ANOTRA REALATORS PRIVATE LIMITED,CHENNAI vs. PCIT (CENTRAL)- 1, CHENNAI

This appeal by the assessee is arising out of the Revision orders passed by the Principal Commissioner of Income-Tax (Central) Chennai-1, in ITBA/REV/F/REV5/2023-24/1063374365 (1) dated 26.03.2024. The assessment was framed by the Assistant Commissioner of Income Tax, Central Circle 1(1), Chennai for the

The only issue in this appeal of assessee is against the revision order passed by PCIT u/s.263 of the Act holding that the assessment order passed u/s.153C of the Act dated 28.03.2022 is erroneous insofar as prejudicial to the interest of Revenue for the reason that the AO has initiated penalty proceedings u/s.271AAC of the Act instead of initiating penalty u/s.271(1)(c) of the Act.

Brief facts are that a search u/s.132 of the Act was conducted on the business premises of the assessee company on 25.02.20220 and consequently, assessment u/s.153C of the Act was framed by the ACIT, Central Circle 1(1), Chennai vide order dated 28.03.2022. While passing the order u/s.153C of the Act, the AO initiated penalty proceedings u/s.271AAC of the Act firstly by para 4.10 as under:- “4.10 It is clear that the assessee was in the possession of the cash to the tune of Rs.5,18,49,128/- that are not recorded in their books of accounts and could not provide any explanation for the Source cash. Hence, the cash receipts during the financial year are treated as the unexplained money u/s 69A of the Income Tax Act, 1961 in the hands of the assessee company and it is liable to be added to their total income. Addition: Rs.5,18,49,128/- Penalty proceedings u/s 271AAC are initiated separately.”

Subsequently, on perusal of assessment records for the relevant assessment year 2016-17, the PCIT issued show cause notice and fixed the hearing on 14.02.2024 asking the assessee as to why the assessment order passed u/s.143(3) r.w.s. 153C of the Act dated 28.03.2022 be not considered as erroneous insofar as prejudicial to the interest of Revenue in as much as penalty proceedings was initiated under wrong section of 271AAC of the Act instead of the provision of section 271(1)(c) of the Act. In response to the show-cause notice, the assessee filed reply but the PCIT was not convinced and passed the revision order directing the AO to initiate penalty proceedings u/s.271(1)(c) of the Act by observing in paras 8 to 10 as under:- “8. In this case penalty has been initiated under non-existing provision, which is as good as ‘non-initiation of penalty’. Penalty proceedings has to be initiated correctly under valid provisions. The penalty order, if it were to be passed subsequently under such wrong sections of the Act, is liable to be deleted by the appellate authorities. Thus, the assessment order in which penalty has been initiated under incorrect provisions of the Act is erroneous and prejudicial to the interest of Revenue. The facts that the AO Act which amounts to non-initiation of penalty proceedings. As held by the Hon'ble Allahabad High Court in the case of CIT vs. Surendra Prasad Agarwal reported in275 ITR 113, non-initiation of penalty in the assessment order, such assessment order is amenable for invoking provisions of section 263 by the CIT. Thus, the submissions of the AR are not acceptable in this respect.

Before us, the ld.counsel for the assessee argued that the issue now stands covered by the decision of Jaipur Bench of this Tribunal in the case of Harish Jain & others in to 223/JP/2022 & 281 to 283/JP/2022, order dated 25.11.2022 and argued that on exactly similar facts and circumstances wherein the AO initiated penalty provisions u/s.271AAB(1A) of the Act instead penalty u/s.271(1)(c) of the Act. The ld.counsel for the assessee drew our attention to the relevant order of the ITAT, Jaipur Bench in the case of Harish Jain & Others supra.

