2005 (7) TMI 578 - AT - Income Tax

Summary

Issues Involved:

1. Whether the initiation of penalty proceedings under section 271D of the Income-tax Act, 1961, and passing of the penalty order was within the period of limitation prescribed in section 275 of the Act.

Issue-wise Detailed Analysis:

1. Initiation and Passing of Penalty Proceedings:

The core issue in this appeal was whether the initiation of penalty proceedings under section 271D of the Income-tax Act, 1961 ("the Act"), and the subsequent passing of the penalty order, adhered to the limitation period prescribed in section 275 of the Act.

Relevant Facts:

- The assessee filed the income-tax return along with the Audit Report under section 44AB on 30-10-1995, which was processed under section 143(1) with intimation served on 7-10-1996.
- The Assessing Officer (AO) noticed a cash loan of Rs. 1,82,000 received by the assessee, violating section 269SS, and initiated penalty proceedings under section 271D by issuing a show-cause notice on 1-2-1999.
- The assessee contended that the amount was an advance for distribution rights of a movie and argued that the penalty proceedings were time-barred under section 275(1)(c).

Arguments and Legal Stand:

- The assessee's counsel reiterated that the penalty proceedings were not initiated in accordance with section 275(1)(c) and were time-barred. Reliance was placed on several judicial decisions, including CIT v. Rajinder Kumar Somani and D.M. Manasavi v. CIT.
- The departmental representative argued that post-1989 amendments to section 275, penalty proceedings under sections 271B, 271C, 271D, etc., are not linked with assessment proceedings and the only limitation is that the penalty order must be passed within six months from the end of the month in which penalty proceedings were initiated.

Tribunal's Analysis:

- The Tribunal examined whether the penalty proceedings were initiated legally in accordance with section 275(1)(c).
- Section 275(1)(c) stipulates that no penalty order shall be passed after the expiry of the financial year in which the proceedings, during which the penalty was initiated, are completed, or six months from the end of the month in which the penalty action was initiated, whichever is later.
- The Tribunal emphasized the importance of the phrase "whichever period expires later," indicating that both terminal points must be identified before determining the time-barring aspect.
- The Tribunal noted that the Legislature did not specify "assessment proceedings" but used "proceedings," indicating that penalty proceedings must be initiated during some ongoing proceedings against the assessee for that year.
- The Tribunal referred to the original and amended provisions of section 275 and concluded that the Legislature intended that penalty proceedings must be initiated in the course of some proceedings under the Act, not necessarily assessment proceedings.

Judicial Precedents:

- The Tribunal cited the Delhi High Court's decision in Rajinder Kumar Somani, which held that penalty proceedings must be initiated in the course of assessment proceedings or other proceedings under the Act.
- The Tribunal also referenced other decisions that supported the view that penalty proceedings must be initiated during the course of some proceedings under the Act.

Conclusion:

- In this case, the returned income was processed under section 143(1) on 7-10-1994, and no proceedings related to the assessment year 1995-96 were pending on 1-2-1999 when the penalty notice was issued.
- Hence, the initiation of penalty proceedings was deemed bad in law, leading to the quashing of the CIT (Appeals) order and cancellation of the penalty proceedings by the AO.

Result:

- The appeal of the assessee was allowed.