Failure to initiate penalty u/s 270A(2)(b) for under-reporting via belated return post-reopening notice renders assessment erroneous and prejudicial, justifying PCIT revision u/s 263 to direct initiation.

आदेश/ORDER

PER: T.R. SENTHIL KUMAR, JUDICIAL MEMBER 

This appeal is filed by the Assessee as against Revision order dated 25-03-2025 passed by the Principal Commissioner of Income Tax, Ahmedabad-1, arising out of the assessment order passed under section 143(3) r.w.s. 147 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to the Assessment Year 2018-19.

2. Brief facts of the case is that the assessee is an individual has not filed the Return of Income for the Asst. Year 2018-19. Information received from the insight portal of the Department that the assessee made cash deposit of Rs.1,26,85,410/- and withdrawal of Rs.7,45,118/- in his ICICI Bank account, Ahmedabad-Relief Road Branch during the Financial Year 2017-18 but not filed the Return of Income. Therefore the assessment was reopened by issuing notice u/s. 148 on 27-03-2022. The assessee has not responded to the above notice. Therefore notice u/s. 142(1) dated 06-10-2022 and 15-11-2022 were issued but not replied by the assessee. Therefore final show cause notice dated 27-12-2022 and 06-02-2023 were issued, against which the assessee partly complied with the details that he was engaged in the trading of cloth merchant in the name and style of M/s. Priyanaka Textile at F/63, Padmavati Complex, Gheekanata near Mahalaxmi Complex, Ahmedabad. The assessee explained that the cash deposit and withdrawals are relating to the trading and purchase of goods.

2.1. Though assessee not filed the original return u/s. 139(1) of the Act, however a belated return filed in response to 148 notice on 10-02-2023 estimating the income at Rs.10,52,202/- u/s. 44AD of the Act on the turnover of Rs.1,31,30,550/-. The assessee claimed that it had paid the appropriate tax including interest and fee payable u/s. 234F of the Act totaling to Rs.2,92,320/-. The assessing officer accepted the above returned income and initiated penalty proceedings u/s. 272A(1)(d) of the Act for non-compliance to the statutory notices issued u/s. 142(1) and 143(2) of the Act.

3. Perusal of the above reassessment order, Ld. PCIT found that the assessing officer failed to invoke u/s. 270A(2)(b) of the Act. Thus assessee having not filed original Return of Income and not paid the taxes, however a belated return filed in response to notice u/s. 148 of the Act, therefore the penalty provisions u/s. 270A(2)(b) is directly attracted. Whereas the assessing officer has failed to initiate the penalty proceedings in the reassessment proceedings which is erroneous and prejudicial to the interest of Revenue. Therefore Ld. PCIT issued a show cause notice dated 08-03-2024 to the assessee.

3.1 The assessee replied that the order passed by the A.O. was neither erroneous nor prejudicial to the interest of Revenue. However an appeal is pending against the reassessment order, therefore the Revision proceedings is barred u/s. 263(1) of the Act. Further the reply of the assessee reads as follows:

“It is respectfully submitted that proceedings for the levy of penalty are independent and separate from assessment proceedings and in the case of J.K.D. costa 133 ITR 7, Delhi their Lordship proceeded to state that CIT is not entitled to bring within his scope and deal with penalty proceedings and orders (which are admittedly connected but distinct) while calling for and examining the record of assessment proceedings and orders. Further in the case of P.C.Purn 151 ITR 548 (Delhi) it has been held that an assessment cannot be set to be prejudicial to the interest of the Revenue because of the failure of th