KUSEGAON REALTY PVT. LTD, MUMBAI V. PCIT-2, MUMBAI

ITA 1071/MUM/2022

AI Insights

The case involves appeals by Kusegoan Realty Pvt. Ltd. against the revisionary orders passed by the PCIT under section 263 of the Income Tax Act, which directed the Assessing Officer to initiate penalty proceedings under section 271(1)(c) for the assessment years 2010-11 and 2011-12. The PCIT's orders were based on the grounds that the Assessing Officer had failed to initiate penalty proceedings in the original assessment orders, which was deemed erroneous and prejudicial to the interest of the revenue. The Tribunal examined whether the PCIT could direct the initiation of penalty proceedings when the Assessing Officer had not recorded any satisfaction about the concealment of income or furnishing of inaccurate particulars in the assessment orders.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 299540 (ITAT-MUMBAI)
• Duration Of Justice: 7 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-12-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 06-11-2022
• Assessment Year: 2011-2012
• Appeal Filed On: 12-05-2022
• Other Referred Cases: CIT Vs. Brij Bhushan Cold Storage, ACIT Vs. J.K. D'costa, CIT Vs. Keshrimal Parasmal, CIT Vs. Chennai Metro rail Ltd, CIT Vs. C. R. K. Swami
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: NISHITA MADALAYWALA
• Keywords: Revision of order; Question of law; Set aside
• Section: 37; 263; 271(1)(c); 11; 143(3); 37(1); 274

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “H” BENCH, MUMBAI BEFORE SHRI PRASHANT MAHARISHI, AM AND SHRI PAVAN KUMAR GADALE, JM ITA Nos. 1070 &1071/MUM/2022 (Assessment Years 2010-11 & 11-12) Kusegoan Realt y P vt . Ltd Ground F loor, D.B. House, Gen. A.K. Vaid ya Mar g, Gore gaon (Ea st), Mum bai- 400 063 Vs. PCIT-2 Room No. 1920, Air India Bldg., Mumbai-400 021 (Appellant) (Respondent) PAN No. AADCK0621P Assessee by : Ms. Nishita Madalaywala Revenue by : Ms. Madhu Malti Ghosh, CIT DR Date of hearing: 07.11.2022 Date of pronouncement : 29.12.2022 O R D E R PER PRASHANT MAHARISHI, AM: 01. These are the 2 appeals filed by the assessee for A.Y. 2010-11 and 2011-12 against Revisionary order passed u/s. 263 of the Act dated 29.03.2022 separately for both the years by the PCIT, Central,Mumbai-2 (the ld. PCIT) wherein the respective orders passed for both the years were held to be erroneous and prejudicial to the interest of the revenue for the simple reason that the ld. AO should have initiated penalty proceedings u/s. 271(1)(c) of the Act in the assessment order passed u/s. 143(3) r.w.s. 254 of the Income Tax Act dated 31.12.2019 for both the years. Page | 2 ITA No.1071/MUM/2022 Kusegoan Realty Pvt. Ltd.; A.Y.2011-12 02. In both the orders the ld. PCIT has directed the AO to initiate penalty proceedings u/s. 271(1) (c) of the Act. Thus, the assessee is aggrieved and has raised identical grounds of appeal for both the assessment years as under: “1.On the facts and in the circumstances of the appellant’s case and in law the Ld. Pr. CIT erred in invoking the provisions of section 263 of the Income Tax Act, 1961 (the Act) which is illegal, bad-in-law otherwise void for want of jurisdiction. 2. On the facts and in the circumstance of the appellant case and in law the Ld. Pr. CIT erred to hold that the assessment order passed by Ld.AO u/s. 143(3) r.w.s. 254 of the Income Tax Act, 1961 dated 31.12.2019 is erroneous and prejudicial to the interest of revenue. 3. On the facts and in the circumstances of the appellant’s case, and in law the Ld. PCIT erred in directing the AO to initiate penalty proceedings u/s. 271(1)(c) of the Income Tax Act, 1961 for furnishing inadequate particulars of income. 4. On the facts and circumstances of the appellant’s case, and in law the Ld. PCIT erred in directing the AO to issue penalty notice u/s. 271(1)(c) of the Act.” 03. The fact for A.Y. 2010-11 shows that assessee filed its return of income for A.Y. 2010-11 on 23.10.2009 declaring total income of ₹11,57,690/-. This return Page | 3 ITA No.1071/MUM/2022 Kusegoan Realty Pvt. Ltd.; A.Y.2011-12 was revised on 07.09.2011 at ₹80,93,310/-. Subsequently, on 25.11.2009 as search took place on Cineyug Groupand on the same dated survey took place in case of the assessee. Subsequently, the assessment order u/s. 143(3) of the Act was passed on 30.12.2011 determining total income of the assessee at ₹12,18,93,427/-. 