2018 (3) TMI 149 - HC - Income Tax

Penalty u/s 271(1)(c) - period of limitation - Held that - The impugned penalty notices having issued well beyond the period of limitation fixed in the first limb of Section 275(1) (a) of the Act, are held to be barred by limitation. However, the respondent is at liberty to initiate penalty proceedings after the order is passed by the CIT (A) before whom the matters are pending.

Summary

Issues:
1. Whether the impugned notices issued by the respondent are time-barred under Section 275 of the Income Tax Act?
2. Whether the respondent could have issued the impugned notices at the present juncture?

Analysis:

1. The petitioners sought the quashing of a notice issued under Section 271(1)(c) of the Income Tax Act, 1961. The impugned notice was issued after a search was conducted, assessments were completed, and demands raised for undisclosed income. The petitioners argued that the notices were in violation of the limitation prescribed under Section 275 of the Act, citing relevant case laws from the High Courts of Delhi and Rajasthan.

2. The respondent contended that the notices were not time-barred, as the outer limit for penalty imposition is determined by the completion of assessment and disposal of appeals by the CIT (A). The respondent relied on a court order in a similar case to support this argument.

3. The main issue for consideration was whether the impugned notices were time-barred under Section 275 of the Act. Section 275 sets out specific time limits for imposing penalties, including provisions related to appeals and revisions. The Court analyzed the provisions of Section 275(1)(a) and the two limbs of the clause to determine the time limit for penalty imposition.

4. The Court noted that the limitation for initiating penalty proceedings under Section 275(1)(a) had expired before the impugned notices were issued. The petitioners had filed appeals before the CIT (A) while the notices were pending, indicating a lapse in meeting the limitation aspect as per the first limb of Section 275(1)(a).

5. Referring to a previous court decision, the Court clarified that the impugned penalty notices were indeed barred by limitation, as they were issued after the prescribed time frame. The Court allowed the writ petitions, directing the impugned notices to be kept in abeyance until the disposal of appeals by the CIT (A), granting liberty to the respondent to initiate fresh proceedings post-appeal disposal.

6. In conclusion, the Court held that the impugned penalty notices were time-barred under Section 275(1)(a) of the Act. The judgment allowed the writ petitions, keeping the notices in abeyance until the CIT (A) disposes of the pending appeals, without imposing any costs on the petitioners.