2025 (7) TMI 1591 - AT - Income Tax

Penalty proceedings u/s 271C - period of limitation - order passed beyond the due date prescribed under the Act - HELD THAT - We observe that the period of limitation for completion of penalty proceeding shall be calculated from the date of reference made by the AO to Addl.CIT. It is observed that the reference in the present case has been made by ACIT Circle 76(1) on 10.10.2016 and as per the provision of section 275(1)(c) no order imposing of penalty under the provisions of the Act shall be passed beyond the six months from the end of the month in which action for imposition of penalty is initiated. Accordingly we are of the considered opinion that since the order was passed beyond six months the order is bad in law. We observe that penalty order passed u/s 271C of the Act in the case of the assessee is barred by limitation as the same has been passed beyond the due date prescribed under the Act and accordingly the appeals filed by the assessee are allowed by quashing the penalty order being barred by limitation - Assessee appeal allowed.

Summary

ISSUES:

Whether the limitation period for passing penalty order under section 271C of the Income-tax Act, 1961 is to be computed from the date of reference made by the Assessing Officer to the Additional Commissioner of Income-tax for initiation of penalty proceedings or from the date of issuance of the show-cause notice to the assessee.Whether a penalty order passed beyond six months from the end of the month in which the penalty proceedings were initiated is valid under section 275(1)(c) of the Income-tax Act, 1961.Whether the completion of appellate or quantum proceedings affects the limitation period for initiation or passing of penalty proceedings under section 271C of the Income-tax Act, 1961.

RULINGS / HOLDINGS:

The court held that the date on which the reference is made by the Assessing Officer to the Additional Commissioner of Income-tax marks the first step for initiation of penalty proceedings, and the limitation period under section 275(1)(c) must be calculated from this date, not from the date of issuance of the show-cause notice.The penalty order passed beyond six months from the end of the month in which the penalty proceedings were initiated is "bad in law" and therefore barred by limitation under section 275(1)(c) of the Act.The court found that the completion of appellate or quantum proceedings is not relevant for sustaining or not sustaining penalty proceedings under section 271C, as such penalty proceedings are independent of the assessment proceedings and their appellate disposal.

RATIONALE:

The court relied on the statutory framework provided by sections 271C, 274(1), and 275(1)(c) of the Income-tax Act, 1961, which prescribe the procedure and limitation for imposition of penalty.It followed binding precedent from coordinate Benches and the jurisdictional High Court, including the interpretation that the "expiry of 6 months from the month in which penalty proceedings were initiated" refers to the date of reference by the AO to the Additional CIT, not the date of issuance of show-cause notice.The court emphasized the distinction that penalty proceedings under sections like 271C are independent of the assessment and appellate proceedings, hence the limitation period is not impacted by the completion of such proceedings.The decision reaffirmed the principle that delay in issuance of show-cause notice by the Additional CIT cannot extend the limitation period prescribed under section 275(1)(c), and any penalty order passed after expiry of this period is invalid.No substantial question of law was found to arise, and the court respectfully followed the judicial precedents cited, including decisions from the Delhi High Court and ITAT coordinate Benches.