ITO Vs Sireesha Pochareddy (ITAT Hyderabad)
Summary: The Income Tax Appellate Tribunal, Hyderabad “B” Bench, in ITO Vs Sireesha Pochareddy, upheld the deletion of a penalty of ₹61,50,000 imposed under Section 271D of the Income-tax Act, 1961, for alleged contravention of Section 269SS relating to acceptance of cash loans. The Tribunal held that the penalty order dated 25 January 2022 was barred by the limitation prescribed under Section 275(1)(c). It further rejected the Revenue’s contention that CBDT Notification No.113/2021 dated 17 September 2021, issued under the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA), extended the relevant deadline to 31 March 2022. Consequently, the Revenue’s appeal was dismissed and the assessee’s cross-objection was allowed.
The assessee, an individual, filed her return for Assessment Year 2017-18 declaring taxable income of ₹4,98,980 and agricultural income of ₹25,000. The assessment was completed under Section 143(3) on 16 December 2019 by accepting the returned income. However, the Assessing Officer observed that the assessee had accepted cash advances amounting to ₹61,50,000 from various persons, allegedly violating Section 269SS. Penalty proceedings under Section 271D were accordingly initiated. In response to the show-cause notice dated 30 March 2021, the assessee explained that banking facilities were unavailable in her locality and that the creditors had directly deposited cash into her bank account. The tax authority rejected the explanation and imposed a penalty equal to the alleged cash loans.
Before the Commissioner of Income Tax (Appeals), the assessee challenged the penalty principally on the ground of limitation. Relying upon PCIT Vs Mahesh Wood Products Pvt. Ltd. and DCIT Vs Shri Subramaniam Thanu, the CIT(A) held that the limitation period began when the competent authority was approached for initiating penalty proceedings and that, in any event, the relevant initiation preceded the first show-cause notice dated 30 March 2021. Accordingly, the penalty order dated 25 January 2022 was quashed as time-barred. The Revenue challenged this decision before the Tribunal, arguing that CBDT Notification No.113/2021 extended the time available for imposing penalties under Chapter XXI until 31 March 2022.
The Tribunal examined Section 275(1)(c), which prescribes the later of the end of the financial year in which the relevant proceedings were completed or six months from the end of the month in which penalty action was initiated. Taking 30 March 2021 as the relevant initiation date, the Tribunal held that the penalty order ought to have been passed by 30 September 2021. Since the order was actually passed on 25 January 2022, it was beyond the statutory period and therefore invalid and barred by limitation. The Tribunal followed the reasoning in Mahesh Wood Products and Subramaniam Thanu regarding commencement of limitation for penalty proceedings.
On the Revenue’s reliance upon TOLA, the Tribunal referred to the Supreme Court’s decision in Union of India Vs Rajeev Bansal and observed that the statutory relaxation concerned specified deadlines falling between 20 March 2020 and 31 March 2021. Since the relevant deadline for imposing the penalty in the present case was 30 September 2021, it did not fall within that period. The Tribunal therefore held that the CBDT notification could not extend the deadline in this case. It upheld the CIT(A)’s decision to quash the penalty and dismissed the Revenue’s appeal. The assessee’s cross-objection was allowed.
List of Cases Discussed:
1. Union of India Vs Rajeev Bansal, [2024] 167 taxmann.com 70 (SC): Considered by the Tribunal while examining the scope of statutory time-limit extensions under TOLA and the applicability of CBDT Notification No.113/2021.
2. Vishwanath Aggarwal, New Delhi Vs Addl. CIT, Range-5, Delhi, ITA Nos.611 to 618/Del/2022, order dated 26 July 2024 (ITAT Delhi): Relied upon by the assessee in support of the argument that invalid initiation of penalty proceedings vitiates the consequent penalty.
3. DCIT Vs Shri Subramaniam Thanu, ITA Nos.785, 786, 787 and 788/Chny/2023, order dated 13 March 2024 (ITAT Chennai): Followed in determining the commencement of limitation under Section 275(1)(c).
