Penalty limitation period not gets extended if appeal is withdrawn by the Department. Appeal means an effective appeal and an appeal withdrawn is an appeal non est-High Court
ABCAUS Case Law Citation:
ABCAUS 2235 (2018) (03) HC
The appellant assessee was aggrieved by the order of the ITAT in in holding that the order passed by the Assessing Officer (AO) under Section 271(1)(c) was within the period of limitation, prescribed in the Income Tax Act, 1961 (the Act).
The assessee was a limited company and had challenged the assessment order before the CIT(A). The appeal was partly allowed but sustained some additions. The assessee did not challenged the order of the CIT(A). The order of the CIT(A) was served on the assessee in the month of January. In the month of August, the AO issued notice under Section 271(1)(c) of the Act calling upon it to show cause why penalty should not be imposed for concealment of income.
The assessee opposed the proceedings arguing, inter alia that penalty proceedings were barred in view of Section 275(1)(a) of the Act as a valid penalty could be imposed within six months of the end of the month in which the order of the CIT (A) was received by the AO. It was argued that the CIT (A)’s order was made in December and received by the assessee in January; consequently the penalty proceedings could have culminated in a valid order by July only. Thus, the initiation of penalty proceedings by notice issued in the month of August was without jurisdiction and therefore any order made pursuant to it would be illegal.
The AO rejected the assessee’s argument and imposed a penalty by an order made in the month of November.
The assessee appealed to the CIT(A). The Revenue contended that against the quantum deletion by the CIT(A), it had appealed before the ITAT in the month of January. However, a decision was taken to withdraw it. Leave was sought from the ITAT to withdraw the appeal. The order of the ITAT permitting the withdrawal was made in the month of March. Thus circumstances negatived the assessee’s contention with respect to the limitation.
However the CIT(A) observed that Hon’ble Supreme Court had held that if an appeal is filed and not effectively pursued, and the same is withdrawn thereafter then it will cancel the effect of having been an appeal, which is the same as not preferring an appeal. Thus CIT(A) opined that it could not be said that an effective appeal had been filed by the Department before the ITAT as clearly the same was withdrawn. Accordingly, he allowed the appeal and set aside the penalty order.
The revenue further appealed to the ITAT which allowed the appeal and set aside the CIT(A)’s order.
The Hon’ble High Court observed that the revenue’s appeal was never heard; no effective proceedings were held nor was any order made. Also, the assessee was never notified about the filing of the appeal, its pendency or even its withdrawal.
The Hon’ble High Court further observed that the Supreme Court was confronted with a case where the appeal to the ITAT was filed, and later withdrawn. These facts were sought to be put against the assessee to contend that an application could not be made to the Settlement Commission. The Court, therefore, had occasion to consider what was meant by “prefer an appeal”. The Apex Court held that an appeal means an effective appeal and an appeal withdrawn is an appeal non est. The Hon’ble Supreme Court held that purposefully interpreted, preferring an appeal means more than formally filing it but effectively pursuing it. If a party retreats before the contest begins it is as good as not having entered the fray.
The Hon’ble High Court observed that a plain and textual reading of Section 275(1A) clarifies that the expiry of six months prescribed is to be reckoned “from the date of completion of proceedings or from the end of the month in which the order of the CIT(A) or as the case may be the appellate tribunal is received.” Thus it is an adjudicatory “order” which culminates in “the proceedings” that is to be deemed a terminus quo for the completion of penalty proceedings. Any other interpretation would inject a great deal of uncertainty because in either case of maintainability of an appeal preferred by either the revenue or the assessee, in the eventuality of withdrawal of that appeal, without an adjudicatory order, the period of limitation would be deemed to subsist. The law abhors uncertainty.
The Hon’ble High Court opined that therefore, the dependence of the period of the limitation upon whether an order becomes final at the instance of one party, i.e. that filing and prosecution or withdrawal of an appeal (by one party or the other) would be one such event which leaves the legal position inchoate and unsatisfactory.
According to the Hon’ble High Court the CIT’s order provided a fixed date from which to reckon the end of the period of limitation–some time in early July. The
absence of an appeal by the assessee against the CIT(A)’s order meant that at least with respect to the amount that it had accepted in the adjudicatory order as an addition, the penalty proceedings survived.
The Hon’ble High Court held that in the given circumstances, it was incumbent upon the revenue to complete the penalty proceedings and pass order within the six months period but it did not. Reliance upon the crutches of a non-appeal, which was eventually turned out so could not have been legitimately upheld as was done by the ITAT.
The question of law was answered in favour of the assessee and against the revenue.
