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TMI Blog2009 (2) TMI 244X X X X Extracts X X X X X X X X Extracts X X X X ..... evant assessment year under appeal, the assessee filed its return of income on 30th Nov., 1995 declaring total income of nil after claiming deduction of Rs. 5,71,344 under s. 80-O of the Act. The return was selected for scrutiny assessment by the AO. The assessment was then completed under s. 143(3) of the Act vide AO's order dt. 27th March, 1998, wherein deduction claimed under s. 80-O amounting to Rs. 5,71,344 was disallowed and certain other additions were also made determining total income at Rs. 5,96,060. Being aggrieved with the AO's order made under s. 143(3) of the Act on 27th March, 1998. the assessee preferred an appeal before the learned CIT(A), who vide his order dt. 2nd July, 1999 allowed the assessee's claim and directed the AO to allow the deduction claimed by the assessee under s. 80-O of the Act. Against the order dt. 2nd July, 1999 of the learned CIT(A), the Department preferred an appeal before the Tribunal, and the Tribunal vide its order dt. 4th Nov., 2003 restored the issue back to the file of the AO with a direction to decide the issue in accordance with law by way of a speaking order and after giving the assessee an opportunity of being heard. The relevant o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the authorities, and, hence, the disallowance of assessee's is claim by itself not sufficient to levy the penalty upon the assessee. 2.4 After considering the assessee's submission made in the course of penalty proceedings initiated in the course of assessment made under s. 143(3)/254 of the Act vide order dt. 1st Feb., 2005, the AO had taken a view that he had left with no alternative but to impose a penalty under s. 271(1)(c) of the Act, and, therefore, the AO levied the penalty under s. 271 (1)(c) of the Act vide his order dt. 31st Aug., 2005. 2.5 Being aggrieved with the AO's order levying penalty under s. 271(1)(c) vide his order dt. 31st Aug., 2005, the assessee preferred an appeal before the CIT(A). 2.6 Before the CIT(A), the assessee had taken a ground that the order of penalty dt. 31st Aug., 2005 passed by the AO was barred by limitation under the provisions of s. 275 sub-s. (1) cl. (a) of the Act. This contention of the assessee that the penalty order passed by the AO was barred by limitation, was rejected by the CIT(A) by observing and holding as under: "A plain reading of the said section clearly indicates that the intention of the legislature is to give at least si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penalty order passed by the AO was barred by limitation, the assessee has raised this ground in this appeal filed before us. 2.8 The learned counsel for the assessee submitted that the present penalty order is covered by the period of limitation provided under s. 275(1)(a) of the Act and not by cl. (c) of s. 275(1) inasmuch as cl. (c) of s. 275(1) covers only those cases where the penalty proceedings are independent of the quantum/assessment proceedings, for instance, penalty leviable under s. 271B for failure to furnish the tax audit report within the prescribed time, s. 271C for failure to deduct tax at source, s. 271D for failure to comply with the provisions of s. 269SS, s. 271E for failure to comply with the provisions of s. 269T of the Act. He further submitted that since, in the present case, the penalty levied by the AO is directly related to assessment or quantum proceedings, the limitation for levying penalty is squarely covered by cl. (a) of s. 275(1) of the Act and not under cl. (c) of s. 275(1) as wrongly understood by the learned CIT(A). In this connection, the assessee placed reliance upon the following decisions: (i) CIT vs. Hissaria Bros. (2007) 211 CTR (Raj) 15 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion for the imposition of penalty has been initiated (i.e. the assessment proceedings) are completed. In the present case the penalty proceedings were initiated in the course of assessment proceedings under s. 143(3)/254 pursuant to set aside order by the Tribunal wherein the order under s. 143(3)/254 the AO had mentioned as follows: 'Issue notice under s. 271(1)(c) r/w s. 274 for concealment of income.' In the present case the proceedings under s. 143(3)/254 in the course of which the penalty proceedings were initiated vide order under s. 143(3)/254 dt. 1st Jan., 2005 being a part of the financial year 2004-05 expiring on 31st March, 2005. Thus, in the present case the first date prescribing limitation for levy of penalty will be considered as 31st March, 2005. (b) Six months from the end of the month in which the order of CIT(A) or as the case may be the Tribunal is received by the Chief CIT or CIT. In the present case the order of Tribunal has been received by the CIT on 31st March, 2004 