Judgment:
R.K. Agrawal, J.
1. The Income-tax Appellate Tribunal, Allahabad, has referred the following question of law under Section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as 'the Act'), for the opinion to this court :
'Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in law in holding that the Commissioner of Income-tax had no jurisdiction to direct the Income-tax Officer to initiate the penalty proceedings under Section 273(b) and under Section 140A of the Income-tax Act, 1961 ?'
2. Briefly stated, the facts giving rise to the present reference are as follows :
3. The present reference relates to the assessment year 1980-81. The relevant previous year ended on September 30, 1979. For the assessment year in question, the Income-tax Officer assessed the income of the respondent at Rs. 3,78,900. He also allowed the depreciation as per annexure to the assessment order. The Commissioner of Income-tax called for and examined the records under Section 263 of the Act. He was of the opinion that the order passed by the Income-tax Officer was erroneous and also prejudicial to the interests of the Revenue. After issuing notice and giving an opportunity of hearing to the respondent, he held that the Income-tax Officer had allowed excess depreciation amounting to Rs. 2,19,212 on various items. Apart from it, excess travelling expenses of Rs. 950 had also been allowed and the penalty proceeding under Sections 273(b) and 140A of the Act had not been initiated by him. Accordingly, he directed the Income-tax Officer to reframe the assessment by allowing correct depreciation as per rule and also consider the action for initiating the penalty proceeding according to law. The Commissioner of Income-tax had passed the following order :
'In view of the decision of the Delhi High Court in the case of Addl. CIT v. J. K. D Costa : [1982]133ITR7(Delhi) as referred to by the assessee, the Commissioner of Income-tax cannot set aside the assessment order under Section 263 merely on the ground that the Income-tax Officer had not initiated the penalty proceedings for the relevant assessment year but that does not bar the Commissioner of Income-tax setting aside the impugned order of the Income-tax Officer, on other reasons which are prejudicial to the interests of the Revenue as referred in para. 1 above.'
4. Feeling aggrieved, the respondent preferred an appeal before the Income-tax Appellate Tribunal. The Tribunal had modified the order of the Commissioner of Income-tax to the extent that the entire assessment order was not to stand set aside but was to be limited only to the reconsideration of the allowance of depreciation and travelling expenses by the Income-tax Officer. It deleted the direction in the last sentence in the order of the Commissioner of Income-tax regarding the consideration of initiating the penalty proceeding as such a direction was beyond the scope of Section 263(1) of the Act.
5. We have heard Sri Shambhoo Chopra, learned standing counsel for the Revenue. Nobody has appeared on behalf of the respondent.
6. Recently this court had the occasion to consider in great detail the decision of the Delhi High Court in the case of Addl. CIT v. J. K. D Costa : [1982]133ITR7(Delhi) and other cases in the Income-tax Reference No. 148 of 1984, CIT v. Surendra Prasad Agrawal : [2005]275ITR113(All) , decided on September 1, 2004, and this court has held that non-initiation of penalty proceeding by the assessing authority in the course of assessment proceedings, also renders the order erroneous and prejudicial to the interests of the Revenue and, therefore, can be the subject-matter of revision under Section 263 of the Act.
7. Respectfully following the aforesaid decision, we answer the question of law referred to us in the negative, i.e., in favour of the Revenue and against the assessee. However, there shall be no order as to costs.