TaxTMI 
TaxTMI 
2026 (7) TMI 1035
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....Kutsa, Advocate C.A.V. JUDGMENT PER: HON'BLE MR. JUSTICE K. V. ARAVIND: Heard Sri Y. V. Ravi Raj, learned Senior Standing Counsel for the appellants and Sri Shreehari Kutsa, learned Counsel for the respondents. 2. These appeals are by the Revenue under Section 4 of the Karnataka High Court Act, 1961, impugning the judgments passed in the writ petitions by the learned Single Judge. For convenience the Writ Appeals impugning the Writ Petitions are tabulated below. Sl. No. Writ Appeals Writ Petitions Order Date 1. 1991/2025 22008/2025 18.09.2025 2. 1977/2025 20219/2025 3. 1980/2025 20242/2025 4. 1982/2025 20220/2025 5. 1994/2025 20209/2025 6. 1995/2025 20235/2025 7. 1996/2025 20192/2025 8. 2003/2025 22032/2025 9. 2021/2025 20188/2025 10. 2023/2025 20212/2025 FACTUAL BACKGROUND 3. The brief facts are that the return of income filed by the assessee was selected for scrutiny. Upon completion of the assessment, the Assessing Officer initiated penalty proceedings under Section 270A of the Income Tax Act, 1961 (for short "the Act"). The case also attracted initiatio....
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....red to be initiated and levied by another authority upon a proposal/reference made by the Assessing Officer. 5.2 It is also submitted that the proposal/reference made by the Assessing Officer to the Joint Commissioner is not final. It is within the discretion of the Joint Commissioner to examine the proposal/reference and decide whether initiation of penalty proceedings is warranted. The learned Single Judge, without noticing the context of Section 275 of the Act, has erroneously interpreted the provision to mean that the period of limitation commences from the date of reference, even when no initiation of penalty proceedings has taken place. According to the Revenue, the proposal/reference made by the Assessing Officer to the Joint Commissioner cannot be construed as initiation of penalty proceedings. 6. Sri Srihari Kutsa, learned counsel appearing for the respondents-assessees, submits that the issue is no longer res integra in view of the pronouncement of the Co-ordinate Bench in the case of K.Umesh Shetty (supra). It is submitted that when a proposal/reference is made by the Assessing Officer to the Joint Commissioner in the course of assessment proceedings, the limitatio....
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....some cases it is vested with the Joint Commissioner/Additional Commissioner of Income Tax. Imposition of penalty is also vested with the Commissioner (Appeals), the Principal Commissioner, or the Commissioner in the course of proceedings under the Act. For the present, this Court is not concerned with the powers vested in authorities other than the Joint Commissioner/Additional Commissioner. In the case on hand, this Court is concerned only with the levy of penalty under Section 271DA of the Act, which provides for imposition of penalty for failure to comply with the provisions of Section 269ST of the Act. 8.2 For a complete analysis of the Chapter, the chart below indicates the nature of the failures that attract levy of penalty and the authority competent to impose such penalty. Sl. No. Section Nature of Penalty Competent Authority to Impose Penalty 1 270A Penalty for underreporting and misreporting of income Assessing Officer, JCIT (Appeals), Commissioner (Appeals), CIT or PCIT 2 271 Failure to furnish returns, comply with notices, concealment of income, etc. Assessing Officer, JCIT (Appeals), Commissioner (Appeals), CIT or PCIT 3 271....
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....rmation under Section 285A Prescribed Authority 26 271GB Failure to furnish report or furnishing inaccurate report under Section 286 Prescribed Authority 26 271H Failure to furnish statements, etc. Assessing Officer 27 271-I Failure to furnish information or furnishing inaccurate information under Section 195 Assessing Officer 28 271J Furnishing incorrect information in reports or certificates Assessing Officer, Joint Commissioner (Appeals) or Commissioner (Appeals) 29 271K Failure to furnish statements, etc. Assessing Officer 30 272A Failure to answer questions, sign statements, furnish information, returns or statements, allow inspections, etc. JDIT, JCIT, PCCIT, CCIT,PCIT or CIT 31 272AA Failure to comply with the provisions of Section 133B Joint Commissioner, Assistant Director, Deputy Director or Assessing Officer 32 272B Failure to comply with the provisions of Section 139A Assessing Officer 33 272BB Failure to comply with the provisions of Section 203A Assessing Officer 34 272BBB Failure to comply with the provisions of Section 206CA Assessing Officer ....