We have heard rival contentions and gone through facts and circumstances of the case. We have gone through the assessment order passed by the AO u/s.153C of the Act dated 28.03.2022 and noted that the addition was made on account of possession of cash not recorded in the books of accounts and could not provide any explanation for the source of cash to the extent of Rs.5,18,49,128/-. This addition was made u/s.69A of the Act. Therefore the AO while making this addition initiated penalty proceedings at two places and the relevant paras 4.10, 5 to 8 read as under:-

In view of the above discussion, now we want to discuss how the PCIT has directed the AO setting aside the assessment order passed u/s.153C of the Act dated 28.03.2022 and directed the AO to initiate penalty proceedings u/s.271(1)(c) of the Act instead of 271AAC of the Act. The PCIT has noted the decision of Hon’ble Allahabad High Court in the case of CIT vs. Surendra Prasad Agarwal reported in 275 ITR 113(All) wherein, the PCIT noted that, the Hon’ble High Court held that the assessment order in which penalty has been initiated under incorrect provisions of the Act is erroneous and prejudicial to the interest of revenue.

In these facts, now we have to discuss the case law cited by ld.counsel for the assessee of the Hon’ble Delhi High Court in the case of Addl.CIT vs. J.K.D’Costa reported in [1982] 133 ITR 7 (Delhi), wherein it is held that where penalty proceedings were initiated before or at the time of making assessment, the CIT cannot invoke power u/s.263(1) of the Act, so as to set aside the assessment order and direct the initiation of penalty proceedings u/s.271(1)(c) of the Act. The Hon’ble Delhi High Court in the case of J.K.D’Costa, supra held as under:- 6. We have heard Mr. Wazir Singh, learned counsel for the department, but we are of opinion that the conclusion reached by the Tribunal is the only possible conclusion that can be arrived at in the circumstances of the case. Section 263 enables the Commissioner to call for and examine the record of any proceedings under the Act and if he considers that any order passed therein by the ITO is erroneous, in so far as it is prejudicial to the interest of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such enquiries as he deemed necessary, pass such orders thereon as the circumstances of the case justify. In the present case, the Addl. Commissioner called for the record of the assessment proceedings and it is also clear from this order that in his view the assessment orders passed by the ITO on 28th March, 1969, were erroneous and prejudicial to the interest of the revenue. As the Tribunal has rightly pointed out, his jurisdiction was confined to the proceedings of assessment and the assessment orders, and he had full powers to revise the assessment order in regard to any error he may discover therein which is prejudicial to the interest of the revenue. In the present case, the complaint of the Addl. Commissioner is that while completing the assessment and passing the assessment orders, the ITO had failed to take steps to charge interest and that he had also failed to initiate penalty proceedings against the assessed. The question, therefore, is whether these two aspects of the matter formed part of the proceedings which were being examined by the Commissioner and also whether these 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 us 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 ss. 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 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 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. We, therefore, answer the first question referred to us in the affirmative and in favor of the assessed.

Admittedly, there are other views possible as that in such circumstances, CIT can invoke his power u/s.263(1) of the Act, to set aside the assessment and direct the AO to make fresh assessment in accordance with law keeping in view the applicability of penalty provisions as in the case of case law cited by ld.CIT-DR of Hon’ble High Court of Madhya Pradesh in the cases of Addl.CIT vs. Indian Pharmaceuticals, supra and Addl.CIT vs. Kantilal Jain reported 125 ITR 373 (MP), Addl.CWT vs. Nathoolal Balaram reported in [1980] 125 ITR 596 (MP) and Hon’ble High Court of Allahabad in the case of CIT vs. Braj Bhushan Cold Storage reported in [2005] 275 ITR 360 (All)

