The Ahmedabad Bench of the Income Tax Appellate Tribunal (ITAT), in Kamalkant Bhagwatiprasad Oza v. PCIT (Central) [2026] 189 taxmann.com 160 (Ahmedabad – Trib.), was called upon to examine the legality of an order passed under section 263 of the Income-tax Act, 1961, wherein the Principal Commissioner directed the Assessing Officer to initiate penalty proceedings under section 270A. More particularly the sole ground on which the PCIT has set aside the order is that the AO, while completing the assessment, had failed to initiate penalty proceeding under section 270A.
In the typical facts of this case the assessee had disclosed income of Rs.6.07 lakhs on certain contractual receipts. According to the AO, the assessee did not carry out any contractual activity and, therefore, the AO had rejected the books of accounts of the assessee u/s. 145(3) of the Act. The entire contractual receipts as well as the payments made by the assessee, as per P&L account, were treated as bogus. The AO did not estimate any other income of the assessee and the only finding given in the assessment order was that the TDS credit claimed on the contractual receipts was to be disallowed. In the computation of income, the AO had proceeded from total income of Rs. 6.07 lakhs as per return and made further addition of Rs.3.39 lakhs in respect of disallowance of TDS credit and thus the total income was arrived at Rs. 9.45 lakhs in the assessment order. Thus total income assessed was more than the returned income.
The assessee presented following three grounds before the Hon’ ble bench:
1. The Learned Pr. Commissioner of Income Tax, (Central), Ahmedabad has erred in passing an order u/s 263 of the LT. Act, 1961 setting aside the Assessment Order passed uis.143(3) of the LT. Act, 1961 dtd.21.03.2024 which is neither erroneous nor prejudicial to the interest of the Revenue.
2. The Learned Pr. Commissioner of Income Tax, (Central), Ahmedabad has erred in passing an order u/s.263 of the LT Act, 1961 for limited purpose of initiating penalty proceedings u/s 270A of the Act holding that the Assessing Officer has not recorded satisfaction for initiating penalty proceedings u/s 270A of the 1.T.Act, 1961
3. The Learned Pr. Commissioner of Income Tax, (Central) Ahmedabad has erred in not considering fact that the assessment proceedings and penalty proceedings are separate and distinct and for non-initiation of penalty proceedings during assessment proceedings by the Assessing Officer is not an error for which revision proceedings can be invoked. Hence the Revision order so passed requires to be cancelled.
The Tribunal held that the TDS credit claimed by the assessee was already part of the turnover of the assessee and was included in the income as disclosed in the return. When the AO had accepted the returned income of Rs.6.07 lakhs while disallowing credit for TDS on contractual receipts, there was no under-reporting of income as the quantum of TDS was already part of turnover and included in the returned income.
At the same time, it held that even if the addition of Rs. 3.39 lakhs in respect of disallowance of TDS is considered in isolation, this amount was less than the returned income of Rs.6.07 lakhs. Under the circumstances, there was no case of under-reporting of income. This proposition that “the addition is less than returned income, therefore there is no under-reporting.” is difficult to reconcile with the express wording of section 270A(2)(a) which would trigger where assessed income exceeds the income determined in the return. Thus, prima facie, the statutory condition in section 270A(2)(a) is satisfied in this case. The fact that the addition of Rs.3.39 lakh is smaller than the returned income of Rs.6.07 lakh may be irrelevant to that particular comparison.
The Tribunal further omitted to deal with the legal grounds No. 2 and 3 of appeal for which there already exist earlier decisions of the Ahmedabad Bench as well as the Gujarat High Court directly addressing this very issue, particularly in relation to the third ground.
In their earlier order dated October 10, 2019 this bench in Kiri Dyes and Chemicals Ltd. v. PCIT (2019) 75ITR (Trib) (S.N.) 79 ( Ahmedabad) following coordinate bench decision in Easy Transcription & Software Pvt. Ltd. vs. CIT (2017) 88 taxmann.com 772 (Ahmedabad-Trib.) and Gujarat High Court decision in CIT v. Parmanand M. Patel, reported in 278 ITR 3 (Guj) found merit in the plea of the assessee towards inherent lack of authority of Pr. CIT to exercise jurisdiction conferred under s.263 of the Act for the purposes of initiation of penalty proceedings under s.271(1)(c) of the Act.
