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Section 263, read with section 271B, of the Income-tax Act, 1961 - Revision - Of orders prejudicial to interests of revenue - Assessment year 1986-87 - Whether failure to initiate penalty proceedings at time of passing assessment order does render order erroneous and prejudicial to interest of revenue - Held, yes FACTS The assessee-firm was engaged in the execution of contract work. It was required to obtain audit report in terms of section 44AB by 30-6-1986. The assessee did not obtain report within specified period and same was enclosed with return for the relevant assessment year on 15-9-1986. The assessment was completed by the Assessing Officer but no penalty proceeding was initiated against the assessee for failure to obtain audit report within specified time. The Commissioner, after examining the assessment order, found that failure to initiate proceedings under section 271B by the Assessing Authority caused assessment order erroneous and prejudicial to the interest of the revenue warranting action under section 263 and, accordingly, set aside the assessment order. On appeal, the Tribunal set aside the order of the Commissioner. On reference : HELD The Allahabad High Court in CIT v. Sri Surendra Prasad Agrawal [IT Reference No. 148 of 1984, dated 1-9-2004] has held that failure to initiate penalty proceedings at the time of passing of the assessment order does render the order erroneous and prejudicial to the interest of the revenue. In that view of the matter the Tribunal was not justified in setting aside the order passed by the Commissioner under section 263. That apart, proceedings under section 263 were initiated by the Commissioner also on the ground that certain TDS certificates bearing the date 17-6-1986 had been given credit towards the tax deposited by the Assessing Officer, when the date fell outside the assessment year in question and, therefore, on that ground also the assessment order had been rendered erroneous and prejudicial to the interest of the revenue. No doubt, the said mistake could be rectified under section 154 but nonetheless it did not oust the jurisdiction of the Commissioner under section 263. [Para 5] In view of the…

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