Delhi State Taxi Operators’s Co-operative Thrift Credit & Services Society Ltd. Vs JCIT (ITAT Delhi)
ITAT Delhi held that considering the bonafide and genuine transaction, reasonable cause in terms of section 273B of the Act, exist in the case of the assessee for not complying with the provision of section 269SS and 269T, and therefore, penalty u/s 271D and 271E not leviable.
Facts- The two appeals filed by the assessee are directed against two separate orders both dated 28.03.2019 of the Ld. Commissioner of Income Tax (Appeals)–19, New Delhi (“CIT(A)”) whereby he upheld the penalty of Rs. 16,71,24,134/- and Rs. 2,01,58,524/- levied by the Ld. JCIT Range-16, New Delhi (“JCIT”) under section 271D and 271E of the Income Tax Act, 1961 (the “Act”) for the Assessment Year (“AY”) 2013-14 for violation of the provisions of section 269SS and 269T respectively of the Act.
Conclusion- Held that the assessee has discharged the onus which lay upon it to establish the existence of reasonable cause for violation of the provision of section 269SS and 269T of the Act. In our opinion, the explanation offered by the assessee before the Ld. JCIT/CIT(A) was reasonable but was discarded merely because they proceeded on the premise that breach of condition provided under section 269SS and 269T shall necessarily lead to penal consequences which understanding in our humble opinion is not in accordance with law. We, therefore, cancel the penalty levied under section 271D and 271E of the Act.
FULL TEXT OF THE ORDER OF ITAT DELHI
The two appeals filed by the assessee are directed against two separate orders both dated 28.03.2019 of the Ld. Commissioner of Income Tax (Appeals)–19, New Delhi (“CIT(A)”) whereby he upheld the penalty of Rs. 16,71,24,134/- and Rs. 2,01,58,524/- levied by the Ld. JCIT Range-16, New Delhi (“JCIT”) under section 271D and 271E of the Income Tax Act, 1961 (the “Act”) for the Assessment Year (“AY”) 2013-14 for violation of the provisions of section 269SS and 269T respectively of the Act.
2. The orders of the Ld. CIT(A) have been challenged by the assessee on the following common grounds:-
“ITA No. 3107/Del/2019
1. That the Learned Joint Commissioner of Income Tax and Learned Commissioner of Income Tax (Appeals) have erred in not appreciating the facts of the appellant’s case, properly.
2. That the Learned Joint Commissioner of Income Tax has erred is in imposing a penalty and Learned Commissioner of Income Tax (Appeals) has erred in confirming the penalty u/s 271D in contravention of 269SS after the expiry of limitation period provided u/s 275(1 )(c) of the income tax Act, 1961.
3. That the Learned Joint Commissioner of Income Tax has erred in imposing a penalty of Rs. 16,71,24,134/- u/s 271D, of the Income Tax Act,1961 and Learned Commissioner
4. That the orders of the Learned Joint Commissioner of Income Tax and Learned Commissioner of Income Tax (Appeals) are bad in law as well as on the facts of the appellant’s case.
ITA No. 3108/Del/2019
1. That the Learned Joint Commissioner of Income Tax (JCIT) and Learned Commissioner of Income Tax (Appeals) have erred in not appreciating the facts of the appellant’s case,
2. That the Learned JCIT has erred in imposing a penalty u/s 271E in contravention of 269T after the expiry of limitation period provided u/s 275(1 )(c) of the income tax Act,1961 and Learned CIT-(A) has erred in confirming the same.
3. That the Learned Joint Commissioner of Income Tax has erred in imposing a penalty u/s 271E and Learned CIT-(A) has erred in confirming the same.
4. That the orders of the Learned Joint Commissioner of Income Tax and Learned Commissioner of Income Tax (Appeals) are bad in law as well as on the facts of the appellant’s case.”
3. On 05.12.2022 Revenue filed an application under Rule 29 of the ITAT Rules and prayed for admission of additional evidence which consisted of two volumes of Paper Book. Perusal thereof revealed that all the documents therein formed part of the records of the Revenue except pages 266 to 310 and 163 to 355 of Volume 1 which contained documents of a third party submitted by a disgruntled ex-member of the assessee society before Revenue authorities alleging that the assessee society has been acting fraudulently. The Ld. AR objected to the admittance thereof as none of the documents has any relevance to the appeal filed by the assessee before the Tribunal. Moreover, no finding has been recorded by the Revenue authorities nor there is any material on record to establish that the assessee has indulged in fraudulent activities. The Ld. DR was fair enough to submit that evidence not placed before the Ld. CIT(A) may not be admitted. After hearing the Ld. Representative of the parties and perusal of the material on record, we decline to accept the request of the Revenue for admittance of additional evidence and proceed to decide the appeal of the assessee on merits.