In its earlier decisions, the Ahmedabad Bench had also taken note of the conflicting judicial opinions expressed by various High Courts of Delhi and Allahabad on this issue and chosen to hold otherwise in favour of the revenue. For instance, in Mahaveer Singh v. PCIT-1, (Ahmedabad) in ITA No. 840/Ahd/2025 dated 03-03-2026 this very bench held that the AO’s failure to invoke section 270A constituted an erroneous and prejudicial order. The Bench distinguished the older jurisprudence held by Delhi and Gujarat High Court because it arose under the earlier penalty provisions. Likewise, the Chandigarh bench of ITAT in Dinesh Verma v. ITO, ITO Ward Kullu in ITA No. 897/Chd/2025 dated 24-02-2026 considered failure to examine penalty during assessment proceedings to constitute lack of enquiry/non-application of mind inviting action under section 263. However, none of those precedents appear to have been discussed or distinguished in the present decision by the Tribunal.
While the ultimate conclusion reached by the Ahmedabad Tribunal appears to favour the assessee, the omission to consider the existing line of varying judicial precedents, particularly those of the coordinate Bench and the jurisdictional High Court, significantly weakens the precedential value of the ruling. A reasoned consideration of binding authorities is essential not only for ensuring consistency in judicial decision-making but also for maintaining the high standards expected of the Tribunal.
This one of a kind decision rendered by the Ahmedabad bench in Kamalkant Bhagwatiprasad Oza without taking into account the case jurisprudence perhaps lack any binding authority under the law.
In the leading case of State of Bihar v. Kalika Kuer [2003] 5 SCC 448 the Hon’ble Supreme Court has been pleased to consider as to in what circumstances a decision can be considered to have been rendered per incuriam. Paragraph ‘5’ and ‘6’ of the judgment point out in as under:-
5. At this juncture we may examine as to in what circumstances a decision can be considered to have been rendered per incuriam. In Halsbury’s Laws of England (4th Edn.) Vol. 26: Judgment and Orders: Judicial Decisions as Authorities (pp. 297-98, para 578) we find it observed about per incuriam as follows:
“A decision is given per incuriam when the court has acted in ignorance of a previous decision of its own or of a court of coordinate jurisdiction which covered the case before it, in which case it must decide which case to follow [Young v. Bristol Aeroplane Co. Ltd., 1944 KB 718 at 729 : (1944) 2 All ER 293 at 300. In Huddersfield Police Authority v. Watson, 1947 KB 842 : (1947) 2 All ER 193.]; or when it has acted in ignorance of a House of Lords decision, in which case it must follow that decision; or when the decision is given in ignorance of the terms of a statute or rule having statutory force [Young v. Bristol Aeroplane Co. Ltd., 1944 KB 718 at 729 : (1944) 2 All ER 293 at 300. see also Lancaster Motor Co. (London) Ltd. v. Bremith Ltd., (1941) 1 KB 675 : (1941) 2 All ER 11. For a Divisional Court decision disregarded by that court as being per incuriam, see Nicholas v. Penny, (1950) 2 KB 466 : (1950) 2 All ER 89.]. A decision should not be treated as given per incuriam, however, simply because of a deficiency of parties [Morelle Ltd. v. Wakeling, (1955) 2 QB 379 : (1955) 1 All ER 708 (CA)], or because the court had not the benefit of the best argument [Bryers v. Canadian Pacific Steamships Ltd., (1957) 1 QB 134 : (1956) 3 All ER 560 (CA) Per Singleton, L.J., affirmed in Canadian Pacific Steamships Ltd. v. Bryers 1958 AC 485 : (1957) 3 All ER 572.], and, as a general rule, the only cases in which decisions should be held to be given per incuriam are those given in ignorance of some inconsistent statute or binding authority [A. and J. Mucklow Ltd. v. IRC, 1954 Ch 615 : (1954) 2 All ER 508 (CA), Morelle Ltd. v. Wakeling, (1955) 2 QB 379 : (1955) 1 All ER 708 (CA), see also Bonsor v. Musicians’ Union, 1954 Ch 479 : (1954) 1 All ER 822 (CA), where the per incuriam contention was rejected and, on appeal to the House of Lords although the House overruled the case which bound the Court of Appeal, the House agreed that that court had been bound by it; see Bonsor v. Musicians’ Union, 1956 AC 104 : (1955) 3 All ER 518 (HL).]. Even if a decision of the Court of Appeal has misinterpreted a previous decision of the House of Lords, the Court of Appeal must follow its previous decision and leave the House of Lords to rectify the mistake.” [Williams v. Glasbrook Bros. Ltd., (1947) 2 All ER 884 (CA)]
Lord Godard, C.J. in Huddersfield Police Authorities case [Young v. Bristol Aeroplane Co. Ltd., 1944 KB 718 at 729 : (1944) 2 All ER 293 at 300. In Huddersfield Police Authority v. Watson, 1947 KB 842 : (1947) 2 All ER 193.] observed that where a case or statute had not been brought to the court’s attention and the court gave the decision in ignorance or forgetfulness of the existence of the case or statute, it would be a decision rendered in per incuriam.
