Interpreting 'Initiation' of Penalty Action u/s 275(1)(c): Period of Limitation

Deciphering Legal Judgments: A Comprehensive Analysis of Judgment on "Assessing Officer's Reference Marks Initiation of Penalty Proceedings"

Reported as:

2024 (11) TMI 506 - DELHI HIGH COURT

Introduction

The core legal question was whether the penalty proceedings u/s 271C of the Income Tax Act were barred by the period of limitation. Specifically, the issue was when the penalty proceedings were initiated - on the date the Assessing Officer made a reference to the Joint Commissioner of Income Tax (JCIT) or on the later date when the JCIT issued a show cause notice to the assessee.

Arguments Presented

The assessee contended that the penalty proceedings were initiated on 25.09.2014 when the Assessing Officer made the reference to the JCIT. Therefore, the 6-month limitation period u/s 275(1)(c) for completing the proceedings had expired before the penalty order was passed.

The Revenue argued that the proceedings were initiated only on 04.08.2015 when the JCIT issued the show cause notice to the assessee. Therefore, the penalty order was passed within the limitation period.

Court Discussions and Findings

The Court relied on its earlier decision in Principal Commissioner of Income Tax-5 v. JKD Capital & Finlease Ltd.  [2015 (10) TMI 1281 - DELHI HIGH COURT] which held that penalty proceedings are initiated when the reference is made by the Assessing Officer to the competent authority, and not when the show cause notice is issued later.

The Court examined the ordinary meaning of the word 'initiate' from dictionaries and previous judgments. It concluded that 'initiate' means to make the first introductory step or commence an action.

Applying this to the facts, the Court held that the Assessing Officer's reference to the JCIT on 25.09.2014 was the first step initiating the penalty proceedings. The subsequent show cause notice was merely to provide an opportunity to the assessee.

Analysis and Decision

The Court upheld the ITAT's finding that the penalty proceedings were initiated on 25.09.2014. Since the penalty order was passed after the 6-month limitation period from that date, it was barred by limitation u/s 275(1)(c).

The legal principle established is that for penalty proceedings u/s 271C, the limitation period starts from the date the Assessing Officer makes a reference to the competent authority, and not from the later date of issuing the show cause notice.

Doctrinal Analysis

The Court's decision is in line with the principle that penalty provisions must be construed strictly. It prevents arbitrary delays by the tax authorities in initiating penalty proceedings after identifying a default.

The ruling clarifies the interpretation of the phrase 'action for imposition of penalty is initiated' in Section 275(1)(c). It endorses a broad purposive interpretation rather than a narrow technical one.

This evolution of doctrine protects assessees from open-ended limitation periods and ensures certainty in tax proceedings.

Full Text:

2024 (11) TMI 506 - DELHI HIGH COURT