2023 (3) TMI 369 - HC - Income Tax

Penalty imposed u/s 271C - Bar of limitation for imposing penalties - Delay in issuing the impugned SCN - fixation of period of limitation when penalty is sought to be imposed as fallout of action taken in another proceeding - HELD THAT - We are inclined to agree with the submission made on behalf of the petitioner i.e., the assessee, and the reason for that is quite simple. If we were to accept the respondent/revenue s stand, then it could end up as it has in this case in a situation, where the revenue could decide the date when it could trigger a SCN to fulfil, as a mere formality, the principles of natural justice, which are engrafted under Section 274 of the Act. Section 274 of the Act, inter alia, mandates that no order imposing a penalty under the Chapter i.e., Chapter XXI shall be made unless the assessee has been heard, or has been given a reasonable opportunity of being heard. In this case,the initial return qua the AY in issue i.e., AY 2007-08 was filed on 31.03.2007, and the revised return was filed on 31.03.2009. The scrutiny assessment under Section 143(3), concerning AY 2007-08, was framed on 28.10.2011. Despite the fact that the issue concerning limitation got flagged as far back as on 09.09.2013, and then again in an internal communication dated 11.07.2014, no steps were taken for the issuance of a SCN. The SCN was issued only on 09.11.2017. Delay in issuing the impugned SCN dated 09.11.2017 was inexcusable. There is no explanation, whatsoever, available on the record, as to why the SCN under Section 274 of the Act was not issued in 2013-14, if not earlier. As a matter of fact, there is no explanation, even with regard to the period falling between the time when the scrutiny assessment was framed i.e., on 28.10.2011 and the communication dated 09.09.2013. Period for commencement of limitation prescribed in terms of the second limb of clause (c) of sub-section (1) of Section 275 of the Act would commence either from 2013 or 2014, there is a period of unexplained substantial delay, as the SCN, concededly, was issued only on 09.11.2017. We are inclined to agree with the petitioner i.e., the assessee, that the SCN dated 09.11.2017 is woefully delayed, and hence deserves to be quashed. Consequentially, the impugned order dated 14.06.2018 would collapse, which would also be the fate of the second SCN dated 27.06.2018.

Summary

Issues:
Delay in issuing show-cause notice for penalty under Section 271C of the Income Tax Act, 1961 and interpretation of Section 275(1)(c) regarding the limitation period for imposing penalties.

Analysis:
The petitioner filed a writ petition against the order disposing of their representation for penalty under Section 271C of the Income Tax Act. The petitioner raised objections to the show-cause notice issued after the order, citing wrongful assumption of jurisdiction by the revenue. This was the second round of litigation, with the first round being disposed of earlier concerning the same jurisdictional issue. The petitioner had initially filed their return for Assessment Year (AY) 2007-08, later revising it and adding back expenses as a precaution. In the subsequent AY, the same expenses were claimed as deductions, resulting in a loss. The Assessing Officer later recommended imposing a penalty for failure to deduct tax at source for AY 2007-08, leading to the delayed issuance of the show-cause notice in 2017.

The petitioner contended that the delay in issuing the show-cause notice was inexcusable, as it was issued almost a decade after the relevant financial year. The petitioner argued that the delay could lead to endless postponement of proceedings, causing prejudice. The respondent, however, maintained that penalty proceedings were separate and should commence with the issuance of the show-cause notice. The Court analyzed Section 275(1)(c) of the Act, which sets a limitation period for imposing penalties, and noted the absence of a clear trigger point for initiating penalty proceedings.

Considering the facts and arguments presented, the Court agreed with the petitioner, emphasizing that the delay in issuing the show-cause notice was unjustifiable. The Court highlighted the lack of explanation for the significant delay between the assessment and the notice issuance. Consequently, the Court quashed the show-cause notice and the subsequent order, ruling in favor of the petitioner. The judgment clarified the importance of timely initiation of penalty proceedings and the need to adhere to statutory timelines to ensure fairness and prevent undue delays in the legal process.

The Court's decision underscored the significance of procedural fairness and adherence to statutory timelines in penalty proceedings under the Income Tax Act. The judgment serves as a reminder of the importance of timely action by revenue authorities and the implications of unjustifiable delays on the rights of taxpayers.