The Jaipur Bench of Income Tax Appellate Tribunal(ITAT)ruled that the failure to record an opinion on penalty levy under Section 270A of Income Tax Act,1961 in the assessment order not erroneous or prejudicial to the Revenue’s interest.
Mikuni India Private Limited ,appellant-assessee,challenged the Principal Commissioner of Income Tax(PCIT) Jaipur’s order dated March 28, 2024, issued under Section 263 of the Income Tax Act for the assessment year 2017-18.
The PCIT revised the assessment order dated October 27, 2021, where the Assessing Officer(AO) assessed total income at ₹6,75,33,340, including a Transfer Pricing adjustment of ₹6,44,86,098.
The PCIT issued a notice, stating that the AO had not initiated penalty proceedings under Section 270A despite the addition, which was made as per Dispute Resolution Panel(DRP)’s directions on September 9, 2021. The PCIT believed a penalty was required for misreporting of income.
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The PCIT also held that the AO failed to apply due diligence, making the assessment order erroneous and prejudicial to Revenue.
The assessee’s counsel argued that the PCIT passed the order without establishing it as erroneous and prejudicial to Revenue. Since the AO had conducted an enquiry and chose not to initiate penalty proceedings, the directions were unjustified and should be set aside.
The Department argued that the transfer pricing adjustment involved underreporting of income, so penalty proceedings under Section 270A should have been initiated. They referred to the PCIT’s order, relevant provisions, and the Anjis Developers Pvt. Ltd. case.
The assessee’s case was selected for scrutiny, and the Transfer Pricing Officer(TPO) determined a ₹7.01 crore adjustment. After the DRP’s directions, the final assessment order was passed on 27.10.2021.
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The assessment order did not mention penalty proceedings. While the TPO suggested the AO may examine the issue, it was not a directive. Since the AO decided not to initiate penalty proceedings, the order was not considered erroneous or prejudicial to Revenue.
In Anjis Developers, the ITAT upheld the PCIT’s view, but courts have ruled that not initiating penalty does not make an assessment order erroneous. The AO did not treat the adjustment as underreporting or misreporting, and the assessment was finalized.
The two member bench of Narinder Kumar(Judicial Member) and Gagan Goyal(Accountant Member) agreed with the appeal, stating that the assessment order dated 27.10.2021 was not wrong or harmful to the Revenue just because the AO did not start penalty proceedings under Section 270A of the Act.
In short,the appeal filed by the assessee was allowed.
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