ITAT Delhi explains limitation for passing of penalty order

ITO Vs Turner General Entertainment Networks India Pvt. Ltd. (ITAT Delhi)

In the case of ITO vs. Turner General Entertainment Networks India Pvt. Ltd. (ITAT Delhi), the Income Tax Appellate Tribunal (ITAT) reviewed an appeal concerning the validity of a penalty levied under Section 271C of the Income Tax Act, 1961. The core issue was whether the penalty order passed by the Joint Commissioner of Income Tax (JCIT) was barred by the limitation period specified under Section 275(1)(c) of the Act.

Background

Turner General Entertainment Networks India Pvt. Ltd., engaged in broadcasting the television channel “Imagine TV,” filed its return for the Assessment Year (AY) 2011-12 on November 11, 2011, declaring a total loss of ₹262,04,18,432. The Tax Audit Report indicated that tax amounting to ₹5,00,40,103 was deductible but not deducted at source by the assessee. The Assessing Officer (AO) considered this an admission of default and referred the matter to the JCIT on September 25, 2014, proposing that a penalty under Section 271C be levied.

Subsequently, a show cause notice was issued by the JCIT on August 4, 2015, and the penalty order was passed on February 25, 2016, levying a penalty of ₹5,00,40,103.

Key Issues

The primary issue for the ITAT was to determine whether the penalty order passed on February 25, 2016, was within the limitation period as prescribed under Section 275(1)(c) of the Act. This section stipulates two possible deadlines for passing a penalty order:

1. The end of the financial year in which the proceedings (in this case, the quantum assessment) are completed.
2. Six months from the end of the month in which the penalty proceedings were initiated, whichever is later.

Arguments

Revenue’s Argument: The Revenue contended that the limitation period should be reckoned from the date the JCIT issued the first show cause notice (August 4, 2015). Thus, the penalty order passed on February 25, 2016, was within the permissible period, as the deadline would extend to February 28, 2016.

Assessee’s Argument: The assessee argued that the limitation period should start from the date the AO referred the case to the JCIT (September 25, 2014). If this date was considered, the penalty order should have been passed by March 31, 2015. Hence, the penalty order dated February 25, 2016, was barred by limitation.

Tribunal’s Analysis

The ITAT referred to the case of PCIT vs. JKD Capital & Finlease Ltd. (378 ITR 614), where the Delhi High Court had interpreted the limitation period under Section 275(1)(c) in the context of levy of penalties under Sections 271D and 271E. The court in that case held that the initiation of penalty proceedings is independent of the assessment proceedings and that the limitation period should be calculated from the date the penalty proceedings were initiated.

In the case of PCIT vs. JKD Capital & Finlease Ltd. (378 ITR 614), the Delhi High Court interpreted the limitation period under Section 275(1)(c) of the Income Tax Act in the context of levying penalties under Section 271E. The court considered whether the relevant date for initiating penalty proceedings should be the date the Assessing Officer (AO) referred the matter to the Joint Commissioner of Income Tax (JCIT) or the date the JCIT issued the notice to the assessee. The court concluded that the limitation period should begin from the date of the AO’s reference, as penalty proceedings under Sections 269SS and 269T are independent of the assessment proceedings. The court highlighted that delaying the issuance of the notice by the JCIT undermined the purpose of Section 275(1)(c). Consequently, the penalty order issued by the Additional CIT after a significant delay was deemed barred by limitation. The court affirmed the orders of the CIT (A) and the ITAT, finding no legal infirmity, and no substantial question of law was determined.

Conclusion

Applying this precedent, the ITAT concluded that the penalty proceedings in the current case were initiated on September 25, 2014, when the AO referred the matter to the JCIT. Therefore, the penalty order should have been passed by March 31, 2015. Since the order was passed on February 25, 2016, it was barred by limitation.

Consequently, the ITAT ruled that the penalty order was invalid due to being issued beyond the limitation period. The appeal of the Revenue was dismissed, and the penalty of ₹5,00,40,103 was deleted.

