2017 (11) TMI 2047 - AT - Income Tax

Validity of order passed u/s 271E by the Addl.CIT - as per AO entries in the inventory seized during the course of Search and seized proceedings did not pertain to Current Account held by the assessee but that of repaid in cash which is a violation of Section 269T and liable for penalty u/s. 271E - CIT(A) deleted penalty - whether the assessee in an appeal filed by the Revenue against the issue which has been decided in favour of assessee can argue against the jurisdictional ground which was decided by the CIT(A) against the assessee? - HELD THAT - We find that the Rule permits the assessee to support the order of CIT(A) on any grounds that have been decided against him even though he had not appealed against it. Rule 27 of the ITAT Rules provides that the assessee without having filed any cross appeal or Cross Objections can support the impugned order on any grounds decided against him. As relying on Jindal Polyster Ltd case 2017 (6) TMI 87 - ALLAHABAD HIGH COURT we find merit in the plea of assessee and proceed to decide the issue raised by the assessee by way of his arguments under Rule 27 of the ITAT Rules. Period of limitation for initiating penalty proceedings - Initiation of penalty proceedings u/s 271E wherein penalty proceedings were initiated by the Addl.CIT after completion of assessment order - The issue raised in the present appeal is squarely covered by the decision of Hissaria Bros 2001 (8) TMI 295 - ITAT JODHPUR Even the CBDT Circular issued on 26.04.2016 has clarified the position that regarding any violation of provisions of sections 269SS and 269T of the Act as the case may be the Assessing Officers below the rank of Joint Commissioner of Income Tax were advised to make a reference to the Range Head in the course of assessment proceedings. It was also clarified that the Range Head will issue penalty notice and shall dispose / complete the proceedings within limitation prescribed under section 275(1)(c) of the Act. The said Circular issued by the CBDT is advisory and has only clarified the position and cannot be said to be prospective in application. Before parting we may also refer to certain factual aspects. The assessment under section 153A r.w.s. 143(3) of the Act was completed on 30.11.2007. The notice for initiation of penalty proceedings was issued on 11.03.2010 and order levying penalty was passed on 24.09.2010. There is inordinate delay in initiation of penalty proceedings under section 271E of the Act which otherwise also cannot be condoned - Thus initiation of penalty proceedings is beyond the limitation provided in the Act and the penalty order on this account merits to be dismissed.

Summary

Issues Involved:
1. Justification of deleting the penalty under section 271E of the Income-tax Act, 1961.
2. Validity of penalty proceedings initiation by Addl.CIT after assessment completion.
3. Applicability of Rule 27 of the ITAT Rules for the assessee to argue on questions of law not appealed against.
4. Limitation period for initiation and completion of penalty proceedings under section 271E.

Detailed Analysis:

1. Justification of Deleting the Penalty under Section 271E:
The Revenue contended that the CIT(A) was not justified in deleting the penalty under section 271E of the Income-tax Act, 1961, as the entries in the inventory seized during the search did not pertain to the current account held by the assessee but were repaid in cash, violating Section 269T. The CIT(A) deleted the penalty, holding the transaction was of a daily running current account and not a loan or deposit, thus outside the purview of sections 269SS and 269T.

2. Validity of Penalty Proceedings Initiation by Addl.CIT:
The penalty proceedings were initiated by the Addl.CIT after the completion of the assessment order. The assessee argued that the information to levy penalty was not passed on by the Assessing Officer before the completion of assessment proceedings. The Tribunal noted that under the provisions of section 272A(3)(c), it is incumbent upon the Assessing Officer to forward the information to the JCIT before the completion of assessment. The Tribunal referenced the Pune Bench decision in Shri Devidas Ramchandra Kulkarni Vs. JCIT, which held that the initiation of penalty proceedings should occur during the course of assessment proceedings.

3. Applicability of Rule 27 of the ITAT Rules:
The assessee, without filing any Cross Objections, argued under Rule 27 of the ITAT Rules that he is entitled to support the order of CIT(A) on any grounds decided against him. The Tribunal upheld this right, referencing the Allahabad High Court decision in CIT and Another Vs. Jindal Polyster Ltd., which allows the assessee to advance arguments on grounds decided against him to support the CIT(A)’s order.

4. Limitation Period for Initiation and Completion of Penalty Proceedings:
The Tribunal examined the limitation period for the initiation and completion of penalty proceedings under section 271E. The Revenue relied on the Rajasthan High Court decision in CIT Vs. Hissaria Bros., which stated that penalty proceedings could be initiated independent of assessment proceedings. However, the Tribunal noted that the penalty proceedings should still be initiated when the default is detected during any proceedings. The Tribunal found that the penalty order was issued beyond the prescribed limits, referencing the CBDT Circular dated 26.04.2016, which clarified that Assessing Officers should make a reference to the Range Head during assessment proceedings. The Tribunal concluded that the initiation of penalty proceedings was beyond the limitation provided in the Act, and thus, the penalty order was dismissed.

Conclusion:
The Tribunal dismissed the appeal of the Revenue, holding that the initiation of penalty proceedings was beyond the limitation period prescribed in the Act. The Tribunal supported the CIT(A)’s decision to delete the penalty under section 271E, as the transaction was of a daily running current account and not a loan or deposit. The Tribunal also upheld the assessee’s right to argue under Rule 27 of the ITAT Rules.