4. PCIT Vs Sahara India Financial Corpn. Ltd., [2020] 119 taxmann.com 285 (Supreme Court): Cited by the Revenue concerning the levy of penalty under Section 271D.
5. PCIT Vs Mahesh Wood Products Pvt. Ltd., ITA No.786/2016, order dated 5 May 2017 (Delhi High Court): Relied upon by the CIT(A) and the Tribunal regarding the point at which limitation begins for imposing a penalty.
6. Grihalakshmi Vision Vs Addl. CIT, Range-1, Kozhikode, [2015] 63 taxmann.com 196 (Kerala High Court): Cited by the Revenue in its submissions concerning penalty proceedings.
FULL TEXT OF THE ORDER OF ITAT HYDERABAD
The Revenue has filed appeal in ITA.No.1270/Hyd/2024 and the Assessee has filed Cross Objection No.2/Hyd/ 2025 against and in support of the order of the learned CIT(A)-National Faceless Appeal Centre [in short “NFAC”], Delhi, dated 14.10.2024, relating to the assessment year 2017-2018, respectively.
2. Brief facts of the case, are that, the assessee is an individual and filed her return of income on 13.10.2018 for the impugned assessment year 2017-2018 admitting taxable income of Rs.4,98,980/- besides agricultural income of Rs.25,000/-. The case of the assessee has been selected for scrutiny under CASS and the assessment has been completed u/sec.143(3) of the Income Tax Act, 1961 [in short “the Act”] vide order dated 16.12.2019, by accepting the returned income of the assessee. Further, during the course of assessment proceedings, the Assessing Officer observed that there are violation of provisions of sec.269SS of the Act in respect of cash advances claimed to have been received from various parties to the tune of Rs.61,50,000/- which attracts penalty proceedings u/sec.271D of the Act and, therefore, the Assessing Officer initiated penalty proceedings u/sec.271D of the Act.
2.1. Thereafter, the Joint Commissioner/Addl. Commissioner of Income Tax-NFAC Unit, issued show cause notice dated 30.03.2021 u/sec.271D of the Act and called upon the assessee to explain as to why penalty shall not be levied for contravention of provisions of sec.269SS of the Act. In response to the said show cause notice, the assessee filed her explanation and argued that she was accepted cash loans from various parties because of non-availability of banking facilities in the place where she resides and further, the creditors were directly deposited cash into her bank account. The Assessing Officer after considering the reply furnished by the assessee observed that as per the provisions of sec.271D of the Act, if a person takes or accepts any loan or deposit in contravention of the provisions of sec.269SS of the Act, he/she shall be liable to pay by way of penalty, a sum equivalent to the amount of loan or deposit or specified sum so taken or accepted. Since the assessee has taken loans in cash from various persons to the tune of Rs.61,50,000/-, there is a clear violation of provisions of sec.269SS of the Act, for which, the assessee could not offer any explanation, much less, a satisfactory explanation. Therefore, the Assessing Officer levied penalty u/sec.271D of the Act on Rs.61,50,000/-.
2.2. Aggrieved by the penalty order passed by the Assessing Officer, the assessee preferred an appeal before the learned CIT(A). Before the learned CIT(A), the assessee has challenged validity of the order passed by the Assessing Officer u/sec.271D of the Act dated 25.01.2022 in light of provisions of sec.275(1)(c) of the Act and argued that the order passed by the Assessing Officer imposing penalty u/sec.271D of the Act is barred by limitation. The learned CIT(A) after considering the submissions of the assessee and also by following decision of Hon’ble Delhi High Court in the case of PCIT vs., Mahesh Wood Products Pvt. Ltd., ITA.No.786 of 2016, dated 05.05.2017 and also the decision of ITAT, Chennai in the case of DCIT vs. Shri Subramaniam Thanu in ITA.Nos.785, 786, 787 & 788/Chny/2023, order dated 13.03.2024 held that in case of an appellant, though, the date on which the Assessing Officer has recommended for issue of show cause notice is not clear, however, undoubtedly, it has to be prior to the issue of first show cause notice by the Assessing Officer on 30.03.2021 and thus, in view of facts of the case and respectfully following the decision of Hon’ble Delhi High Court in the case of Mahesh Wood Products P Ltd., (supra) and of Hon’ble ITAT Chennai in the case of Shri Subramaniam Thanu (supra), the penalty order passed by the Assessing Officer is barred by limitation and thus, quash the penalty order passed by the Assessing Officer.
