S. 264- CIT cannot pass order prejudicial to the assessee u/s. 264, CIT cannot pass order u/s. 263 prejudicial to the assessee, otherwise it would make the prohibition u/s. 264 that the CIT cannot pass the order prejudicial to the assessee nullity.
Facts:
A search u/s. 132 was conducted at the business/residential premises of the assessee and in response to notice u/s. 153A, the assessee filed the return of income disclosing certain taxable income.
The Assessing Officer, having completed his assessment passed a penalty order u/s. 271(1)(c) in respect of substantial part of additional income disclosed by the assessee in the return filed in response to notice u/s. 153A, but not on the entire additional income disclosed by the assessee.
The assessee filed a revision petition u/s. 264 before CIT for quashing the penalty order.
The CIT held the penalty order u/s. 271(1)(c) to be erroneous on the ground that the Assessing Officer had not levied the penalty in respect of the entire additional income offered in the return filed in response to notice u/s. 153A.
Hence, during the pendency of the revision petition u/s. 264 with CIT, the CIT passed an order u/s. 263 setting aside the penalty order and also treated the assessee’s petition u/s. 264 infructuous on the ground that the penalty order had already been set aside during the proceedings u/s. 263.
In the fresh penalty order passed in pursuance of order u/s. 263, the Assessing Officer levied the penalty on the entire additional income disclosed by the assessee in the return filed in response to notice u/s.153A.
Aggrieved, the assessee preferred an appeal before the Tribunal.
Held:
It is evident that u/s. 264, the Commissioner can revise any order passed by any authority subordinate to him on his own motion or on the application made by the assessee and can pass the order as he thinks fit but cannot pass an order prejudicial to the assessee.
The CIT cannot pass an order prejudicial to the assessee u/s. 264, and hence it was held that once the assessee approaches CIT for getting relief u/s. 264, CIT cannot pass order u/s. 263 prejudicial to the assessee, otherwise it would make the prohibition u/s. 264 that the CIT cannot pass the order prejudicial to the assessee nullity.
Even on facts, it was held that the order u/s. 263 cannot be sustained because it is a settled position that penalty u/s. 271(1)(c) is not to be levied on every income. The penalty is to be levied only when the conditions prescribed u/s. 271(1)(c) are satisfied.
When one looks at the language of section 271(1)(c), even in regard to concealed income, the levy of penalty is not automatic because discretion has been given to the Assessing Officer to levy or not to levy the penalty which would be clear from the use of the words ‘may’ in section 271(1)(c).
Moreover, Assessing Officer has also been given discretion to levy the penalty at the rate ranging between 100 % to 300 % of the tax sought to be evaded.
Therefore, if the Assessing Officer levies the penalty u/s. 271(1)(c) on the part of the additional income, it cannot be said that the order of the Assessing Officer is erroneous as well as prejudicial to the interests of the revenue within the meaning of section 263.
In the instant case, the penalty had already been levied on the substantial portion of the additional income. Also in the penalty order, the Assessing Officer had discussed each and every fact as well as legal position in detail and, at the end, he had also mentioned the amount of concealment worked out by him and then calculated penalty thereon.
In such a case, merely because in the opinion of the Commissioner the penalty should have been levied on the entire returned/assessed income, it would not vest the Commissioner with the power of suo motu revision u/s. 263.