04. Against this assessment order appeal was filed before the CIT-A who passed an appellate order on 17.05.2012 deleting the disallowance. 05. The revenue aggrieved with the appellate order preferred appeal before co-ordinate bench bearing vide order dated 17.04.2018 in ITA No. 5012/MUM/2012 for A.Y. 2010-11 and ITA No. 566/MUM/2016 for A.Y. 2011-12 restored back the issue to file of the ld. AO for De novo adjudication. 06. Based on the direction of ITAT, assessment order u/s. 143(3) r.w.s. 254 was made on 31.12.2019 at total income of ₹12,18,84,689/-. The disallowance u/s. 37(1) of the Act of interest was made of ₹12,07,35,739/-. 07. The ld. PCIT examined the above records and find that the AO has failed to initiate penalty proceedings u/s. 271(1) (c) of the Act and therefore, the orders passed by the AO is erroneous and prejudicial to the interest of revenue and therefore subject to revision u/s. 263 of the Act. Page | 4 ITA No.1071/MUM/2022 Kusegoan Realty Pvt. Ltd.; A.Y.2011-12 08. Notice U/s 263 was issued to the assessee on 31.01.2022. The assessee filed a return submission on 28.02.2022 and 08.03.2022 challenging the action of the ld. PCIT. The ld. PCIT after considering the explanationof the assessee held that assessment order passed by the Ld. AO is erroneous and prejudicial to the interest of revenue. The ld. PCIT was also informed by the AO as recorded in Para No. 11 that he has failed to initiate penalty proceedings u/s 271 (1) (c) of The Act. It is stated that ld. AO realizing the fact that he omitted to initiated penalty proceedings u/s. 271(1) (c) of the Act himself submitted a proposal for revision. The ld. PCIT followed the decision of the Hon’ble Allahabad High Court in case of CIT Vs. Brij Bhushan Cold Storage 275 ITR 360 and ITAT Hyderabad in 4 ITR tribunal 297 wherein it has been held that even dropping of penalty proceedings u/s. 271(1) (C ) is held to be erroneous and prejudicial to the interest of revenue orders. The argument of the assessee was rejected that it is the sole authority ofthe LD AO to initiate the penalty proceedings.The ld. PCIT further stated that the amendment w.e.f. 01.06.2002 even the Principle Commissioner is also empowered to initiate the penalty proceedings. Accordingly, the LD PCIT held that order passed by the ld.AO where he failed toinitiate the penalty proceedings is erroneous so far as prejudicial to the interest of revenue. He directed the ld. AO to initiate the penalty proceedings u/s. Page | 5 ITA No.1071/MUM/2022 Kusegoan Realty Pvt. Ltd.; A.Y.2011-12 271(1) C of the Act for furnishing in accurate particulars of income and directed the AO to issue notice in accordance with the provisions of the Act. The order u/s. 263 of the Act to the A.Y. 2010-11 was passed on 29.03.2022. 09. Identically, order u/s. 263 of the Act was also passed for A.Y. 2011-12 on 29.03.2022 holding that the assessment order passed u/s. 143(3) r.w.s. 254 of the Act dt. 03.12.2019 is erroneous. 010. Contesting the order of the ld. PCIT,LD AR submitted paper book containing 276 pages and relied upon the several judicial precedence holding that the order passed by the ld. PCIT is not sustainable in law. The ld. AR referred to the decision of the Hon’ble Delhi High Court in case of ACIT Vs. J.K. D’costa 9 taxmann 88 and dismissal of Special Leave Petition by the Hon’ble Supreme Court on 02.03.1984. The decision of the Hon’ble Rajasthan High Court in CIT Vs. Keshrimal Parasmal27 taxmann 447, Hon’ble Gujarat High Court in 289 ITR 110 and Hon’ble Punjab & Haryana High Court in 80 taxmann.com 238 was relied upon. The ld. AR further relied upon the co-ordinate bench decision in 80 taxmann.com 772. It was further submitted that the LD PCIT does not have any power to initiate the penalty proceedings himself. In the end, the ld. AR further submitted the copies of the penalty notices u/s. 274 r.w.s. 271 of the Act for A.Y. 2010-11 dt. Page | 6 ITA No.1071/MUM/2022 Kusegoan Realty Pvt. Ltd.; A.Y.2011-12 30.12.2011 as well as for A.Y. 2011-12 and submitted that even in those penalty notices the ld. AO has failed to strike off