2016 (2) TMI 1373 - AT - Income Tax

Penalty u/s 271D - foundation of the penalty proceedings not in existence - whether no proceedings were initiated or pending in respect of the captioned assessment year, penalty proceedings u/s 271D or 271E can be initiated? - case of the assessee is that the original assessment order was passed by the Assessing Officer u/s 143(3) on 08/10/2009 and thereafter, learned CIT passed order u/s 263 of the Act as per which learned CIT set aside the said assessment order dated 08/10/2009 and directed the Assessing Officer to re do the assessment - Subsequently, the order of learned CIT u/s 263 of the Act was set aside by the Tribunal and therefore, now the surviving order is the original assessment order passed by the Assessing Officer u/s 143(3) on 08/10/2009 HELD THAT - As per the penalty order passed u/s 271D on 27/11/2012, we find that the same is on the basis of fresh assessment order passed by the Assessing Officer u/s 144/263 on 28/12/2011, which does not survive because the order of learned CIT u/s 263 was set aside by the Tribunal and therefore, the consequential order of the Assessing Officer u/s 144/263 does not survive. It is also seen that the notice u/s 271D was issued on 11/05/2012 and 12/10/2012 and the order u/s 271D was passed on 27/11/2012. As decided in Baldev Singh 2012 (2) TMI 650 - ITAT CHANDIGARH there is no merit in initiation of penalty proceedings u/s 271D and 271E because no proceedings for the relevant year were pending at the relevant point of time. In the present case also, when proceedings were initiated u/s 271D on 01/05/2012, no proceedings were pending in respect of the present assessment year. In fact, the original assessment order was passed by the AO u/s 143(3) on 08/10/2009 and subsequent assessment year u/s 144/263 was also already passed on 28/12/2011 and this is admitted position that in course of original assessment proceedings completed on 08/10/2009, there was no whisper about initiation of proceedings u/s 271D of the Act. In our considered opinion, under the facts of the present case, this Tribunal order rendered in the case of Baldev Singh (supra) and also in the case of Manohar Lal 2011 (1) TMI 538 - PUNJAB AND HARYANA HIGH COURT are squarely applicable and hence, respectfully following these judgments, we hold that the penalty imposed by the AO in the present case is not valid because the initiation of penalty proceedings is not valid in the eyes of law. We, therefore, delete the penalty.Apeal of the assessee stands allowed.

Summary

Issues:
1. Validity of penalty under section 271D of the Income Tax Act, 1961.
2. Bar on limitation for penalty order.
3. Cause of action for penalty in relation to assessment order.
4. Effect of setting aside an assessment order on penalty proceedings.
5. Contravention of section 269SS rendering penalty unwarranted.
6. Independence of penalty proceedings from assessment order.
7. Applicability of Tribunal order in a similar case.
8. Legal initiation of penalty proceedings when no other proceedings are pending.

Analysis:
1. The appeal challenged the imposition of penalty under section 271D of the Income Tax Act, 1961, as beyond jurisdiction and untenable in law. The contention was that the penalty order was barred by limitation and lacked a cause of action due to the absence of the assessment order foundation. The Tribunal found that the penalty was based on a subsequent assessment order that did not survive due to the original assessment order being reinstated after the CIT's order was set aside. The penalty proceedings were deemed invalid as the initiation was not legally sound.

2. The Tribunal considered the issue of limitation for the penalty order and concluded that the penalty imposed under section 271D was not valid due to the flawed initiation of penalty proceedings. The order was passed based on an assessment order that was no longer in effect, rendering the penalty unjustifiable and warranting its deletion.

3. The case also addressed the contravention of section 269SS and its impact on the penalty imposition. The Tribunal found that the penalty order was erroneous and unwarranted as the original assessment order did not indicate any violation of section 269SS, and the subsequent assessment order on which the penalty was based did not survive due to legal proceedings.

4. The independence of penalty proceedings from the assessment order was a crucial point of contention. The Tribunal clarified that the penalty imposed under section 271D was not valid in the present case as the initiation of penalty proceedings lacked a legal basis, given the circumstances surrounding the assessment orders and subsequent legal actions.

5. The applicability of a Tribunal order in a similar case was crucial in determining the validity of the penalty imposition. The Tribunal referenced a judgment and upheld that the initiation of penalty proceedings without pending proceedings for the relevant year was not legally justified. The penalty was deemed invalid based on the principles established in previous judgments.

6. Ultimately, the Tribunal allowed the appeal, deleting the penalty imposed under section 271D of the Income Tax Act, 1961, as it was not valid due to the flawed initiation of penalty proceedings and the lack of legal basis for the penalty imposition. The decision was based on the inapplicability of the penalty in the eyes of the law, as per relevant legal precedents and considerations.