2006 (7) TMI 163 - HC - Income Tax

Penalty Proceedings Dismissed as Time-Barred; Transactions Not Deposits, Bona Fide Belief Supported by CBDT Circular.

Commissioner of Income-Tax Versus Hissaria Brothers.

Commissioner of Income-Tax Versus Hissaria Brothers. - [2007] 291 ITR 244, 211 CTR 156, 169 TAXMANN 262 Issues Involved:1. Applicability of Section 275(1)(c) versus Section 275(1)(a) for the limitation period of penalty proceedings.2. Legality of the penalty order under Section 271D.3. Empowerment of the Assessing Officer to initiate penalty proceedings under Section 271D.4. Justification of the assessee's actions under bona fide belief and reasonable cause as per Section 271D.Issue-wise Detailed Analysis:1. Applicability of Section 275(1)(c) versus Section 275(1)(a) for the limitation period of penalty proceedings:The Tribunal held that the penalty orders should have been passed within 6 months from the end of the month in which the assessment was completed, making the penalty orders time-barred under Section 275(1)(c). The Revenue contended that the limitation should be governed by Section 275(1)(a) due to the appeals against the assessment orders. However, the Tribunal opined that penalty proceedings are independent of assessment proceedings, and the filing of an appeal against the assessment orders is irrelevant. The court agreed that since the penalty proceedings for defaults under Sections 269SS and 269T are independent of assessment proceedings, Section 275(1)(c) applies, and the orders were indeed time-barred.2. Legality of the penalty order under Section 271D:The Tribunal found that the transactions in question, involving the retention of sale proceeds by the assessee as a kachha adhatiya, did not amount to deposits under Section 269SS nor their utilization as repayment of loans under Section 269T. The Tribunal relied on the Central Board of Direct Taxes (CBDT) circular, which clarified that such transactions do not constitute deposits. Consequently, the penalty under Sections 271D and 271E could not be imposed. The court upheld this view, agreeing that the transactions were not deposits and the penalty provisions were not applicable.3. Empowerment of the Assessing Officer to initiate penalty proceedings under Section 271D:The Tribunal and the court did not find any specific issue regarding the empowerment of the Assessing Officer to initiate penalty proceedings under Section 271D. The focus was more on the nature of transactions and the applicability of penalty provisions rather than the procedural aspects of who initiated the proceedings.4. Justification of the assessee's actions under bona fide belief and reasonable cause as per Section 271D:The Tribunal and the Commissioner of Income Tax (Appeals) found that the assessee acted under a bona fide belief and had reasonable and sufficient cause for non-compliance with Sections 269SS and 269T. The Tribunal noted the trade practices, the inconvenience to rural agriculturists, and the bona fide conduct of the assessee. The court agreed that these findings were factual and did not raise a question of law. The court also noted that the CBDT circular supported the assessee's position, reinforcing that no penalty was warranted under Sections 271D and 271E.Conclusion:The court dismissed the appeals, agreeing with the Tribunal that the penalty proceedings were time-barred under Section 275(1)(c) and that the transactions in question did not constitute deposits under Sections 269SS and 269T. Additionally, the assessee had reasonable cause for non-compliance, and the penalty provisions were not applicable. The court upheld the Tribunal's decision to set aside the penalties.