2025 (3) TMI 992 - AT - Income Tax

Penalty Order Under Section 271D Deemed Invalid for Being Time-Barred; Appeal Allowed, Penalty Deleted.

Mandeep Kaur Versus The J.C.I.T Range – 30, New Delhi

The court determined that the penalty order under Section 271D of the Income-tax Act, 1961, was time-barred and therefore invalid, as it was issued beyond ... Penalty u/s 271D - Period of limitation - HELD THAT:- In the instant case, the AO has issued reference to the JCIT on 31.07.2019, and therefore, following the decision of Mahesh Wood Products [2017 (5) TMI 433 - DELHI HIGH COURT] the penalty order should have been passed within six months i.e. 31.01.2020. As the JCIT has passed order u/s 271D of the Act on 28.2.2020, we are of the considered opinion that the same is outside the prescribed limit u/s 275(1)(c) of the Act and therefore, time barred. Regarding the second proposition that penalty is time barred as the demand notice was required to be submitted alongwith penalty order, which was not done in the present case, the same is rendered academic as the penalty order itself has been held as time barred and the assessee has succeeded on first ground itself. Decided in favour of assessee. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment are: Whether the penalty imposed under Section 271D of the Income-tax Act, 1961, is barred by limitations as per Section 275(1)(c) of the Act. Whether the absence of a demand notice accompanying the penalty order affects the validity of the penalty imposition.ISSUE-WISE DETAILED ANALYSIS1. Limitation Period for Imposing Penalty under Section 271D Relevant Legal Framework and Precedents: The primary legal provision under consideration is Section 275(1)(c) of the Income-tax Act, which stipulates the time frame within which a penalty order must be passed. The relevant precedent cited is the decision of the Delhi High Court in the case of Mahesh Wood Products Pvt Ltd, which interprets the initiation of penalty proceedings and the consequent limitation period. Court's Interpretation and Reasoning: The Court interpreted that the limitation period begins from the date the Assessing Officer (AO) recommends the initiation of penalty proceedings to the Joint Commissioner of Income Tax (JCIT). The Court relied on the precedent set by the Delhi High Court, which established that the initiation date is crucial for calculating the limitation period. Key Evidence and Findings: The AO issued a reference to the JCIT on 31.07.2019, recommending the initiation of penalty proceedings. The JCIT subsequently passed the penalty order on 28.02.2020. According to the Court, the penalty order should have been passed by 31.01.2020 to comply with the six-month limitation period from the initiation date. Application of Law to Facts: Applying the legal framework and the precedent, the Court found that the penalty order was passed beyond the permissible six-month period from the initiation date, rendering it time-barred under Section 275(1)(c). Treatment of Competing Arguments: The Department argued that the limitation period should be one year from the end of the financial year in which the penalty was initiated. However, the Court rejected this argument, adhering to the interpretation that the limitation period starts from the date of initiation by the AO. Conclusions: The Court concluded that the penalty order dated 28.02.2020 was time-barred and therefore invalid.2. Requirement of Demand Notice with Penalty Order Relevant Legal Framework and Precedents: The argument was based on the requirement for a demand notice to accompany the penalty order, as supported by the Supreme Court decision in Kalyan Kumar Ray. Court's Interpretation and Reasoning: The Court deemed this issue academic since the penalty order itself was already determined to be time-barred. Key Evidence and Findings: The demand notice was issued on 16.07.2020, after the penalty order, which was not in compliance with the requirement to accompany the penalty order. Application of Law to Facts: The Court did not need to apply this argument to the facts, as the penalty was already invalidated on the first ground. Conclusions: The issue was rendered moot due to the decision on the limitation period.SIGNIFICANT HOLDINGS Core Principles Established: The judgment reaffirms the principle that the limitation period for penalty orders under Section 271D starts from the date of initiation by the AO, as interpreted in the Mahesh Wood Products case. Final Determinations on Each Issue: The penalty order was declared time-barred and invalid due to the failure to comply with the limitation period as prescribed under Section 275(1)(c). The requirement for a demand notice to accompany the penalty order was not addressed substantively due to the decision on the limitation period.The appeal of the assessee was allowed, and the penalty order under Section 271D was ordered to be deleted.