Limitation for penalty under sections 271D/271E: six-month period runs from AO's reference, leading to penalties set aside.

Validity of penalty under the tax regime was examined with focus on the limitation in section 275(1)(c); the limitation period for initiating penalty is governed by the statutory rule that the six-month clock begins from the date the Assessing Officer makes a reference for imposition of penalty, not from subsequent supervisory approval or issuance of show-cause notice, and accordingly penalties imposed under provisions concerning prohibited transactions were set aside where the statutory timing requirement was not met; the appeals against penalties for the relevant assessment years were allowed on that basis.

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1. ISSUES PRESENTED AND CONSIDERED

(i) Whether the penalty orders under sections 271E and 271D were barred by limitation under section 275(1)(c), having regard to the date of completion of assessment and the date on which "action for imposition of penalty" was initiated.

(ii) Whether, for computing limitation under section 275(1)(c) in penalties requiring action by the competent authority under section 274(2), limitation starts from the competent authority's show-cause notice or from the Assessing Officer's initiation/reference made during assessment proceedings.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i) & (ii): Limitation for penalties under sections 271E/271D-starting point under section 275(1)(c)

Legal framework (as deliberated by the Court): The Court applied section 275(1)(c) as prescribing two alternative limitation endpoints for passing a penalty order-(a) expiry of the financial year in which the relevant proceedings are completed, or (b) six months from the end of the month in which "action for imposition of penalty is initiated", whichever expires later. The Court also considered that penalties under sections 271E/271D are imposed by the competent authority referred to in section 274(2), while the assessment proceedings are completed by the Assessing Officer.

Interpretation and reasoning: The Court held that where the assessment order records satisfaction for initiation of penalty and the Assessing Officer makes a reference to the competent authority for levy of penalty, the "initiation" relevant for section 275(1)(c) is not postponed to the date on which the competent authority issues the show-cause notice. Following the applied legal principle, the Court treated the Assessing Officer's initiation during assessment (including the reference for penalty action) as the operative point for computing the six-month period. It rejected the Revenue's plea that limitation should run only from the date the competent authority issues a show-cause notice, observing that approval/issuance of notice by the competent authority is not the relevant trigger for limitation once initiation has already occurred in the course of the assessment proceedings.

Conclusions: On the admitted dates, assessment was completed on 29.12.2022 and penalty was ordered on 30.01.2024, with the competent authority issuing show-cause notice on 12.10.2023. Computing limitation from initiation attributable to the Assessing Officer's action during assessment/referral, the penalty order was beyond the period permitted by section 275(1)(c). Accordingly, the penalties under section 271E for the relevant years were held time-barred and deleted; and since the factual matrix for section 271D penalties was held "exactly similar", the same limitation finding was applied mutatis mutandis, resulting in deletion of penalties under section 271D as well.

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