4. Perusal of the penalty orders dated 24.04.2017 reveal that on reference by the Ld. Assessing Officer (“AO”) vide letter dated 28.11.2016 the Ld. JCIT issued show cause notice dated 29.11.2016 initiating penalty Neither anybody attended nor any reply received from the assessee. Another show cause notice dated 24.01.2017 also remained uncomplied. However, in response to third show cause notice dated 2 1.02.2017, the assessee submitted reply vide letter dated 15.03.20 17 which the Ld. JCIT summarised in four pages of the penalty order in para 2 thereof. The explanation offered by the assessee was not acceptable to the Ld. JCIT who in para 3.1 of his order observed that during the assessment proceedings, the Ld. AO vide ordersheet entry dated 23.02.20 16 sought list of members of the assessee society from whom deposits have been accepted. On perusal, cash deposits of Rs. 16,71,24,134/ – and repayment of deposits of Rs. 2,01,58,524/- were found to be in contravention of section 269SS and 269T respectively of the Act. In para 3.2, the Ld. JCIT noted from the assessee’s reply dated 15.03.2017 the contention of the assessee that audit report under section 44AB of the Act obtained from an independent Chartered Accountant also confirmed that the provisions of section 269SS and 269T are not applicable to the society. The society is under bonafide belief that the deposits are made/repaid voluntarily by the members and are genuine. The case of the assessee is of mutually aided society for the benefit of its members. The penalty proceedings be kindly dropped.
5. The Ld. JCIT did not accept the contention of the assessee by observing that the Chartered Accountant mentioned against column 24(a) of the report ‘nil’. So the Chartered Accountant tried to conceal the facts. According to Ld. JCIT genuineness of deposits in cash and repayment of deposits is not a criteria while considering the provisions of section 269SS and section 269T of the Act which have been inserted to curb the circulation of black money. Holding that the assessee violated the provisions of section 269SS and section 269T by accepting deposits of Rs. 16,71,24,134/- in cash and by repayment of loan or deposit of Rs. 2,01,58,524/- in cash respectively without reasonable cause, the Ld. JCIT imposed the impugned penalty under section 271 D and 271 E of the Act respectively.
6. The assessee challenged the penalty under section 271 D and 271 E of the Act on grounds, inter alia that these have been imposed after the expiry of limitation period provided under section 275(1)(c) of the Act. Vide write up dated 24.10.20 18 submitted before the Ld. CIT(A), the assessee gave brief facts on the functioning and governing of the assessee cooperative society. It was pointed out that the decision of Hon’ble Supreme Court in ADIT vs. AB Shanthi 255 ITR 258 (SC) relied upon by the Ld. JCIT actually supports the case of the assessee as the Hon’ble Supreme Court observed therein that undue hardship is very much mitigated by the inclusion of section 273B. If there was a genuine and bonafide transaction and if for any reason the taxpayer could not get a loan or deposit by account payee cheque or demand draft for some bonafide reasons, the authority vested with the power to impose penalty has got discretionary power. The assessee also distinguished other decisions relied upon by the Ld. JCIT and emphasised that penalty cannot be imposed if there existed reasonable cause.
6.1 It was further submitted that the Ld. AO had not recorded his satisfaction about existence of conditions for initiation of impugned penalty proceedings before the assessment was concluded. In the absence of a clear finding as to violation of provisions under section 269SS and 269T, initiation of penalty proceedings is without jurisdiction. Relying on the ratio of the decision of Hon’ble Delhi High Court in CIT vs. Rajinder Kumar Somani 125 ITR 756 (Delhi) which still holds the field, it was submitted that penalty proceedings must be initiated in the course of some proceedings against the assessee related to the year for which penalty is to be levied. Reliance was also placed on the decision of Hon’ble Supreme Court rendered in the context of penalty under section 271 E in the case of CIT vs. Jai Laxmi Rice Mills (2015) 64 taxmann.com 75 (SC) wherein the Hon’ble Supreme Court held that there was no satisfaction recorded regarding penalty proceedings under section 271 E of the Act, though in that order the Assessing Officer wanted penalty proceedings to be initiated under section 271(1)(c) of the Act. Thus, in so far as penalty under section 271 E is concerned, it was without any satisfaction and therefore no such penalty could be levied. The assessee also relied on the decision of Mumbai ITAT in Keshu Ramsay vs. JCIT (2006) 5 SOT 9 (Mumbai).
