2008 (11) TMI 45 - HC - Income Tax

Whether the Tribunal was right in law in interpreting the provisions of Section 275(1)(c) correctly and holding that the penalty order passed u/s 271B was within the limitation period - held that once the period of limitation prescribed by either of the clauses (a) to (c) has expired, the departmental authorities had no powers to impose penalty - question of law is, answered in favour of the appellant and against the revenue

Summary

Issues Involved:
1. Interpretation of Section 275(1)(c) of the Income-tax Act, 1961.
2. Determination of the limitation period for passing a penalty order under Section 271B.

Detailed Analysis:

1. Interpretation of Section 275(1)(c) of the Income-tax Act, 1961:
The primary issue in this case revolves around the correct interpretation of Section 275(1)(c) of the Income-tax Act, 1961. The court had to determine whether the penalty order passed under Section 271B was within the prescribed limitation period. Section 275(1)(c) stipulates two potential periods of limitation for imposing penalties:
- The expiry of the financial year in which the proceedings, during which the action for penalty was initiated, are completed.
- Six months from the end of the month in which the action for imposition of penalty is initiated, whichever period expires later.

The court emphasized that Section 275(1)(c) is a residuary provision designed to cover all cases not falling under sub-clauses (a) or (b) of Section 275(1). The court clarified that the two periods of limitation mentioned in Section 275(1)(c) are applicable in different contexts. If the action for imposition of penalty is initiated in the course of some other proceedings, both periods of limitation may apply. However, if the penalty proceedings are not initiated in the course of any other proceedings, only the second period of six months from the end of the month in which the penalty action is initiated would apply.

2. Determination of the Limitation Period for Passing a Penalty Order under Section 271B:
In this case, the penalty proceedings were initiated by a show cause notice issued on 31.07.2003. The court had to determine whether the penalty order passed on 17.02.2004 was within the limitation period. The court held that since the penalty proceedings were not initiated in the course of any other proceedings, the relevant limitation period was six months from the end of the month in which the penalty action was initiated, which would be 31.01.2004. Since the penalty order was passed on 17.02.2004, it was beyond the prescribed limitation period and thus barred by time.

Conclusion:
The court concluded that the tribunal had misconstrued the provisions of Section 275(1)(c) by holding that the penalty order passed on 17.02.2004 was within the limitation period. The court held that the penalty order was time-barred and thus set aside the impugned order, canceling the penalty of Rs 27,835/- imposed by the Assessing Officer, confirmed by the Commissioner of Income-tax (Appeals), and upheld by the tribunal. The appeal was allowed, and the question of law was answered in favor of the appellant.