2019 (8) TMI 499 - AT - Income Tax

Penalty u/s. 271E - repayment of loan given in cash in violation of provision of Sec.269-T - period of limitation - HELD THAT - There is no dispute that the period of limitation is required to be examined in the light of the provisions of Section 275(1)(c). The issue in the present case is as to, what is the starting point of time u/s.275(1)(c) in the present case. As far as applicability of the first part of sec.275(1)(c) is concerned, the same is with regard to after the expiry of the financial year in which the proceedings, in the course of which action for the imposition of penalty has been initiated, are completed . In the present case, at the level of the AO, the quantum proceedings was completed on 24.3.2016. Going by this date, the penalty order could not have been passed later than 30.9.2016. Considering that the subject matter of the quantum proceedings was the non-compliance with Section 269T, there was no need for the appeal against the said order in the quantum proceedings to be disposed of before the penalty proceedings could be initiated. In other words, the initiation of penalty proceedings did not hinge on the completion of the appellate quantum proceedings. Therefore, it is futile to contend that the date of initiation of proceedings is the date on which the JCIT receives intimation from the AO or the date on which the JCIT issues show cause notice to the Assessee u/s.271-E . In that view of the matter, we hold that the AO having initiated the penalty proceedings on 24.3.2016, the last date by which the penalty order could have been passed is 30th September 2016. Thus, later of the two dates is 30th September, 2016 in the present case. With the AO having initiated the penalty proceedings in his order of assessment dated 24.3.2016, the last date by which the penalty order could have been passed is 30th September, 2016. The penalty order was passed only on 27.1.2017. Therefore the same is barred by time. The order imposing penalty is therefore held to be bad in law and is hereby cancelled. Since the order is held to be bad and cancelled on the ground of limitation, we are not going into the existence of reasonable cause which will exonerate the Assessee from imposition of penalty u/s.273B

Summary

Issues Involved:
1. Imposition of penalty under Section 271-E of the Income Tax Act, 1961.
2. Limitation period for passing the penalty order under Section 275(1)(c) of the Act.
3. Initiation of penalty proceedings by the Assessing Officer (AO).

Issue-wise Detailed Analysis:

1. Imposition of Penalty under Section 271-E of the Income Tax Act, 1961:
The Assessee, engaged in civil construction contracts, repaid a loan of ?10,00,000 in cash, violating Section 269-T of the Act, which mandates repayment through an account payee cheque or bank draft if the amount exceeds ?20,000. Consequently, the AO observed that a penalty under Section 271-E, equal to the amount of the loan, would be attracted. The JCIT, after issuing a show cause notice, imposed the penalty on 27.1.2017.

2. Limitation Period for Passing the Penalty Order under Section 275(1)(c) of the Act:
The Assessee contended that the penalty order was barred by limitation as per Section 275(1)(c), which stipulates two distinct periods for passing a penalty order: the end of the financial year in which the proceedings are completed or six months from the end of the month in which the penalty proceedings are initiated, whichever is later. Since the quantum proceedings were completed on 24.3.2016, the penalty order should have been passed by 30th September 2016. The JCIT issued the penalty order on 27.1.2017, which the Assessee argued was beyond the permissible period.

3. Initiation of Penalty Proceedings by the Assessing Officer (AO):
The CIT(A) held that the AO did not initiate penalty proceedings in the assessment order dated 24.3.2016 but merely observed that there was a default attracting penalty under Section 271-E. The CIT(A) considered the initiation date to be 10.8.2016, when the JCIT issued the show cause notice, making the penalty order within the limitation period.

Legal Precedents and Arguments:
The Assessee relied on the decisions of the Hon’ble Rajasthan High Court in CIT Vs. Hissaria Bros. and the Delhi High Court in Pr.CIT Vs. Mahesh Wood Products Pvt. Ltd., which held that penalty proceedings could be initiated independently of the completion of appellate quantum proceedings. The Assessee also cited the Hon’ble Delhi High Court in CIT (Principal) Vs. JKD Capital and Finlease Ltd., asserting that the date of initiation of penalty proceedings is the date of the assessment order if the AO mentions the penalty proceedings therein.

Tribunal's Observations and Decision:
The Tribunal disagreed with the CIT(A)'s conclusion, holding that the AO's observation in the assessment order amounted to the initiation of penalty proceedings. The Tribunal referenced the Delhi High Court's decision in JKD Capital and Finlease Ltd., emphasizing that the AO must be conscious of the time limit under Section 275(1)(c) and that delaying the issuance of the notice defeats the section's objective. Thus, the initiation date was 24.3.2016, making the last permissible date for passing the penalty order 30th September 2016. Since the penalty order was passed on 27.1.2017, it was barred by time and therefore invalid.

Conclusion:
The Tribunal allowed the Assessee's appeal, canceling the penalty order on the grounds of being time-barred and did not address the existence of reasonable cause under Section 273B of the Act.

Pronouncement:
The judgment was pronounced in the open court on 2nd August 2019.