6.2 It was contended by the assessee that the impugned penalty order is barred by limitation as assessment under section 143(3) of the Act was made on 30.03.2016. The first penalty notice was issued on 04.05.2016 and the penalty order was passed on 24.04.2017 which is barred by limitation as provided under section 275(1)(c) of the Act. As per section 275(1)(c) no order of penalty can be passed 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. It was the submission of the assessee that the limitation for penalty subsisted till 30.09.2016. Therefore, the penalty levied by the Ld. JCIT on 24.04.2017 is barred by limitation. Reliance was placed on the decision of Hon’ble Supreme Court in CIT vs. Hissaria Brothers (2016) 74 taxmann.com 22 (SC); Hon’ble Delhi High Court in ITO vs. Dinesh Jain (2014) 52 taxmann.com 108 (Delhi) and CBDT Circular 10/2016 dated 26.04.2016 in support of the proposition that the period of limitation for purpose of penalty is to be reckoned from date of first show cause notice issued for imposing penalty.
6.3 According to the assesee, the assessment in its case in several preceding years have been completed under section 143(3) under complete scrutiny and impugned penalties have never been imposed on the assessee which confirmed the bonafide belief of the assessee that provisions of section 269SS/269T are not applicable to it. The Ld. AO in his order under section 143(3) dated 30.03.20 16 did not record any adverse findings with regard to the deposits of the members and its repayment to them.
6.4 It was further stated that income of the assessee is exempt under section 80P. The Ld. AO/JCIT have not established that there was deliberate and intentional violation of the provisions of Section 269SS/269T in order to hide any income or to evade any payment of tax. Relying on the decision of Agra Bench of the Tribunal in DCIT vs. Akhilesh Kumar Yadav (2012) 26 taxmann.com 264 (Agra-Trib) it was submitted that the genuineness of transaction has not been doubted and involvement of unaccounted or black money has not been traced. Hence penalty for violation, if any, of the provisions of section 269SS/269T cannot be levied.
6.5 The assessee brought to the notice of the Ld. CIT(A) the need to follow the rule of consistency as also the legislative intent given in Board Circular No. 387 dated 06.09.1984 for bringing on the statute book the provisions of Section 269SS/269T of the Act.
6.6 It was also submitted that the assessee society is run on the principles of mutuality. The money received from the members of the society is in the nature of capital receipt and can in no way be treated as loan/deposit. The deposits accepted and repaid by the assessee were part of its business activities and the depositors were its members.
6.7 In its submission dated 08.03.2019, the assessee reiterated the earlier submissions.
6.8 Vide letter dated 25.03.2019 to the Ld. CIT(A), the assessee pointed out that during the penalty proceedings the Ld. JCIT had issued/served notice dated 04.05.2016, 26.07.2016 and 29.09.2016 at the correct address of the assessee fixing hearing on 16.05.20 16, 05.08.20 16 and 06.10.20 16 respectively. In response to each notice the assessee submitted reply with correct name and PAN. Details called for relating to deposits received in cash, repayments made in cash, confirmation of account of members etc. were submitted which were verified by the Ld. JCIT. It was thus submitted that the Ld. JCIT erred in computing the time limit from 29.11.2016 as against from 28.04.2016 when the Ld. AO made reference for initiation of penalty proceedings on the basis of which notices dated 04.05.20 16, 26.07.20 16 and 29.09.20 16 were issued. The assessee further pointed out that the Ld. JCIT sought to rely on decisions in which Revenue had issued notices to non existing entities and the courts unanimously held that such notice(s) contain jurisdictional defect and not procedural irregularity curable by invoking the provisions of section 292B of the Act. Therefore, the Ld. JCIT has incorrectly taken the shelter of section 292B to save the limitation.
7. The Ld. CIT(A) recorded his finding in para 9(A) of his appellate order that the assessee is not covered within the gateways provided as per proviso first and second to section 269SS and 269T. Therefore the default of the assessee in accepting deposits in cash and repayment of deposits in cash stands established.
