Penalty limitation under section 275(1)(c) runs from the Assessing Officer's reference, making a later penalty order time-barred.

For limitation under section 275(1)(c), initiation of penalty proceedings is treated as the Assessing Officer's reference that triggers penalty action, not the later notice issued by the penalty authority. On that interpretation, the penalty order was passed after the prescribed time limit had already expired and was therefore time-barred. Where two interpretations are possible, the view favourable to the assessee was preferred. The penalty under section 271D was consequently held unsustainable.

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Issues: Whether the penalty under section 271D of the Income-tax Act, 1961 was barred by limitation under section 275(1)(c), and whether the date of initiation of penalty proceedings was the date of reference by the Assessing Officer or the later notice issued by the penalty authority.

Analysis: The limitation for penalty in a case not covered by clauses (a) or (b) of section 275(1) is governed by clause (c), under which the order must be passed within the later of the financial year in which the proceedings were completed or six months from the end of the month in which penalty action was initiated. The competing views were whether initiation occurred when the Assessing Officer referred the matter during assessment or when the notice under section 274 was issued by the penalty authority. The later view was adopted that the reference by the Assessing Officer constitutes initiation for the purpose of section 275(1)(c). On that footing, the last permissible date had expired long before the penalty order dated 29/03/2022. Where two interpretations are possible, the view favourable to the assessee was also preferred.

Conclusion: The penalty order was barred by limitation and was unsustainable.

Ratio Decidendi: For the purpose of section 275(1)(c), initiation of penalty proceedings occurs when the Assessing Officer makes the reference that triggers penalty action, and not when the later notice is issued by the penalty authority; consequently, a penalty order passed beyond the prescribed period is void as time-barred.

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