Limitation for passing penalty order u/s 275 not apply where case is transferred to another AO causing delay–High Court

Limitation for passing penalty order u/s 275 not apply where case is transferred to another AO causing delay in initiation of penalty– High Court reverses ITAT decision

ABCAUS Case Law Citation:
ABCAUS 2408 (2018) 07 HC

The instant appeal was filed by the assessee against the order of the Income Tax Appellate Tribunal (ITAT) in holding that the order of the penalty u/s 271(1)(c) of the Income Tax Act, 1961 (the Act) was not time barred.

The Assessing Officer (AO) after the quantum appeal of the assessee was disposed off by the Tribunal, issued a notice u/s 271(1) (c) of the Act and eventually came to the conclusion that the assessee had furnished inaccurate particulars of income. Accordingly, he imposed a maximum penalty.

Aggrieved by the order of the penalty, the assessee filed an appeal before the CIT (Appeals). The CIT (Appeals) give partial relief by restricting the penalty quantum.

The assessee filed an appeal against the order of CIT (Appeals) before the Tribunal and raised an additional issue that the penalty order passed under Section 271(1)(c) was barred by limitation under Section 275 of the Act and thereby the penalty order be quashed. 

However, the ITAT opined the limitation was extended in vuew of the provisions of section 275 of the Act.

Before the Hon’ble High Court the assessee argued that the three situations as envisaged under Section 275 whereby the limitation can be extended did not exit.

The Hon’ble High Court observed that Section 275 of the Act read as under:- 

“275. 1 Bar of limitation for imposing penalties 

(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 Deputy Commissioner (Appeals) or the Commissioner (Appeals) under section 246 or an appeal to the Appellate Tribunal under section 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 Deputy Commissioner (Appeals) or] the Commissioner (Appeals) or, as the case may be, the Appellate Tribunal is received by the Chief Commissioner or Commissioner, whichever period expires later; 

(b) in a case where the relevant assessment or other order is the subject- matter of revision under section 263, after the expiry of six months from the end of the month in which such order of revision is passed;

(c) in any other case, 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.]” 

The Hon’ble High Court opined that in the three situations mentioned above, none of the situations include the situation which had arisen in the present case i.e. limitation had been expired on account of the fact that the case was transferred from one officer to another officer.

There was no dispute and categorically recorded in the Tribunal’s order that the order dated 07.12.2004 of the ITAT in quantum appeal was received by the CIT on 27.04.2005, but before the passing of order by ITAT, the jurisdiction of the assessee was transferred the eventually the order was received on 05.10.2005 by the jurisdictional CIT.

The Hon’ble High Court noted that in vuew of the above, it was contention by the Revenue that the period of limitation was to be calculated from 05.10.2005, the date on which the CIT who had assumed jurisdiction later, had received the order.

However, the Hon’ble High Court after having perused the provisions of section 275 opined that that such a situation where the case was transferred to another officer is not included in the situations where limitation can be extended u/s 275 of the Act.

The High Court opined that the three situations envisaged in Section 275 of the Act clearly did not cover the situation in the present case. Therefore the limitation had been indeed expired and the penalty order had not been passed within the period of limitation. 

The question of law was answered in favour of the assessee and against the department.  The appeal was accordingly allowed

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