3. Aggrieved by the order of the learned CIT(A), the Revenue is in appeal before the Tribunal and the assessee has filed cross objection by raising various legal grounds.
4. Learned Sr. AR Dr. Sachin Kumar, present for the Revenue submitted that the learned CIT(A) has erred in quashing the penalty order passed by the Assessing Officer u/sec.271D of the Act without appreciating the fact that as per the CBDT’s Notification No.113/2021 dated 17.09.2021, the “due date” for imposing of penalty Under Chapter-XXI of the Income Tax Act, 1961, has been extended up-to 31.03.2022. The learned CIT(A) without appreciating the relevant facts, simply quashed the penalty order passed by the Assessing Officer. Therefore, he submitted that the order of the learned CIT(A) should be set-aside and the order of the Assessing Officer imposing the penalty u/sec.271D of the Act should be upheld. The Learned DR for the Revenue further relied on the decision of Hon’ble Supreme Court in the case of PCIT vs., Sahara India Financial Corpn. Ltd., reported in [2020] 119 taxmann.com 285 (SC) on the issue of levy of penalty u/sec.271D of the Act and the decision of Hon’ble High Court of Kerala in the case of Grihalakshmi Vision vs., Addl. CIT, Range-1, Kozhikode reported in [2015] 63 taxmann.com 196 (Kerala) besides CBDT’s Circular No.09/DV/2016 dated 26.04.2016 and accordingly, submitted that there is no merit in the Revenue’s appeal and, therefore, the appeal of the Revenue shall be dismissed.
5. Learned Counsel for the Assessee Shri M A Rahim, on the other hand, supported the order of the learned CIT(A) and submitted that the learned CIT(A) has rightly quashed the order passed by the Assessing Officer imposing penalty u/sec.271D of the Act which is further supported by the decision of Hon’ble Delhi High Court in the case of PCIT vs., Mahesh Wood Products Pvt. Ltd., ITA.No.786 of 2016, dated 05.05.2017 and also the decision of ITAT, Chennai in the case of DCIT vs. Shri Subramaniam Thanu in ITA.Nos.785, 786, 787 & 788/Chny/2023, order dated 13.03.2024. Further, he also relied on the decision of ITAT, Delhi Bench in the case of Vishwanath Aggarwal, New Delhi vs. Addl. CIT, Range-5, Delhi in ITA.Nos.611 to 618/Del./2022 order dated 26.07.2024 and argued that if the penalty proceedings are not initiated during the course of assessment proceedings, then, assumption of jurisdiction to issue penalty notice was vitiated and consequently, imposition of penalty also stands vitiated.
