2014 (4) TMI 627 - AT - Income Tax

Time-barred penalty under section 271B overturned due to exceeding statutory limit

Hamid Indrapurwala Versus The Income Tax Officer, Mumbai

The Tribunal upheld the assessee's argument that the penalty order passed under section 271B of the Act was time-barred as it exceeded the statutory time ... Bar of limitation - Validity of the penalty order passed u/s 271B of the Act – Held that:- The penalty proceedings have been initiated on 06.10.2003 and also again on 09.02.2004 - But the penalty order has been passed only after 03.03.2006 – the penalty order is barred by limitation – Even if, it is considered for a moment that the provisions of clause (a) is applicable, then also the order is barred by limitation - it was passed after expiry of about one year from the date of the order of CIT(A) – the contention of the assessee that it is barred by limitation is accepted – thus, the order of the CIT(A) set aside and the penalty u/s 271B of the Act deleted – Decided in favour of Assessee. Issues: Validity of penalty order passed u/s 271B of the Act - Barred by limitation.Analysis:1. The appeal challenged the penalty order passed by the AO u/s 271B of the Act for AY 2001-02. The assessee contended that the penalty order was time-barred as the AO issued notices in 2003 and 2004 but passed the penalty order in 2006, exceeding the statutory time limit.2. The assessee argued that as per sec. 275(1)(c) of the Act, the penalty order must be passed before the expiry of the financial year in which the penalty proceedings were initiated or within six months from the initiation of penalty proceedings. The AO sought approval for the penalty order in 2006, well beyond the time limit, rendering it invalid.3. The DR, however, supported the CIT(A)'s order. The Tribunal noted that the penalty order was issued after a significant delay from the second notice, and the AO's remand report indicated the assessment order was passed in 2003. The CIT(A) justified the delayed penalty order based on its connection to the assessment proceedings.4. Referring to sec. 275(1) of the Act, the Tribunal emphasized that penalty proceedings under sec. 271B can be independent of assessment proceedings. The applicable provision for time limit was sec. 275(1)(c), which required the penalty order to be issued within the specified time frame from the initiation of penalty proceedings.5. Since the penalty proceedings began in 2003 and 2004 but the penalty order was issued in 2006, the Tribunal concluded that the penalty order was time-barred under sec. 275(1)(c). Even if sec. 275(1)(a) was considered, the order was still beyond the permissible time limit, being passed after a year from the CIT(A)'s order in the quantum proceedings.6. Consequently, the Tribunal upheld the assessee's contention that the penalty order was barred by limitation and directed the AO to delete the penalty imposed u/s 271B of the Act. The appeal of the assessee was allowed, and the order was pronounced on 28th Feb 2014.