2022 (10) TMI 608 - AT - Income Tax

Penalty proceedings u/s 271D and 271E - Period of limitation - transaction between sister concern - As submitted notice under section 274 read with section 271D of the Act stating that assessee has violated provisions of section 269SS of the Act therefore, from this date the action for imposition of penalty were initiated - HELD THAT - Hon'ble Delhi High Court in case of Pr. Commissioner of Income-tax Vs. Mahesh Wood Products (P.) Ltd. 2017 (5) TMI 433 - DELHI HIGH COURT has held that limitation for levy of penalty under section 271D and 271E of the Act would begin to run from the date on which The learned Assessing Officer wrote a letter to the Addl Commissioner income-tax recommending issue of show cause notice for initiating penalty proceedings. Hon'ble Delhi High Court following its own decision in Pr. CIT vs. JKD and finlease Ltd 2015 (10) TMI 1281 - DELHI HIGH COURT has held that the orders passed under section 271D and 271E of the Act would be barred by limitation if they were passed beyond six months from the end of the month in which the learned Assessing Officer informed the learned Addl. CIT about the offence and to show cause the notice under section 274 of the Act. Apparently in this case, the first notice was issued on 15.12.2013 and second notice was issued on 16.01.2014 are identical. Therefore, from the date of notice dated 15.12.2013, the penalty order should have been passed on or before 30th June 2004 but were passed on 30th July 2014. Therefore, both the orders of the penalty are barred by limitation. In this case, ld. Adjudicating authority once again issued the same notice for the same offence being show cause notice for levy of penalty u/s 271D and 271E of the act on 16/1/2014. Claim of revenue is that the last notice second notice issued by the ld. Adjudicating authority should be considered for computing outer time limit for passing penalty orders. If the subsequent notices issued by the ld. Adjudicating authorities on 16/01/2014 are taken for computing time limit, the ld. Adjudicating authority would always be in a positing extend the above time limit for issuing a fresh notice for the same offence and it would not be in consonance of letter and spirit of the law. Therefore, same is rejected. Thus owing the decision of JKD Fin lease services limited SUPRA we hold that both the penalty orders passed on 30/7/2014 are barred by limitation of time and therefore quashed. Appeal of assessee allowed.

Summary

Issues Involved:
1. Confirmation and enhancement of penalty under Section 271E of the Income Tax Act.
2. Confirmation and enhancement of penalty under Section 271D of the Income Tax Act.
3. The legality of the penalty orders based on the limitation period under Section 275(1)(c) of the Income Tax Act.

Detailed Analysis:

Issue 1: Confirmation and Enhancement of Penalty under Section 271E
The appellant challenged the penalty of Rs. 12,23,75,000 levied by the Additional Commissioner of Income Tax and the enhancement of Rs. 22,99,17,749 by the CIT(A). The grounds of appeal included the argument that the CIT(A) did not follow the Tribunal's directions from an order dated 12th July 2006. The appellant also contended that the observations in the CIT(A)'s order were factually incorrect, as discussions with the authorized representative and a letter dated 18th December 2017 were not properly considered.

Issue 2: Confirmation and Enhancement of Penalty under Section 271D
The appellant contested the ex parte order dated 29th November 2017 by the CIT(A), which confirmed the penalty of Rs. 12,38,75,000 and enhanced it by Rs. 43,44,25,859. The appellant argued that the authorized representative attended the CIT(A)'s office on three occasions, but the CIT(A) was not available due to holding dual charges. The appellant claimed that the penalties were not leviable and should not have been confirmed or enhanced.

Issue 3: Legality of Penalty Orders Based on Limitation Period
The appellant argued that the penalty orders dated 30th July 2004 were bad in law as they were passed beyond the prescribed time limit under Section 275(1)(c) of the Act. The appellant contended that the penalty should have been levied by 30th June 2004, making the orders time-barred. The appellant cited decisions from the Delhi High Court, including PCIT vs. Mahesh Wood Products (P.) Ltd. and Pr. Commissioner of Income Tax vs. JKD Capital and Finlease Limited, to support this claim.

The Tribunal admitted the additional ground of appeal, recognizing it as a jurisdictional issue that goes to the root of the matter and does not require further verification of facts. The Tribunal found that the first notice under Section 271E was issued on 15th December 2003, and the penalty was imposed on 30th July 2004. According to Section 275(1)(c), the penalty should have been levied by 30th June 2004. The Tribunal held that the subsequent notice issued on 16th January 2004 could not extend the time limit for levying the penalty, as it would allow the adjudicating authority to indefinitely extend the time limit, which is against the law's intent.

Conclusion:
The Tribunal quashed both penalty orders under Sections 271D and 271E of the Act, ruling them barred by the limitation period. Consequently, the appeals filed by the assessee were allowed, and the issue of reasonable cause and the merits of the penalty were not adjudicated.

Order:
Both appeals filed by the assessee were allowed, and the order was pronounced in the open court on 14.10.2022.