2025 (7) TMI 668 - AT - Income Tax

Validity of penalty imposed u/s 271D/271E - as argued order been passed beyond the limitation period u/s 275 - assessment order u/s 153C of the Act under which the penalty proceedings were initiated - HELD THAT - As per section 275(1)(c) of the Act the penalty proceedings were to be completed later of the two periods first by 31.03.2023 being the period 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 second before 30.06.2023 being six months from the end of the month in which action for imposition of penalty is initiated . However the penalty order has been passed on 31.01.2024. As Rishikesh Buildcon Pvt. Ltd. Rishikesh Properties Ltd. Rupa Promoters Pvt. Ltd. 2022 (11) TMI 1038 - DELHI HIGH COURT wherein held ITAT was correct in law in deleting the penalty imposed by the ACIT u/s 271D of the Act on the ground that the penalty order(s) dated 29th September 2009 was passed beyond the time period prescribed by Section 275(1)(c) of the Act the same having been passed after the lapse of six months from the end of the month in which the penalty proceedings were initiated by the AO - Assessee appeal allowed.

Summary

The core legal questions considered in this judgment revolve around the validity of penalty orders imposed under Sections 271D and 271E of the Income Tax Act, 1961, specifically focusing on whether such penalty orders were passed within the limitation period prescribed under Section 275(1)(c) of the Act. The issues can be summarized as follows:

1. Whether the penalty orders passed under Sections 271D and 271E were time-barred under the limitation period stipulated in Section 275(1)(c) of the Income Tax Act.

2. The correct interpretation and application of Section 275(1)(c) concerning the timeline for passing penalty orders when penalty proceedings are initiated during assessment proceedings under Section 153C.

3. The applicability and binding nature of precedents, particularly the decision of the Hon'ble Delhi High Court in the case concerning penalty limitation under Section 275(1)(c).

Issue-wise Detailed Analysis

Issue 1: Limitation period for passing penalty orders under Sections 271D and 271E

Relevant Legal Framework and Precedents: Section 275(1)(c) of the Income Tax Act governs the limitation period for passing penalty orders when penalty proceedings are initiated during the course of assessment proceedings. It states that the penalty order must be passed before the later of two periods: (i) the expiry of the financial year in which the proceedings, in the course of which penalty proceedings were initiated, are completed; or (ii) six months from the end of the month in which the penalty proceedings were initiated.

The Hon'ble Delhi High Court's ruling in the case of PCIT vs. Rishikesh Buildcon Pvt. Ltd. and others (2022) is pivotal. It clarified that the date of initiation of penalty proceedings is the date of the assessment order in which the penalty proceedings were initiated. The penalty order must be passed within six months from the end of the month of initiation or by the end of the financial year in which the assessment proceedings were completed, whichever is later.

Court's Interpretation and Reasoning: The Tribunal noted that the assessment order under Section 153C was passed on 27.12.2022, which initiated the penalty proceedings. Accordingly, the limitation period for passing the penalty orders under Sections 271D and 271E would expire on the later of (a) 31.03.2023 (end of financial year 2022-23) or (b) 30.06.2023 (six months from end of December 2022). However, the penalty orders were passed on 31.01.2024, which is beyond both these dates.

Key Evidence and Findings: The penalty orders for AY 2016-17 (under Section 271D) and AY 2017-18 and 2018-19 (under Section 271E) were passed on 31.01.2024, i.e., after the limitation period prescribed under Section 275(1)(c) had expired.

Application of Law to Facts: Applying the legal framework, the Tribunal concluded that the penalty orders were barred by limitation since they were passed beyond the prescribed timeline.

Treatment of Competing Arguments: The Revenue did not successfully dispute the applicability of the limitation period or the date of initiation of penalty proceedings. The Tribunal relied on the binding precedent of the Delhi High Court to reject any contention that the penalty orders were valid despite the delay.

Conclusion: The penalty orders under Sections 271D and 271E were invalid as they were passed beyond the limitation period prescribed under Section 275(1)(c) of the Income Tax Act.

Issue 2: Interpretation of Section 275(1)(c) in the context of penalty proceedings initiated under Section 153C

Relevant Legal Framework and Precedents: Section 153C deals with assessment of income found during search or seizure operations. Penalty proceedings initiated during such assessments must comply with Section 275(1)(c). The Delhi High Court's decision in PCIT vs. Rishikesh Buildcon Pvt. Ltd. clarified that the assessment order date is the relevant date for computing limitation under Section 275(1)(c).

Court's Interpretation and Reasoning: The Tribunal followed the authoritative interpretation that the date on which the assessment order is passed (here, 27.12.2022) is the date when penalty proceedings are deemed to have been initiated. This interpretation ensures clarity and uniformity in limitation calculations.

Key Evidence and Findings: The penalty orders were passed after the limitation period calculated from the assessment order date, violating the prescribed timeline.

Application of Law to Facts: The Tribunal applied the legal principle that limitation must be reckoned from the date of initiation of penalty proceedings as per the assessment order under Section 153C, thereby invalidating the penalty orders passed after the expiry of the limitation period.

Treatment of Competing Arguments: The Revenue's arguments did not effectively challenge the interpretation of Section 275(1)(c) or the date of initiation of penalty proceedings. The Tribunal adhered to the precedent and statutory language.

Conclusion: The Court reaffirmed that penalty proceedings initiated during assessment under Section 153C must comply with Section 275(1)(c), with the assessment order date as the starting point for limitation calculation.

Significant Holdings

"The predecessor bench of this Court in the aforesaid judgments has held that where the AO has initiated the penalty proceedings in his/her assessment order, the said date is to be taken as the relevant date as far as the Section 275(1)(c) of the Act is concerned."

"Consequently, we answer the question of law against the Revenue and in favour of the Assessee by holding that, in the facts and circumstances of the present appeals, the ITAT was correct in law in deleting the penalty imposed by the Additional Commissioner of Income Tax, under Section 271D of the Act, on the ground that the penalty order(s) dated 29th September, 2009, was passed beyond the time period prescribed by Section 275(1)(