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2025 (5) TMI 339 - AT - Income TaxRevision u/s 263 - penalty proceedings are separately initiated for concealment of particulars of income and furnishing inaccurate particulars of income in respect of claim of deduction u/s 80GGC claim of deduction on professional and legal fee expenses receipts from Toyota Lakozy P. Ltd and with regard to personal expenses - HELD THAT - While passing the order u/s 143(3) r.w.s 254 it was specifically that penalty proceedings u/s 271(1)(c) initiated which were kept in abeyance till the disposal of the appeal by Hon ble Tribunal by the then AO was revived by virtue of provisions of section 275 of the IT Act 1961. Accordingly penalty proceedings u/s 271(1)(c) were taken afresh with respect to additions viz. Professional Legal Fees 2) Receipt from Toyota Lakozy Pvt. Ltd.) Personal expenses separately for each issue for furnishing inaccurate particulars of income. However even before us there is no justification for not levying the penalty in respect of three issues. It is worth mentioning here that in the case of CIT Vs. Braj Bhushan Cold Storage 2005 (1) TMI 58 - ALLAHABAD HIGH COURT and Shabbir T. Chass 2008 (10) TMI 588 - ITAT HYDERABAD had held that even dropping of penalty proceedings u/s 271(1)(c) of the Act is erroneous and prejudicial to the interest of the revenue. Therefore we found thatCIT was rightly satisfied that the penalty order is erroneous in so far as it is prejudicial to the interest of revenue. Therefore while exercising of powers u/s 263 of the Act rightly directed the AO to re-examine the penalty order and modify the same if necessary after following the principles of natural justice. We see no reasons to interfere into the lawful orders passed by Ld. Pr. CIT. Hence we uphold the same by dismissing the appeal of the assessee.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Tribunal in this appeal under section 263 of the Income Tax Act, 1961, are as follows: (a) Whether the order passed by the Assessing Officer (AO) under section 271(1)(c) of the Act, imposing penalty only on the disallowance of deduction claimed under section 80GGC, while not levying penalty for other additions (professional and legal fees, receipts from Toyota & Lakozy Pvt. Ltd., and personal expenses), is erroneous and prejudicial to the interest of the revenue. (b) Whether the Principal Chief Commissioner of Income Tax (PCIT) was justified in invoking powers under section 263 of the Act to revise the penalty order passed by the AO on the ground that the penalty should have been levied for all the additions where inaccurate particulars of income were furnished. (c) Whether the AO's decision to levy penalty selectively on only one issue, despite initiating penalty proceedings on multiple issues, amounts to an error in law or on facts warranting interference under section 263. (d) The correctness of the AO's assessment and penalty proceedings in relation to the disallowance of deduction under section 80GGC, professional and legal fees, receipts from Toyota & Lakozy Pvt. Ltd., and personal expenses. 2. ISSUE-WISE DETAILED ANALYSIS Issue (a) & (b): Legality and propriety of penalty order under section 271(1)(c) and exercise of revisionary powers under section 263 Relevant legal framework and precedents: Section 271(1)(c) of the Income Tax Act empowers the AO to impose penalty for concealment of particulars of income or furnishing inaccurate particulars of income. Section 263 allows the PCIT to revise any order passed by the AO if it is erroneous and prejudicial to the interests of the revenue. The Hon'ble High Court of Allahabad in CIT vs. Braj Bhushan Cold Storage and the Hyderabad Bench in Shabbir T. Chass vs. ACIT have held that dropping penalty proceedings without sufficient justification is erroneous and prejudicial to revenue. Court's interpretation and reasoning: The Tribunal noted that penalty proceedings were initiated by the AO on multiple issues: disallowance under section 80GGC, professional and legal fees, receipts from Toyota & Lakozy Pvt. Ltd., and personal expenses. However, the AO levied penalty only on the deduction claimed under section 80GGC and did not provide any justification for not levying penalty on the other issues. The PCIT, upon review, found this selective imposition of penalty to be erroneous and prejudicial to the revenue's interest, as the penalty should have been levied on all issues where inaccurate particulars of income were furnished. The PCIT's satisfaction was based on the fact that penalty proceedings were initiated and revived for all these issues, but the AO failed to apply his mind to impose penalty on all. Key evidence and findings: The penalty proceedings were initially kept in abeyance pending appeals and revived post-tribunal directions. The AO's order dated 18.12.2019 explicitly stated revival of penalty proceedings on all issues. The AO's subsequent penalty order