2005 (11) TMI 187 - AT - Income Tax

Interpretation of statutes - Penalty levied u/s 271D and 271E - Bar Of Limitation - received loans and deposits in violation of provisions of section 269SS - Having regard to the provisions of sections 271D and 271E and section 275 whether period of limitations for purposes of section 275 of the Act is to be reckoned from the date when assessment proceedings are completed or from the date when penalty proceedings are initiated by the JCIT? - HELD THAT - Under section 275 the penalty order under Chapter XXI was required to be passed within two years from the date of completion of the proceedings in course of which the proceedings for imposition of penalty were commenced. From 1-4-1971 to 31-3-1989 section 275 divided cases into two categories namely (i) where the assessment to which the proceedings for imposition of penalty relate was the subject-matter of an appeal to the DCIT(A)/AAC as the case may be the CIT(A) or Appellate Tribunal and (ii) all other cases. It appears that the Legislature has not considered it necessary to provide for limitation for initiation of penalty proceedings under sections 271D and 271E. It becomes more probable when we consider the intention of the Legislature behind incorporation of provisions of sections 269SS and 269T. We have referred to the legislative intent behind incorporation of sections 269SS 269T 271D and 271E in the preceding paragraphs. The intention behind incorporation of these provisions was to counter the proliferation of black money which when found in the course of search is sought to be explained by cash loans from various persons. As it is there is no time-limit for conducting searches. When in the course of search some information is found about cash loans or deposits or repayment of loans or deposits or such claims are made the necessity for initiating proceedings under section 271D or 271E arises. If one were to compute the limitation with reference to the assessment proceedings then in no case penalty under sections 271D and 271E could be initiated in the cases where the information is gathered in the course of search. That would defeat the very purpose of the legislating the provisions of sections 271 and 271E. Looking from the background which gave rise to incorporation of sections 269SS 269TT 271D and 271E we are of the considered view that the Legislature has consciously not prescribed any limitation for initiation of penalty proceedings under sections 271D and 271E. The limitation of course has been prescribed for imposition after its initiation by the competent authority. In the final analysis we hold that the authority competent to impose penalty under sections 271D and 271E is vested with the Dy. CIT (now Joint CIT) and the Assessing Officer does not have the power either to initiate the penalty proceedings or impose the same. There is no procedure for reference by the Assessing Officer to the competent authority for imposition of penalty under section 271D or 271E. Therefore the limitation for completion of penalty proceedings as provided under section 275(1)(c) has got to be computed from the date of issue of show-cause notice by the competent authority which in the present case is the DCIT (now JCIT). Since the respective orders u/s 271D have been passed within a period of six months from the date of initiation by the competent authority the penalty orders passed in the cases of the appellants herein are not barred by limitation. Thus we hardly need to mention that whereas we agree with the view expressed by ITAT Chandigarh Bench in the case of Asstt. CIT v. Shree Nivas Chemicals 2002 (3) TMI 211 - ITAT CHANDIGARH-A and the Nagpur Bench of the ITAT in the case of ITO v. Ramnivas Agrawal 2003 (12) TMI 316 - ITAT NAGPUR we do not agree with the view expressed by Hyderabad Bench of the Tribunal in the case of Dillu Cine Enterprises (P.) Ltd. v. Addl. CIT 2001 (9) TMI 248 - ITAT HYDERABAD-A and Jodhpur Bench of the Tribunal in the case of Hissaria Bros. v. Jt. CIT 2001 (8) TMI 295 - ITAT JODHPUR and the Delhi Bench of the ITAT in the case of Farrukhabad Investment (I) Ltd. v. Jt. CIT 2002 (3) TMI 216 - ITAT DELHI . Thus our conclusion to the reference is as under Having regard to provisions of sections 271D and 271E of the Income-tax Act 1961 the period of limitation for the purposes of section 275 of the Act is to be reckoned from the date when penalty proceedings are initiated by the DCIT (JCIT) and not from the date the assessment proceedings are completed.

Summary

Issues Involved:
1. Whether the penalty orders under section 271D of the Income-tax Act, 1961, were barred by limitation.
2. Determination of the correct period of limitation for imposing penalty under section 271D in relation to sections 269SS and 275 of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Penalty Orders Barred by Limitation:

The main ground raised by the assessee against the levy of penalty was that the penalty orders were barred by limitation. The ITAT, Chandigarh Bench noted a divergence of opinion among various Benches regarding the computation of the period of limitation for imposing penalty under section 271D. One view was that the period of limitation should be calculated from the notice issued by the JCIT after recording his satisfaction, while another view was that it should commence from the date of issue of notice by the Assessing Officer. The Special Bench was constituted to resolve this issue.

2. Period of Limitation for Imposing Penalty:

The Special Bench examined whether the period of limitation for the purposes of section 275 should be reckoned from the date when assessment proceedings are completed or from the date when penalty proceedings are initiated by the JCIT. The facts of the case involved a search conducted on 8-9-1993, where certain receipts indicating cash loans were found and seized, leading to inquiries and subsequent penalty proceedings under section 271D.

The Assessing Officer made inquiries and referred the matter to the DCIT for considering penalty provisions. The DCIT issued show-cause notices and imposed penalties. The assessees contended that the orders were barred by limitation, arguing that the limitation period should start from the date the Assessing Officer issued notices regarding the loans.

The Special Bench considered the legislative intent behind sections 269SS, 269T, 271D, and 271E, which were introduced to counter the proliferation of black money and unaccounted cash. It was noted that the authority to impose penalties under sections 271D and 271E is vested with the DCIT (now JCIT), and the Assessing Officer does not have the jurisdiction to initiate or impose penalties under these sections.

The Bench concluded that the limitation for imposing penalties under section 271D should be computed from the date of initiation by the DCIT, not from the completion of assessment proceedings. This interpretation aligns with the legislative intent to counter black money and unaccounted cash, especially in cases where such information is discovered during searches.

Conclusion:

The Special Bench held that the period of limitation for the purposes of section 275 should be reckoned from the date when penalty proceedings are initiated by the DCIT (JCIT) and not from the date the assessment proceedings are completed. The penalty orders in the cases of the appellants were not barred by limitation as they were passed within six months from the date of initiation by the competent authority.

Follow-up Action:

The Registry was directed to take follow-up action in the appeals of the assessees based on this decision.