2003 (10) TMI 29 - HC - Income Tax

Order of penalty limitation - The financial year in respect of the assessment order as rightly found by the Commissioner (Appeals) had expired on March 31 1994. as the orders imposing the penalty were not passed within six months from the end of June 1994 the same are barred by limitation - in cases where the proceedings initiated fall under the second part of section 275(1)(c) of the Act the order imposing the penalty is required to be passed within six months from the end of the month in which action for imposition of penalty is initiated

Summary

Issues Involved:
1. Whether the penalty orders under sections 271D and 271E of the Income-tax Act were passed within the period of limitation specified in section 275(1)(c) of the Act.
2. Interpretation of section 275(1)(c) regarding the period of limitation for imposing penalties.
3. Validity of the Tribunal's reversal of the Commissioner (Appeals)' decision based on the limitation period.

Issue-wise Detailed Analysis:

1. Penalty Orders and Period of Limitation:
The appellant, a partnership firm, filed its return for the assessment year 1991-92. During scrutiny, the Assessing Officer found that the appellant had received and repaid loans and deposits in cash, contravening sections 269SS and 269T of the Income-tax Act. Consequently, penalties were imposed under sections 271D and 271E. The Deputy Commissioner issued notices on June 8, 1994, and passed penalty orders on March 28, 1995. The Commissioner (Appeals) set aside these orders on the ground that they were passed beyond the six-month limitation period from the initiation of penalty proceedings. The Tribunal reversed this decision, prompting the appellant to challenge the Tribunal's order.

2. Interpretation of Section 275(1)(c):
Section 275(1)(c) prescribes that no order imposing a penalty shall be passed after the expiry of the financial year in which the proceedings are completed or six months from the end of the month in which action for imposition of penalty is initiated, whichever is later. The Commissioner (Appeals) interpreted this to mean that the penalty orders should have been passed within six months from the end of June 1994, i.e., by December 31, 1994. The Tribunal disagreed, stating that the financial year in which the proceedings were initiated had not expired, thus the penalty orders were within the limitation period.

3. Validity of the Tribunal's Reversal:
The High Court analyzed section 275(1)(c) and concluded that the section comprises two parts. The first part relates to the expiry of the financial year in which the proceedings are completed, and the second part to the six-month period from the end of the month in which penalty action is initiated. The court held that the financial year in the first part must be understood as the financial year in which the assessment order is made. Since the assessment order was made on February 25, 1994, the financial year expired on March 31, 1994. Therefore, the penalty orders should have been passed within six months from the end of June 1994, i.e., by December 31, 1994. The Tribunal's view that the penalty orders were within the limitation period was found erroneous.

Conclusion:
The High Court set aside the Tribunal's order and restored the orders of the Commissioner (Appeals), holding that the penalty orders were barred by limitation as they were not passed within the prescribed six-month period from the end of June 1994. The appeal was disposed of in these terms.