Revision—Scope—Non-initiation/initiation of penalty proceedings under wrong provision—Sec. 263 cannot be invoked to correct each and every type of mistake or error committed by the AO—It is only when an order is erroneous as also prejudicial to revenue’s interest, that the provision will be attracted—Revisional jurisdiction of the Principal CIT starts only after the conclusion of assessment proceedings, resulting into assessment order—Therefore, it is not open to the Principal CIT to exercise the revisional powers to create a non-existent proceeding—Only the assessment order can be revised under s. 263 and not the penalty proceedings—Hence, no proceedings under s. 263 could be invoked to correct the section under which the penalty can be levied by the AO—There must exist some order, which is sought to be revised by the Principal CIT—If there is no order, question of revising the order does not arise—In the instant case, though the AO recorded his finding in the order for initiation of penalty under s. 271(1)(c), he issued the notice under s. 271AAB(1A)—Admittedly there is no order insofar as penalty proceedings are concerned—Once there is no order, there is no question of its being erroneous or prejudicial to the interests of Revenue—Whether the AO has not initiated penalty proceedings at all or it is a case of wrong initiation of penalty, in both the situations the Principal CIT has got no jurisdiction at all because no order has been passed by the AO till the examination by the Principal CIT under s. 263—Principal CIT cannot find fault in the proceedings alone—Further, the inherent indication under s. 271(1) makes it clear that the Principal CIT/CIT does not have any powers to direct either of the authorities, i.e., the AO or the appellate authority, to initiate and levy penalty—Said section requires the AO or the appellate authority to be satisfied in the course of ‘any proceedings’—This means, any proceedings before the specified authority—Principal CIT/CIT cannot create proceedings—Since he is not permitted to direct the appellate authority, he cannot be permitted to substitute jurisdiction/powers of only the AO by his satisfaction by creating proceedings where none exist—Therefore, invocation of provision of s. 263 to correct the section under which the penalty is leviable is beyond the power vested under s. 263

Held :

The prerequisite to the exercise of jurisdiction by the CIT under s. 263 is that the order of the AO is established to be erroneous insofar as it is prejudicial to the interest of the Revenue. The CIT has to be satisfied of twin conditions, namely (i) The order of the AO sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If any one of them is absent i.e., if the assessment order is not erroneous but it is prejudicial to the Revenue, s. 263 cannot be invoked. This provision cannot be invoked to correct each and every type of mistake or error committed by the AO; it is only when an order is erroneous as also prejudicial to revenue’s interest, that the provision will be attracted. An incorrect assumption of the fact or an incorrect application of law will satisfy the requirement of the order being erroneous. The phrase ‘prejudicial to the interest of the Revenue’ has to be read in conjunction with an erroneous order passed by the AO. Every loss of Revenue as a consequence of the order of the AO cannot be treated as prejudicial to the interest of the Revenue. The revisional jurisdiction of the Principal CIT starts only after the conclusion of assessment proceedings, resulting into assessment order, therefore, it is not open to the Principal CIT to exercise the revisional powers to create a non-existent proceeding under s. 263 by holding the assessment proceeding as erroneous insofar as prejudicial to the interest of revenue. The provision of s. 263 regulates the revisional powers of the Principal CIT hence, the strict fulfilment of the requirements of a jurisdictional provision cannot be compromised. On the issue the CBDT in its Circular No. 09/DV/2016 (Departmental view) dt. 26th April, 2016 is also of this view that a mere mention of the penalty in the assessment order is of no value. The notice is to be issued by the competent officer who is powered under the Act. The only proceeding and consequent order is the assessment order and not the penalty proceedings because the same were not existing, hence no proceedings under s. 263 could be invoked to correct the section under which the penalty can be levied by the AO. There must exist some order, which is sought to be revised by the Principal CIT. If there is no order, question of revising the order does not arise. He cannot pass an order under s. 263 to pass an order, where there is none. In the instant case, admittedly there is no order insofar as penalty proceedings are concerned. Once there is no order, there is no question of its being erroneous or prejudicial as submitted there are other provision such as ss. 147, 154, 292BB or filling an appeal, etc. It may be clarified whether the AO has not initiated penalty proceedings at all or it is a case of wrong initiation of penalty, in both the situations the Principal CIT has got no jurisdiction at all because no order has been passed by the AO till the examination by the Principal CIT under s. 263 in the proceedings under examination. The Principal CIT cannot find fault in the proceedings alone but passing of an order in those proceedings, is a condition precedent. Therefore, non-initiation wrong initiation of penalty proceedings cannot be much emphasized or stressed upon because there is no order at all in those proceedings, hence there cannot be any question of finding any error/prejudice therein under s. 263. There is one more reason why the Principal CIT should not be permitted to invoke revisional powers for initiation of penalty proceedings. Sec. 271(1) specifically empowers the AO or the appellate authority to record satisfaction. It is well-settled that once an appeal has been preferred against an order of assessment the entire assessment is open before the appellate authority. The appellate authority is entitled to do all that the AO could have done. The powers of the appellate authority are co-extensive and co-terminus with the powers of the AO. It is equally well-settled that the Principal CIT cannot exercise revisional jurisdiction qua proceedings before an appellate authority. The order of assessment does not have any independent existence and stands merged with the order of the appellate authority. Hence, to read s. 263 as being applicable only in case of an AO for the purposes of initiation and levy of penalty and not being applicable to the appellate authority, cannot be the legislative intent. To the contrary, the inherent indication under s. 271(1) makes it clear that the Principal CIT/CIT does not have any powers to direct either of the authorities, i.e., the AO or the appellate authority, to initiate and levy penalty. Said section requires the AO or the appellate authority to be satisfied in the course of ‘any proceedings’. This means, any proceedings before the specified authority. Principal CIT/CIT cannot create proceedings. Since he is not permitted to direct the appellate authority, he cannot be permitted to substitute jurisdiction/powers of only the AO by his satisfaction by creating proceedings where none exist–assessment having already been completed. Invocation of provision of s. 263 to correct the section under which the penalty is leviable is beyond the power vested under s. 263 when there are other options available with the AO.—CIT vs. Keshrimal Parasmal (1985) 48 CTR (Raj) 61 : (1986) 27 Taxman 447 (Raj), Smt. Rekha Shekhawat vs. Principal CIT (2022) 219 TTJ (Jp) 761 : (2022) 218 DTR (Jp)(Trib) 161, Suresh Kumar Dapkara vs. Principal CIT (ITA No. 141/Jp/2022; Asst. yr. 2018-19) and Dheeraj Singh Sisodiya vs. Principal CIT (ITA No. 132/Jp/2022, dt. 10th Aug., 2022) followed

(Paras 24 & 26)
Conclusion :

If there is no order, it is not open to the Principal CIT to exercise his revisional powers under s. 263 to create a non-existent proceeding; proceedings under s. 263 cannot be invoked to correct the section under which the penalty can be possibly levied by the AO.