7.1 On the issue of existence or otherwise of reasonable cause within the meaning of section 273B, the Ld. CIT(A) recorded the following finding in para 9.1(B) of his appellate order:
“9.1(B)……………………. The appellant has pleaded existence of reasonable ground on the following counts-
(a) The transactions were genuine
(b) That no penalties u/s 27ID or 27IE were ever initiated or levied in the earlier years and that the appellant’s belief was bonafide.
(c) On the basis of precedence in earlier years, no penalty u/s 27ID or u/s 27IE was to be initiated/levied.
I have examined the appellant’s pleas as aforesaid. The appellant’s plea that such a penalty / violation not levied/detected in earlier years is not a valid argument for purposes of pleading a reasonable cause. It is established that the assessee -appellant has been violating provisions of section 269SS of the Income Tax Act, 1961. The appellant’s plea tantamounts to saying that “you did not catch my wrong doing and now you cannot do anything” is not acceptable, as has been held by the Hon’ble Supreme Court in the Case of Phool Chand Bajranglal {110 ITR 834(SC)}. Further, it has been held by Hon’ble Supreme Court in the case of Distributors Baroda Pvt. Ltd. {155 ITR 120(SC)}, that to perpetuate an error is no heroism. Therefore, once an error / wrong doing is detected, the full force of law has to be applied to remedy / rectify the situation/default. As such, this plea of the appellant is not judicially acceptable.
Genuineness of transaction is not a valid plea, as even in genuine transactions, transacting in cash is not allowed. Therefore, I am of the view that the appellant cannot plead existence of valid reasons within the meaning of provisions of section 273B of the Income Tax Act, 1961.”
7.2 On the issue whether or not penalty is barred by limitation within the meaning of section 275(1)(c) of the Act, the Ld. CIT(A) observed at page 62 of his appellate order that admittedly first information by the Ld. AO was sent to the Ld. JCIT vide letter dated 28.04.2016. However it was subsequently informed by the Ld. AO on 28.11.2016 to the Ld. JCIT that there was error in the said intimation/request as the name of the assessee was given wrong and fresh proposal to initiate penalty was sent to Ld. JCIT who vide order sheet entry dated 29.11.2016 filed the notice(s) and stated that fresh notice is to be issued with correct name of the assessee along with PAN.
7.3 On page 65 of the appellate order, the Ld. CIT(A) observed and held as under:
“The report of the A.O. dated 01.02.2019 was duly provided to the appellant. It is noted by me that the penalty proceedings which had been initiated by issue of notice dated 04.05.2016 stood nullified, as were other notices issued till 29.11.2016. This is for the reason that the earlier notices issued did not carry the name of the appellant and did not carry the PAN of the appellant. It is noted that when the notice for levy of penalty itself does not specify the name (or even the PAN) the same is liable to be treated as invalid. The appellant has challenged that the notices issued prior to 29.11.2016 were not bad and were actually proper notices as per provisions of section 292B of the Income Tax Act, 1961. According to the appellant, as the first notice initiating penalty was issued on 04.05.201 6, penalty could have been levied at best till 30.11.2016. According to the appellant, the penalty is therefore time barred. However, I find that the mistake in the notice issued were clearly brought to the notice of the Range Head by the A.O vide his letter dated 28.11.2016. Since the A.O had sent the fresh proposal after taking conscious view (as according to him the earlier initiation of penalty in the a wrong name was bad), I hold that the original penalty proceedings were rightly brought to an end, The wrong notice (even without specifying the PAN of an assessee) is a defect which does not get cured even as per provisions of section 292B of the Income Tax Act, 1961. This is for the reason that penalty and penalty procedure have to be strictly construed/followed. Accordingly, I agree with Revenue Authorities that penalty proceedings in this case began with the fresh information received on 28.11.2016 and were therefore completed in time. The time bearing date was 31.05.2017 but penalty was levied on 24.04.2014 itself. In this view of the matter, I decide the issue of limitation against the assessee. “
8. Aggrieved the assessee is in appeal before the Tribunal. The common Ground No. 1, 3, & 4 in both the appeals relate to imposition of the impugned penalty which has been confirmed by the Ld. CIT(A) and Ground 2 relates to confirmation of the impugned penalty by the Ld. CIT(A) after the expiry of limitation period provided under section 275(1)(c) of the Act.
9. The Ld. AR submitted that the assessee is a co-operative society registered with the Registrar of Co-operative Societies, Govt. of NCT, New Delhi on 20.06.1956. The society works on the concept of mutuality and is engaged in the activity of granting thrift and credit facilities to its members (more than 4000) who are taxi operators coming from rural areas. The Registrar of Co-operative Societies (RCS) has classified the society under Banking Section and the Assistant Registrar (Banking) Govt. of NCT, New Delhi is supervising the activities of the society.
