2024 (11) TMI 506 - HC - Income Tax

Penalty proceedings under Section 271C time-barred when initiated on reference date, not show cause notice date

Commissioner Of Income Tax (TDS) -2 Delhi Versus Turner general Entertainment Networks India Pvt. Ltd.

HC held that penalty proceedings u/s 271C were time-barred as they were initiated on receipt of reference dated 25.09.2014, not on issuance of show cause ... Levying penalty u/s 271C beyond period of limitation - whether the penalty proceedings were initiated on receipt of reference on 25.09.2014 or on issuance of the show cause notice on 04.08.2014? - HELD THAT:- The question as to when a penalty proceeding can be stated to be initiated is squarely covered in favour of the assessee by the decision of JKD Capital & Finlease Ltd [2015 (10) TMI 1281 - DELHI HIGH COURT] considering that the subject matter of the quantum proceedings was the non-compliance with Section 269T of the Act, there was no need for the appeal against the said order in the quantum proceedings to be disposed of before the penalty proceedings could be initiated - initiation of penalty proceedings did not hinge on the completion of the appellate quantum proceedings. Initiation of proceedings - In the present case, the learned JCIT, after receipt of the reference for penalty proceedings, had not taken immediate steps for concluding the said proceedings. He issued the show cause notice almost a year after receiving of the reference. The expression initiated is not defined under the Act and must be construed in its normal sense. The word ‘initiated’ is a past tense of the word ‘initiate’. The Shorter Oxford English Dictionary defines the word ‘initiate’ as under: “to begin, commence, enter upon, to introduce, set going, originate.” In Webster’s Third New International Dictionary, the word ‘initiate’ has, inter alia, been defined thus: “to begin or set going: make a beginning of: perform or facilitate the first actions, steps, or stages of:” The Words and Phrases (Permanent Edition) defines ‘initiate’ to mean: “an introductory step or action, a first move; beginning; start, and to initiate as meaning – to commence.” In Om Prakash Jaiswal v. D.K. Mittal & Anr [2000 (2) TMI 831 - SUPREME COURT] the Supreme Court had considered the meaning of the expression ‘initiate any proceedings for contempt’ by referring to the dictionary meaning of the said word. The expression ‘action for imposition of penalty is initiated’ must, thus, clearly refers to the date on which the first introductory step for such action is taken, it must necessarily mean the start of such action. It must mean the commencement of action for imposition of penalty. As noted above, the AO had found that it was the admitted case that the assessee had defaulted in deduction of TDS, which it was obliged to do. It had, accordingly, made a reference to the learned JCIT. This was obviously for the purposes of imposition of penalty. The reference, thus, clearly marked the first step for initiation of action for imposition of penalty. The Show Cause Notice issued subsequently was to provide the assessee an opportunity to show cause why penalty not be imposed. This was in the beginning of the action for imposition of penalty. The same had commenced earlier with the AO determining that there was a cause for such imposition. Thus, we find no infirmity with the decision of the learned ITAT that the penalty proceedings had been initiated at the earliest on 25.09.2014 and the order of penalty passed by the learned JCIT (TDS) was barred by limitation. Decided against revenue. Issues:- Whether the order levying penalty under Section 271C of the Income Tax Act is barred by limitation.Detailed Analysis:1. The Revenue filed an appeal under Section 260A of the Income Tax Act challenging the order of the Income Tax Appellate Tribunal (ITAT) in the case of ITO v. Turner General Entertainment Networks India Pvt. Ltd. The main issue was whether the penalty under Section 271C was time-barred.2. The assessee had not deducted Rs. 5,00,40,103/- as tax at source, as reported in the tax audit report. The assessment proceedings were completed on 26.03.2014, and a penalty was levied by the JCIT on 25.02.2016. The penalty was later deleted by the CIT(A) on the grounds of being barred by limitation.3. The CIT(A) held that as per Section 275(1)(c) of the Act, no penalty could be imposed after six months from the initiation of penalty proceedings. The dispute arose regarding the date of initiation of penalty proceedings, whether it was the date of the reference or the issuance of the show cause notice.4. The ITAT, affirming the CIT(A)'s decision, held that the penalty proceedings were initiated upon the receipt of the reference on 25.09.2014, making the penalty order passed by the JCIT time-barred.5. The Court referred to previous decisions and legal definitions to interpret the term 'initiated.' It was concluded that the initiation of penalty proceedings refers to the first step taken towards imposing the penalty, which in this case was the reference made by the AO. The issuance of the show cause notice was considered a subsequent step in the process.6. The Court rejected the Revenue's argument that the delay in initiating penalty proceedings was justified, emphasizing that the initiation must be prompt and in line with statutory limitations. The decision in a similar case with a longer delay was distinguished, highlighting the principle that penalty proceedings cannot be arbitrarily delayed.7. Ultimately, the Court dismissed the Revenue's appeal, stating that no substantial question of law arose for consideration, as the penalty order was indeed time-barred based on the date of initiation of penalty proceedings.Conclusion:The Court upheld the decision that the penalty order under Section 271C was barred by limitation, as the penalty proceedings were deemed to have been initiated upon the receipt of the reference, making the subsequent penalty order invalid.