6. In a decision of this Court reported in Govt. of A.P. v. B. Satyanarayana Rao [(2000) 4 SCC 262 : 2000 SCC (L&S) 486] it has been held as follows: (SCC pp. 26465, para 8)
“The rule of per incuriam can be applied where a court omits to consider a binding precedent of the same court or the superior court rendered on the same issue or where a court omits to consider any statute while deciding that issue….We, therefore, find that the rule of per incuriam cannot be invoked in the present case. Moreover, a case cannot be referred to a larger Bench on mere asking of a party. A decision by two Judges has a binding effect on another coordinate Bench of two Judges, unless it is demonstrated that the said decision by any subsequent change in law or decision ceases to laying down a correct law.”
Conclusion
The judgment rendered by the Ahmedabad Bench in Kamalkant Bhagwatiprasad Oza (supra) cannot, with respect, be regarded as a fully reasoned judicial determination of the controversy before it. The Tribunal has not merely omitted to discuss an incidental contention; it has failed to adjudicate Ground Nos. 2 and 3, which went to the very jurisdiction of the PCIT to invoke section 263 for the limited purpose of directing initiation of penalty proceedings under section 270A. More significantly, the Tribunal did not examine the relevant decisions of its own coordinate Benches or the binding judgment of the jurisdictional Gujarat High Court bearing directly upon the exercise of such revisional jurisdiction. This omission assumes considerable significance because the Tribunal ought to have confronted itself with a developing and conflicting line of authorities concerning the interplay between sections 263 and 270A.
The deficiency is not merely academic. If the Revenue were to challenge the order tomorrow, it could legitimately contend that the Tribunal has failed to adjudicate the precise legal controversy raised before it and has not dealt with the authorities which were material to that controversy. Conversely, the absence of any discussion of those authorities substantially weakens the order as a precedent and leaves unanswered the important question whether the principles laid down under the earlier penalty regime u/s 271 (1) (c ) continue to govern the exercise of section 263 in the context of section 270A.
There is, however, an even more fundamental difficulty in the Tribunal’s reasoning. The Tribunal itself records that the Assessing Officer rejected the books of account under section 145(3) on the finding that the contractual activity and the corresponding receipts and payments were bogus. It further records that, despite such finding, the AO did not estimate any other income of the assessee and the only finding given in the assessment order was that the TDS credit claimed on the contractual receipts was to be disallowed. Having recorded these facts, the Tribunal ought to have examined whether the Assessing Officer could, in law, accept the returned income of Rs.6,06,500 in respect of contractual receipts which, according to his own finding, did not represent genuine contractual activity.
This is not a mere question of failure to initiate penalty. If the assessment order accepts income arising from transactions which the Assessing Officer himself has found to be bogus, without estimating the correct taxable income, the assessment order itself may suffer from a substantive error which is prejudicial to the interests of the Revenue. Such an error would independently bring the case within the ambit of section 263, irrespective of the separate question whether the PCIT could invoke section 263 merely for non-initiation of penalty under section 270A.
The Tribunal’s conclusion is further difficult to reconcile with its own factual findings. Having accepted that the books were rejected under section 145(3) and that the contractual activity was found to be bogus, it was incumbent upon the Tribunal to explain how the returned income relatable to those very contractual receipts could nevertheless be accepted without further examination. The Tribunal has not directed such exercise.
Thus, the order suffers from two distinct and substantial infirmities. First, the failure to adjudicate the specific legal challenge to the invocation of section 263 for non-initiation of section 270A penalty, despite the existence of relevant coordinate-Bench and jurisdictional High Court authorities; and second, the failure to examine whether the assessment order was itself erroneous and prejudicial to the Revenue in view of the Assessing Officer’s finding that the underlying contractual receipts and payments transactions were bogus.
The decision therefore warrants serious reconsideration, both as a matter of judicial reasoning and as a precedent on the scope of section 263 in the context of section 270A.