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....ntravention. (2) Any penalty imposable under sub-section (1) shall be imposed by the Joint Commissioner.] 274. Procedure. - (1) No order imposing a penalty under this Chapter shall be made unless the assessee has been heard, or has been given a reasonable opportunity of being heard. (2) [ No order imposing a penalty under this Chapter shall be made- (a) by the Income-tax Officer, where the penalty exceeds ten thousand rupees; (b) by the Assistant Commissioner [or Deputy Commissioner], where the penalty exceeds twenty thousand rupees, except with the prior approval of the [Joint] Commissioner] [(2A) The Central Government may make a scheme, by notification in the Official Gazette, for the purposes of imposing penalty under this Chapter so as to impart greater efficiency, transparency and accountability by- (a) eliminating the interface between the [income-tax authority and the assessee or any other person] to the extent technologically feasible; (b) optimising utilisation of the resources through economies of scale and functional specialisation; (c) introducing a mechanism for imposing of penal....
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....re completed, or within one year from the end of the financial year in which the order of the ^12[Principal Commissioner or Commissioner] (Appeals) is received by the ^13[Principal Chief Commissioner or Chief Commissioner] or ^12[Principal Commissioner or Commissioner], whichever is later;] (b) in a case, where the relevant assessment or other order is the subject-matter of revision under Section 263 ^5[or Section 264], after the expiry of six months from the end of the month in which such order of revision is passed; (c) in any other case, 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. ^6[(1-A) In a case where the relevant assessment or other order is the subject matter of an appeal to the ^12[Principal Commissioner or Commissioner] (Appeals) under Section 246 or Section 246-A or an appeal to the Appellate Tribunal under Section 253 or an appeal to the High Court under Section 260-A or an appeal to the Supreme Court u....
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.... any period during which a proceeding under this Chapter for the levy of penalty is stayed by an order or injunction of any court, shall be excluded. (Emphasis Supplied)" ANALYSIS OF THE STATUTORY SCHEME 9. In the present batch of cases, this Court is concerned with the interpretation of clause (c) of sub-section (1) of Section 275 of the Act. The emphasis in clause (c) is on the expression, "action for the imposition of penalty has been initiated." 9.1 On a plain reading of clause (c), it appears to comprise of two parts. The first part prescribes the expiry of the financial year in which the proceedings, in the course of which action for imposition of penalty has been initiated, are completed. The second part provides for a period of six months from the end of the month in which the action for imposition of penalty is initiated. The provision further stipulates that the period which expires later shall apply. 9.2 There can hardly be any dispute regarding the computation of the period of limitation of six months. The real controversy centers around the meaning of the expression, "action for the imposition of penalty is initiated." The next question, therefore, is: w....
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.... 15. On a plain reading of Section 275 of the Act, a period of six months prescribed for passing an order imposing penalty is made available to the authority competent to impose such penalty. If the proposal/reference made by the Assessing Officer is construed as the starting point for computation of the said period of six months, it would again lead to an anomalous situation by curtailing the statutory period of six months available to the Joint Commissioner, who alone is competent to initiate and impose penalty under Section 271DA of the Act. Such an interpretation would also result in the Assessing Officer effectively controlling the period of limitation provided under Section 275 of the Act to the Joint Commissioner. 16. The meaning of the expression "initiation of proceedings" has been extensively considered by the Hon'ble Supreme Court in Armour Security (India) Limited v. Commissioner, CGST, Delhi [2025 SCC Online SC 1700]. While examining the said expression, the Hon'ble Supreme Court held that initiation of proceedings commences with the issuance of a show cause notice and does not encompass the issuance of summons or the conduct of any search or seizure proceed....
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.... 59. At the stage of issuing a summons, the Department is yet to determine whether proceedings should be initiated against the assessee. Such evidence-gathering and inquiry do not constitute "proceedings" within the meaning of section 6(2)(b) of the CGST Act. The mere issuance of a summons cannot be equated with proceedings barred under the Act, as the subject-matter cannot be ascertained solely through summons. That said, summons should not be issued in routine matters or for documents readily available on the GST portal. They ought to be issued after much thought and consideration as to the exact information required. We acknowledge that the issuance of multiple, cyclostyled summons may indicate a roving inquiry. 60. We affirm and appreciate the view taken by the High Court of Allahabad in G.K. Trading [G.K. Trading Company v. Union of India, (2021) 88 GSTR 293 (All); 2020 SCC OnLine All 1907.] and the High Court of Kerala in K.T. Saidalavi [K.T. Saidalavi v. State Tax Officer, SGST Department, (2025) 145 GSTR 369 (Ker); 2024 SCC OnLine Ker 5674.] respectively. The High Court of Allahabad rightly held that the issuance of summons cannot be conflated with a statutory ste....