as acknowledged by the CIT, Delhi-(1) itself vide its letter dt. 24th June, 2008. Thus, in the present case, the second date prescribing limitation for levy of penalty would be six months fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roversy. it is relevant to extract s. 275 of the Act, which is as under: "Sec. 275. The period of limitation for imposing penalties under Chapter XXI of the IT Act is provided in s. 275 of the Act, which reads as under- (1) No order imposing a penalty under this Chapter shall be passed: (a) in a case where the relevant assessment or other order is the subject-matter of an appeal to the CIT(A) under s. 246 (or s. 246A) or an appeal to the Tribunal under s. 253, 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 the order of the CIT (A) or, as the case may be, the Tribunal is received by the Chief CIT or CIT, whichever period expires later: Provided that in a case where the relevant assessment or other order is the subject-matter of an appeal to the CIT(A) under s. 246 or s. 246A, and the CIT(A) passes the order on or after the 1st day of June, 2003 disposing of such appeals, an order imposing penalty shall be passed before the expiry of the financial year in which the proceedings, in the course of which action for impositio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... covers the cases where the relevant assessment or other order is the subject-matter of revision under s. 263 or s. 264 of the Act, which is governed by cl. (b) of sub-s. (1) of s. 275 of the Act, and; (iii) Category (iii) covers all other cases not falling within the category (i) and category (ii), which is governed by cl. (c) of sub-s. (1) of s. 275 of the Act. 4.4 The period of limitation for cases falling under category (i), which is governed by cl. (a) of s. 275(1), is (i) the financial year in which the proceedings, in the course of which action for the imposition of penalty has been initiated, are completed or (ii) six months from the end of the month in which the order of the CIT(A) or, as the case may be, the Tribunal is received by the Chief CIT or CIT, whichever period expires later. 4.5 The period of limitation for the cases falling under category (ii), i.e., which is governed by cl. (b) of s. 275(1), is six months from the end of the month in which such order of revision is passed. 4.6 The period of limitation for the cases falling under category (iii) i.e., which is governed by cl. (c) of s. 275(1), is (i) the financial year in which the proceedings, in the course ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for cases falling under category (i) i.e. cl. (1)(a) is 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 the order of the Dy. CIT(A) or the CIT(A) or, as the case may be, the Tribunal is received by the Chief CIT or CIT whichever period expires later. 30. The period of limitation for the cases falling under category II is six months from the end of the month in which such order or revision is passed and the period of limitation for the cases falling under the above category III is 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 last category filing of appeal in respect of order passed in proceedings during which penalty proceedings were initiated is not relevant. 31. To this effect, a Circular No. 551, dt. 23rd Jan., 1990 [(1990) 82 CTR (St) 325 : (1990) 183 ITR (St) 7] and another Circular No. 554, dt. 13th Feb., 1990 [ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es where the penalty proceedings are in respect of a default related to principal assessment for a particular assessment year and the penalty proceedings are required to be initiated in the course of that proceedings only. In such case where the relevant assessment order or other orders are the subject-mater of an appeal to the CIT(A) under s. 246 or an appeal to the Tribunal under s. 253, 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 6 months from the end of the month in which the order of CIT(A) or, as the case may be, of the Tribunal is received by the Chief CIT or CIT, whichever period expires later. 33. Apparently, cl. (a) governs the categories, which are integrally related to the assessment proceedings and are not independent of it." 4.13 In the written submission submitted by the assessee before us, the learned counsel for the assessee has placed reliance on the said decision and submitted in writing as under: "Decision of Rajasthan High Court in the case of CIT vs. Hissaria Bros. (2007) 211 CTR (Raj) 156 : (2007) 291 ITR 244 (Raj): Held, that a close scru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sfied for applying the cl. (a) of s. 275(1) of the Act to any case. Merely because the penalty proceedings were initiated in the course of assessment proceedings without the relevant assessment order being a subject-matter of an appeal to the CIT(A) under s. 246 or