any of the twin charges and therefore, the penalty initiated in the original assessment order itself is not valid. It was further argued that when the penalty notices in the original assessment order passed u/s. 143(3) in the same were invalid at the initiation itself now even otherwise the penalty cannot be levied u/s. 271(1) C. If it is held otherwise, it will revive already dead proceedings. Further, the issue of initiation of penalty proceedings was not before the ITAT and therefore it cannot be now revived in the assessment order passed u/s. 143(3) of the Act r.w.s. 254 of the Act.The ld. AR further referred to provisions of section 271(1) (C) of the Act and submitted that it has to be satisfaction of ld. AO and not satisfaction of ld. PCIT for levy of such penalty. The authority which passes the assessment order or any other orders only that and that authority is authorized to issue and initiate penalty proceedings arising out of assessment order. It was further stated that even otherwise the order u/s. 263 of the Act was passed by the ld. PCIT on the recommendation of the AO which is mentioned in the revisionary order itself, next the revisionary order unsustainable in law. The 263 order is required to pass on the independent finding of the ld. PCIT. Page | 7 ITA No.1071/MUM/2022 Kusegoan Realty Pvt. Ltd.; A.Y.2011-12 011. Accordingly, it was submitted that the order of the ld. PCIT is not sustainable in law. 012. The ld. CIT DR vehemently supported the orders of the ld. PCIT. It was submitted that non-initiation of the penalty proceedings u/s. 271(1) (c) of the Act makes assessment orderspassed by ld. AO as erroneous and prejudicial to the interest of the revenue. It was further submitted that when the ITAT has set aside the assessment orders to the file of the ld. AO to pass it and make a De novoassessment, the fresh penalty proceedings are required to the initiated by the ld. AO. Therefore, whether in the original assessment proceedings the penalty proceedings were levied or not or even if not sustainable, it does not have any impactwhen a fresh/De novoassessment is made. De novo assessment is fresh assessment, where the penalty should have been initiated by the ld.AO, but he failed the initiate and reported suchan error to the ld. PCIT there is nothing wrong ifLDPCIT has assumed jurisdiction and directed the ld.AO to initiate penalty proceedings. It was further submitted that initiation of penalty proceedings is directed on the charge of furnishing in accurate particulars of income. Therefore, there is specific charge. Hence, reliance on the earlier notices u/s. 274 r.w.s.271(1) ( C) of the Act in the original proceedings are no more relevant. Page | 8 ITA No.1071/MUM/2022 Kusegoan Realty Pvt. Ltd.; A.Y.2011-12 013. We have carefully considered the rival contentions and perused the orders of the lower authorities. Factual metrics in both these appeals is similar and involves only one issue that when the learned assessing officer has failed to initiate penalty proceedings u/s 271 (1) © of the act, whether the learned principal Commissioner of income tax, can invoke his own jurisdiction u/s 263 of the income tax act and hold that the order passed by the learned assessing officer are erroneous insofar as prejudicial to the interest of the revenue. Thereafter, the learned PCIT can direct the learned assessing officer to initiate penalty proceedings framing specific charge of furnishing of inaccurate particulars of income. In the present case, even after setting aside of the order by the coordinate bench, the learned assessing officer has framed assessment for assessment year 2000 – 11 u/s 143 (3) read with Section 254 of the income tax act, 1961. On 31 December 2019 making an addition of ? 120,735,739/– being disallowance u/s 37 (1) of the income tax act did not record any satisfaction about concealment of income or furnishing of inaccurate particulars of income. Therefore, no penalty was initiated u/s 271 (1) © of the act. Subsequently, as the facts recorded by the learned and CIT in order u/s 263 of the act at para number 11 is categorically mentioned that the learned assessing officer who passed the assessment order himself submitted the Page | 9 ITA No.1071/MUM/2022 Kusegoan Realty Pvt. Ltd.; A.Y.2011-12 proposal u/s 263 requesting the principal Commissioner of income tax to direct initiation of penalty proceedings u/s 271 (1) © of the act in the said assessment order and since the failure to initiate the penalty proceedings makes the order erroneous and prejudicial to the interest of revenue, it should be revised. 