Time limit for initiation of penalty proceedings u/s 271D & 271E to be reckoned from date of JCIT Notice

Brief of the case:

• The Hon’ble Kerala High Court in the case of Grihalakshmi Vision Vs. ADIT held that the penalty proceeding under Sec 271D and 271E can be initiated by Joint commissioner only and the limitation period of six months to be reckoned from the end of month of initiation of penalty proceedings by Joint Commissioner and not from the date of assessment order.
• Thus, even if the assessment order providing that the penalty proceedings being initiated the time limits as prescribed u/s 275 won’t start running as Assessing officer has no power to initiate penalty proceeding u/s 271D & 271E.

Facts of the case:

• During the course of assessment proceedings the AO found that there was acceptance and repayment of deposits in cash in excess of Rs.20,000/- thereby violating the provisions of Sec 269SS and 26T.
• Accordingly, the matter was referred to the Joint Commissioner of Income Tax and who issued notice dated 28.3.2008 and after receipt of reply from assessee levied penalty u/s 271D and 271E to tune of Rs. 10,83,000/- and Rs. 2,97,000/- To the notice, replies were given and finally order under Section 271D. These orders were confirmed by the Commissioner of Income Tax (Appeals) and also by ITAT.
• Aggrieved by the order of ITAT assessee is in appeal before Hon’ble Kerala High Court.

Contention of Assessee:

• Firstly, assessee contended that the penalty proceedings initiated are time barred as the order levying penalty as passed by Joint Commissioner beyond the six months time limit as prescribed in Sec 275.
• Secondly, there was a reasonable cause to failure to accept and repay the loan by account payee cheque or demand draft because the loans were accepted/repaid from sister concerns and the same were obtained for meeting urgent business expenditure.
• Thus, there was a reasonable cause of failure to comply with the provisions of Sec 271D & 271E.

Contention of Revenue:

• The order passed by Joint Commissioner was not time barred because the order was passed within 6 months of the initiation of penalty proceedings by Joint Commissioner. The six months period counted by assessee from the date of assessment order is not in line with the time limits prescribed in Sec 275.
• Further, there was no reasonable cause as envisaged in Sec 273B to compel assessee to repay cash loans to its partners/sisterconcerns without proving the receipts and payments bothwere made beyond normal banking hours or beyond theavailability of banking facilities.
• Thus, in the absence of any objective satisfaction, the cause produced by assessee is not reasonable.

Issue before High Court:

• Whether the penalty proceedings initiated are time barred?
• Whether the failure of the assessee to accept and repay loans was due to a reasonable cause as provided in Sec 273B?

Held by Hon’ble Kerala High Court:

• The assessee’s first contention that the penalty proceedings were initiated by Assessing Officer vide assessment order passed on 06.11.2007 whereas the penalty was finally levied by Joint Commissioner on 29.07.2008.
• It was, thus, the case of assessee that penalty was levied by Joint Commissioner beyond the time limits prescribed in Sec 275(1). Sec 275(1) prescribe the time limit that penalty can be levied only before the completion of financial year in which assessment order was passed or 6 months from the end of month in which penalty proceedings were initiated.
• This contention of assessee is not acceptable because any penalty imposable under sec 271D and 271E shall be imposed only by the Joint Commissioner. The initiation of penalty proceedings by AO vide assessment order is without jurisdiction.
• Therefore, the initiation of the penalty proceedings is only with the issuance of the notice by the Joint Commissioner to the assessee to which he has filed his reply. Penalty was levied within 6months of such notice, therefore, well in within the time limits prescribed in Sec 275(1).
• The other contention of assessee that there was reasonable cause for failure has been set aside by lower authorities and since it is a question of fact , the High court cannot consider the same.
• In result the appeal filed by assessee was dismissed.