an appeal to the Tribunal under s. 253, is in itself not sufficient to apply cl. (a) of s. 275(1) of the Act to a given case for the purpose of determining the period by which the penalty order should have been passed by the AO. 4.15 If we read the aforesaid decision of Rajasthan High Court as a whole, it is evident that cl. (c) of s. 275(1) is a residuary clause, and is applicable to, or it covers, all other cases not falling within cls. (a) and (b) of s. 251(1) of the Act as would be seen from the categorical observation of the Hon'ble Rajasthan High Court made in sub-para (III) of para 28 of the judgment, where the Hon'ble High Court has stated that the category (III) covers all other cases not falling within category (I) and category (II), which is governed by cl. (c). 4.16 At this stage, we must keep in our mind a well-settled principle laid down by the various Courts including the Supreme Court that it is neither ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eted under s. 143(3)/254 of the Act on 1st Feb., 2005. The learned counsel for the assessee has also admitted this position that, in the present case, the penalty proceedings were initiated in the course of assessment proceedings under s. 143(3)/254 pursuant to set-aside of the matter by the Tribunal, and the proceedings under s. 143(3)/254 of the Act, in the course of which the penalty proceedings were initiated, were completed vide order under s. 143(3)/254 of the Act dt. 1st Feb., 2005 being a part of the financial year 2004-05 expiring on 31st March, 2005. Thus, the first date of limitation for passing penalty order was worked out on 31st March, 2005, i.e., the date on which the financial year had expired, in which the assessment order dt. 1st Feb., 2005 was made and in the course of which penalty proceedings under s. 271(1)(c) of the Act were initiated. In this view of the matter, we thus find no dispute about the first date of limitation to be taken on 31st March, 2005, i.e. the last day of the financial year in which the proceedings of assessment made under s. 143(3)/254 of the Act, and in the course of which action for the penalty under s. 271 (1)(c) with regard to the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been accepted by the assessee as would be clear from the written submission of the assessee where it has been categorically submitted by the assessee that on 1st Feb., 2005, the AO passed order under s. 143(3)/254 pursuant to the order of the Tribunal setting aside the matter to the file of the AO and AO also initiated penalty proceedings under s. 271(1)(c) with respect to the assessee's claim of deduction under s. 80-O vide said order dt. 1st Feb., 2005. This position is further clear from the submission of the assessee that the financial year in which the assessment order, in the course of which penalty proceedings were initiated under s. 271(1)(c). was completed had expired on 31st March, 2005 meaning thereby that the relevant assessment order is the order made by the AO under s. 143(3)/254 of the Act on 1st Feb., 2005, in the course of which penalty proceedings under s. 271(1)(c) were initiated by the AO with respect to the assessee's claim for deduction under s. 80-O of the Act. It is also not in dispute that the assessee did not prefer any appeal against the aforesaid assessment order dt. 1st Feb., 2005 made by the AO under s. 143(3)/254 disallowing the assessee's claim of de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decisions relied upon by the learned counsel for the assessee are also of no help to the stand taken by the assessee about the period of limitation for passing impugned penalty order by the AO: (1) Farrukhabad Investment (I) Ltd. vs. Jt. CIT; (2) Dillu Cine Enterprises (P) Ltd. vs. Addl. CIT; (3) Hissaria Brothers vs. Jt. CIT; (4) Manoharlal vs. Dy. CIT; (5) K.C. Builders & Anr. vs. Asstt. CIT (2004) 186 CTR (SC) 721 : (2004) 265 ITR 562 (SC). 4.25 In the cases of Farrukhabad Investment (I) (P) Ltd. vs. Jt. CIT, Dillu Cine Enterprises (P) Ltd. vs. Addl. CIT, Hissaria Brothers vs. Jt. CIT and Manoharlal vs. Dy. CIT the issue was with regard to the limitation for passing penalty order under s. 271D/271E for violation of the terms of ss. 269SS and 269T of the Act, and in that context, it was held that the limitation for passing penalty order is covered by s. 275(1)(c) of the Act. It is pertinent to note that on reading these decisions, it is seen that in these cases it has been categorically observed that category III covered by s. 275(1)(c) of the Act covers all other cases not falling within category I and category II being covered by ss. 275(1)(a) and 275(1)(b). respectively. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt penalty order, which has been passed with reference to the fresh penalty proceedings initiated in the course of fresh assessment made on 1st Feb., 2005. Thus, this case is of no help to the assessee it supports the view we have taken above. 