2009 (6) TMI 985 - AT - Income Tax

Penalty u/s 271(1)(c) - validity of order passed beyond the period of limitation - the assessee was engaged in agricultural activities in the name and style of M/s Bloosom Floriculture eligible to exemption u/s. 10(1) - failed to produce any bills/vouchers for agricultural income/activities - Condonation of delay filing appeal - HELD THAT - We are of the view that although the explanation given by the assessee may not be sufficient to condone the delay but the assessee may raise the legal issue as per r. 27 of the ITAT Rules 1963. The question of jurisdiction raised by the assessee goes to the root of the matter and does not require further investigation into the facts so we are of the view that the same is required to be entertained and decided. We are also fortified by the decision of the Tribunal Lucknow Bench B in the case of U.P. State Bridge Corpn. Ltd. v. Dy. CIT 2008 (2) TMI 900 - ITAT LUCKNOW . We are of the confirmed view that plea taken by the assessee vide which jurisdiction of the AO in levying the penalty u/s. 271(1)(c) has been challenged deserves to be admitted. From the provisions contained in the proviso to sec 275(1)(a) it is crystal clear that if an order is passed by the CIT(A) on or after the 1st day of June 2003 then an order imposing penalty shall be passed before the expiry of the financial year in which the proceedings in the course of which action for imposition of penalty has been initiated are completed or within one year from the end of the financial year in which the order of the CIT(A) is received whichever is later. Here CIT(A) passed the order on 11th March 2005 the penalty proceedings were initiated by the AO in March 2004 when the assessment order was passed on 23rd March 2004. The learned CIT(A) had passed the order dt. 11th March 2005 so the penalty order was to be passed within one year from the end of the financial year in which the order of the CIT(A) was received by the AO. the appeal was filed by the Department in Tribunal in the month of May 2005 therefore the order must have been received before the said date hence the relevant financial year ended on 31st March 2006 as such the penalty order was to be passed upto 31st March 2007. However the AO has passed the penalty order levying the penalty u/s. 271(1)(c) on 20th April 2007 therefore the penalty order passed was barred by limitation and does not survive. Accordingly the plea taken by the assessee is allowed. We have quashed the penalty order for another reason i.e. by considering the limitation period as provided in proviso to s. 275(1)(a) in that view of the matter we do not see any merit in the appeal of the Department.

Summary

Issues Involved:
1. Jurisdiction of the Assessing Officer (AO) in passing the penalty order under Section 271(1)(c) of the Income Tax Act, 1961.
2. Whether the penalty order was barred by limitation as per Section 275(1)(a) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Assessing Officer (AO):
The assessee challenged the jurisdiction of the AO in passing the penalty order under Section 271(1)(c). The assessee contended that the penalty order was barred by limitation as per Section 275(1)(a) of the Income Tax Act, 1961. The cross-objection was filed 175 days late, but the assessee argued that a legal ground can be raised at any stage before the Tribunal. The Tribunal considered the provisions of Rule 27 of the ITAT Rules, 1963, which allows the respondent to support the order appealed against on any grounds decided against him. The Tribunal cited the jurisdictional High Court's decision in CIT v. Mohd. Ayyub & Sons Agency, which established that the Tribunal must entertain and decide on jurisdictional issues even if they are raised late. The Tribunal concluded that the issue of jurisdiction raised by the assessee goes to the root of the matter and must be entertained and decided.

2. Limitation of Penalty Order:
The legal plea by the assessee was that the penalty order dated 20th April 2007 was beyond the limitation period which expired on 31st March 2007, as per the newly inserted proviso to Section 275(1)(a) effective from 1st June 2003. The Tribunal reviewed the relevant dates and events:
- Assessment order passed on 23rd March 2004.
- CIT(A) order passed on 11th March 2005.
- Department's appeal to the Tribunal filed in May 2005.
- Penalty order passed on 20th April 2007.

The Tribunal examined Section 275(1)(a), which stipulates that the penalty order should be passed within one year from the end of the financial year in which the CIT(A) order is received. Since the CIT(A) order was received before the end of the financial year 31st March 2006, the penalty order should have been passed by 31st March 2007. The penalty order passed on 20th April 2007 was thus barred by limitation. The Tribunal cited several case laws, including the Supreme Court's decision in Union of India v. British India Corporation Ltd., emphasizing that limitation is a mandate to the judicial forum. Consequently, the Tribunal allowed the assessee's plea, quashing the penalty order as it was time-barred.

Conclusion:
The Tribunal dismissed the Department's appeal and allowed the assessee's cross-objection, concluding that the penalty order under Section 271(1)(c) was barred by limitation as per Section 275(1)(a) of the Income Tax Act, 1961.