2015 (12) TMI 1080 - HC - Income Tax

Penalty u/s 271 (1) (c) - period of limitation - Held that - The period of limitation prescribed under Section 275 of the Act is apparently clear, namely, that the order of penalty must be passed within six months from the end of the month in which the appellate order is received. The said order of the Tribunal was received by the Commissioner of Income Tax on 28.06.1999. Six months would expire on 31.12.1999. The period of limitation cannot be extended merely because an application under Section 254 of the Act was filed by the assessee. The Department cannot take advantage of the filing of the application by the assessee. There was no embargo upon the Assessing Officer in not completing the penalty proceedings within the period of limitation. The decisions cited by the learned counsel for the Department in the cases of Hind Wire Industries Ltd. Vs. Commissioner of Income Tax, (1995 (1) TMI 2 - SUPREME Court) and Henri Isidore Vs. Commissioner of Income Tax, 1997 (10) TMI 16 - MADRAS High Court have no application in the present case. Consequently we are of the opinion that the Tribunal was justified in rejecting the appeal and deleting the order of penalty holding it as barred by limitation. The appeal is, accordingly, dismissed. The question of law, as referred, is answered in favour of the assessee

Summary

Issues:
1. Validity of penalty order under Section 271(1)(c) of the Income Tax Act, 1961 for the assessment year 1986-87.
2. Justification for cancellation of penalty by the Income Tax Appellate Tribunal.
3. Interpretation of Section 275 of the Income Tax Act regarding the limitation for imposing penalties.

Issue 1 - Validity of Penalty Order:
The case involved an appeal related to the assessment year 1986-87 where the Assessing Officer imposed a penalty under Section 271(1)(c) of the Income Tax Act, 1961. The penalty was based on additions made during assessment, including depreciation claimed on Gas Cylinders and disallowed truck hire charges. The Tribunal affirmed these additions, leading to a penalty order passed by the Assessing Officer on 31.01.2002. The key contention was whether this penalty order was passed within the prescribed limitation period as per Section 275 of the Act.

Issue 2 - Cancellation of Penalty by Tribunal:
The Department challenged the cancellation of the penalty amounting to Rs. 30,96,548/- by the Income Tax Appellate Tribunal. The substantial questions of law raised included whether the Tribunal was legally justified in canceling the penalty without properly appreciating the facts of the case. The Tribunal's decision was based on the limitation prescribed in Section 275 of the Act and whether the penalty order was passed within the stipulated timeframe.

Issue 3 - Interpretation of Section 275 of the Act:
The High Court analyzed Section 275 of the Income Tax Act, which provides a bar of limitation for imposing penalties. The section outlines specific timelines within which penalty orders must be passed, based on the completion of assessments or receipt of appellate orders. In this case, the Tribunal's order was received by the Commissioner of Income Tax on 28.06.1999, setting the deadline for the penalty order at 31.12.1999. However, the penalty order was passed on 31.01.2002, well beyond the statutory limitation period.

The Court emphasized that the period of limitation for passing a penalty order is clear under Section 275, requiring it to be within six months from the receipt of the appellate order. The Court rejected the argument that the limitation period could be extended due to subsequent applications or actions by the assessee. Citing relevant case law, the Court held that the Assessing Officer was bound by the statutory time limits and could not benefit from delays caused by the assessee's actions. Consequently, the Tribunal's decision to cancel the penalty order due to being time-barred was upheld, and the appeal was dismissed in favor of the assessee.