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....ars." (emphasis supplied) 65. We may quote an extract from the Black's Law Dictionary, 4th Edition, page 1368, it stated as under: "An act which is done by the authority or direction of the court, express or implied; an act necessary to be done in order to attain a given end; a prescribed mode of action for carrying into effect a legal right." 66. A show-cause notice is a document served on a noticee, requiring them to explain why a particular action should not be initiated against them. Under the GST regime, issuance of a show-cause notice is a mandatory pre-condition for raising a demand. It forms the bedrock for proceedings related to the recovery of tax, interest, and penalty. The notice ensures adherence to the principles of natural justice by granting the assessee an opportunity to present their case before any adverse action is taken. In essence, it serves as both a procedural safeguard and a legal necessity, marking the commencement of quasi-judicial adjudication under the Act. 67. A show-cause notice sets the law in motion concerning the liability under the statute, containing charges that a specific person is called upon to answer. ....
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....ce of summons does not imply that the Department has decided to proceed against the taxpayer for recovery of liability. Therefore, issuance of summons, by no stretch, can be considered as the initiation of proceedings, since at that stage, the Department still retains the discretion not to initiate any proceedings. A mere contemplation or possibility of initiating action cannot be equated with "proceedings", as doing so would undermine the framework of cross- empowerment under the Act. Even when a discovery is made during the search proceedings under section 67 of the CGST Act, the Department is required to bring such proceedings to a definitive conclusion, either by issuing a show-cause notice under section 74 or by dropping the matter altogether. (i) Reading of Circular dated October 5, 2018 97. We summarize our final conclusion as under: (i) Clause (b) of sub-section (2) of section 6 of the CGST Act and the equivalent State enactments bars the "initiation of any proceedings" on the "same subject-matter". (ii) Any action arising from the audit of accounts or detailed scrutiny of returns must be initiated by the tax administration to which the t....
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....ssuing the statutory notice contemplated under the relevant enactment. Consequently, the notice issued under Section 274 of the Act read with the relevant penal provision alone qualifies as the initiation of proceedings, as it reflects the decision of the competent authority to commence action with the object of attaining a determinative outcome. Until such notice is issued, the proceedings cannot be said to have been initiated in the eye of law. 21. No doubt, the aforesaid enunciation of law was rendered while interpreting the provisions of the CGST Act. However, the principles laid down therein would provide valuable guidance in understanding and ascribing meaning to the expression, "action for imposition of penalty is initiated", occurring in Section 275(1)(c) of the Act. 22. In circumstances of a similar nature, while dealing with the imposition of penalty under Sections 271D and 271E of the Act, the High Court of Kerala, in Grihalakshmi Vision v. Assistant Commissioner of Income Tax, Range I, Kozhikode [2015 SCC OnLine Ker 23752], had occasion to consider the scope and ambit of Section 275(1)(c) of the Act. The Court held as under: "10. Question to be considered....
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.... 26. If the commencement of limitation is to be reckoned from the date of proposal/reference made by the Assessing Officer, as urged by the learned counsel for the respondents-assessees, the Joint Commissioner would not, at that stage, have issued any notice seeking an explanation from the assessee. In such circumstances, the "action for imposition of penalty" can be said to have been initiated only when a notice is issued by the Joint Commissioner affording an opportunity to the assessee to explain the alleged default or granting an opportunity of being heard. 27. It is clarified that Section 273B of the Act has been referred to only as an aid to understand the scope and meaning of Section 275 of the Act, notwithstanding the fact that Section 271DA of the Act is not one of the provisions covered by Section 273B of the Act. It is also relevant to notice that several other provisions under Chapter XXI, where the jurisdiction to impose penalty is vested in the Joint Commissioner, are covered by Section 273B of the Act. One such provision is Section 271D of the Act. 28. When interpreting Section 275 of the Act, this Court must bear in mind that the said provision prescribes the....
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...., having regard to the interpretation placed by this Court on the expression, "action for imposition of penalty is initiated." 31. It is the contention of the Revenue that there is no limitation prescribed for initiation of proceedings under Section 271DA of the Act and that the period of limitation under Section 275 of the Act commences only from the date of such initiation. It is difficult to countenance such a submission, insofar as it seeks to contend that there is no limitation whatsoever for initiation of proceedings under Section 271DA of the Act. 32. Having regard to the timelines prescribed under various provisions of the Act mandating time-bound compliance, timebound initiation of proceedings and time-bound conclusion of proceedings, such an unrestricted latitude cannot be made available to the Revenue. The initiation of penalty proceedings by the Joint Commissioner cannot be whimsical or arbitrary; it must necessarily be undertaken within a reasonable time. 33. At the same time, this Court is conscious of the practical realities of tax administration. The Joint Commissioner, being the Range Head, ordinarily exercises supervisory jurisdiction over a number of Ass....
