2009 (1) TMI 36 - HC - Income Tax

High Court affirms Tribunal decision to delete penalty under Income Tax Act. Clarifies time limit interpretation.

COMMISSIONER OF INCOME TAX (TDS) Versus M/s IKEA TRADING HONG KONG LTD.

COMMISSIONER OF INCOME TAX (TDS) Versus M/s IKEA TRADING HONG KONG LTD. - [2011] 333 ITR 565 (DEL) Issues Involved:1. Whether the penalty order under Section 271C of the Income Tax Act, 1961, was passed within the time prescribed by Section 275(1)(c).2. Whether the penalty proceedings under Section 271C are independent of other proceedings.3. Interpretation of the limitation period under Section 275(1)(c).Issue-Wise Detailed Analysis:1. Whether the penalty order under Section 271C was passed within the time prescribed by Section 275(1)(c):The primary issue was whether the penalty order dated 16.03.2000 was passed beyond the time limit prescribed by Section 275(1)(c) of the Income Tax Act, 1961. The Tribunal had deleted the penalty imposed by the assessing officer on the ground that the penalty order was passed more than six months from the end of the month in which the show cause notices were issued. The show cause notice was issued on 26.06.1999, and thus the limitation period expired on 31.12.1999. The penalty order was passed on 16.03.2000, which was beyond the prescribed time limit. The Tribunal's decision was upheld by the High Court, which concluded that the penalty order was indeed time-barred.2. Whether the penalty proceedings under Section 271C are independent of other proceedings:The revenue contended that the penalty proceedings were initiated in the course of verification proceedings and hence the limitation period should be calculated from the end of the financial year in which the verification proceedings were completed. However, the Tribunal and the High Court found that the penalty proceedings under Section 271C are independent of any other proceedings. The show cause notice did not mention any pending verification proceedings, and the penalty proceedings were based solely on the assessee's letter dated 18.01.1999. The High Court emphasized that the penalty proceedings under Section 271C could be initiated irrespective of any order being passed under Sections 201(1)/201(1A).3. Interpretation of the limitation period under Section 275(1)(c):Section 275(1)(c) provides two periods of limitation: one that is linked to the completion of other proceedings and another that is independent of any other proceedings. The High Court referred to its earlier judgment in Subodh Kumar Bhargava v. Commissioner of Income-tax, which clarified that if the penalty proceedings are not initiated in the course of any other proceedings, only the six-month limitation period from the end of the month in which the penalty proceedings were initiated would apply. In this case, the High Court concluded that the penalty proceedings were not initiated in the course of any other proceedings, and thus, the six-month limitation period applied. Consequently, the penalty order was time-barred as it was passed after the expiration of the six-month period.Conclusion:The High Court dismissed the revenue's appeals and upheld the Tribunal's decision to delete the penalty imposed under Section 271C. The Court concluded that the penalty order was passed beyond the prescribed time limit and that penalty proceedings under Section 271C are independent of other proceedings. The Court also clarified the interpretation of the limitation period under Section 275(1)(c), reinforcing that the six-month period applies when penalty proceedings are not initiated in the course of any other proceedings. The parties were left to bear their own costs.