Section 271E penalty proceedings dismissed as time-barred due to inordinate delay beyond statutory limitation period

ITAT PUNE held that penalty proceedings under Section 271E initiated by Addl.CIT were time-barred. The assessment under Section 153A was completed on 30.11.2007, but penalty notice was issued only on 11.03.2010, showing inordinate delay beyond statutory limitation. The tribunal ruled that assessee could support CIT(A)'s order on jurisdictional grounds under Rule 27 of ITAT Rules without filing cross-appeal. Following Hissaria Bros precedent and CBDT Circular dated 26.04.2016, the penalty order was dismissed for being initiated beyond prescribed limitation period under Section 275(1)(c).

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Issues Involved:
1. Justification of deleting the penalty under section 271E of the Income-tax Act, 1961.
2. Validity of penalty proceedings initiation by Addl.CIT after assessment completion.
3. Applicability of Rule 27 of the ITAT Rules for the assessee to argue on questions of law not appealed against.
4. Limitation period for initiation and completion of penalty proceedings under section 271E.

Detailed Analysis:

1. Justification of Deleting the Penalty under Section 271E:
The Revenue contended that the CIT(A) was not justified in deleting the penalty under section 271E of the Income-tax Act, 1961, as the entries in the inventory seized during the search did not pertain to the current account held by the assessee but were repaid in cash, violating Section 269T. The CIT(A) deleted the penalty, holding the transaction was of a daily running current account and not a loan or deposit, thus outside the purview of sections 269SS and 269T.

2. Validity of Penalty Proceedings Initiation by Addl.CIT:
The penalty proceedings were initiated by the Addl.CIT after the completion of the assessment order. The assessee argued that the information to levy penalty was not passed on by the Assessing Officer before the completion of assessment proceedings. The Tribunal noted that under the provisions of section 272A(3)(c), it is incumbent upon the Assessing Officer to forward the information to the JCIT before the completion of assessment. The Tribunal referenced the Pune Bench decision in Shri Devidas Ramchandra Kulkarni Vs. JCIT, which held that the initiation of penalty proceedings should occur during the course of assessment proceedings.

3. Applicability of Rule 27 of the ITAT Rules:
The assessee, without filing any Cross Objections, argued under Rule 27 of the ITAT Rules that he is entitled to support the order of CIT(A) on any grounds decided against him. The Tribunal upheld this right, referencing the Allahabad High Court decision in CIT and Another Vs. Jindal Polyster Ltd., which allows the assessee to advance arguments on grounds decided against him to support the CIT(A)’s order.

4. Limitation Period for Initiation and Completion of Penalty Proceedings:
The Tribunal examined the limitation period for the initiation and completion of penalty proceedings under section 271E. The Revenue relied on the Rajasthan High Court decision in CIT Vs. Hissaria Bros., which stated that penalty proceedings could be initiated independent of assessment proceedings. However, the Tribunal noted that the penalty proceedings should still be initiated when the default is detected during any proceedings. The Tribunal found that the penalty order was issued beyond the prescribed limits, referencing the CBDT Circular dated 26.04.2016, which clarified that Assessing Officers should make a reference to the Range Head during assessment proceedings. The Tribunal concluded that the initiation of penalty proceedings was beyond the limitation provided in the Act, and thus, the penalty order was dismissed.

Conclusion:
The Tribunal dismissed the appeal of the Revenue, holding that the initiation of penalty proceedings was beyond the limitation period prescribed in the Act. The Tribunal supported the CIT(A)’s decision to delete the penalty under section 271E, as the transaction was of a daily running current account and not a loan or deposit. The Tribunal also upheld the assessee’s right to argue under Rule 27 of the ITAT Rules.

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