2007 (7) TMI 179 - HC - Income Tax

Section 275 prescribes the period of limitation for making a penalty order - the period is 2 years from the date of completion of the proceedings in the course of which the proceedings for the imposition of penalty have been commenced - In present case penalty proceedings were initiated on 16th January, 1989, so proceedings would be treated to have been started on 16.1.89 & 2 years period would come to an end of the same on 31.3.91 - penalty order passed on 23.10.90 is well with in limitation

Summary

Issues Involved:
1. Whether the penalty imposed under Section 271-B of the Income-tax Act, 1961, was barred by limitation as per Section 275 of the Act.

Issue-wise Detailed Analysis:

1. Limitation for Imposing Penalty under Section 271-B:
The central issue is whether the penalty imposed under Section 271-B was barred by limitation under Section 275 of the Income-tax Act, 1961. The relevant assessment year is 1986-87, and the penalty proceedings were initiated on January 16, 1989.

2. Facts of the Case:
The applicant, a private limited company, was required to get its accounts audited by July 31, 1986, but the audit report was obtained on September 10, 1986, and filed with the return on October 22, 1986. The assessment was completed on March 30, 1988, with no mention of penalty proceedings initiation. A show cause notice was issued on January 16, 1989, and the penalty order was passed on October 23, 1990.

3. Arguments by the Applicant:
The applicant argued that the penalty order was barred by limitation under Section 275, as the show cause notice was not issued before the completion of assessment proceedings, and no satisfaction was recorded in the assessment order. The applicant relied on various judgments, including Commissioner of Income-tax, U.P. v. Bankey Lal Hira Lal, Additional Commissioner of Income-tax v. K.S.G. Panicker, and Shanbhag Restaurant v. Deputy Commissioner of Income-tax.

4. Arguments by the Revenue:
The Revenue contended that there was no requirement to record satisfaction during the assessment proceedings for initiating penalty under Section 271-B. They argued that the penalty order was not barred by limitation and relied on judgments such as Shakti Offset Works v. Inspecting Assistant Commissioner of Income-tax, K.N.K. Reddy v. Commissioner of Income-tax, and Shanbhag Restaurant v. Deputy Commissioner of Income-tax.

5. Court's Analysis:
The court noted that the question of recording satisfaction in the assessment proceedings before initiating penalty was not referred for decision. Section 275 places a bar of limitation for imposing penalties, and the relevant provision before its amendment in 1987 was considered. The court held that the amendment effective from April 1, 1989, was not applicable as the penalty proceedings were initiated on January 16, 1989.

6. Interpretation of Section 275:
The court examined Section 275, which prescribes the limitation period for imposing penalties. For cases not involving appeals, the limitation is two years from the end of the financial year in which the proceedings were completed. The court referred to various judgments, including Bharat Construction Company v. Income Tax Officer, which clarified that penalty proceedings could be initiated independently of the assessment order.

7. Conclusion:
The court concluded that the penalty proceedings initiated on January 16, 1989, were within the limitation period, as the penalty order was passed on October 23, 1990. The court agreed with the Madhya Pradesh High Court's view in Bharat Construction Co. that the limitation period starts from the date of penalty notice issuance.

Final Judgment:
The court answered the question in the affirmative, holding that the penalty imposed under Section 271-B was not barred by limitation and ruled in favor of the Revenue and against the assessee. No order as to costs was made.