2025 (7) TMI 1588 - AT - Income Tax

Penalty u/s 271D - Period of limitation - Bar of limitation for imposing penalties u/s 275(1)(c) - HELD THAT - The provisions of section 275(1)(c) of the Act have already been reproduced in the preceding paragraphs. As per the said provisions the last date for levy of penalty u/s 271D is 28.02.2023. Even the Annexure to the notice dated 13.02.2023 also clearly and unequivocally states the last date for levy of penalty as 28.02.2023 however such penalty u/s 271D has been levied by the Assessing Officer on 29.03.2023. Therefore the same is clearly beyond the prescribed due date. Since the penalty order has not been passed within the statutory period i.e. on or before 28.02.2023 but has been passed on 29.03.2023 therefore such penalty order being barred by limitation is not in accordance with law and has to be quashed. We therefore quash the penalty levied u/s 271D of the Act by the Assessing Officer and sustained by the Ld. CIT(A) / NFAC. Validity of reopening of assessment - allegation of improper approval obtained u/s 151 - HELD THAT - Improper approval obtained u/s 151 of the Act vitiates the entire reopening proceedings. We therefore hold that the re-assessment proceedings being not in accordance with law have to be quashed. Once it is held that there is no valid assessment order / valid assessment proceedings then the penalty proceedings u/s 271D of the Act are not sustainable. We find in the case of CIT vs. Standard Brands Ltd 2006 (7) TMI 126 - DELHI HIGH COURT has held that once the assessment is not sustained penalty action is not permissible. We find an identical issue had come up in the case of Ravi Nirman Nigam Ltd 2024 (7) TMI 87 - ITAT MUMBAI where the Tribunal has held that the penalty proceedings initiated u/s 271D of the Act do not survive once the assessment is held to be invalid. Thus the re-assessment proceedings are not in accordance with law on account of not obtaining the approval from the competent authority as per the provisions of section 151 of the Act therefore the penalty proceedings initiated u/s 271D of the Act do not survive - Appeal of assessee allowed.

Summary

ISSUES:

Whether penalty under section 271D of the Income Tax Act, 1961 is sustainable when the penalty order is passed beyond the limitation period prescribed under section 275(1)(c) of the Act.Whether the penalty under section 271D can be sustained when the reassessment proceedings under section 147 read with section 144B are invalid due to improper sanction under section 151 of the Act.Whether the approval for issuance of notice under section 148 of the Act issued by a Principal Commissioner instead of the prescribed authority (Principal Chief Commissioner or Principal Director General or Chief Commissioner or Director General) for cases beyond three years from the end of the relevant assessment year renders the reassessment proceedings null and void.Whether penalty proceedings under section 271D can be initiated or sustained independently of the validity of the assessment or reassessment proceedings.Whether the Assessing Officer is required to record satisfaction before initiating penalty proceedings under section 271D of the Act.Whether reliance solely on statements of third parties without incriminating material on record suffices to levy penalty under section 271D.

RULINGS / HOLDINGS:

The penalty order under section 271D of the Act passed on 29.03.2023 is barred by limitation as per section 275(1)(c) since the penalty proceedings were initiated on 17.08.2022 and the penalty order was required to be passed on or before 28.02.2023; therefore, the penalty order is "not in accordance with law" and is quashed.The reassessment proceedings under section 147 read with section 144B of the Act are invalid and null and void as the approval under section 151 was obtained from the Principal Commissioner instead of the competent authority prescribed for cases beyond three years, i.e., Principal Chief Commissioner or Principal Director General or Chief Commissioner or Director General.Since the reassessment proceedings are invalid, penalty proceedings under section 271D initiated in the course of such proceedings "do not survive" and are not sustainable in law.Section 151 mandates that sanction for issuance of notice under section 148 must be obtained from the specified authority according to the elapsed period from the end of the relevant assessment year; failure to comply renders the proceedings invalid.It is not necessary to have valid assessment proceedings for initiation of penalty under section 271D; however, if the assessment or reassessment proceedings are quashed as invalid, penalty proceedings initiated therein are also invalid and liable to be quashed.The Assessing Officer is not required to record separate satisfaction for initiation of penalty proceedings under section 271D when penalty is levied in the course of reassessment proceedings.Reliance solely on statements of third parties without incriminating material on record is insufficient to sustain penalty under section 271D.

RATIONALE:

The Court applied the statutory provisions of the Income Tax Act, 1961, specifically sections 148, 151, 147, 144B, 269SS, 271D, and 275(1)(c), to determine the validity of reassessment and penalty proceedings.Section 275(1)(c) prescribes a strict limitation period for passing penalty orders, which was not adhered to in this case, rendering the penalty order time-barred and void ab initio.Section 151 clearly specifies the competent authority for sanctioning issuance of notice under section 148 based on whether the notice is issued within or beyond three years from the end of the relevant assessment year; this provision was interpreted strictly in line with recent authoritative decisions to uphold procedural sanctity.The Court relied on binding precedents and High Court decisions emphasizing that improper sanction under section 151 vitiates the entire reassessment process, and consequently, penalty proceedings initiated therein cannot survive.The Court acknowledged that penalty under section 271D is intended to ensure compliance with section 269SS prohibiting acceptance of cash loans exceeding Rs. 20,000, but such penalty must be imposed within the prescribed limitation and on a valid assessment/reassessment foundation.The decision reflects a doctrinal adherence to procedural compliance and limitation safeguards in tax proceedings, reinforcing that invalid assessment proceedings cannot serve as a basis for penalty imposition.The Court admitted additional legal grounds raised by the appellant relying on Supreme Court precedents affirming the right to challenge validity of assessment during penalty proceedings.