2018 (11) TMI 1658 - AT - Income Tax

Revision u/s 263 - reviving the penalty proceedings which was already expired and barred by limitation - Penalty levied u/s.271(1)(c) - limitation of Sec.275(1) in respect of Sec.271C - HELD THAT - The limitation of Sec.275(1) of the Act in respect of Sec.271C of the Act would start, when the action for the imposition of the penalty is initiated. Here, in the present case, the action for initiation of the penalty u/s.271(1)(c) of the Act had been initiated in the course of assessment proceedings itself u/s.143(3) r.w.s.153A on 31.03.2016. Thus, the time limit for levy of penalty u/s.271(1)(c) of the Act would expire in the present case on 31.09.2016, being 6 months from the end of the month in which the penalty proceedings has been initiated. Now, after the expiry of said limitation, the ld. Principal Commissioner of Income Tax has issued the show cause notice on 09.03.2018 for reviving the penalty proceedings, which was already expired and barred by limitation. True, the order passed by the AO dropping the penalty proceedings is an unspeaking order, but still, that would not make it valid reason for extending the limitation provided u/s.275 of the Act for the purpose of levying the penalty or for considering the levy of penalty u/s.271(1)(c) of the Act by invoking the powers of revision u/s.263. In the circumstances, the order passed u/s. 263 being unsustainable in law stands quashed. - Decided in favour of assessee.

Summary

Issues:

1. Validity of dropping penalty proceedings by Assessing Officer.
2. Jurisdiction of Principal Commissioner of Income Tax under section 263 of the Act.
3. Time limit for initiating penalty proceedings under section 271(1)(c) of the Act.

Issue 1: Validity of dropping penalty proceedings by Assessing Officer

The appeal was filed by the assessee against the order of the Principal Commissioner of Income-tax, challenging the re-doing of the assessment order passed under section 143(3) r.w.s.153A of the Act. The assessee, engaged in real estate business, had responded to penalty proceedings initiated under section 271(1)(c) of the Act, which were subsequently dropped by the Assessing Officer. The Principal Commissioner of Income Tax issued a show cause notice under section 263, questioning the dropping of penalty proceedings. The Tribunal noted that the dropping of penalty proceedings, although an unspeaking order, did not provide a valid reason to extend the limitation period for levying the penalty or for invoking revision powers under section 263. Consequently, the order passed under section 263 was deemed unsustainable in law and quashed, thereby allowing the appeal of the assessee.

Issue 2: Jurisdiction of Principal Commissioner of Income Tax under section 263 of the Act

The Tribunal emphasized the distinction between the case at hand, involving concealed income and penalty under section 271(1)(c) of the Act, and the precedent cited regarding failure to deduct tax at source. It clarified that penalty proceedings under section 271(1)(c) must be initiated during assessment proceedings based on the satisfaction of the assessing officer. The Tribunal highlighted that the time limit for imposing penalty under section 271(1)(c) starts from the initiation of penalty proceedings, which in this case had expired by the time the Principal Commissioner issued a show cause notice for reviving the penalty proceedings. The Tribunal concluded that the Principal Commissioner's order under section 263, directing the reassessment order, was legally unsustainable and therefore annulled.

Issue 3: Time limit for initiating penalty proceedings under section 271(1)(c) of the Act

The Tribunal analyzed the provisions of section 271(1)(c) of the Act, emphasizing the requirement for initiating penalty proceedings during assessment proceedings upon satisfaction of concealed income. It noted that the time limit for levying penalty under this section starts from the initiation of penalty proceedings, which in this case had lapsed before the Principal Commissioner's intervention. The Tribunal highlighted that the Principal Commissioner's attempt to revive the penalty proceedings after the expiration of the time limit was legally untenable. Consequently, the Tribunal quashed the order passed under section 263, thereby allowing the appeal of the assessee.

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