Harish Jain v. Principal Commissioner of Income Tax

Case snapshot

Sections / provisions: 263; 143(3); 147

Questions before the Court / Tribunal

• Revision—Scope—Non-initiation/initiation of penalty proceedings under wrong provision—Sec. 263 cannot be invoked to correct each and every type of mistake or error committed by the AO—It is only when an order is erroneous as also prejudicial to revenue’s interest, that the provision will be attracted—Revisional jurisdiction of the Principal CIT starts only after the conclusion of assessment proceedings, resulting into assessment order—Therefore, it is not open to the Principal CIT to exercise the revisional powers to create a non-existent proceeding—Only the assessment order can be revised under s. 263 and not…
• What factual, statutory and procedural conditions control the relief?
• How does the operative order apply to the parties and the challenged proceeding?

Material facts and procedural background

LFkk;hys[kk la-@thvkbZvkj la-@PAN/GIR No.: AEHPJ 4764 K vihykFkhZ@Appellant izR;FkhZ@Respondent

Ram Kishan Verma cuke PCIT (Central), 33-A, Talwandi, Vs. Jaipur. Kota-324005. LFkk;hys[kk la-@thvkbZvkj la-@PAN/GIR No.: ADDPK 1093 R vihykFkhZ@Appellant izR;FkhZ@Respondent

Manoj Kumar Sharma cuke PCIT (Central), 4-G-20, Talwandi, Vs. Jaipur. Kota-324005. LFkk;hys[kk la-@thvkbZvkj la-@PAN/GIR No.: AFOPS 0623 J vihykFkhZ@Appellant izR;FkhZ@Respondent

fu/kZkfjrh dh vksjls@Assesseeby :ShriMahendraGargieya (Adv.)& Shri Devang Gargiya (Adv.) jktLo dh vksjls@Revenue by: ShriJames Kurian (CIT)

These bunch of appeals filed by the different assessee which are

Appellant / assessee submissions

3. At the outset, the ld. AR has submitted that the matter pertaining to

3.1 It is submitted that no doubt,the Pr. CIT / CIT“may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue…..”. Thus, from a bare perusal of provision it is evident that the law contemplates existence of any proceeding and also essentially order passed therein which, if examined by the Pr. CIT / CIT and is found to be erroneous and prejudicial then only he can invoke S.263. In other

u/s 271AAB(1A) is initiated accordingly. The Ld. AR argued that the AO has taken conscious decision to initiate the penalty proceedings u/s 271AAB(1A) of the Act. It may be noted that both u/s 271(1)(c) and u/s 271AAB it is the AO who is to satisfy himself whether on the additions made, penalty proceedings is required to be initiated or not and also the section under which it is to be initiated. The mandate under section 263 of the Act do not give any power to CIT to impose his satisfaction over the satisfaction of AO as to whether the penalty proceedings are to initiated or not and if initiated under which section/clause. In our view, on examination of assessment record, the PCIT cannot direct initiation of penalty proceedings because penalty proceedings are not part of assessment proceedings. Thus, the PCIT’s revisionary decision relating to non- initiation/incorrect initiation of penalty which without holding that assessment order passed by the AO as erroneous and prejudicial to the interest of revenue is vague and bad in law.

11. Decisions cited by the PCIT and DR-Not applicable: The ld. PCIT, Jaipur cited some decisions, however, those were rendered in altogether different legal and factual context and hence were completely distinguishable.With reference the decisions cited by the ld. DR on 22.09.2022, it is submitted that the ld. DR has taken support of some decisions being dealt with hereunder, however, needless to say that once a decision of Hon’ble Jurisdictional High Court (RHC) is available in KeshrimalParasmal (supra), the subordinate authorities including the ITAT has to follow Hon`ble Rajasthan High Court only as per the law of binding precedents. Needless to say that Article 141of the Constitution of India mandates that all the subordinate authorities acting under the jurisdictional High Court are abide by its decisions.There apart, the said RHC decision has been considered in number of later decisions of various Hon’ble High Courts and decision cited by ld. DR has been dissented with. 11.1Otherwise also Surendra Prasad Agarwal (supra) was given long back in 2005 and similarly JawaharBhattacharjee is also a comparatively old decision as thereafter, several High Courts & ITAT have rendered…

Revenue / respondent submissions

5. After hearing learned counsel for the parties, we find the issue that arises for consideration of this Court in this appeal is could the CIT in exercise of power under Section 263 of the Act hold the order of the Assessing Officer to be erroneous and prejudicial to the interest of the revenue where the Assessing Officer had failed to initiate penalty proceedings while completing assessment under Section 153A of the Act. 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…

Court / Tribunal analysis and reasoning

6. We have heard the rival contentions and perused the materials

7. We have heard the rival contentions, perused the material available on record, assessment order and impugned order and the case laws cited before us. Admittedly, the AO has initiated penalty proceedings u/s 271 AAB(1A) with the observations that the amount of investment made by the assessee for purchase of motorcycle in cash i.e. Rs.1,25,000/- is added to his total income treated as unexplained investment u/s 69 and tax is charged as per provisions of section 115BBE of the I.T. Act. The assessee has offered Rs.1,25,000/- for taxation during search proceedings in statement u/s 132(4), however, the assessee has not included Rs.1,25,000/- in the return filed u/s 153A, therefore, penalty proceedings

