Date of initiation of penalty in assessment order is the relevant date u/s 275(1)(c) for limitation

Date of initiation of penalty proceedings in assessment order is the relevant date u/s 275(1)(c) for limitation purpose. 

ABCAUS Case Law Citation
ABCAUS 3618 (2022) (11) HC 

Important Case Laws relied upon by parties
Principal Commissioner of Income-Tax vs. Mahesh Wood Products Pvt. Ltd.
Principal Commissioner of Income-Tax vs. JKD Capital and Finlease Ltd.
Sir Chunilal V Mehta and Sons, Ltd. vs. The Century Spinning and Manufacturing Co. Ltd.

In the instant case, the Revenue had challenged the order passed by the ITAT with respect to its interpretation of Section 275(1)(c) of the Income Tax Act, 1961 (the Act). The ITAT had held that the limitation under Section 275(1)(c) of the Act commenced from the date of initiation of proceedings by the AO.

According to the Revenue, the Assessing Officer (‘AO’) had passed the assessment order(s) recording the initiation of the penalty proceedings and thereafter a reference was made by the AO to the prescribed authority. The prescribed authority had, thereafter, issued a separate Show Cause Notice (‘SCN’) to the respondent assessee(s) and consequently, the penalty order(s) were passed.

The Revenue submitted that admittedly, the AO was not competent to levy penalty under Section 271D of the Act. Therefore, the order of the ITAT holding that the penalty order was passed after the expiry of the time limit laid down under Section 275(1)(c) of the Act was erroneous.

According to the Revenue, the penalty order(s) were passed within six months from the end of the month in which the reference was made by the AO to the prescribed authority.

The Hon’ble High Court observed that the contentions urged by the Revenue had been categorically rejected by the predecessor bench of the High Court in the judgments relied upon.

The Hon’ble High Court noted that the predecessor bench had held that where the AO initiates the penalty proceedings in assessment order, the said date is to be taken as the relevant date as far as the Section 275(1)(c) of the Act is concerned.

It was observed that the quantum proceedings were completed and the AO initiated the penalty proceedings in December, 2008, thus, the last date by which the penalty order could have been passed is 30^th June, 2009. As the limitation of six months from the end of the month from which action of imposition of penalty was initiated would expire on 30^th June, 2009. However, the penalty order(s) were passed in September, 2009, and therefore, the ITAT rightly concluded that the order(s) were barred by limitation.

Accordingly, the Hon’ble High Court while dismissing the appeal, answered the question of law against the Revenue and in favour of the Assessee by holding that, the ITAT was correct in law in deleting the penalty imposed u/s 271D of the Act, on the ground that the penalty order(s) was passed beyond the time period prescribed by Section 275(1)(c) of the Act, the same having been passed after the lapse of six months from the end of the month in which the penalty proceedings were initiated by the AO.

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