2026 (2) TMI 1313 - AT - Income Tax

Limitation on penalty proceedings: AO reference triggers limitation, and aggregated records cannot sustain a cash receipt penalty.

Whether the penalty is time barred: the Assessing Officer's reference to the competent authority on 25/05/2023 constitutes the triggering event for ... Penalty levied u/s 271DA - violation of section 269ST - limitation provided under section 275(1)(c) - amount as received by the assessee for sale of spent solvents and scraps in the mode otherwise than an account payee cheque or account payee bank draft or use of electronic clearance system through a bank account. HELD THAT:- The starting point for initiation of the action for imposition of penalty within the meaning of section 275(1)(c) of the Act is from 25/05/2025 and for the purpose of determining the limitation period for passing the penalty order, Six months from the end of May 2023 should be considered, but not from 7/3/2024, i.e. date on which the authority issued show cause notice under section 274 r.w.s. 271DA of the Act. Since the A.O sent reference to Jt. CIT on 25/05/2023, in our considered view, Six months period should be considered from the end of May 2023 i.e. 31/05/2023 and if, we consider the starting point from 1/06/2023, then the A.O ought to have passed the order u/s 271DA of the Act on 30/11/2023. In the present case, since the A.O has passed the order under section 271DA of the Act on 27/09/2024, in our considered view, it is barred by limitation and the same is non-est in the eyes of law. Violation of the provisions of clause (b) of section 269ST - In the present case, admittedly, there is no evidence of any kind of sales bills or cash receipts for sale of unaccounted spent solvents and scraps. The only evidence which was found during the course of search was one excel sheet maintained purpose by the Cashier for the entire group and as explained by the assessee, the above document contains details of sales made for a particular period by the group as a whole in respect of all the five companies and from different plants/units. Since the assessee group is consisting of five companies and further have multiple units/plants which generates spent solvents and scraps and also assessee discharges the spent solvents and scraps from different units/plants to different buyers, in our considered view, only on the basis of consolidated entries appearing in segment (1) of excel sheet, it cannot be alleged that the assessee violated clause (b) of section 269ST of the Act for imposing penalty u/s 271DA of the Act. Therefore, A.O has not conclusively prove for the violation of provisions of section 269ST of the Act so as to levy penalty under section 271DA of the Act, and thus, in our considered view penalty levied by the AO is not sustainable on merits on the facts of the case and in law. Admission of the assessee does not Ipso Facto lead to levy of penalty, even though the assessee has made a statement regarding receipt of amount from the sale of spent solvents and scrap. Further, mere confessional statement without there being any documentary evidence in proof of such breakup of transactions cannot be solely relied upon while considering the penalty proceedings. Such evidence by way of statement might be considered for making the assessment but however for consideration of the penalty proceedings being independent in nature, further additional evidences are required to brought on to the file as corroborative in nature. More over the assessment proceedings and penalty proceedings are different all together and the evidences that were relied upon during the assessment proceedings may not be considered as sole factor and sufficient evidences for levy of penalty. Penalty is in addition to the tax determined as payable by the assessee. Penalty cannot be taken as additional tax for all purposes. The penalty and assessment proceedings are not one and the same proceedings. The findings given in the assessment proceedings would only be relevant and admissible but not final and conclusive in penalty proceedings. Decided in favour of assessee. Issues: (i) Whether the penalty order dated 27/09/2024 under section 271DA of the Income tax Act, 1961 is barred by limitation under section 275(1)(c) of the Income tax Act, 1961; (ii) Whether the penalty under section 271DA of the Income tax Act, 1961 for alleged contravention of section 269ST of the Income tax Act, 1961 is sustainable on merits based on the seized excel worksheets.Issue (i): Whether the penalty order dated 27/09/2024 under section 271DA is time barred under section 275(1)(c) of the Income tax Act, 1961.Analysis: Section 275(1)(c) prescribes either the financial year in which the proceedings in the course of which action for imposition of penalty is initiated are completed, or six months from the end of the month in which action for imposition of penalty is initiated, whichever is later. The seized-material chronology shows the Assessing Officer sent a reference to the Joint Commissioner (competent authority) on 25/05/2023 and the Joint Commissioner issued a show cause notice on 07/03/2024, with the penalty order dated 27/09/2024. Authorities and decisions considered include High Court and Tribunal precedents holding that a reference by the AO to the competent authority constitutes the triggering event for initiation of penalty proceedings for limitation purposes; CBDT Circular No.9/2016 and contrary precedents were considered and distinguished on facts. Applying the above legal framework, the triggering event is the AO's reference dated 25/05/2023, making six months from end of May 2023 the relevant limitation period.Conclusion: The penalty order dated 27/09/2024 is barred by limitation under section 275(1)(c) of the Income tax Act, 1961 and is quashed in favour of the assessee.Issue (ii): Whether the penalty under section 271DA for alleged violation of section 269ST is sustainable on merits based on the seized excel worksheets.Analysis: Section 269ST prohibits receipt of specified amounts otherwise than by prescribed banking or electronic modes; section 271DA prescribes penalty for contravention. The seized excel workbook contained consolidated, week wise aggregated entries for multiple group companies and plants without transaction wise or buyer wise cash receipt particulars attributable to the assessee. The material does not record date wise receipt amounts from individual buyers nor contemporaneous cash receipts linked to specific single transactions for the assessee. Penal liability being penal in character places the primary burden on Revenue to prove contravention with cogent, tangible evidence; admissions or assessment findings alone are not decisive for independent penalty proceedings. On the seized record the Revenue failed to establish that the assessee received Rs.2 lakhs or more in respect of a single transaction in violation of section 269ST.Conclusion: The penalty under section 271DA of the Income tax Act, 1961 is unsustainable on merits and is deleted in favour of the assessee.Final Conclusion: The combined effect is that the penalty orders under section 271DA for the assessment years before the Tribunal are quashed and the appeals are allowed in favour of the assessee.Ratio Decidendi: For limitation under section 275(1)(c) of the Income tax Act, 1961 the initiation of penalty proceedings is triggered by the Assessing Officer's reference to the competent authority; and for levying penalty under section 271DA the Revenue must prove contravention of section 269ST with tangible, transaction wise evidence-consolidated aggregate entries and admissions alone are insufficient.