4.27 The assessee has also placed reliance on the following decisions: (a) Addl. CIT vs. N.V. Ganapathi Rao; (b) CIT vs. Shiv Das Siremal; (c) CIT vs. Ram Baran Ram Nath; (d) Addl. CIT vs. K.S.G. Panicker, Kerala Produce Exporting Co. 4.28 We have carefully perused the aforesaid decisions, and on perusal thereof, we find that these decisions are not applicable to the present case in the light of the subsequent amendment made in s. 275 w.e.f. 1st April, 1989. 4.29 In the case of Addl. CIT vs. N.V. Ganapathi Rao, the Hon'ble Court was concerned with the period of limitation for passing penalty order as provided under s. 275 of the Act as it then stood applicable to the assessment completed on 27th Jan., 1965 for asst. yr. 1955-56. The s. 275 as then stood was materially different to the s. 275 effective from 1st April, 1989, as no afresh time limit for levy of penalty was provided even after the matter was remanded to the AO to make an o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the Taxation Laws (Amendment) Act, 1970, which came into effect from 1st April, 1971. The change was explained by the Board vide Circular No. 56, dt. 19th March, 1971. Significantly, it is postulated that s. 275 of the IT Act, which specified the time-limit for completion of penalty proceedings, has been substituted by a new section. Under the existing section, penalty proceedings for concealment of income or defaults in furnishing the return or accounts called for by notice or failure to pay advance tax on the taxpayers' own estimate, etc., are required to be completed within two years from the date of completion of the proceedings in the course of which the penalty proceedings were commenced. The operation of this time-limit has resulted in practical difficulties in cases where the AAC remands the appeal against the assessment for further enquiry by the ITO or deletes or reduces the addition made on account of the concealed income and the Department takes up the matter in further appeal before the Tribunal. Sometimes, a final decision on the quantum of the concealed income becomes available only after the expiry of the two year's time-limit. 25. Sec. 275 as substituted aims ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther amended w.e.f. 1st April, 1989, and, hence, are not applicable to the present case. 4.31 Having said so that the present case is covered by cl. (c) of s. 275(1) of the Act, the penalty order, in the present case, can be passed within six months from the end of the month in which action for imposition of penalty was initiated or before the expiry of the financial year in which the proceedings, in the course of which action for the imposition of penalty were initiated, are completed. The assessment proceedings, in the course of which action for the imposition of penalty were initiated, were completed on 1st Feb., 2005 vide AO's order under s. 143(3)/254 of the Act. Thus, relevant financial year had ended on 31st March, 2005, which would be the first limb of limitation within the meaning of cl. (c) of s. 275(1) of the Act. Further, six months from the end of the month in which action for imposition of penalty was initiated would thus expire on 31st Aug., 2005 i.e. six months from the end of the month of February, 2005, in which action for imposition of penalty was initiated vide AO's order dt. 1st Feb., 2005. Thus, the second limb of limitation within the meaning of cl. (c) of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he AO, should not, at the same time, be subjected to any penalty in case the assessee has been able to prove and establish that the claim of deduction was made bona fide and all particulars relating thereto were furnished to the AO as so provided under Expln. 1 to s. 271(1)(c) of the Act. 5.3 On perusal of fresh assessment order made by the AO, it is seen that the assessee company submitted its reply dt. 1st Oct., 2004 enclosing therewith Annexs. "A", "B" and "C", which were also submitted before the CIT(A) in the first round. The assessee furnished details of its business being carried on, nature of services rendered by the company and the computation of deduction under section. The copy of agreement with Silicon Graphics System was furnished to the AO to highlight the various kinds of services at different points of time rendered by the assessee company to said concern. All the basic and primary facts relating to the claim were dilly and fully placed before the AO by the assessee company. After considering the assessee's submission, the AO disallowed the assessee's claim by concluding that the assessee has not been able to produce evidence that it was eligible for deduction, and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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