dated 15.03.2022 imposed penalty only on the 80GGC deduction issue without explaining the omission regarding other issues. Application of law to facts: The Tribunal held that the AO's failure to levy penalty on professional and legal fees, receipts from Toyota & Lakozy Pvt. Ltd., and personal expenses, despite initiating penalty proceedings on these issues, amounted to an error prejudicial to the revenue. The PCIT's exercise of revisionary powers under section 263 was thus justified to direct re-examination and modification of the penalty order. Treatment of competing arguments: The assessee contended that the AO had applied his mind and rightly levied penalty only on the 80GGC issue, and that the PCIT could not substitute his opinion for that of the AO under section 263 where no error was committed. The assessee also relied on a coordinate bench order deleting penalty on 80GGC. The Tribunal distinguished this coordinate bench order as irrelevant to the other three issues and emphasized the absence of any justification by the AO for non-levy of penalty on those issues. Conclusions: The Tribunal upheld the PCIT's satisfaction that the penalty order was erroneous and prejudicial to revenue and affirmed the direction to the AO to re-examine and modify the penalty order after following principles of natural justice. Issue (c): Whether AO's selective penalty imposition amounts to error warranting revision Relevant legal framework: The AO's discretion in penalty imposition must be exercised fairly and with proper reasoning. Arbitrary or unexplained non-levy of penalty on some issues where penalty proceedings were initiated can be challenged under section 263. Court's reasoning: The Tribunal found that the AO's selective imposition of penalty without explanation was not sustainable. The initiation of penalty proceedings on multiple issues created a duty on the AO to consider penalty on all such issues or provide reasons for non-levy. Application of law to facts: Since the AO did not provide any justification for non-levy of penalty on professional and legal fees, receipts from Toyota & Lakozy Pvt. Ltd., and personal expenses, the Tribunal held this to be an error. Conclusion: The AO's order was rightly found to be erroneous and prejudicial to revenue, justifying revision under section 263. Issue (d): Validity of additions and penalty proceedings on each of the disallowances Relevant legal framework: The correctness of additions and penalty depends on whether the assessee concealed or furnished inaccurate particulars of income. The appellate orders from CIT(A) and ITAT had upheld the additions on professional and legal fees and personal expenses but deleted the addition on 80GGC deduction, which was remanded for fresh consideration. Court's interpretation: The Tribunal noted that the penalty proceedings were initiated on all four issues, including the 80GGC deduction, professional and legal fees, receipts from Toyota & Lakozy Pvt. Ltd., and personal expenses. However, the penalty was levied only on the 80GGC deduction. Key evidence: The ITAT had confirmed addition on professional and legal fees and remanded the 80GGC issue. The penalty proceedings were revived after remand. The assessee filed submissions denying concealment or furnishing inaccurate particulars. Application of law to facts: The Tribunal did not interfere with the correctness of the additions as such but focused on the procedural correctness of penalty imposition. The Tribunal acknowledged that the penalty on 80GGC was challenged separately and deleted by a coordinate bench but held that this did not affect the penalty proceedings on other issues. Conclusion: The Tribunal did not disturb the assessment additions but held that penalty proceedings on all issues should be properly considered by the AO. 3. SIGNIFICANT HOLDINGS "If the Ld. Principal Chief Commissioner of Income Tax has prima facie conveyed an opinion that is different from that of the Ld. AO, the same does not give powers to the Ld. PCIT under section 263 to substitute his opinion in place of opinion of the Assessing Officer, particularly, when, no error has been committed on facts and in law, by the Ld. AO." However, the Tribunal upheld the PCIT's exercise of revisionary powers because: "We found that Ld. Pr. CIT was rightly satisfied that the penalty order dated 15.03.2022 is erroneous in so far as it is prejudicial to the interest of revenue. Therefore, while exercising of powers u/s 263 of the Act rightly directed the AO to re-examine the penalty order dated 15.03.2022 and modify the same, if necessary, after following the principles of natural justice." The Tribunal emphasized the principle from authoritative precedents that: "Even dropping of penalty proceedings u/s 271(1)(c) of the Act is erroneous and prejudicial to the interest of the revenue." Core principles established include:
Final determinations:
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