2015 (11) TMI 1006 - AT - Income Tax

Penalty u/s 271E - whether penalty order is barred by limitation - Held that - penalty order is time barred in the present case on the expiry of six months from the end of the month in which the action for penalty is initiated. In the facts of the present case, the date of reference by the Assessing Officer to Addl. C.I.T. for imposition of penalty is 21/10/2010 and if the period of six months is counted from 31.10.2010, the same expires on 30/06/2011 and the penalty order has been passed on 28th July, 2011 and hence, the penalty order is time barred as per the provisions of section 275 of the Act. - Decided in favour of assessee.

Summary

Issues:
1. Time limitation for imposing penalty under section 275(1)(c) of the Income Tax Act.
2. Interpretation of provisions of section 269SS and 269T regarding transactions between a firm and its partner.

Issue 1: Time limitation for imposing penalty under section 275(1)(c) of the Income Tax Act:

The appeal involved a cross objection by the assessee and an appeal by the Revenue against the order of CIT(A)-II, Lucknow dated 08/10/2012 for assessment year 2008-09. The assessee contended that the penalty order was time-barred as per section 275(1)(c) of the Act. The Revenue argued that the period of six months should be counted from the initiation of penalty proceedings, not from the date of the assessment order. The Assessing Officer referred the matter to Addl. CIT for penalty imposition on 21.10.2010. The Tribunal held that the penalty order, passed on 28th July 2011, was time-barred as it exceeded the six-month limit from the initiation of penalty proceedings, as prescribed by section 275 of the Act.

Issue 2: Interpretation of provisions of section 269SS and 269T regarding transactions between a firm and its partner:

The penalty was imposed on transactions between the assessee firm and its partner, Shri Dhananjay Singh, related to repayment. The CIT(A) based its decision on a judgment of the Hon'ble Rajasthan High Court, stating that if a partner introduces or withdraws capital in cash exceeding a certain amount, provisions of section 269SS or 269T of the Act do not apply as it does not constitute loans or deposits. The Tribunal examined the account details and concluded that the transactions were related to the partner's capital account, not loans, and hence, penalty under section 271E was not applicable. Therefore, the Tribunal declined to interfere with the CIT(A)'s order on this issue.

In conclusion, the Tribunal dismissed the appeal of the Revenue and allowed the Cross Objection of the assessee, holding that the penalty order was time-barred under section 275(1)(c) and that the transactions between the firm and its partner did not attract penalty provisions under sections 269SS or 269T.