2013 (5) TMI 857 - AT - Income Tax

Penalty u/s 271E - whether imposition is time barred as per section 275(1)(c) ? - Held that - The cases under appeal fall under section 275(1)(a). Both the orders of penalty have been passed well within the period of limitation laid down therein. The order of the CIT(A) cancelling the impugned penalties on the ground that they were time barred in terms of clause (c) of sub-section (1) of section 275 is unsustainable in law for the reason that bar of limitation as contained in clause (c) of section 275(1) applies only in those cases which do not fall under clauses (a) and (b) of section 275(1). The impugned orders passed by the CIT(A) cancelling the impugned penalties as time barred u/s 275(1)(c) are therefore liable to be set aside and they are accordingly set aside. Appeal filed by the Revenue is allowed to that extent.

Issues Involved:
1. Whether the penalties under sections 271D and 271E were time-barred as per section 275(1)(c).
2. Whether the penalties should have been upheld based on the facts and circumstances.
3. The applicability of section 275(1)(a) versus section 275(1)(c) for determining the limitation period.

Detailed Analysis:

1. Time-Barred Penalties under Section 275(1)(c):
The penalties imposed under sections 271D and 271E were initially canceled by the CIT(A) on the grounds that they were time-barred as per section 275(1)(c). The CIT(A) reasoned that the penalties were independent of the assessment proceedings and thus, the limitation period as per section 275(1)(c) applied. This view was supported by several precedents, including the Karnataka High Court's decision in Shanbhag Restaurant, which held that penalties under sections 271D and 271E are independent of assessment proceedings and thus fall under the purview of section 275(1)(c).

2. Applicability of Section 275(1)(a) vs. Section 275(1)(c):
The Revenue argued that the penalties should be governed by section 275(1)(a) since they were initiated during the block assessment proceedings and the assessment order was the subject of appeal. The Tribunal examined whether the penalties were integrally related to the assessment proceedings. The Tribunal noted that the block assessment order treated the impugned loans/deposits as unexplained income, thus linking the penalties to the assessment proceedings. The Tribunal held that since the penalties were initiated in the course of the block assessment, which was subject to appeal, section 275(1)(a) applied, extending the limitation period.

3. Tribunal's Decision and Reference to Third Member:
The Tribunal was divided on whether the penalties were time-barred. The Accountant Member opined that the penalties were integrally related to the assessment and thus fell under section 275(1)(a). Conversely, the Judicial Member believed that the penalties were independent and fell under section 275(1)(c). The matter was referred to a Third Member, who agreed with the Judicial Member, citing the Rajasthan High Court's decision in Jitendra Singh Rathore, which supported the view that penalties under sections 271D and 271E are independent of assessment proceedings and thus time-barred under section 275(1)(c).

4. Final Outcome:
The Third Member's opinion, which aligned with the Judicial Member, concluded that the penalties were independent of the assessment proceedings and thus time-barred under section 275(1)(c). Consequently, the penalties were canceled, and the appeals filed by the Revenue were dismissed.

Conclusion:
The detailed analysis revealed that the penalties under sections 271D and 271E were time-barred as per section 275(1)(c) since they were independent of the assessment proceedings. The Tribunal's final decision, supported by the Third Member, upheld the CIT(A)'s cancellation of the penalties, resulting in the dismissal of the Revenue's appeals.

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