6. We have heard both the parties, perused the material on record and gone through the orders of the authorities below. As per the provisions of sec.275(1)(c) of the Act, no order imposing penalty under this Chapter-XXI shall be passed 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 or 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 present case, although, the date on which, the Assessing Officer has referred to range head is not clear, but, undoubtedly, if we go by the first show cause notice issued by the Assessing Officer, proposing penalty u/sec.271D of the Act, i.e., on 30.03.2021, the order imposing penalty u/sec.271D of the Act ought to have been passed on or before 30.09.2021, whereas, in the present case, the Assessing Officer passed the order imposing penalty u/sec.271D of the Act on 25.01.2022. Therefore, in our considered view, the order passed by the Assessing Officer is beyond the time limit provided under the provisions of sec.275(1)(c) of the Income Tax Act, 1961 and thus, it is invalid, void abinitio, barred by limitation and liable to be quashed. This legal principle is supported by the Judgment of Hon’ble Delhi High Court in the case of PCIT vs., Mahesh Wood Products Pvt. Ltd., (supra) and decision of ITAT, Chennai in the case of DCIT vs. Shri Subramaniam Thanu (supra), wherein it has been clearly held that in terms of sec.275(1)(c) of the Act, it would be the date on which the Assessing Officer wrote a letter to the PCIT recommending to issue show cause notice and if the Competent Authority decide to issue a show cause notice, the limitation would begin to run from the date of letter of the Assessing Officer recommending ‘initiation’ of the penalty proceedings. In the instant case, if we go by the said ‘initiation’ date i.e., 30.03.2021, any order passed beyond the six months from the end of the relevant month in which show cause notice issued u/sec.271D of the Act i.e., dated 25.01.2022 in the instant case, is barred by limitation.
7. Coming back to the arguments of the learned Sr. AR Dr. Sachin Kumar, present for the Revenue, in light of CBDT’s Notification No.113/2021, dated 17.09.2021. The CBDT in exercise of the powers conferred by sub-sec.1 of sec.3 of Taxation and Other Laws Amendment Act, 2021 [in short “TOLA”], has extended the time limit up-to 31.03.2022 for the completion of any action referred to in clause(a) of sub-sec.(1) of sec.3 of the said Act relates to passing of any order for imposing of penalty under Chapter-XXI of the Income Tax Act, 1961 and, therefore, the order passed by the Assessing Officer dated 25.01.2022 is well within the extended period of limitation by virtue of the CBDT’s Notification dated 17.09.2021 (supra) and that, the learned CIT(A) without appreciating the facts of the case, simply quashed the assessment order passed by the Assessing Officer. We find that the Hon’ble Supreme Court has examined the issue of Notification issued by the CBDT in exercise of the powers conferred u/sec.3(1) of TOLA in the case of Union of India vs. Rajeev Bansal [2024] 167 taxmann.com 70 (SC) and clearly held that in case the completion of any action relates to passing of any order falls between 20.03.2020 and 31.03.2021, then, the said “due dates” are extended by virtue of sec.3(1) of TOLA “up-to 30.06.2021”. In the present case, going by the show cause notice issued by the Assessing Officer, imposing penalty u/sec.271D of the Act, was dated 30.03.2021. Therefore, in our considered view, the completion of action relates to passing of any order for imposing of penalty under Chapter-XXI of the Act falls on or before 30.09.2021 and in our considered view, the said “due date” is beyond the period specified under the provisions of TOLA i.e., between 20.03.2020 and 31.03.2021 and, therefore, the Notification issued by the CBDT dated 17.09.2021 does not extend the due date for passing the order imposing penalty u/sec.271D of the Act in the present case up-to 30.09.2021. Therefore, we are of the considered view that the arguments advanced by the learned Sr. AR for the Revenue in light of CBDT’s Notification dated 17.09.2021 (supra), does not hold good and, therefore, rejected.
8. In this view of the matter, considering the facts of the case and also by following the Judgment of Hon’ble Delhi High Court in the case of PCIT vs., Mahesh Wood Products Pvt. Ltd., (supra) and decision of ITAT, Chennai in the case of DCIT vs. Shri Subramaniam Thanu (supra), we are of the considered view that there is no error in the reasons given by the learned CIT(A) to quash the penalty order passed by the Assessing Officer u/sec.271D of the Act, dated 25.01.2022. We, accordingly, uphold the order of the learned CIT(A) and dismiss the appeal filed by the Revenue. Consequently, the cross objections raised by the assessee are allowed.
9. In the result, appeal of the Revenue ITA.No.1270/Hyd/2024 is dismissed and Cross Objection No.2/Hyd/2025 of the Assessee is allowed. A copy of this common order be placed in the respective case files.
Order pronounced in the open Court on 12.03.2025.
