2014 (3) TMI 253 - AT - Income Tax

Validity of order of Penalty Bar of limitation Notice issued beyond Prescribed time Held that - According to section 158BFA(3) shows that penalty proceedings should be completed within the financial year or within six months from the end of the month in which the proceedings are initiated, whichever is later - After issuance of notice u/s.158BFA(2) on 29-10-2004, the Revenue has not taken any action within the time limit prescribed under the Act for levy of penalty against the assessee - The assessee filed an appeal before the CIT(Appeals) much after the period of expiry of limitation - The Revenue was under no obligation to wait for the assessee to file an appeal against assessment order after the limitation period was over. After issuance of notice, the Revenue ought to have completed penalty proceedings within the period prescribed under the Act without waiting for the assessee to file appeal against the assessment order beyond the period of limitation - The second notice issued u/s.158BFA(2) does not confer any power to Revenue to Denovo penalty proceedings against the assessee - The Act specifically provides for the time limit within which order imposing penalty has to be passed - The statutory time limit cannot be enlarged with the issuance of fresh notice Revenue failed to complete penalty proceedings within the statutory time frame thus, the penalty order dated 23-10-2009 is bad in law thus, the order set aside Decided in favour of Assessee.

Summary

Issues:
1. Validity of penalty order under section 158BFA(2) of the Income Tax Act, 1961.
2. Barred by limitation - Delay in penalty proceedings.
3. Compliance with statutory time frame for penalty imposition.

Analysis:
1. The appeal was filed against the order of the Commissioner of Income Tax(Appeals) confirming the penalty levied on the assessee under section 158BD r.w.s. 158BC of the Income Tax Act, 1961. The assessee challenged the penalty order on grounds of limitation and validity of the second notice issued under section 158BFA(2) for penalty imposition.

2. The assessee contended that the penalty proceedings were barred by limitation as the second notice issued on 17-09-2009 was invalid and beyond the statutory time frame. The Revenue authorities failed to take action within the prescribed period after the first notice issued on 29-10-2004. The assessee filed an appeal after the limitation period had lapsed, and the Revenue was obligated to complete penalty proceedings within the statutory time frame without waiting for the appeal.

3. The Tribunal analyzed the provisions of section 158BFA regarding the levy of penalty in search cases. It was noted that penalty proceedings should be completed within the financial year or within six months from the initiation of proceedings. In this case, the Revenue did not act within the prescribed time limit after issuing the first notice. The second notice did not empower the Revenue to initiate penalty proceedings anew. As the penalty proceedings were not completed within the statutory time frame, the penalty order dated 23-10-2009 was deemed invalid in law. Consequently, the impugned order was set aside, and the appeal of the assessee was allowed.

This detailed analysis highlights the issues of validity of penalty order, the impact of limitation on penalty proceedings, and the necessity of complying with statutory time frames for penalty imposition under the Income Tax Act, 1961.