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2013 (11) TMI 174 - AT - Income TaxPeriod of limitation for passing the penalty order u/s 275(1)(a) of the Income Tax Act Held that - A plain reading of this section shows that under section 275(1)(a), the requirement of the main section is that, when an assessment order is a subject matter of appeal before the Commissioner (Appeals), then the penalty order should be passed, within a period of six months from the end of the month in which the order of the Commissioner (Appeals) is received by the Chief Commissioner / Commissioner. The proviso to this section was inserted w.e.f. 1-06-2003, to expand this time period of six months to one year, in cases wherein the Commissioner (Appeals) passes an order on/after 1st June 2003 and no appeal is filed before the tribunal. The proviso does not deal with cases where the appeals are pending before the ITAT under section 253 of the Act. That limb of section 275(1)(a), which fixes the time limit of six months from the date of receipt of order of the ITAT by the Commissioner / Chief Commissioner, for passing an order of penalty is not disturbed in any manner by the insertion of the proviso as interpreted by the Hon ble Madras High Court in the case of Rayala Corpn. (P.) Ltd 2006 (4) TMI 96 - MADRAS High Court . The facts of the present appeal in hand are that the assessment order was passed on 31.03.2003. The Commissioner of Income Tax(A) passed order on 31.03.2004 and ITAT passed order deciding the cross appeals in quantum proceedings on 8.8.2008 and finally, the penalty order was passed on 18.3.2009. As per provisions of Section 275(1)(a) of the Act, the crucial date is the date of receipt of the order of ITAT by the Chief Commissioner, Commissioner or the Assessing Officer because the same would decide the basis of calculation of limitation because for calculation of limitation, the month of receipt and its subsequent six months period is relevant Penalty order not barred by limitation. There is no dispute in this case that the petitioner has filed an appeal before the Tribunal and the same is pending. In such a case, the limitation period for the levy of penalty will be as provided for under s. 275(1)(a), i.e., six months from the end of the month in which the order of the Tribunal is received by the Chief CIT - Accordingly, this Court is of the view that the proviso to s. 275 (1)(a) of the Act, does not nullify the availability to the third respondent of the period of limitation of six months from the end of the month when the order of the Tribunal, Chennai, is received by the third respondent herein In view of the discussion, it has been held that penalty order was passed within the prescribed period of limitation Decided against the Assessee. Assessing Officer has recorded his satisfaction as required by the statute for initiation of penalty proceedings - Penalty proceedings in regard to the additions made pertaining to interest on SDF loan Held that - Assessing Officer has made multiple additions by making disallowances and after conclusion of every issue and addition, he has specifically mentioned his satisfaction about initiation of penalty proceedings related to that issue and at the end of the order - But at the same time, in assessment order pertaining to the interest on SDF loan, there is nothing to show that the Assessing Officer has recorded his satisfaction as required by the statute for initiation of penalty proceedings Thus, relying upon the judgments in the cases Madhushree Gupta 2009 (7) TMI 38 - DELHI HIGH COURT ; Global Green Company Limited 2012 (10) TMI 120 - ITAT, DELHI , Budge Budge Co.Ltd 2005 (11) TMI 185 - ITAT CALCUTTA-E , in the present case, it is held that Assessing Officer has not recorded his satisfaction for initiation of penalty proceedings in regard to the additions made pertaining to interest on SDF loan at the end of relevant part of the order. Accordingly, the impugned order imposing penalty can not be sustained Decided in favor of Assessee.
Issues Involved:
1. Validity of the penalty order under section 271(1)(c) of the Income Tax Act due to being barred by limitation. 2. Satisfaction for initiating penalty not recorded in the assessment order. 3. Levy of penalty under section 271(1)(c) on disallowance towards interest on Sugar Development Fund (SDF). Detailed Analysis: Issue 1: Validity of the Penalty Order Due to Being Barred by Limitation The appellant argued that the penalty order dated 18.03.2009 was illegal and barred by limitation as per section 275(1)(a) of the Income Tax Act, which requires that the penalty order should have been passed on or before 31.03.2006. The appellant relied on the judgment of the Delhi High Court in the case of Commissioner of Income Tax vs Mohair Investment & Trading Co. Pvt. Ltd., which clarified the limitation period for penalty orders. The Tribunal noted that the penalty order was passed within six months from the end of the month in which the ITAT order was received by the Commissioner, thus within the prescribed limitation period. The Tribunal cited the judgment of the Madras High Court in Rayala Corporation Pvt. Ltd. vs. Union of India, which supported this interpretation. Consequently, the Tribunal dismissed ground nos. 1 and 1.1, holding that the penalty order was not barred by limitation. Issue 2: Satisfaction for Initiating Penalty Not Recorded in the Assessment Order The appellant contended that the penalty order was ab initio illegal and bad in law as the satisfaction for initiating penalty proceedings was not recorded in the assessment order. The appellant cited several judgments, including Madhushree Gupta vs Union of India, which emphasized the necessity of recording satisfaction for initiating penalty proceedings. The Tribunal observed that the assessment order contained specific mentions of initiating penalty proceedings for various disallowances, but there was no such mention regarding the disallowance of interest on SDF loan. The Tribunal, following the judgment in Madhushree Gupta and other relevant cases, concluded that the absence of recorded satisfaction for the specific disallowance rendered the penalty proceedings void ab initio. Therefore, ground no. 1.2 was allowed, and the penalty order was set aside. Issue 3: Levy of Penalty on Disallowance Towards Interest on SDF Given the Tribunal's decision on ground no. 1.2, it held that the initiation of penalty proceedings was void ab initio due to the lack of recorded satisfaction. Consequently, all subsequent proceedings, including the levy of penalty on the disallowance towards interest on SDF, became futile. The Tribunal declined to decide on the additional grounds related to the debatable nature of the issue, true and full disclosure, and bona fide belief, as these became academic in light of the decision on ground no. 1.2. Hence, grounds 2, 2.1, and 2.2 were dismissed. Conclusion: The appeal of the assessee was allowed, and the penalty order was set aside due to the failure to record satisfaction for initiating penalty proceedings in the assessment order. The Tribunal upheld that the penalty order was not barred by limitation but found the initiation of penalty proceedings void ab initio due to procedural lapses.
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