DHANKOT FILLING STATION ,GURGAON vs. PR.CIT, FARIDABAD

O R D E R PER M. BALAGANESH, A. M.: 1. This appeal in A.Y. 2017-18 arises out of the order by the Ld. Pr. Commissioner of Income Tax, Faridabad in appeal No. ITBA/REV/F/REV5/2021-22/1040931528(1) dated 17.03.2022 (hereinafter referred to as Ld. Pr. CIT in short) against the order of assessment passed u/s 143(3) the Income Tax Act, 1961 (hereinafter referred to as Act) dated 15.12.2019 by the Ld. ITO, Ward-1(4) (hereinafter referred to as ld. AO).

2. The Ld. PCIT has grossly erred under Law in reviving Penalty Proceedings u/s 271AAC under umbrella of Section 263 which otherwise has become time barred under Income Tax Act.”

Dhankot Filling Station 3. We have heard the rival submissions and perused the materials available on record. The assessee is a partnership firm, running petrol pump under the name and style of ‘Dhankot Filling Station’. The return of income for AY 2017-18 was electronically filed by the assessee on 27.10.2017 declaring income of Rs. 4,40,450/- which was later revised on 13.09.2018 declaring total income of Rs. 18,85,540/-. The assessment was completed u/s 143(3) of the Act on 15.12.2019 determining the total income of the assessee at Rs. 23,80,560/- after making an addition in the sum of Rs. 4,95,020/- towards unexplained cash deposits. The ld. AO in the said assessment order also stated that penalty proceedings u/s 270A of the Act are being initiated separately. The assessment framed by the ld. AO was accepted by the assessee and no further appeal was preferred before the ld CIT(A). The assessee also did not give any reply to the penalty notice issued u/s 270A of the Act issued on 15.12.2019. No penalty order per se was passed by the ld AO u/s 270A of the Act for the penalty initiated by the ld AO in the assessment order framed u/s 143(3) of the Act dated 15.12.2019. Strangely, the ld Pr.CIT sought to invoke his revision jurisdiction u/s 263 of the Act by treating the order passed by the ld AO as erroneous in as much as it is prejudicial to the interest of the revenue on the ground that the ld AO erred in initiating penalty proceedings u/s 270A of the Act instead of initiating penalty proceedings u/s 271AAC of the Act. According to the ld. Pr. CIT, the addition made in the assessment was on account of unexplained money u/s 69A read with section 115BBE of the Act and hence, the correct penalty provision to be initiated would be u/s 271AAC of the Act and not u/s 270A of the Act. The ld PCIT observed that since the AO had initiated penalty proceedings under a wrong section, the order passed by him u/s 143(3) of the Act dated 15.12.2019 becomes an erroneous order and also prejudicial the interest of the revenue.

4. Aggrieved by this revision order passed u/s 263 of the Act, the assessee is in appeal before us.

Dhankot Filling Station 5. At the outset, we find the only order passed by the ld AO is quantum assessment order u/s 143(3) of the Act dated 15.12.2019. Though the penalty proceedings were initiated u/s 270A of the Act in the said quantum assessment order itself, no penalty order per se was passed by the ld AO. Since, no appeal has been filed by the assessee against the quantum assessment order, the penalty order ought to have been passed by the ld AO on or before 30.06.2020 in terms of section 275 of the Act. Admittedly, no penalty order was passed by the ld AO on or before 30.06.2020 in the case of the assessee for the assessment order under consideration. We find that the Ld PCIT does not have any grievance in determination of the total income of the assessee in the quantum assessment framed u/s 143(3) of the Act dated 15.12.2019 by the ld AO. His only grievance is penalty proceedings being initiated under a wrong section. The law is very well settled that penalty proceedings and the assessment proceedings are completely distinct and separate even though the penalty proceeding emanates out of the quantum assessment proceedings. We hold that the Ld. PCIT had invoked his revisionary jurisdiction u/s 263 of the Act and had sought to revise only the initiation of penalty proceedings under the wrong section, forgetting the fact that there was no such penalty order that was even passed by the ld AO. In any case, the penalty order could not be passed beyond 30.06.2020. Hence, the revisionary jurisdiction initiated u/s 263 of the Act by the Ld PCIT deserves to be quashed on this count itself. In any case, we find that the law is very well settled that penalty proceedings and assessment proceedings are distinct and separate. Moreover, in our considered opinion, the Ld PCIT by invoking his revision jurisdiction u/s 263 of the Act cannot direct the ld AO to initiate any penalty proceedings. This aspect is no longer res integra in view of the order of the Hon’ble Jurisdictional High Court (Hon’ble Punjab and Haryana High Court) in the case of CIT (Central), Ludhiana Vs. Rakesh Nain Trivedi in of 2014 dated 29.10.2015. For the sake of convenience, the entire order is reproduced herein below:-

