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Income Tax Appellate Tribunal, AHMEDABAD “B” BENCH, AHMEDABAD
Before: Ms. SUCHITRA KAMBLE & SHRI NARENDRA PRASAD SINHA
PER SUCHITRA KAMBLE, JUDICIAL MEMBER:
This appeal is filed by the Assessee against order dated 28.03.2024 passed by the PCIT (Central), Surat AT Vadod for the Assessment Year 2019-20.
The assessee has raised the following grounds of appeal:-
“1. The Order passed U/s.263 on 28/03/2024 for A.Y. 2019-20 by PCIT(Central) Surat is wholly illegal, unlawful and against the principle of natural justice.
2. The Ld. PCIT has grievously erred in law and or on facts in holding that the order of assessment dt. 28-09-2021 was erroneous and prejudicial to the Revenue in as much as it failed to carry out inquiry in respect of initiate and levy penalty u/s.271AAC in respect of additions u/s.69B and 69C r.w.s. 115BBE of the 1.T. Act and U/s. 270A in respect of additions on account of cessation of liability and addition u/s.36(1)(va) of the IT. Act.
That in the facts and circumstances of the case as well as in law, the Ld. PCIT ought not to have held that the order of assessment dt. 28-09-2021 was erroneous and prejudicial to the Revenue in as much as it failed to carry out inquiry.
The Ld. PCIT has erred in law and on facts in setting aside the entire assessment and directing AO to make fresh assessment.”
3. The assessee filed its return of income for Assessment Year 2019-20 on 25.10.2019 declaring total income at Rs.15,08,820/-. The case was selected for scrutiny and the Assessment Order was passed under Section 143(3) of the Income Tax Act, 1961 on 28.09.2021 thereby making addition and disallowance and determining the total assessed income o\f the assessee at Rs.56,08,500/-. The following additions and disallowances were made:-
Disallowance u/s.36(1)(va) of the I.T. Act Rs. 88,654/- Addition u/s.69B r.w.s. 15BBE of the I.T. Act Rs.12,14,596/- Addition u/s.69C r.w.s. 15BBE of the I.T. Act Rs.18,83,195/- Cessation of Liability Rs. 9,13,230/-
4. The PCIT observed that during the course of assessment proceedings under Section 143(3) of the Act, the assessee failed to give any satisfactory explanation regarding discrepancies in stock of Rs.1214,596/-. Hence, an addition was made under Section 69B of the Act. The assessee has made unaccounted purchase amounting to Rs.18,83,195/- and hence addition to that extent was made under Section 69C of the Act. Addition of Rs.9,13,230/- was made on account of cessation of liability and addition of Rs.88,654/- was made on account of disallowance under Section 36(1)(va) of the Act. The PCIT observed that the Assessing Officer was required to initiate penalty proceedings under Section 271AAC of the Act but has not initiated penalty proceedings under Section 271AAC of the Act. Further, the PCIT observed that the Assessing Officer made addition on account of cessation of liability and addition under Section 36(1)(va) of the Act on both of which penalty provisions of Section 270A of the Act are attracted but the same was not initiated in the Assessment Order. Thus, the PCIT issued notice under Section 263 of the Act on 20.03.2024. The assessee filed response to the said notice and after taking cognisance of e same, the PCIT set aside the Assessment Order and directed the Assessing Officer to pass fresh Assessment Order after taking into consideration the issues discussed in the said order.
Being aggrieved by the Order under Section 263 of the Act, the assessee filed appeal before us.
The Ld. AR submitted that the PCIT was not justified in invoking Section 263 of the Act as the Assessing Officer after making detailed enquiry and verification and also making addition under Section 69B, 69C as well as made disallowance under Section 36(1)(va) of the Act has passed Assessment Order. It is not the case of the PCIT that the Assessing Officer failed to make enquiry or verification as envisaged under Section 263 of the Act. The PCIT only directed the Assessing Officer to redo the assessment with a view to initiate levy of penalty under Sections 271AAC and 270A of the Act. In fact, according to Section 271AAC of the Act, not only the Assessing Officer but also the CIT(A) has power to impose penalty and CIT(A) also can initiate penalty. As per Section 270A of the Act, the PCIT or Commissioner can give directions for initiating proceedings. Therefore, there is no necessity of revising the Order which is on verification and enquiry as adhered to the Income Tax Statute by the Assessing Office. Therefore, the Ld. AR submitted that the invocation of Section 263 itself is not justifiable and the order passed by the PCIT is bad in law and be quashed. The Ld. AR relied upon the following decisions:
1) Order dated 17.06.2022 of ITAT, Chennai Bench in the case of Mr. Coimbatore Vaiyapuri Maathesh vs. ITO.
2) Order dated 10.01.2017 of ITAT, Ahmedabad Bench in the case of Easy Transcription & Software Pvt. Ltd. vs. CIT/PCIT.
3) Order dated 27.01.2022 of ITAT, Ahmedabad Bench in the case of Vijay D. Patel vs. CIT-7.
The Ld. DR submitted that the Assessing Officer is duty bound to initiate penalty proceedings in the Assessment Order itself and since the Assessing Officer failed in initiating the penalty proceedings, the Assessment Order becomes erroneous and prejudicial to the interest of Revenue. The Ld. DR relied upon the Order under Section 263 of the Act.
We have head both the parties and perused all the relevant material available on record. It is pertinent to note that the penalty imposed/initiated is not that of a tax component or Revenue component but is a torrent measure. Section 263 of the Act empowers the Pr. CIT to look into whether the issues related to the taxability of the income of the assessee has been properly disclosed by the assessee in the return of income or not and if not has to be verified and make addition or disallowance in accordance with the Income Tax Statute. From this point of view, the assessment order has not been found erroneous or prejudicial to the interest of the Revenue by the PCIT and, therefore, Section 263 of the Act cannot be invoked in the scenario only for the reason that the penalty was not initiated. The decisions relied by the Ld. AR of the Co-ordinate Benches of the Tribunal are also applicable in the present case. Hence, the invocation of Section 263 of the Act is not justifiable in the present case.
In the result, appeal of the assessee is allowed.
Order pronounced in the open Court on this 9th October, 2024.