014. Honourable madras High Court in case of CIT vs Chennai Metro rail Ltd 92 taxmann.com 329 has held that In absence of any finding of Assessing Officer with regard to concealment of income or with regard to furnishing of inaccurate particulars of income, Commissioner, in exercise of power under section 263, could not direct Assessing Officer to initiate penalty proceedings under sec 271(1)(c) of the Act. 015. Similar view has once again been taken by the Honourable madras High Court in CIT vs C. R. K. Swami 254 ITR 258 (madras) has held as Under:- “2. Moreover, as held by a Bench of the Delhi High Court in the case of Addl. CIT v. Sudershan Talkies [1993] 200 ITR 153 , failure on the part of the assessing authority to initiate penalty proceedings would not give jurisdiction to the Commissioner of Income-tax to pass an order under section 263 of the Income-tax Act, 1961 ('the Act') and to direct initiation of Page | 10 ITA No.1071/MUM/2022 Kusegoan Realty Pvt. Ltd.; A.Y.2011-12 such proceedings. We are in respectful agreement with that view.” 016. Honourable Rajasthan High Court in case of CIT vs Kesrimal Parasmal by 27 taxman 447 (Rajasthan has held thatIn J.K. D'Costa's case (133 ITR 7 ] (Delhi) it was held that the Commissioner was 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 order and that he could not direct the ITO to make fresh assessment to initiate penalty proceedings. The Supreme Court has dismissed the special leave petition in the said case in Special Leave Petition (Civil) Nos. 11391 and 11392 of 1981, dated 2-3-1984 [1984] 147 ITR (St.) 1. As the position was concluded and settled by the Supreme Court, the question which was sought to be referred could not be said to be a substantial question of law arising out of the Tribunal's order. It was only a question of academic nature. 017. Decisions relied upon by the learned PCIT are with respect to when the order dropping the penalty proceedings are passed by the learned assessing officer whether they are subject to revision u/s 263 of the act or not. This is not the issue before us, the issue before us is whether when the assessing officer has failed to record any satisfaction about the concealment or furnishing of the particulars of Page | 11 ITA No.1071/MUM/2022 Kusegoan Realty Pvt. Ltd.; A.Y.2011-12 income and fails to initiate penalty proceedings u/s 271 (1) © of the act, whether such an order can be revised u/s 263 of the income tax act. Therefore, those decisions do not apply to the facts of the case. 018. Accordingly, we have no hesitation in holding that the learned principal Commissioner of income tax is not correct in assuming jurisdiction u/s 263 of the income tax act where the learned assessing officer has failed to initiate penalty proceedings and also does not record any satisfaction of furnishing of inaccurate particulars or concealment of income in the assessment order. 019. As the facts for the assessment year 2010 – 11 and 2011 – 12 are similar, both the orders passed by the learned principal Commissioner of income tax u/s 263 of the act holding the assessment order passed by the learned assessing officer are erroneous and prejudicial to the interest of the revenue where the learned assessing officer has failed to initiate penalty proceedings u/s 271 (1) © of the act are quashed. 020. Accordingly appeals of the assessee for both the years are allowed. Order pronounced in the open court on 29.12.2022. Sd/- Sd/- (PAVAN KUMAR GADALE) (PRASHANT MAHARISHI) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) Mumbai, Dated: 29.12.2022 Uday Mugal, Stenographer Page | 12 ITA No.1071/MUM/2022 Kusegoan Realty Pvt. Ltd.; A.Y.2011-12 Copy of the Order forwarded to: 1. The Appellant 2. The Respondent. 3. The CIT(A) 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. BY ORDER, True Copy// Sr. Private Secretary/ Asst. Registrar Income Tax Appellate Tribunal, Mumbai