9.1 The Ld. AR stated that initiation of proceedings in the absence of any finding /satisfaction recorded by the Ld. AO in the assessment order passed under section 143(3) which is a condition precedent is without jurisdiction. He referred to Jai Laxmi Rice Mills’s case (supra). He further submitted that penalty is not leviable for technical/venial breach of statutory provision as held by the Hon’ble Supreme Court in Hindustan Steel vs. State of Orissa 83 ITR 26 (SC).
9.2 It was pointed out by the Ld. AR that as per section 273B, penalty under sections mentioned therein is not exigible if there is reasonable cause. On identical facts in the case of Mamurpur Co-operative Thrift and Credit Society Ltd. vs. Addl. CIT, Delhi Bench of the Tribunal in its order dated 10.09.2020 in ITA Nos. 1370 & 1371/Del/2019 for AY 2014-15, held that considering the bonafide and genuine transaction reasonable cause in terms of section 273B of the Act did exist for not complying with the provisions of section 269SS and 269T and cancelled the penalties levied under section 27 1D and 271 E of the Act. Our attention was also drawn to the CBDT Circular No. 415/6/2000-17(Inv I) dated 25.03.2004 wherein the Board took note of the fact that, in the cases of the Credit Co-operative Societies, penalties under section 271D and 271E are being imposed without appreciating the genuine difficulties faced by them in complying with these provisions and advised the field officers not to impose penalty indiscriminately and keep in view the provisions of section 273B of the Act. Reliance was placed on numerous decisions which deleted penalties taking note of the said circular.
9.3 The Ld. AR submitted that the legislative intent behind bringing the provisions of section 269SS and 269T was to curb the practice of extending false explanation against the cash found during the search. So the intention was to bring down the non-genuine transaction and to prevent the unaccounted income being brought in the books of account in the form of loans/deposits. In the case of the assessee, none of the deposits or repayments have been doubted or found to be ingenuine neither by the Ld. AO/JCIT/CIT(A). The Ld. AR asserted that the activities of the society are genuine, the transactions are genuine. Accordingly, the purpose for which these provisions were brought on the statute book does not apply to the assessee’s case. Reliance was placed on several decisions including the decision of Delhi Tribunal in Farrukhabad Investment (I) Ltd. vs. JCIT reported in 85 ITD 230.
9.4 Stress was laid on the fact that the concept of mutuality in the case of Co-operative Societies has been recognised by the Hon’ble Supreme Court in ITO vs. Venketsh Premises co-operative societies Ltd. (2018) 402 ITR 670 (SC) which is based on the theory that a person cannot make profit from himself. The assessee society is engaged in the activity of granting thrift and credit facilities to its members who are taxi operators from rural background. It is registered body and undertakes its activities in compliance to its bye laws duly approved by the Registrar of Co-operative Societies.
9.5 Same arguments advanced before the Ld. CIT(A) on the issue that the impugned penalties have been levied beyond the period of limitation prescribed under section 275(1)(c) of the Act were repeated. Reference and reliance was placed on the decision of Hon’ble Delhi High Court in PCIT vs. Maheshwood Product (P) Ltd. (2017) 394 ITR 313 (Delhi) wherein it is held that the date of initiation of penalty proceedings would be the date on which the AO wrote a letter to the ACIT recommending the issuance of show cause notice (SCN).
9.6 It has also been submitted that penalty proceedings can be initiated only once and cannot be re-initiated as has been done in the case of the assessee. Decision of Hyderabad Bench of the Tribunal in Dillu Cine Enterprises P. Ltd. vs. Addl. CIT (2002) 80 ITD 484 (Hyd.) was relied upon.
9.7 Impugned penalties were also assailed on the ground that no proceedings were pending on the date of initiation of penalty proceedings. So the orders passed are void and without jurisdiction as held in CIT vs. Rajinder Kumar Somani (1980) 4 Taxman 549 (Delhi).
10. The Ld. DR strongly supported the order of the Ld. CIT(A). He submitted that recording of satisfaction in assessment order is not required for initiation of proceedings under section 271D and 271E of the Act. Due satisfaction was recorded by the Ld. AO while referring the issue to Ld. JCIT for initiation of penalty proceedings. Scanned copies of Ld. AO’s letter may be seen in the order of the Ld. CIT(A).
