Penalty order canceled as Tribunal finds it time-barred under Income Tax Act

The Tribunal allowed the Assessee's appeal, canceling the penalty order imposed under Section 271-E of the Income Tax Act, 1961, due to it being time-barred under Section 275(1)(c). The Tribunal held that the penalty order issued on 27.1.2017 was beyond the permissible period, with the initiation of penalty proceedings deemed to be on 24.3.2016. The penalty order was considered invalid as it exceeded the statutory time limit, leading to its cancellation.

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Issues Involved:
1. Imposition of penalty under Section 271-E of the Income Tax Act, 1961.
2. Limitation period for passing the penalty order under Section 275(1)(c) of the Act.
3. Initiation of penalty proceedings by the Assessing Officer (AO).

Issue-wise Detailed Analysis:

1. Imposition of Penalty under Section 271-E of the Income Tax Act, 1961:
The Assessee, engaged in civil construction contracts, repaid a loan of Rs. 10,00,000 in cash, violating Section 269-T of the Act, which mandates repayment through an account payee cheque or bank draft if the amount exceeds Rs. 20,000. Consequently, the AO observed that a penalty under Section 271-E, equal to the amount of the loan, would be attracted. The JCIT, after issuing a show cause notice, imposed the penalty on 27.1.2017.

2. Limitation Period for Passing the Penalty Order under Section 275(1)(c) of the Act:
The Assessee contended that the penalty order was barred by limitation as per Section 275(1)(c), which stipulates two distinct periods for passing a penalty order: the end of the financial year in which the proceedings are completed or six months from the end of the month in which the penalty proceedings are initiated, whichever is later. Since the quantum proceedings were completed on 24.3.2016, the penalty order should have been passed by 30th September 2016. The JCIT issued the penalty order on 27.1.2017, which the Assessee argued was beyond the permissible period.

3. Initiation of Penalty Proceedings by the Assessing Officer (AO):
The CIT(A) held that the AO did not initiate penalty proceedings in the assessment order dated 24.3.2016 but merely observed that there was a default attracting penalty under Section 271-E. The CIT(A) considered the initiation date to be 10.8.2016, when the JCIT issued the show cause notice, making the penalty order within the limitation period.

Legal Precedents and Arguments:
The Assessee relied on the decisions of the Hon’ble Rajasthan High Court in CIT Vs. Hissaria Bros. and the Delhi High Court in Pr.CIT Vs. Mahesh Wood Products Pvt. Ltd., which held that penalty proceedings could be initiated independently of the completion of appellate quantum proceedings. The Assessee also cited the Hon’ble Delhi High Court in CIT (Principal) Vs. JKD Capital and Finlease Ltd., asserting that the date of initiation of penalty proceedings is the date of the assessment order if the AO mentions the penalty proceedings therein.

Tribunal's Observations and Decision:
The Tribunal disagreed with the CIT(A)'s conclusion, holding that the AO's observation in the assessment order amounted to the initiation of penalty proceedings. The Tribunal referenced the Delhi High Court's decision in JKD Capital and Finlease Ltd., emphasizing that the AO must be conscious of the time limit under Section 275(1)(c) and that delaying the issuance of the notice defeats the section's objective. Thus, the initiation date was 24.3.2016, making the last permissible date for passing the penalty order 30th September 2016. Since the penalty order was passed on 27.1.2017, it was barred by time and therefore invalid.

Conclusion:
The Tribunal allowed the Assessee's appeal, canceling the penalty order on the grounds of being time-barred and did not address the existence of reasonable cause under Section 273B of the Act.

Pronouncement:
The judgment was pronounced in the open court on 2nd August 2019.

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