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.... "18. It is trite that if no period of limitation has been prescribed, statutory authority must exercise its jurisdiction within a reasonable period. What, however, shall be the reasonable period would depend upon the nature of the statute, rights and liabilities thereunder and other relevant factors. 19. Revisional jurisdiction, in our opinion, should ordinarily be exercised within a period of three years having regard to the purport in terms of the said Act. In any event, the same should not exceed the period of five years. The view of the High Court, thus, cannot be said to be unreasonable. Reasonable period, keeping in view the discussions made hereinbefore, must be found out from the statutory scheme. As indicated hereinbefore, maximum period of limitation provided for in sub-section (6) of Section 11 of the Act is five years." 38. When this Court considers what would constitute a reasonable period for initiation of proceedings, the answer, in our considered view, lies within the scheme of Section 275 of the Act itself. When Section 275 of the Act provides a period of six months for completion of penalty proceedings from the end of the month in which action for i....
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....t and the principles of natural justice. 43. This factual position fortifies the view taken by this Court that initiation of proceedings for imposition of penalty under Section 271DA of the Act commences only upon issuance of a notice under Section 274 of the Act by the competent authority. Such initiation cannot be traced back to the date on which the Assessing Officer addressed a letter or made a proposal to the Joint Commissioner forwarding the material for consideration of initiation of penalty proceedings under Section 271DA of the Act. 44. The proposal made by the Assessing Officer is merely a communication of information and material for the consideration of the competent authority. It neither determines the rights of the assessee nor manifests a final decision by the Joint Commissioner to proceed with the imposition of penalty. The decision to initiate proceedings remains that of the Joint Commissioner and attains legal expression only upon issuance of the statutory notice under Section 274 of the Act. 45. Much reliance has been placed by the learned counsel for the respondents-assessees on the judgment of this Court in the case of K. Umesh Shetty (supra). In the s....
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.... laid down by this Court in K. Umesh Shetty (supra), to that extent, cannot be regarded as governing the issue that arises for consideration in the present batch of cases. 49. Further reliance has been placed by the learned counsel for the respondents-assessees on the judgment of the Delhi High Court in Principal Commissioner of Income Tax-5 v. JKD Capital & Finlease Limited, (2017) 81 taxmann.com 80 (Delhi). However, as the said decision proceeds on the premise that the reference made by the Assessing Officer constitutes initiation of penalty proceedings for the purpose of computing limitation under Section 275 of the Act. The above judgment does not lend any support to the case of the respondent in view of the law enunciated by the Hon'ble Supreme Court in Armour Security (India) Ltd., (supra). 50. Therefore, to the extent the view expressed by the Delhi High Court in JKD Capital & Finlease Limited (supra) is inconsistent with the interpretation placed by the Hon'ble Supreme Court in Armour Security (India) Limited (supra), the same cannot govern the issue arising for consideration in the present batch of cases. Accordingly, the decision in JKD Capital & Finlease Limite....
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....al requirements not contemplated by the legislature. Therefore, the contention that a separate show cause notice ought to have been issued, or that the notice under Section 274 of the Act should necessarily contain all particulars and details akin to a show cause notice under the CGST Act, cannot be accepted. 56. It is also relevant to refer to the judgment of the Hon'ble Supreme Court in CIT v. Amitabh Bachchan, [(2016) 11 SCC 748] wherein it has been held that unless the statute specifically mandates issuance of a show cause notice, no such requirement can be read into the provision. The Hon'ble Supreme Court further held that where the statute merely contemplates affording an opportunity of hearing, compliance with such requirement by providing an adequate and effective opportunity would satisfy the mandate of the provision. The relevant portion of the said judgment reads as under: "10. Reverting to the specific provisions of Section 263 of the Act what has to be seen is that a satisfaction that an order passed by the authority under the Act is erroneous and prejudicial to the interest of the Revenue is the basic precondition for exercise of jurisdiction unde....
