decision of the Hon’ble Punjab and Haryana High Court, we are of the considered opinion that the Ld.Pr.CIT has exceeded his jurisdiction in directing the Ld. AO to invoke the penalty proceedings under section 271(1)(c) of the Act. We therefore set-aside the order of the Ld. Pr.CIT passed u/s. 263 of the Act. Thus, the grounds raised by the assessee is allowed.
Page. No 7
I.T.A.No.332/VIZ/2025 Koti Narasimha Reddy Guttikonda 9. Further, the legal grounds challenging the jurisdiction of the Ld. AO to issue notice under section 148 of the Act does not need any adjudication as the assessee’s appeal is allowed based on the merits of the case.
In the result, appeal of the assessee is allowed.
Order pronounced in the open court on 25th July, 2025.