2025 (1) TMI 908 - AT - Income Tax

Penalty u/s 271C as barred by limitation - non compliance of provisions of section 192(1) - HELD THAT - Given the scheme of Section 275(1)(c) it would be the date on which the AO wrote a letter to the ACIT recommending the issuance of the SCN. While it is true that the ACIT had the discretion whether or not to issue the SCN, if he did decide to issue a SCN, the limitation would begin to run from the date of letter of the AO recommending 'initiation' of the penalty proceedings. So, as per section 275(1)(c) of the Act the last date by which penalty order could have been passed was 30.06.2014. The penalty order was passed on 14.07.2016. Therefore, the penalty order dated 14.07.2016 was time barred. Assessment order dated 20.03.2013 mentions Penalty proceedings u/s 271C(1)(a) of the Act is initiated separately for non-compliance to the provision of section 192(1) of the Act . Penalty order dated 14.07.2016 refers to section 194C/194J/and Annexure G of Tax Audit Report. The reference is completely erroneous. No contractual/professional payments are mentioned in P L Account. The incorrect facts and figures show non-application of mind. Appeal filed by the Revenue is dismissed.

1. ISSUES PRESENTED and CONSIDERED

The judgment primarily revolves around the following legal issues:

Whether the penalty order dated 14.07.2016, issued under section 271C of the Income Tax Act, 1961, was time-barred.
Whether the learned Commissioner of Income Tax (Appeals) [CIT(A)] was correct in deleting the additions made by the Assessing Officer (AO) regarding the characterization of land and other financial transactions.
Whether the penalty imposed for alleged non-compliance with TDS provisions was justified.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Timeliness of the Penalty Order

Relevant legal framework and precedents: The case hinges on section 275(1)(c) of the Income Tax Act, which prescribes the time limit for passing penalty orders. The precedents cited include cases from the Delhi High Court, such as PCIT vs. Mahesh Wood Products (P.) Ltd. and PCIT vs. JKD Capital & Finlease Ltd., which clarify the starting point for the limitation period.
Court's interpretation and reasoning: The court noted that the penalty proceedings were initiated by the AO on 20.03.2013, with a recommendation to the CIT-TDS on 25.12.2013. The court determined that the limitation period began from the date of initiation, making the last permissible date for passing the penalty order 30.06.2014.
Key evidence and findings: The penalty order was issued on 14.07.2016, well beyond the limitation period, rendering it time-barred.
Application of law to facts: The court applied the legal framework to conclude that the penalty order was invalid due to the delay in issuance.
Treatment of competing arguments: The Department's argument that the penalty order was timely was dismissed due to the clear timeline established by the court.
Conclusions: The penalty order was deemed time-barred, and thus, invalid.

Issue 2: Deletion of Additions by CIT(A)

Relevant legal framework and precedents: The case involves sections 2(14), 143(3), and related provisions concerning the characterization of land and financial transactions.
Court's interpretation and reasoning: The court agreed with CIT(A)'s decision, emphasizing the lack of evidence supporting the AO's claims regarding the characterization of the land and other transactions.
Key evidence and findings: The court found no substantive evidence to support the AO's additions related to the agricultural land sale and capital asset loss.
Application of law to facts: The court applied the relevant sections and found that the CIT(A) correctly deleted the additions due to lack of evidence.
Treatment of competing arguments: The Department's arguments were found to lack merit, as they failed to provide sufficient evidence to counter the CIT(A)'s findings.
Conclusions: The court upheld the CIT(A)'s decision to delete the additions.

Issue 3: Justification of Penalty for TDS Non-Compliance

Relevant legal framework and precedents: The penalty was imposed under section 271C for alleged non-compliance with TDS provisions, specifically sections 192(1) and 194C/194J.
Court's interpretation and reasoning: The court noted discrepancies in the AO's assessment, including incorrect references to Annexure G of the Tax Audit Report and non-existent contractual payments.
Key evidence and findings: The court found no evidence of TDS non-compliance in the financial statements, undermining the basis for the penalty.
Application of law to facts: The court applied the relevant sections and found the penalty unjustified due to lack of evidence.
Treatment of competing arguments: The Department's arguments were dismissed due to factual inaccuracies and lack of evidence.
Conclusions: The penalty for TDS non-compliance was deemed unjustified and was set aside.

3. SIGNIFICANT HOLDINGS

Preserve verbatim quotes of crucial legal reasoning: "The starting point would be the 'initiation' of penalty proceedings. Given the scheme of Section 275(1)(c) it would be the date on which the AO wrote a letter to the ACIT recommending the issuance of the SCN."
Core principles established: The limitation period for penalty orders begins from the initiation of proceedings, not the issuance of the penalty order. Accurate and timely evidence is crucial for sustaining penalty orders.
Final determinations on each issue: The penalty order was time-barred and invalid. The additions made by the AO were correctly deleted by the CIT(A), and the penalty for TDS non-compliance was unjustified.

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