FULL TEXT OF THE ORDER OF ITAT PUNE

1. This appeal in ITA No.6597/Del/2017 for A.Y. 2011-12 arises out of the order by Commissioner of Income Tax (Appeals)- 41, New Delhi in appeal No. 289/16-17 dated 16.08.20 17 (hereinafter referred to as ld CIT(A) in short) against the penalty order u/s 271 C of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 25.02.2016 by the JCIT (hereinafter referred to as ld. AO).

2. The only issue to be decided in this appeal is as to whether the ld. CIT(A) was justified in holding that the penalty levied u/s 271C of the Act is barred by limitation in the facts and circumstances of the instant case.

3. We have heard the rival submissions and perused the materials available on record. The assessee is engaged in the business of broadcasting television channel “Imagine TV” and had filed its return of income for the Asst. Year 2011-12 on 11.2011 declaring total loss of Rs.262,04, 18,432/-. As per clause 27(b) of Tax Audit Report, the Tax Auditor had reported that tax of Rs.5,00,40, 103/- was deductible and not deducted at source by the assessee. The ld. AO held this to be an admission of fact that there had been a default on the part of the assessee as it had not deducted TDS. Therefore, a reference was made by the ld. AO i.e. DCIT, Circle 16(1), Delhi to the ld. JCIT, Range 76, Delhi on 25.09.2014 that the assessee has not deducted TDS of Rs.5,00,40, 103/- though it was deductible and consequentially provisions of section 271C of the Act gets attracted. Accordingly, a show cause notice stood issued by the ld. JCIT on 4.8.20 15 to the assessee as to why penalty u/s 271C of the Act should not be levied on the aforesaid default of not deducting tax at source. These proceedings ultimately got culminated in the form of passing of penalty order u/s 271C of the Act by the ld. JCIT levying penalty of Rs.5,00,40,103/- vide order dated 25.02.2016. Now the short point that arises for our consideration is that whether the penalty order passed u/s 271C of the Act by the ld. JCIT on 25.02.2016 would be barred by limitation as per section 275(1)(c) of the Act. For the sake of convenience, the relevant dates are reproduced herein below:-

4. As per provisions of section 275(1)(c) of the Act, we find that there are two distinct periods of limitation for passing of penalty order is provided and one that expires later will apply. One is the end of the financial year in which the quantum proceedings are completed. In the instant case, the quantum proceedings were completed on 26.03.20 14 and hence one deadline would be 31.03.2014. The second date would be expiry of 6 months from the month in which penalty proceedings were initiated. The dispute in the instant appeal is to give proper meaning for the expression ‘expiry of 6 months from the month in which penalty proceedings were initiated’, i.e. to say whether 6 months expiry should be reckoned from the date of which reference was made by ld. AO who passed the quantum assessment order to ld. JCIT (TDS) or the date on which JCIT (TDS) issued notice to the assessee for the first time. In other words, the limitation period of 6 months should be reckoned from 25.09.2014, being the date of reference made by AO (who framed the quantum assessment order) or the date of issuance of first show cause notice by JCIT(TDS) on 04.08.2015. The stand of the revenue before us is that limitation should be reckoned from the expiry of 6 months from the end of the month in which first show cause notice stood issued by JCIT(TDS). If this is construed, the ld. JCIT(TDS) framing the penalty order u/s 271C of the Act on 25.02.2016 would be well within time as he has time to pass the order till 28.02.2016. On the contrary, the stand of the assessee is that penalty proceedings stood initiated on 25.09.2014 itself as that was the date on which reference was made by the AO to JCIT (TDS). If 6 months period is construed from this date, then the ld. JCIT(TDS) ought to have passed the order on or before 31.03.2015 and since the penalty order was passed on 25.02.2016, it would be barred by limitation. We find that this dispute has been directly addressed by the Hon’ble Jurisdictional High Court in the case of PCIT vs. JKD Capital & Finlease Ltd. reported in 378 ITR 614 (Del.) wherein the limitation period mentioned in provisions of section 275(1)(c) of the Act was subject matter of interpretation in the context of levy of penalty u/s 271E of the Act. The relevant operative portion of the said order is reproduced below:-

7. Kamal Sawhney, learned Senior standing counsel appearing for the Revenue submitted that the AO has no power to initiate the penalty proceedings under Section 271-E of the Act and it was only the Joint CIT who could have done so. Therefore, for the purpose of limitation under Section 275 (1) (c), the relevant date should be the date on which notice in relation to the penalty proceedings were issued. In the present case, as the Additional CIT issued notice to the Assessee on 12th March 2012, the order of the Additional CIT passed on 20th March, 2012 was within limitation.

