2025 (3) TMI 713 - AT - Income Tax

Penalty under section 271D quashed due to limitation period expiry despite cash loan violations

ITAT Hyderabad upheld CIT(A)'s decision to quash penalty under section 271D imposed on assessee for alleged cash loans of Rs. 61,50,000 violating section ... Penalty proceedings u/sec. 271D beyond period of limitation - as alleged assessee has taken loans in cash from various persons to the tune of Rs. 61,50,000/-, there is a clear violation of provisions of sec.269SS - HELD THAT:- In the present case, going by the show cause notice issued by the AO, imposing penalty u/sec.271D was dated 30.03.2021. Therefore, in our considered view, the completion of action relates to passing of any order for imposing of penalty under Chapter- XXI of the Act falls on or before 30.09.2021 and in our considered view, the said “due date” is beyond the period specified under the provisions of TOLA i.e., between 20.03.2020 and 31.03.2021 and, therefore, the Notification issued by the CBDT dated 17.09.2021 does not extend the due date for passing the order imposing penalty u/sec.271D of the Act in the present case up-to 30.09.2021. Therefore, arguments advanced by Revenue in light of CBDT’s Notification dated 17.09.2021 does not hold good and, therefore, rejected. Considering the facts of the case and also by following the Judgment of Mahesh Wood Products Pvt. Ltd.[2017 (5) TMI 433 - DELHI HIGH COURT] and Shri Subramaniam Thanu [2024 (3) TMI 879 - ITAT CHENNAI] we are of the considered view that there is no error in the reasons given by CIT(A) to quash the penalty order passed by the AO u/sec.271D - Decided in favour of assessee. 1. ISSUES PRESENTED and CONSIDEREDThe core legal issues considered in this judgment include:Whether the penalty imposed under section 271D of the Income Tax Act, 1961, for contravention of section 269SS, was validly imposed within the statutory time limit prescribed under section 275(1)(c) of the Act.Whether the extension of the due date for imposing penalties under Chapter XXI of the Income Tax Act, as per CBDT's Notification No.113/2021, applies to the present case.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Validity of Penalty Imposition under Section 271DRelevant legal framework and precedents: Section 269SS prohibits acceptance of loans or deposits in cash exceeding a specified limit, and section 271D prescribes penalties for violations. Section 275(1)(c) sets the time limit for imposing such penalties. Relevant precedents include the Delhi High Court decision in PCIT vs. Mahesh Wood Products Pvt. Ltd. and ITAT Chennai's decision in DCIT vs. Shri Subramaniam Thanu.Court's interpretation and reasoning: The Tribunal determined that the penalty order dated 25.01.2022 was issued beyond the time limit provided under section 275(1)(c), which requires penalties to be imposed within six months from the end of the month in which the penalty proceedings are initiated. The initiation date was considered as 30.03.2021, making the deadline 30.09.2021.Key evidence and findings: The Tribunal found that the penalty order was issued after the statutory deadline, rendering it invalid and void ab initio.Application of law to facts: The Tribunal applied section 275(1)(c) and relevant case law to conclude that the penalty order was time-barred.Treatment of competing arguments: The Tribunal rejected the Revenue's argument that the penalty order was within the time limit due to the CBDT's Notification, as the notification did not apply to the specific timeline of this case.Conclusions: The penalty order was quashed due to being issued beyond the statutory time limit.Issue 2: Applicability of CBDT's Notification No.113/2021Relevant legal framework and precedents: The CBDT's Notification No.113/2021 extended the due date for imposing penalties under Chapter XXI of the Income Tax Act to 31.03.2022. The Supreme Court's decision in Union of India vs. Rajeev Bansal was also considered.Court's interpretation and reasoning: The Tribunal interpreted the notification as not applicable to the present case because the initiation of penalty proceedings and the relevant due date fell outside the period specified in the notification.Key evidence and findings: The Tribunal noted that the penalty proceedings were initiated on 30.03.2021, and the due date for imposing the penalty was 30.09.2021, which was not covered by the notification.Application of law to facts: The Tribunal applied the provisions of the Taxation and Other Laws Amendment Act, 2021, and concluded that the notification did not extend the due date for the penalty in this case.Treatment of competing arguments: The Tribunal dismissed the Revenue's reliance on the notification, stating that the notification's extension period did not apply to the timeline of the penalty proceedings in question.Conclusions: The notification did not save the penalty order from being time-barred.3. SIGNIFICANT HOLDINGSPreserve verbatim quotes of crucial legal reasoning: 'The order passed by the Assessing Officer is beyond the time limit provided under the provisions of sec.275(1)(c) of the Income Tax Act, 1961 and thus, it is invalid, void ab-initio, barred by limitation and liable to be quashed.'Core principles established: Penalty orders must be issued within the statutory time limits set by section 275(1)(c), and extensions provided by notifications must be applicable to the specific timeline of the case.Final determinations on each issue: The Tribunal upheld the CIT(A)'s decision to quash the penalty order as time-barred and dismissed the Revenue's appeal. The cross-objection by the assessee was allowed.