2013 (3) TMI 222 - HC - Income Tax

Penalty under Section 271D - Tribunal deleted the penalty levy as it was not imposed within the prescribed period u/s 275(i)(c) - Held that - Even if the matter had otherwise been in appeal before the CIT(A) against the original assessment order and the appeal was decided on 13.02.2004, the same was hardly of relevance so far the penalty proceedings under Section 271D were concerned. As held in Hissaria Bros. (2006 (7) TMI 163 - RAJASTHAN HIGH COURT) completion of appellate proceedings arising out of assessment proceedings has no relevance over sustaining such penalty proceedings The first show cause notice for initiation of proceedings was issued by the AO on 25.03.2003 and was served on the assessee on 27.03.2003. Obviously, the later period also expired on 30.09.2003 when six months expired from the end of the month in which the action for imposing the penalty was initiated. The order as passed by the Joint Commissioner of Income Tax for the penalty under Section 271D on 28.05.2004 was clearly hit by the bar of limitation and has rightly been set aside in the orders impugned. Thus even when the authority competent to impose penalty under Section 271D was the Joint Commissioner, the period of limitation for the purpose of such penalty proceedings was not to be reckoned form the issue of first show cause, but from the date of issue of first show cause for initiation of such penalty proceedings - thus setting aside the order of penalty - in favour of assessee.

Summary

Issues:
1. Interpretation of limitation period for imposing penalty under Section 271D of the Income Tax Act, 1961.

Analysis:
The case involved an appeal by the Revenue against the judgment of the Income Tax Appellate Tribunal regarding penalty proceedings under Section 271D of the Act for the assessment year 2001-02. The key question was whether the penalty imposed was within the prescribed period under Section 275(1)(c) from the date of initiation by the Assessing Officer (AO) or from the date of the first show cause notice by the Joint Commissioner. The assessee had accepted cash loans exceeding the limit specified under Section 269SS, leading to penalty proceedings under Section 271D initiated by the AO. The Joint Commissioner imposed the penalty after the matter was referred to him, but the Commissioner of Income Tax (Appeals) held the penalty proceedings were barred by limitation.

The Commissioner of Income Tax (Appeals) determined that the limitation period under Section 275(1)(c) applied to penalty proceedings under Section 271D and not Section 275(1)(a) since penalty proceedings were independent of assessment proceedings. The Tribunal upheld this decision, leading to the Revenue's appeal. The High Court, after considering the arguments, referred to a previous judgment and concluded that penalty proceedings under Section 271D were not dependent on assessment proceedings. The Court highlighted that the completion of appellate proceedings had no relevance to sustaining penalty proceedings. The Court emphasized the application of Section 275(1)(c) for the limitation period, which states the penalty order must be passed within six months from the end of the month in which the penalty action was initiated.

The Court found that the penalty order issued by the Joint Commissioner on 28.05.2004 was beyond the limitation period as the penalty proceedings were initiated on 25.03.2003. Consequently, the Court dismissed the appeal, affirming that the penalty order was rightly set aside due to being time-barred. The decision clarified that the limitation period for penalty proceedings under Section 271D should be calculated from the date of the first show cause notice for initiation of such proceedings, not from the date of the Joint Commissioner's notice. The Court upheld the decisions of the Commissioner of Income Tax (Appeals) and the Tribunal in setting aside the penalty order.

In conclusion, the High Court's judgment provided a detailed analysis of the interpretation of the limitation period for imposing penalties under Section 271D of the Income Tax Act, emphasizing the application of Section 275(1)(c) and the independence of penalty proceedings from assessment proceedings. The Court's decision clarified the calculation of the limitation period and affirmed that the penalty order in this case was rightly set aside as it was time-barred.