The opposite view taken by the Hon’ble High Court of Madhya Pradesh in the case of Indian Pharmaceuticals, supra wherein the Hon’ble Madhya Pradesh High Court held that during the pendency of assessment proceedings, the AO has omitted to take the notice of fact attracting section 271(1)(a) of the Act, which ultimate ended in an order of assessment, the order would be erroneous and hence, the CIT was right in exercising jurisdiction u/s.263 of the Act. In the present case before us, in our view, this is diametrically opposite view what is taken by Hon’ble Madras High Court, Gauhati High Court, Delhi High Court, Rajasthan High Court as noted above. One more aspect considered by Hon’ble Allahabad High Court in the case of Surendra Prasad Agarwal, supra that the AO has to initiate proceedings for imposing of penalty during the course of assessment proceedings itself but if he fails to initiate or record his satisfaction for initiation of penalty proceedings during the course of assessment proceedings, it would be a case where the assessment order can be said to be erroneous as he has not decided a point nor recording a finding on the issue which ought to have been done or decides it wrongly. Accordingly, the Hon’ble High Court held that omission of the AO to initiate penalty proceedings during the course of assessment renders the assessment order erroneous and prejudicial to the interest of revenue. This is again a diametrically opposite view to the decision of Hon’ble High Court of Madras. The Hon’ble High Court of Madras in the case of CIT vs. C.R.K Swamy, supra, by following the decision of Hon’ble Delhi High Court in the case of Sudershan Talkies, supra, has answered substantial question of law and held that the revision of assessment by CIT on the ground that the penalty proceedings has not been initiated was unsustainable and non-initiation of penalty proceedings u/s.271(1)(c) of the Act do not render the assessment erroneous or prejudicial to the interest of Revenue and consequently, the CIT is not justified in assuming jurisdiction u/s.263 of the Act. The Hon’ble High Court of Madras held as under:- 1. The order of the Tribunal holding that the addition to income was not justified, having become final, the Tribunal's order holding that the revision of assessment by the Commissioner on the ground that penalty proceedings had not been initiated was unsustainable, in the circumstances, is an order which is required to be upheld.

We have also gone through the judgment of Hon’ble Delhi High Court in the case of Sudershan Talkies, supra, and noted that the Hon’ble High Court of Delhi has framed the question of law as under:- "Whether, on the facts and circumstances of the case, the Tribunal was correct in holding that the question of levying penalty under section 273(b) was totally extraneous to the scope of the assessment order, and, as such, it could not be covered by recourse to section 263 of the Income-tax Act, inasmuch as it was neither prejudicial to the interests of the Revenue nor was erroneous ?"

In the present case before us, admittedly assessment was framed u/s.153C of the Act and the AO initiated penalty proceedings u/s.271AAC of the Act, which is non-existent provision and the same was also approved by the Addl.CIT u/s.153D of the Act. But there is no recording of any satisfaction that the assessee has concealed the particulars of income or furnished inaccurate particulars of income. Once there is no satisfaction recorded in the order, the order cannot be subject matter of revision u/s.263 of the Act by the PCIT in view of another decision of Hon’ble High Court of Madras in the case of CIT vs. Chennai Metro Rail Ltd., in Tax Case (Appeal) No.745 of 2017, wherein the Hon’ble Madras High Court considering the decision of Hon’ble Allahabad High Court in the case of Surendra Prasad Agarwal, supra, concurred with the decision of Hon’ble Allahabad High Court but given a finding that the AO has to record his satisfaction or establish that the assessee has concealed his income by filing inaccurate particulars of income. In the absence of the same, the Hon’ble High Court held that the Tribunal has rightly set aside the directions of CIT directing the AO to initiate penalty proceedings although they have not agreed with the reasoning’s in its entirety. The Hon’ble High Court observed as under:-

Here one more aspect was pointed out by the Department that even the authorities can levy penalty i.e., AO or CIT(A) or PCIT or CIT in the course of assessment proceedings under section 271(1) of the Act. The Revenue contended that these authorities have power to initiate penalty proceedings and hence, the PCIT u/s.263 of the Act has jurisdiction in directing the AO to initiate penalty proceedings u/s.271(1)(c) of the Act. We do not agree with the contentions raised by ld.CIT-DR for the reason that section 271(1)(a), (b) or (c) is for levy of penalty, it gives power for levy of penalty in the proceedings before him and the revisionary power u/s.263 of the Act is entirely distinct and different power which upset the assessment completed and creates uncertainty. For that, this power cannot be exercised for directing the AO to initiate penalty under this provision. In our view, if the proceedings are pending before PCIT or CIT(A) or the AO like assessment proceedings, they are well within the power to initiate and levy penalty. But for that, that authority has to initiate and levy the penalty. Hence, in our view, this argument of Revenue fails.

In view of the foregoing discussions, in the given facts of the present case we note that there is no finding in the assessment order to the effect that there is concealment of income or furnishing of inaccurate particulars of income. Hence, the impugned action of the PCIT cannot be countenanced. For such a proposition, we rely on the ratio of decisions of Hon’ble High Court of Madras in the case of Chennai Metro Rail Ltd., supra and C.R.K.Swamy, supra. Hence, we are inclined to set aside the impugned revision order.