2025 (11) TMI 1591 - AT - Income Tax

Penalty under s.270A annulled as time-barred, order passed beyond limitation under s.275(1)(c) for delayed penalty proceedings

ITAT Hyderabad held that penalty proceedings initiated u/s 270A were barred by limitation under s. 275(1)(c). The penalty notice was issued in December ... Penalty u/s 270A - violation of provision of section 275(1)(c) - limitation prescribed u/s 275(1)(c) - HELD THAT:- We find that the penalty notice has been issued on 8.12.2020. Therefore, even as per the submission of the Ld. DR, the penalty notice was also issued in December 2020. Thus, there is no dispute regarding the month of initiation of penalty being December 2020. Accordingly, in the present case, as per the provision of section 275(1)(c) of the Act the two limitation dates would be 31.03.2021 (expiry of the financial year), and 30.06.2021 (six months from the end of December 2020). Applying the provision of section 275(1)(c) of the Act, the later of the two dates, i.e., 30.06.2021, would be the outer limit for passing the penalty order. The penalty order, however, has been passed on 30.12.2021, which in our opinion, is well beyond the limitation period. There is no difference in the computation of the outer limitation period, whether one considers the assessee's view (that initiation starts from the date of assessment order) or the Revenue's view (that initiation starts from the date of issue of notice). Under both interpretations, the month of initiation remains December 2020, and the limitation expires on 30.06.2021. Therefore, as the outcome is identical under both views, we refrain from deciding the issue as to whether the date of initiation should be reckoned from the date of the assessment order or the date of the penalty notice, since the result remains the same either way. Appeal of the assessee is allowed. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether the penalty order under section 270A was barred by limitation under section 275(1)(c) of the Income Tax Act, 1961, having regard to the dates of assessment order and penalty notice. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Limitation for passing penalty order under section 270A in terms of section 275(1)(c) Legal framework 2.1 The Court examined section 275(1)(c) of the Act, which provides that no order imposing a penalty shall be passed 'after the expiry of the financial year in which the proceedings, in the course of which action for the imposition of penalty has been initiated, are completed, or six months from the end of the month in which action for imposition of penalty is initiated, whichever period expires later.' 2.2 The Court noted that two distinct limitation periods are prescribed: (a) expiry of the financial year in which the relevant proceedings are completed, and (b) six months from the end of the month in which action for imposition of penalty is initiated, with the later of the two constituting the outer limit. Interpretation and reasoning 2.3 It was undisputed that the assessment order under section 143(3) was passed on 04.12.2020. In paragraph 7 of that order, the Assessing Officer recorded: 'I am satisfied that the assessee underreported his income to the extent of Rs. 2,36,141/-, hence penalty u/s 270A is also initiated separately.' The Court treated this as a clear recording of initiation of penalty proceedings. 2.4 The Court further considered the penalty order, which recited that notice under section 274 read with section 270A was issued on 08.12.2020 and duly served. Thus, even on the Revenue's stand that initiation should be reckoned from the date of penalty notice, the initiation fell in December 2020. 2.5 On this basis, the Court held that, for the purposes of section 275(1)(c), the 'month in which action for imposition of penalty is initiated' was December 2020 in either view (assessment order date or notice date), and that the 'proceedings in the course of which action for imposition of penalty has been initiated' were completed in financial year 2020-21. 2.6 Applying section 275(1)(c), the Court computed the two relevant limitation end-dates as follows: (i) expiry of the financial year in which the assessment proceedings were completed, i.e., 31.03.2021; and (ii) six months from the end of the month of initiation, i.e., six months from 31.12.2020, resulting in 30.06.2021. 2.7 The Court noted that the penalty order was actually passed on 30.12.2021. Since this date was well beyond 30.06.2021, the order was outside the maximum period permitted by section 275(1)(c). 2.8 As the limitation expiry date remained 30.06.2021 under both the assessee's contention (initiation on date of assessment order) and the Revenue's contention (initiation on date of notice), the Court found that the outcome was the same irrespective of which triggering date was adopted. It therefore found it unnecessary to adjudicate conclusively whether initiation should, in law, be reckoned from the assessment order or from the penalty notice. Conclusions 2.9 The Court held that, in the facts of the case, the later of the two limitation periods under section 275(1)(c) expired on 30.06.2021. 2.10 As the penalty order under section 270A was passed on 30.12.2021, it was held to be barred by limitation under section 275(1)(c) and was consequently quashed. 2.11 The appeal was allowed on the ground that the impugned penalty order was time-barred and invalid.