10.1 The Ld. DR pointed out that the initial SCN was treated as invalid and penalty proceedings initiated by such notice stood nullified. Fresh SCN was issued by the Ld. JCIT after making an ordersheet entry dated 29.11.2016.
The Ld. CIT(A) has therefore observed that original proceedings were brought to end. Wrong notice without name and PAN does not get cured under section 292B of the Act. In the case of the assessee, penalty proceedings began with fresh information received by Ld. JCIT on 28.11.2016. Time barring date was 3 1.05.2017. Penalty was imposed on 24.04.20 17 in time.
10.2 It has been submitted by the Ld. DR that genuineness of transaction is not a criteria for imposition of penalty. Even in genuine transaction transacting in cash is not allowed under section 269SS and 269T of the Act. The case of the assessee does not fall under the exclusionary clause.
10.3 Refuting the argument of the Ld. AR that penalty cannot be imposed for technical / venial breach of statutory provision, the Ld. DR submitted that it has been observed by the Ld. CIT(A) that there is violation of statutory provisions of section 269SS and 269T which resulted in initiation of the penalty proceedings.
10.4 The Ld. DR assailed the argument of the Ld. AR that assessee is a cooperative society engaged in the business of banking providing credit facility to its member and as such neither section 269SS nor section 269T of the Act is applicable, relying on the definition of “banking company” and “cooperative bank” as per proviso and explanation (i) thereto. The very fact that from AY 2018-19 the assessee is no longer having transactions in cash establishes that there was violation of provisions of section 269SS and 269T prior to that assessment year without any reasonable cause. If the Revenue did not detect the said violation in earlier years it does not become a valid argument for pleading a reasonable clause.
11. We have carefully considered the rival submissions. We place on record our admiration for the efforts put in and pains taken by the Ld. Representative of the parties in advocating their respective sides. We have thoroughly perused the material available in the records.
12. Let us first take up the common ground No. 2 in both the appeals of the assessee relating to passing of the impugned orders of penalty after the expiry of limitation period. The reason is this. The Hon’ble Supreme Court has observed in the case of CIT vs. Kedia Power Ltd. (2013) 217 taxman 400 (SC) that the dispute whether penalty order was passed within time with reference to the date of initiation of penalty proceedings is a matter, which should have been adjudicated by the Tribunal before considering the merits of the case.
12.1 In the light of the decision of Hon’ble Delhi High Court in CIT vs. Worldwide Township Projects Ltd. in ITA No. 232/2014 dated 21.05.2014 and the CBDT Circular F. No. 279/Misc./M-140/2015-ITJ dated 26th April, 2016 stating therein that the period of limitation of penalty proceedings under section 271 D and 271 E of the Act is governed by the provisions of section 275(1)(c) of the Act, we proceed further.
12.2 For ready reference, section 275 of the Act which falls under “Chapter XXI. Penalties Imposable”, is reproduced below:-
“275. (1) No order imposing a penalty under this chapter shall be passed –
(a) xxx (not applicable)
(b) xxx (not applicable)
(c) in any 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 initiated whichever period expire later.”
12.3 In Sharma & Sons (JP) vs. CIT 151 ITR 333 (Raj.) the Hon’ble Rajasthan High Court held that the language of section 275 is clear and explicit. It is mandatory. It embodies a rule of limitation which is strictly enforceable. An order of penalty must be passed within the specified period.
12.4 The legal implication of the decision in Sharma & Sons (supra) and several other High Courts of Kerala, Gujarat, Andhra Pradesh and M.P. is that where penalty proceedings are not completed before the stipulated date, the order so passed will not be valid in the eye of law.
13. Section 275(1)(c) of the Act talks of initiation of penalty proceedings for the purpose of reckoning of the period of limitation. When does initiation of penalty proceedings take place? The answer is provided in the decision of the Hon’ble Delhi High Court in PCIT vs. Mahesh Wood Products (P) Ltd. (2017) 394 ITR 312 (Del) wherein it is held that given the scheme of section 275(1)(c) the date of initiation of penalty proceedings would be the date on which Ld. AO wrote a letter to JCIT recommending the issuance of SCN.
14. In its submission vide letter dated 25.03.2019 before the Ld. CIT(A) the assessee submitted that during penalty proceedings the Ld. JCIT issued/served the following notices at the correct address to the assessee with slight variation in the name of the assessee.
