2021 (9) TMI 982 - AT - Income Tax

Penalty u/s 271D or 271E - Default under provisions of Sec.269SS and 269T - penalty proceedings in the course of any proceedings - CIT-A deleted the penalty levy as the assessment orders in which the penalty proceedings u/s.271D and 271E of the Act were initiated were quashed - HELD THAT - CIT(A) was not justified in cancelling the orders imposing penalty on the ground that the assessment proceedings in the course of which penalty was initiated have been held to be bad in law and annulled. It is admitted by the parties before us that the revenue is in appeal before the Tribunal against the orders of first appellate authority cancelling the assessment proceedings as invalid and those appeals are pending for consideration. For penalties pertaining to section 271(1) of the Act, there is a specific requirement that the AO, CIT(A), PCIT or CIT only can initiate the penalty proceedings in the course of any proceedings under the act. But, with regard to initiation of penalty u/s 271D or 271E of the Act there is no such categorical requirement expressly provided in the Act. Penalty u/s.271D or 271E of the Act is concerned, those are independent proceedings and having nothing to do with assessment proceedings or its outcome - CIT(A) was not justified in cancelling the orders imposing penalty on the ground that the assessment proceedings, during the course of which, penalty u/s.271D and 271E of the Act were initiated have been held to be invalid. Apart from the fact that the order holding the assessments to be invalid has not become final, the CIT(A) ought not to have cancelled the orders imposing penalty on this ground. We therefore find merit in these appeals by the Revenue. Since, the CIT(A) has not adjudicated the matter on merits, the proper course would be to remit the question of imposition of penalty to the CIT(A) for fresh consideration, leaving all aspects open - Revenue Appeals are allowed for statistical purpose.

Issues Involved:
1. Imposition of penalty under Section 271E of the Income Tax Act for Assessment Years (AY) 2009-10 to 2011-12.
2. Imposition of penalty under Section 271D of the Income Tax Act for AY 2009-10 to 2011-12.
3. Validity of initiating penalty proceedings before completion of assessment proceedings.
4. Adequacy of opportunity provided to the Assessee during assessment and penalty proceedings.
5. Independence of penalty proceedings from assessment proceedings.
6. Applicability of Section 275(1)(c) regarding the limitation period for imposing penalty.

Detailed Analysis:

1. Imposition of Penalty under Section 271E:
The Assessing Officer (AO) noticed that the Assessee had repaid cash loans in violation of Section 269T, leading to the initiation of penalty proceedings under Section 271E. Penalties were imposed for AY 2009-10 to 2011-12, amounting to ?7,26,00,000, ?9,40,80,000, and ?13,84,46,711 respectively. The CIT(A) quashed these penalties, noting that the initiation of penalty proceedings before the completion of assessment proceedings was premature. Additionally, the CIT(A) observed that the assessment orders were unsustainable in law, and the Assessee was not afforded sufficient opportunity to explain the transactions.

2. Imposition of Penalty under Section 271D:
Similarly, the AO imposed penalties under Section 271D for taking cash loans in violation of Section 269SS. Penalties for AY 2009-10 to 2011-12 were ?6,38,00,000, ?11,14,50,000, and ?13,97,89,000 respectively. The CIT(A) quashed these penalties on similar grounds as those under Section 271E, highlighting the premature initiation of penalty proceedings and the lack of adequate opportunity for the Assessee to present their case.

3. Validity of Initiating Penalty Proceedings Before Completion of Assessment Proceedings:
The CIT(A) found that initiating penalty proceedings before the completion of assessment proceedings was premature. This decision was based on the observation that the assessment orders were passed without following due process, and the Assessee was not given a reasonable opportunity to explain the nature of the transactions.

4. Adequacy of Opportunity Provided to the Assessee:
The CIT(A) noted that the Assessee was not afforded sufficient opportunity to explain the nature of transactions and receipts during the assessment proceedings. This lack of opportunity was a key reason for quashing the penalties under Sections 271D and 271E.

5. Independence of Penalty Proceedings from Assessment Proceedings:
The Tribunal emphasized that penalty proceedings under Sections 271D and 271E are independent of assessment proceedings. Citing the case of Commissioner of Income-tax vs. Hissaria Bros 291 ITR 244 (Raj) and the Supreme Court's decision in CIT v. Hissaria Brothers (2016) 386 ITR 719 (SC), the Tribunal noted that the outcome of assessment proceedings does not affect the imposition of penalties under these sections. Therefore, the CIT(A) erred in cancelling the penalties based on the invalidity of the assessment orders.

6. Applicability of Section 275(1)(c) Regarding the Limitation Period for Imposing Penalty:
The Tribunal referred to the Supreme Court's ruling, which clarified that the limitation period for imposing penalties under Sections 271D and 271E is governed by Section 275(1)(c). This section provides a six-month period from the end of the month in which the penalty proceedings were initiated, independent of the assessment proceedings.

Conclusion:
The Tribunal found merit in the Revenue's appeals, noting that the CIT(A) was not justified in cancelling the penalties based on the invalidity of the assessment orders. The Tribunal remanded the matter to the CIT(A) for fresh consideration on the merits, leaving all aspects open for review. The appeals were allowed for statistical purposes.

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