The Jaipur bench of the Income Tax Appellate Tribunal (ITAT) has held that the revisional jurisdiction of the Principal Commissioner of Income Tax (PCIT) under section 263 of the Income Tax Act, 1961 cannot be invoked to initiate penalty without finding that the assessment order passed by the AO as erroneous and prejudicial to the interest of revenue.
A two-Member bench of the Tribunal comprising Shri Sandeep Gosain, JM & Dr. M. L. Meena, AM was hearing an appeal by Shri Dheeraj Singh Sisodiya. In the instant matter, 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 assesseeargued that the AO has taken conscious decision to initiate the penalty proceedings u/s 271AAB(1A) of the Act.
The Tribunal 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.
Quashing the penalty orders, the Tribunal held that “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 toinitiated 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 revenueis vague and bad in law.”
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