2023 (8) TMI 387 - HC - Income Tax

Penalty u/s 271C - period of limitation to issue notice - show cause notice issued u/s 271C which was nearly eleven (11) years after the assessment order was passed, and fourteen (14) years from the time when the return was filed - HELD THAT - As decided in Clix Capital Services Pvt. Ltd. 2023 (3) TMI 369 - DELHI HIGH COURT penalty ought to be levied within a reasonable timeframe. This attains criticality, as Section 275(1)(c) of the Act does not fix a date for the commencement of the period of limitation. This legislative gap in the provision works to the disadvantage of the assessee, as often, the AO takes his own sweet time in making a proposal for the initiation of penalty proceedings. In this case, as noticed above, more than 11 years have passed since the time the assessment order was passed, and if the date of filing of the return is taken into account, there is a yawning 14 years of time gap. A careful perusal of the second limb would show that the legislature has provided a limitation of six months, from the end of the month in which the action for imposition of penalty is initiated. Even according to revenue the first limb of Section 275(1)(c) is not applicable. Therefore if the dates and events, (which obtain in the matter and are not in dispute), are taken into account, even then, the proceedings would be time-barred as initiation of penalty proceedings commences with the proposal being submitted for triggering penalty proceedings. In this case, the proposal, as noticed above, for commencing of penalty proceedings was submitted by the JCIT on 27.03.2019.The record shows that the order under Section 271(1)(c) of the Act was passed only on 31.10.2019, which is a date well beyond six months, that expired on 30.09.2019. Although it is revenue argument that six month period should commence from the date when show cause notice is issued, in our view, once again, this is a submission which cannot be accepted, as it would provide a scope to the AO to trigger the penalty proceedings at the date of his choosing, as is palpably evident in this case. The word used in the provision is initiated which according to us, is an act which would get triggered on the date when the proposal is made. This rationale ties in with our view, as noted hereinabove, that penalty proceedings should be initiated within a reasonable period. Decided against revenue.

Summary

Issues involved:
The judgment concerns the appeal related to the Assessment Year (AY) 2005-06. The main issue revolves around the imposition of penalty under Section 271C of the Income Tax Act, 1961 for failure to deduct tax at source within a reasonable timeframe.

Facts and Decision:
The respondent/assessee filed its return of income declaring a loss, which was later scaled down by the Assessing Officer (AO). The respondent/assessee had voluntarily sought disallowance of expenses related to certain transactions. Subsequently, a proposal for penalty initiation was made more than a decade later, leading to the imposition of penalty amounting to Rs. 1,05,36,376. However, the show cause notice for penalty was issued nearly eleven years after the assessment order was passed and fourteen years from the filing of the return. The Tribunal ruled in favor of the respondent/assessee, citing the need for penalty to be levied within a reasonable timeframe. The judgment highlighted the legislative gap in Section 275(1)(c) of the Act, emphasizing the disadvantage to the assessee due to delays in penalty proceedings initiated by the AO.

Legal Analysis:
The judgment referred to a previous decision by a coordinate Bench of the court, emphasizing the importance of levying penalties within a reasonable timeframe. The court noted that Section 275(1)(c) does not specify a starting date for the limitation period, which could lead to delays benefiting the revenue authority. The appellant/revenue argued that the six-month limitation period for passing the penalty order should commence from the date of issuing the show cause notice. However, the court disagreed, stating that penalty proceedings should be initiated promptly, tying the commencement of penalty proceedings to the date of the proposal. The judgment highlighted the need to prevent revenue authorities from choosing arbitrary dates to initiate penalty proceedings, ensuring adherence to principles of natural justice enshrined in the Act.

Conclusion:
The court ultimately closed the appeal, stating that no substantial question of law arose for consideration. The judgment underscored the importance of initiating penalty proceedings within a reasonable timeframe to prevent undue delays and arbitrary actions by revenue authorities.