Dhankot Filling Station “1. This appeal has been filed by the revenue under Section 260A of the Income Tax Act, 1961 (in short “the Act”) against the order dated 26.3.2014 (Annexure A-III) passed by the Income Tax Appellate Tribunal, Amritsar Bench, Amritsar (hereinafter referred to as “the Tribunal”) in for the assessment year 2008-09, claiming the following substantial question of law:- “Whether on the facts and in the circumstances of the case, the Hon'ble ITAT was right in law in cancelling the order u/s 263 of the Income Tax Act, 1961 by holding that the order passed by the Assessing Officer is not erroneous and prejudicial to the interest of revenue, on the issue of penalty proceedings u/s 271 (1)(c) of the Income Tax Act, 1961 read with Explanation 5A which had not been initiated by the Assessing Officer during the course of the assessment proceedings on the ground that due date for filing return includes return filed u/s 139(4) of I.T. Act? 2. Briefly stated, the facts necessary for adjudication of the instant appeal as narrated therein may be noticed. The assessee derives income from real estate business. On 11.12.2008, search and seizure operation under Section 132 of the Act was conducted at the premises of the assessee. Notice under Section 153A of the Act was issued to the assessee who filed his return of income on 31.3.2009 for the assessment year 2008-09 at Rs. 78,16,530/-. The Assessing Officer framed the assessment vide order dated 8.12.2010 (Annexure A-I) under Section 153A of the Act accepting the returned income. The Commissioner of Income Tax (Central) (for brevity “the CIT”) vide order dated 12.3.2013 (Annexure A-II) in exercise of powers under Section 263 of the Act set aside the assessment order holding that the same was erroneous and prejudicial to the interest of the revenue. The assessment order was cancelled by the CIT on the ground that i) the commission of Rs. 47,925/- had been paid without deduction of TDS and was not allowable; ii) Penalty under Section 271(1)(c) of the Act had not been initiated; and iii) Penalty under Section 271A and 271B of the Act had not been initiated. Accordingly, the CIT directed the Assessing Officer to re-frame the order in accordance with the provisions of the Act. Feeling aggrieved, the assessee filed an appeal before the Tribunal. The Tribunal vide order dated 26.3.2014 (Annexure A-III) partly allowed the appeal of the assessee holding that the assessee was not liable to deduct the TDS as his receipt did not exceed Rs. 40 lacs in the earlier year. Further, the Tribunal observed that the CIT cannot direct the Assessing Officer to initiate penalty proceedings under Section 271(1)(c) of the Act and that the penalty proceedings under Sections 271A and 271B of the Act are not related to the assessment and can be initiated at any time and, therefore, the assessment framed is not effected and there is no scope to apply provisions of Section 263 of the Act. Hence the present appeal by the revenue.

6. It may be noticed that the said issue is no longer res integra. This Court in Commissioner of Income Tax v. Subhash Kumar Jain (2011) 335 ITR 364 agreeing with the view of High Courts of Delhi in Additional CIT v. J.K.D.'Costa (1982) 133 ITR 7 (Del), Commissioner of Income Tax v. Sudershan Talkies (1993) 201 ITR 289 (Del) and Commissioner of Income Tax v. Nihal Chand Rekyan (2000) 242 ITR 45 (Del), Rajasthan in Commissioner of Income Tax v. Keshrimal Parasmal (1986) 157 ITR 484 (Raj), Calcutta in Commissioner of Income Tax v. Linotype & Machinery Ltd. (1991) 192 ITR 337 (Cal) and Gauhati in Surendra Prasad Singh and others v. Commissioner of Income Tax (1988) 173 ITR 510 (Gau.) whereas dissenting with the diametrically opposite approach of Madhya Pradesh High Court in Additional Commissioner of Income Tax v. Indian Pharmaceuticals (1980) 123 ITR 874 (MP), Additional Commissioner of Income Tax v. Kantilal Jain (1980) 125 ITR 373 (MP) and Addl. CWT v. Nathoolal Balaram (1980) 125 ITR 596 (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 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 Dhankot Filling Station 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.”

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.