Delhi High Court held In the case of Principal CIT vs. JKD Capital & Finlease Ltd. that in terms of the provision u/s 275 (1) (c), there are two distinct periods of limitation for passing a penalty order, and one that expires later will apply. One is the end of the financial year in which the quantum proceedings are completed in the first instance. The second possible date is expiry of six months from the month in which the penalty proceedings were initiated. As in the given case, notice is not issued in the specified period, penalty u/s 271E is not maintainable.
Facts of the Case
While finalising the assessment order dated 28th December 2007, the AO in the concluding paragraph issued a direction to initiate proceedings against the Assessee under Sections 271 (1) (c) and 271E of the Act. Admittedly, under Section 271 E (2) of the Act, any penalty under Section 271-E (1) can only be imposed by the Joint CIT. Consequently, the AO referred the matter to the Additional CIT. A perusal of the order dated 20th March 2012 of the Additional CIT shows that a show-cause notice initiating penalty proceedings under Section 271-E was issued to the Assessee on 12th March 2012 requiring it to explain as to why penalty should not be levied on it on account of violation or the provisions of Section 269T of the Act. With the Assessee having failed to furnish the required information, the Additional CIT proceeded to confirm the penalty in the sum of Rs. 17,90,000.
Contention of the Revenue
The ld counsel of 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.
Held by CIT (A)
CIT (A) allowed the appeal of the assessee and deletes the penalty u/s 271E. It was held that in terms of Section 275 (1) (c) of the Act, the penalty order could have only been passed on or before 30th June 2008 and therefore, the penalty order passed on 20th March 2012 was barred by limitation.
Held by ITAT
TAT upheld the order of CIT (A) by referring the decision of this Court in CIT v. Worldwide Township Projects Limited (2014) 269 CTR 444.
Held by High Court
In terms of the provision u/s 275 (1) (c), there are two distinct periods of limitation for passing a penalty order, and one that expires later will apply. One is the end of the financial year in which the quantum proceedings are completed in the first instance. In the present case, at the level of the AO, the quantum proceeding was completed on 28th December 2007. Going by this date, the penalty order could not have been passed later than 31st March 2008. The second possible date is expiry of six months from the month in which the penalty proceedings were initiated. With the AO having initiated the penalty proceedings in December 2007, the last date by which the penalty order could have been passed is 30th June 2008. The later of the two dates is 30th June 2008.
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 CIT v. Worldwide Township Projects Limited (2014) 269 CTR 444 in which the Court concurred with the view expressed in Commissioner of Income Tax v. Hissaria Bros. (2007) 291 ITR 244(Raj).
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 271E 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 271E beyond 30th June 2008, the Additional CIT defeated the very object of Section 275 (1) (c).
Accordingly, appeal of the revenue dismissed.