8. …….

9. …….

10.Considering that the subject matter of the quantum proceedings was the non-compliance with Section 269 T of the Act, there was no need for the appeal against the said order in the quantum proceedings to be disposed of before the penalty proceedings could be initiated. In other words, the initiation of penalty proceedings did not hinge on the completion of the appellate quantum proceedings. This position has been made explicit in the decision in Worldwide Township Projects (supra) in which the Court concurred with the view expressed in CIT v. Hissaria Bros. [2007] 291 ITR 244/[2008] 169 Taxman 262 (Raj.) in the following terms:

“The expression other relevant thing used in s. 275(1)(a) and cl. (b) of Sub-s. (1) of S. 275 is significantly missing from cl. (c) of s. 2 75(1) to make out this distinction very clear. We are, therefore, of the opinion that since penalty proceedings for default in not having transactions through the bank as required under ss. 269SS and 269T are not related to the assessment proceeding but are independent of it, therefore, the completion of appellate proceedings arising out of the assessment proceedings or the other proceedings during which the penalty proceedings under ss. 271D and 271E may have been initiated has no relevance for sustaining or not sustaining the penalty proceedings and, therefore, cl. (a) of sub-s. (1) of s. 275 cannot be attracted to such proceedings. If that were not so cl. (c) of s. 2 75(1) would be redundant because otherwise as a matter of fact every penalty proceeding is usually initiated when during some proceedings such default is noticed, though the final fact finding in this proceeding may not have any bearing on the issues relating to establishing default e.g. penalty for not deducting tax at source while making payment to employees, or contractor, or for that matter not making payment through cheque or demand draft where it is so required to be made. Either of the contingencies does not affect the computation of taxable income and levy of correct tax on chargeable income; if cl. (a) was to be invoked, no necessity of cl. (c) would arise.” (emphasis supplied)

11. In fact, when the AO recommended the initiation of penalty proceedings the AO appeared to be conscious of the fact that he did not have the power to issue notice as far as the penalty proceedings under Section 271 -E was concerned. He, therefore, referred the matter concerning penalty proceedings under Section 271-E to the Additional CIT. For some reason, the Additional CIT did not issue a show cause notice to the Assessee under Section 271-E (1) till 20th March 2012. There is no explanation whatsoever for the delay of nearly five years after the assessment order in the Additional CIT issuing notice under Section 271-E of the Act. The Additional CIT ought to have been conscious of the limitation under Section 275 (1) (c), i.e., that no order of penalty could have been passed under Section 271-E after the expiry of the financial year in which the quantum proceedings were completed or beyond six months after the month in which they were initiated, whichever was later. In a case where the proceedings stood initiated with the order passed by the AO, by delaying the issuance of the notice under Section 271- E beyond 30th June 2008, the Additional CIT defeated the very object of Section 275 (1) (c).

12. In that view of the matter, the order of the CIT (A) which has been affirmed by the impugned order of the ITAT does not suffer from any legal infirmity.

13. No substantial question of law arises for determination.

5. Respectfully following the aforesaid judicial precedent, it could be safely concluded that the penalty order framed by the ld. JCIT(TDS) on 25.02.2016 is squarely barred by limitation and hence penalty is required to be deleted.

6. Since the penalty order is held to be barred by limitation, the other grounds raised by the assessee challenging the validity of levy of penalty on merits need not be adjudicated into at this stage as the same would be academic in nature.

7. In the result, the appeal of the Revenue is dismissed.

Order pronounced in the open court on 29.04.2024