Time-barred penalty u/s 271E quashed as order passed after limitation period calculated from assessment and initiation dates

ITAT Delhi deleted the penalty imposed u/s 271E, holding it to be time-barred. The assessment was completed on 30.12.2019 and satisfaction for initiation of penalty proceedings was recorded on the same date. Under the applicable limitation provision, penalty u/s 271E had to be levied by the later of (i) the end of the financial year in which assessment was completed (31.03.2020), or (ii) six months from the end of the month in which penalty proceedings were initiated (30.06.2020). As the penalty order dated 10.02.2022 was passed beyond this period, it was held invalid and the appeal of the assessee was allowed.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the penalty order under section 271E of the Act was barred by limitation prescribed under section 275(1)(c) of the Act, having regard to the dates of completion of assessment and initiation of penalty proceedings.

1.2 Whether the first appellate authority was obliged to examine the question of limitation suo motu, even when the assessee did not press that ground before it.

1.3 Consequentially, whether the penalty order passed under section 271E was non est and liable to be quashed on the ground of limitation without examining the merits of the alleged violation of section 269T.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Limitation for passing penalty order under section 271E

Legal framework

2.1 The Tribunal proceeded on the basis of section 275(1)(c) of the Act (referred to in the order as section 271(1)(c) by inadvertence) as governing limitation for levy of penalty in cases under section 271E, i.e., the outer time-limit being (a) the end of the financial year in which the assessment was completed; or (b) six months from the end of the month in which action for levy of penalty was initiated, whichever is later.

Interpretation and reasoning

2.2 The assessment was completed on 30.12.2019 and satisfaction for initiating penalty proceedings was recorded on the same date.

2.3 On these facts, the Tribunal held that the two relevant limitation milestones under section 275(1)(c) were: (i) 31.03.2020, being the end of the financial year in which the assessment was completed; and (ii) 30.06.2020, being six months from the end of the month (December 2019) in which action for penalty was initiated.

2.4 Since the later of these two dates was 30.06.2020, the Tribunal held that the penalty order was required to be passed on or before 30.06.2020.

2.5 The impugned penalty order was in fact passed on 10.02.2022, i.e., well beyond the computed limitation period.

Conclusions

2.6 The Tribunal concluded that the penalty order passed on 10.02.2022 was beyond the period of limitation prescribed under section 275(1)(c) and therefore was non est ab initio.

2.7 On this ground alone, without entering into the merits of the alleged violation of section 269T or the factual justification for cash repayment, the penalty under section 271E was held unsustainable.

Issue 2: Duty of the first appellate authority to examine limitation

Interpretation and reasoning

2.8 The Tribunal noted that the assessee had not pressed the ground of limitation before the first appellate authority and that this omission was relied upon by the Revenue.

2.9 The Tribunal held that the question of limitation is a mixed question of law and fact, but the facts material for deciding limitation (dates of assessment and initiation of penalty) are available in the assessment records.

2.10 It was emphasized that an order passed beyond limitation is non est ab initio, and such a defect goes to the root of jurisdiction.

2.11 The Tribunal held that, as the first appellate authority, the Commissioner (Appeals) is under an obligation to ensure that the impugned order is in accordance with law, which includes verifying whether it has been passed within the prescribed period of limitation, even if the assessee does not press that ground.

2.12 The failure of the first appellate authority to examine and address the limitation issue was therefore held to render its order erroneous.

Conclusions

2.13 The Tribunal held that the first appellate authority committed an error in not examining the question of limitation suo motu, despite having the necessary material on record to do so.

Issue 3: Consequential effect on the penalty under section 271E

Interpretation and reasoning

2.14 Having found that the penalty order was time-barred and non est, the Tribunal considered it unnecessary to adjudicate other grounds, including the factual defence that the loan was settled out of recorded sales proceeds and the challenge based on the manner of passing the penalty order.

Conclusions

2.15 Ground relating to limitation was sustained.

2.16 The penalty order under section 271E was quashed as being barred by limitation, and the assessee's appeal was allowed on this basis alone.

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