2017 (8) TMI 1750 - AT - Income Tax

Penalty under s.271D invalid where penalty notice issued only after assessment completion; appellate quashing affirmed against revenue

ITO, Ward-4, Aayakar Bhawan, Rohtak Versus Sh. Suresh Kumar

ITAT DELHI - AT held the penalty under s.271D was unsustainable because the AO did not issue any show-cause notice during the pendency of assessment and ... Non-issuing of show cause notice during assessment proceedings - Penalty u/s. 271D notice not issued - HELD THAT:- AO has not issued any notice to the assessee u/s. 271D during the pendency of the assessment proceedings. The show cause notice was issued only on 28.04.2015, therefore, the penalty in dispute was rightly quashed by the Ld. CIT (A) by respectfully following the order of case of Keshu Ramsay [2005 (7) TMI 578 - ITAT MUMBAI] wherein, it has been held that 'Where no proceedings relevant to that assessment year is pending when penalty notice was issued, is bad in law. In view of above the penalty notice issued after completion of assessment proceedings may be held as illegal by your good self”. Decided against revenue. ISSUES PRESENTED AND CONSIDERED 1. Whether a penalty under section 271D can be validly initiated/notice issued after completion of the assessment proceedings for the relevant assessment year. 2. Whether the penalty order passed under section 271D is barred by limitation under the statutory limitation scheme (section 275(1)(c) framework) where the order was passed more than six months after the initial show-cause/notice for penalty was issued. 3. Whether factual inconsistencies in dates of issuance of show-cause notice (as relied upon by the assessing officer and the appellant authority) invalidate the penalty proceedings. 4. Whether it was necessary for the appellate authority to adjudicate substantive merits (including characterization of the receipt as 'Ammanat' and relationship considerations) where the appellate authority had held the penalty invalid on timing/limitation grounds. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of penalty initiation after completion of assessment proceedings Legal framework: Penal proceedings under section 271D arise from alleged acceptance of loan/advance in contravention of section 269SS. The scope of valid initiation of penalty proceedings has been considered in the light of whether any proceedings relevant to that assessment year were pending when the penalty notice was issued. Precedent Treatment: The Tribunal followed a prior decision of a co-ordinate bench which held that if no proceedings relevant to the assessment year are pending at the time the penalty notice is issued, the penalty notice may be bad in law. The appellate authority applied that reasoning to quash the notice issued after completion of assessment. Interpretation and reasoning: The Tribunal noted that the assessment order had been completed long before the show-cause notice for penalty was issued. Because the penalty notice was issued after completion of assessment proceedings, the appellate authority's conclusion-that issuance of the penalty notice in those circumstances rendered the penalty proceedings invalid-was accepted. The Tribunal found the appellate authority's reasoning to be well-considered and consistent with the cited precedent and therefore not requiring interference. Ratio vs. Obiter: Ratio - where no proceedings relevant to the assessment year are pending at the time of issuance of a penalty notice under section 271D, the penalty notice may be invalid. Conclusion: The penalty notice issued after completion of assessment proceedings was invalid; the appellate authority's quashment of the penalty on this ground was upheld. Issue 2 - Limitation for passing penalty order (section 275(1)(c) scheme) Legal framework: The limitation scheme prescribes timeframes within which penalty orders should be passed, including periods linked to the initiation of proceedings; section 275(1)(c) (as relied upon) prescribes relevant periods (six months from end of month in which action for imposition of penalty is initiated or expiry of the financial year in which proceedings are completed, whichever later). Precedent Treatment: The appellate authority relied upon an authoritative decision holding that the period of limitation for imposing penalty is to be reckoned from the date of initiation of penalty proceedings; where the order is passed after the prescribed period, it is time-barred. The Tribunal followed that approach. Interpretation and reasoning: The appellate authority found that the first noticed date for penalty initiation predated the penalty order by a period exceeding six months, rendering the penalty order beyond the permitted time. The Tribunal accepted that conclusion and treated the limitation bar as decisive. Because the penalty order was held to be time-barred, the Tribunal did not need to examine further merits. Ratio vs. Obiter: Ratio - a penalty order passed beyond the statutory limitation period (as computed from the date proceedings were initiated) is barred and liable to be set aside. Conclusion: The penalty order was time-barred under the applicable limitation provision and therefore unsustainable; the appellate authority's deletion of the penalty on limitation grounds was affirmed. Issue 3 - Effect of contradictory dates in records regarding issuance of show-cause notice Legal framework: Consistency of notice dates is relevant to both the validity of initiation and limitation computation for penalty proceedings; material contradictions can affect the ability to determine whether initiation occurred within the pendency of proceedings and within limitation. Precedent Treatment: The appellate authority referenced inconsistent record entries concerning the date of the first notice but ultimately relied on the chronology that demonstrated issuance after completion of assessment and beyond limitation. The Tribunal accepted the appellate authority's reliance on the operative chronology. Interpretation and reasoning: Although discrepancies in dates were noted, the decisive facts remained that (a) the assessment order was completed on a date preceding any penalty notice, and (b) the penalty order was passed well after the statutory six-month window measured from initiation. Therefore, the contradiction in specific dates did not alter the conclusion that the penalty proceedings were invalid/time-barred. Ratio vs. Obiter: Obiter - while internal contradictions in notice dates are material, where the overall chronology clearly shows issuance after completion of assessment and outside the limitation period, such contradictions do not salvage the penalty. Conclusion: Date inconsistencies did not revive otherwise invalid or time-barred penalty proceedings; the appellate authority's decision to quash the penalty stands. Issue 4 - Necessity of adjudicating substantive merits (characterization as 'Ammanat'/relationship) where penalty invalidated on timing/limitation grounds Legal framework: Adjudication on substantive allegations (whether the receipt was a loan in contravention of section 269SS or an innocuous transfer such as 'Ammanat' between close relatives) is relevant to imposition of penalty; however, statutory validity and limitation are preliminary jurisdictional/time bar issues that may dispose of the matter without reaching merits. Precedent Treatment: The appellate authority cited authorities holding that transactions between close relatives and amounts taken as 'Ammanat' may fall outside the ambit of section 269SS and that such characterizations can negate penalty liability. Nevertheless, the authority expressly stated that in view of its decision on timing/limitation, further adjudication on merits was not required. Interpretation and reasoning: The Tribunal observed that once the penalty proceedings were found invalid/time-barred, there was no necessity to decide the substantive character of the receipt. The appellate authority's non-adjudication on the third ground (substantive characterization) was therefore acceptable because the preliminary jurisdictional/limitation ruling was decisive. Ratio vs. Obiter: Ratio - where a penalty is quashed on valid jurisdictional or limitation grounds, adjudication of substantive merits is not required; such non-adjudication is not a procedural defect if the preliminary ground disposes of the controversy. Conclusion: The appellate authority was correct in not adjudicating the substantive ground after holding the penalty invalid on timing/limitation grounds; the omission did not vitiate the order. Overall Disposition The Tribunal upheld the appellate authority's deletion of the penalty, reasoning that the penalty notice and order were issued/passed after completion of assessment proceedings and beyond the applicable limitation period; because those preliminary defects disposed of the matter, substantive adjudication on whether the receipt was 'Ammanat' or otherwise fell outside section 269SS was unnecessary.