23. We have considered the rival contention and perused the orders of

7. We have heard the rival contentions, perused the material available on record, assessment order and impugned order and the case laws cited before us. Admittedly, the AO has initiated penalty proceedings u/s 271 AAB(1A) with the observations that the amount of investment made by the assessee for purchase of motorcycle in cash i.e. Rs.1,25,000/- is added to his total income treated as unexplained investment u/s 69 and tax is charged as per provisions of section 115BBE of the I.T. Act. The assessee has offered Rs.1,25,000/- for taxation during search proceedings in statement u/s 132(4), however, the assessee has not included Rs.1,25,000/- in the return filed u/s 153A, therefore, penalty proceedings u/s 271AAB(1A) is initiated accordingly. The Ld. AR argued that the AO has taken conscious decision to initiate the penalty proceedings u/s 271AAB(1A) of the Act. It may be noted that both u/s 271(1)(c) and u/s 271AAB it is the AO who is to satisfy himself whether on the additions made, penalty proceedings is required to be initiated or not and also the section under which it is to be initiated. The mandate under section 263 of the Act do not give any power to CIT to impose his…

As we have heard both the parties and persuaded the materials available

Operative decision and relief

In the result the appeal fails and is dismissed with costs.

5. On the other hand, Mr. R. Balia, the learned counsel appearing for the assessee, has stoutly opposed the submission and urged that no referable question of law arises out of the order of the Tribunal dated 26-11-1982, for the special leave petition by the department against the judgment in J.K. D'Costa's case ( supra) was dismissed by the Supreme Court in CIT v. J.K. D'Costa [Special Leave Petition (Civil) Nos. 11391 and 11392 of 1981 dated 2-3- 1984]. In [1984] 147 ITR (St.) 1, it is stated as under :

leave petition should be decided, a special leave petition by the department against the judgment dated 27-4-1981 of the Delhi High Court in IT Reference No. 82 of 1974, reported in 133 ITR 7, whereby the High Court, on a reference, held that the Commissioner in a suo motu revision under section 263 of the Income-tax Act, 1961, of an assessment proceeding, was not entitled to set aside the assessment order on the ground that there was no mention of initiation of penalty proceedings in the assessment order, and to direct the ITO to make fresh assessment and to initiate penalty proceedings : CIT v. J.K. Da Costa : Special Leave Petition (Civil) Nos. 11391-11392 of 1981."

Thus, the position boils down to this that the view taken in J.K. D'Costa's case (supra) has been confirmed by the Supreme Court and according to J.K. D'Costa's case ( supra) the Commissioner is not entitled to set aside the assessment order passed by the ITO on the ground that there was no mention of initiation of penalty proceedings in the assessment order and the Commissioner in the proceedings under section 263 cannot direct the ITO to make fresh assessment to initiate penalty proceedings.

Ratio and legal principle

• The packaged judgment addresses Revision—Scope—Non-initiation/initiation of penalty proceedings under wrong provision—Sec. 263 cannot be invoked to correct each and every type of mistake or error committed by the AO—It is only when an order is erroneous as also prejudicial to revenue’s interest, that the provision will be attracted—Revisional jurisdiction of the Principal CIT starts only after the conclusion of assessment proceedings, resulting into assessment order—Therefore, it is not open to the Principal CIT to exercise the revisional powers to create a non-existent proceeding—Only the assessment order can be revised under s. 263 and not…. The precise proposition must be read with the Court/Tribunal's reasoning and operative directions.
• Reliance depends on matching the statutory version, jurisdiction, procedural stage and material evidence recorded in the judgment.

Why this judgment matters

This decision is relevant to practitioners and affected parties dealing with revision—scope—non-initiation/initiation of penalty proceedings under wrong provision—sec. 263 cannot be invoked to correct each and every type of mistake or error committed by the ao—it is only when an order is erroneous as also prejudicial to revenue’s interest, that the provision will be attracted—revisional jurisdiction of the principal cit starts only after the conclusion of assessment proceedings, resulting into assessment order—therefore, it is not open to the principal cit to exercise the revisional powers to create a non-existent proceeding—only the assessment order can be revised under s. 263 and not… Its value lies in showing how the adjudicating forum connected the applicable rule to the proved facts and procedural posture.

Practitioner action points

• Match the statutory version, jurisdiction, procedural stage and decisive evidence before relying on the result.
• Verify current appellate, review and SLP history and any later amendment or controlling authority.
• Attach the complete judgment to the working paper or filing and cite the paragraph/page supporting the proposition.

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Section / provision impact

• 263 - apply the exact version considered in the judgment.
• 143(3) - apply the exact version considered in the judgment.
• 147 - apply the exact version considered in the judgment.

Case network

Similar issue / useful comparison

• Rajesh Somandas Sachdev v. ITO & Ors. - Bombay High Court
• Vasavi Developers v. DCIT - ITAT Hyderabad
• Deepak Maratha v. UOI - Rajasthan High Court

Different outcome / possible distinction

• Shri Penninti Vivekananda Rao v. ADIT - Operative order controls
• Amish Harenkumar Parikh v. ACIT - Operative order controls

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