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....pportunity of being heard and make or cause to make such enquiry as he deems necessary. Those requirements have nothing to do with the jurisdiction of the Commissioner. They pertain to the region of natural justice. Breach of the principles of natural justice may affect the legality of the order made but that does not affect the jurisdiction of the Commissioner. At present we are not called upon to consider whether the order made by the Commissioner is vitiated because of the contravention of any of the principles of natural justice. The scope of these appeals is very narrow. All that we have to see is whether before assuming jurisdiction the Commissioner was required to issue a notice and if he was so required what that notice should have contained? Our answer to that question has already been made clear. In our judgment no notice was required to be issued by the Commissioner before assuming jurisdiction to proceed under Section 33-B. Therefore the question what that notice should contain does not arise for consideration. It is not necessary nor proper for us in this case to consider as to the nature of the enquiry to be held under Section 33-B. Therefore, we refrain from spelling....
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....ations and legal consequences in the manner contemplated under other enactments. The statutory requirement under Section 274 of the Act, is confined to affording the assessee a reasonable opportunity of being heard before an order imposing penalty is passed. 57.2 In the present batch of cases, notices under Section 274 of the Act, were admittedly issued to the assessees. The assessees participated in the proceedings by submitting detailed replies and explanations, which were considered by the competent authority before passing orders under Section 271DA of the Act. Thus, the requirement of providing a reasonable opportunity of hearing stood duly complied with. 57.3 Therefore, the decision in Oryx Fisheries Pvt. Ltd. (supra) does not advance the case of the assessees and is distinguishable on both facts and the statutory framework involved. Consequently, the reliance placed thereon is misplaced and does not warrant interference with the proceedings on the ground urged by the assessees. 58. The reliance placed by the learned counsel for the respondents-assessees on the decision of the Delhi High Court in Property Plus Realtors v. Union of India, [(2025) 171 taxmann.com 426 (....
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....reme Court held that, in the absence of satisfaction recorded in the de novo assessment proceedings, penalty proceedings under Section 271E of the Act could not be sustained. 60.2 As observed hereinabove, while interpreting a fiscal statute, the plain meaning of the statutory text has to be given effect to. A reading of Section 271DA of the Act does not mandate or require the Joint Commissioner to record any satisfaction before initiating proceedings. It is a settled principle of law that while interpreting a taxing statute, no words can be added, implied, omitted or substituted by judicial interpretation. The statute has to be read as it stands, giving the words employed therein their ordinary and natural meaning. In this regard, it is relevant to refer to the judgment of the Hon'ble Supreme Court in CIT v. Calcutta Knitwears, [(2014) 6 SCC 444]; "31. Thus, the language of a taxing statute should ordinarily be read and understood in the sense in which it is harmonious with the object of the statute to effectuate the legislative animation. A taxing statute should be strictly construed; common sense approach, equity, logic, ethics and morality have no role to play. N....
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....ion of tax, including penal provisions meant to deal with defaulters. ... Ordinarily the charging section which fixes the liability is strictly construed but that rule of strict construction is not extended to the machinery provisions which are construed like any other statute. The machinery provisions must, no doubt, be so construed as would effectuate the object and purpose of the statute and not defeat the same." 34. It is the duty of the court while interpreting the machinery provisions of a taxing statute to give effect to its manifest purpose. Wherever the intention to impose liability is clear, the courts ought not be hesitant in espousing a commonsense interpretation to the machinery provisions so that the charge does not fail. The machinery provisions must, no doubt, be so construed as would effectuate the object and purpose of the statute and not defeat the same. Francis Bennion in Bennion on Statutory Interpretation, 5th Edn., Lexis Nexis in support of the aforesaid proposition put forth as an illustration that since charge made by the legislator in procedural provisions is excepted to be for the general benefit of litigants and others, it is presumed that it ap....
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....n a period of six months from the end of the month in which the proposal/reference is received from the Assessing Officer for the purpose of considering initiation of proceedings for imposition of penalty under Section 271DA of the Act. (iv) The notice issued under Section 274 read with Section 271DA of the Act which is beyond the period of six months from the end of the month in which the proposal/reference was received by the Joint Commissioner from the Assessing Officer, the proceedings shall be liable to be declared as time-barred. Where the notice under Section 274 of the Act is issued within the aforesaid period and the order imposing penalty under Section 271DA of the Act is passed within six months from the end of the month in which such notice is issued, the order shall be regarded as having been passed within the period of limitation prescribed under Section 275 of the Act. 64. Now, let us examine the timelines between the proposal made by the Assessing Officer and the issuance of notice by the Joint Commissioner, as well as the period within which the penalty order was passed from the date of issuance of notice by the Joint Commissioner. 64.1 In the batch ....