2023 (5) TMI 697 - AT - Income Tax

Levy of penalty u/s 271C - Period of limitation - Penalty for failure to deduct TDS - HELD THAT - Penalty in question u/s 271C is independent of assessment proceedings and thus the limitation for levy of penalty u/s 271C would be governed by clause (c) of section 275(1). This clause provides that no order imposing the penalty shall be passed after the expiry of the financial year in which the proceedings, in the course of which action for the imposition of penalty has been initiated, are completed or six months from the end of the month in which action for imposition of penalty is initiated, whichever period expires later. In the present case, since penalty u/s 271C has not been initiated during the course of any proceedings, first part of sec. 275(1)(c) would have no application and it is only the second part which would apply. Thus the penalty order ought to have been passed within a period of six months beginning from the end of the month in which the action for imposition of penalty was initiated. Since the show cause notice u/s 271C was issued on 21.01.2020, the period of six months would have to be reckoned from 01.02.2020 that would end to 31.07.2020. Therefore, penalty order passed on 16.12.2020 is barred by limitation and therefore, the same is quashed. Appeal of the assessee is allowed.

Summary

Issues Involved:
1. Legality of penalty proceedings initiated after seven years of the transaction.
2. Confirmation of penalty levy of Rs. 57,940/- under Section 271C of the Income Tax Act, 1961.

Summary:

Issue 1: Legality of Penalty Proceedings Initiated After Seven Years
The assessee contended that the penalty proceedings initiated after six years of the transaction were illegal and bad in law. The assessee referenced the Supreme Court case of State of Punjab Vs. Bhatinda District Cooperative Milk Producers Union Limited, which held that statutory authority must exercise its jurisdiction within a reasonable period, typically not exceeding five years. The Delhi High Court in CIT Vs. NHK Japan Broadcasting Corporation also supported a four-year limitation period for initiating action where no specific limitation is prescribed. The ITAT, Chennai Bench in RMG Benefit Fund Ltd. Vs. ACIT held that penalty proceedings should be initiated within a reasonable time, and a delay of six years was unreasonable. The Tribunal agreed with the assessee, stating that the penalty order passed on 16.12.2020 was barred by limitation since the show cause notice was issued on 21.01.2020, and the six-month period ended on 31.07.2020.

Issue 2: Confirmation of Penalty Levy of Rs. 57,940/- under Section 271C
The assessee argued that the failure to deduct TDS was due to ignorance of the newly introduced Section 194-IA, which came into effect just two months before the transaction. The CIT(A) upheld the penalty, stating that the words in Section 271C are "shall be liable to pay," indicating no discretion for not levying penalty unless reasonable cause under Section 273B is proven. The CIT(A) rejected the assessee's argument, stating that ignorance of law is no excuse. The Tribunal, however, found that the penalty proceedings were initiated beyond the reasonable period, rendering the penalty order invalid. Thus, the penalty of Rs. 57,940/- was quashed.

Conclusion:
The Tribunal quashed the penalty order under Section 271C as it was barred by limitation, thereby allowing the appeal of the assessee. The judgment emphasized the importance of initiating penalty proceedings within a reasonable period, aligning with precedents set by higher courts.