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Principal Commissioner Of Income-Tax (Central) - 2 v. Mahesh Wood Products Pvt. Ltd.
Judgment Summary — S. Muralidhar, J.
Factual and Procedural Background
These are two appeals filed by the Revenue under Section 260A of the Income Tax Act, 1961 against the Income Tax Appellate Tribunal's order dated 24 May 2016 in ITA Nos. 6256.Del/2013 and 6257.Del/2013 for Assessment Year 2009-10. Following a search operation, a notice under Section 153A was issued and an Assessment Order was passed by the Assessing Officer (AO) on 30 December 2011. The Assessment Order itself did not initiate penalty proceedings. On 23 July 2012 the AO made a reference to the Additional Commissioner of Income Tax (ACIT). The ACIT issued a show-cause notice (SCN) on 28 August 2012 asking why penalty should not be levied under Sections 271D and 271E (for alleged contraventions of Sections 269SS and 269T). A further notice dated 25 September 2012 sought the Assessee's reply, which was filed on 10 October 2012.
The Assessee contended that penalty proceedings were barred by limitation under Section 275(1)(c). The ACIT, on 26 February 2013, passed two penalty orders rejecting the limitation plea. The Assessee appealed to the CIT(A), which on 10 September 2013 cancelled the penalties on merits but rejected the limitation plea. The Revenue then appealed to the ITAT. The ITAT referred to an earlier ITAT order (DCIT v. Raj Katha Products) which relied on this Court's decision in PCIT-5 v. JKD Capital & Finlease Ltd., and held that the penalty orders were barred by limitation under Section 275(1)(c). The Revenue filed the present appeals before this Court challenging the ITAT's conclusion on limitation.
Legal Issues Presented
- Whether the ITAT erred in law by holding that the penalty orders were not passed within the time limit laid down under Section 275(1)(c) of the Income Tax Act, 1961.
- Whether the relevant starting point for computation of limitation under Section 275(1)(c) is the date of issuance of the show-cause notice by the ACIT or an earlier date — specifically, the date on which the AO recommended initiation of penalty proceedings by writing to the ACIT.
Arguments of the Parties
Revenue's Arguments
- Reliance on Commissioner of Income Tax (TDS) v. IKEA Trading Hong Kong Ltd. ([2011] 333 ITR 565 (Del)) to submit that the date of issuance of the SCN is the relevant starting point for limitation. The SCN in this case was issued on 28 August 2012, and, on that basis, limitation would expire on 28 February 2013; the penalty orders passed on 26 February 2013 were therefore within time.
- Distinguished PCIT-5 v. JKD Capital & Finlease Ltd. on facts, saying that the delay in that case was about five years, whereas in the present case the gap between the AO's communication and the ACIT's action was slightly over one month.
Assessee's Arguments
- The Assessee contended that penalty proceedings were barred by limitation under Section 275(1)(c), i.e., limitation began to run from the date on which action for initiation of penalty proceedings was initiated/completed in the course of earlier proceedings, or six months from the end of the month in which action for imposition of penalty is initiated, whichever is later (as pleaded in the reply to the SCN).
- It was pointed out that the AO had, before issuance of notice under Section 153A, taken approval of the JCIT (as noted by the Assessee's counsel), and that the Assessment Order itself contained no initiation of penalty proceedings.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| PCIT-5 v. JKD Capital & Finlease Ltd. (2015) 378 ITR 640 (Del) | Held that the relevant starting point for limitation under Section 275(1)(c) is the date on which the AO recommended initiation of penalty proceedings (i.e., the date the AO wrote to the ACIT). | The Court applied this principle to hold that limitation began when the AO made the reference on 23 July 2012, so the last date for passing penalty orders fell earlier than the date on which the ACIT actually passed the orders. |
| DCIT, Central Circle-03, New Delhi v. Raj Katha Products P. Ltd. (order dated 8 March 2016) | ITAT decision which relied upon PCIT-5 v. JKD and applied that approach to limitation under Section 275(1)(c). | The ITAT relied on this decision in reaching its conclusion that the penalty orders were barred by limitation; this Court noted the ITAT's reliance on that decision. |
| Commissioner of Income Tax (TDS) v. IKEA Trading Hong Kong Ltd. [2011] 333 ITR 565 (Del) | Considered by the Revenue to support the proposition that the date of issuance of the SCN is the relevant starting point for limitation. | The Court distinguished this decision, observing that IKEA did not consider whether the starting point could be an earlier date (the AO's recommendation to the ACIT), and therefore treated IKEA as distinguishable on facts. |
Court's Reasoning and Analysis
The Court analysed which event constitutes the "initiation" of penalty proceedings for the purposes of Section 275(1)(c). It noted that IKEA did not address whether the starting point could be the AO's letter recommending initiation to the ACIT and therefore distinguished that decision. The Court relied on the earlier decision in PCIT-5 v. JKD Capital & Finlease Ltd., which held that the starting point for limitation is the date on which the AO recommended initiation of penalty proceedings (i.e., the date of the AO's letter to the ACIT), even though the ACIT has the discretion whether to issue the SCN. The Court applied that principle to the facts: the AO's reference was made on 23 July 2012, and limitation accordingly began to run from that date. Calculating under Section 275(1)(c), the last date for passing penalty orders in this case was 31 January 2013. The ACIT's penalty orders were passed on 26 February 2013, which was later than the limitation date; therefore the orders were time-barred.
The Court noted that the ACIT had earlier rejected the limitation plea and the CIT(A) had cancelled the penalties on merits while rejecting the limitation contention, but concluded on the statutory construction of Section 275(1)(c) that the penalty orders were barred by limitation.
Holding and Implications
DISMISSED
Holding: The Court held that the ITAT was correct in concluding that the penalty orders dated 26 February 2013 were barred by limitation under Section 275(1)(c) because limitation began to run from the AO's reference dated 23 July 2012. The appeals filed by the Revenue are dismissed.
Implications: The immediate consequence is that the penalty orders passed on 26 February 2013 are time-barred and cannot be sustained. The Court also observed that no substantial question of law arises from the impugned ITAT order. The opinion does not state that any broader or new precedent was laid down beyond applying the principles in the cited decisions (notably PCIT-5 v. JKD).
S. Muralidhar, J.:— These are two appeals filed by the Revenue under Section 260A of the Income Tax Act, 1961 (‘Act’) against the order dated 24th May, 2016 passed by the Income Tax Appellate Tribunal (‘ITAT’) in ITA Nos. 6256.Del/2013 and 6257.Del/2013 for the Assessment Year (‘AY’) 2009-10.
2. The short question urged by the Revenue is whether the ITAT erred in law by holding that the order imposing the penalty was not passed within the time limit laid down under Section 275(1)(c) of the Act.
3. Pursuant to a search operation, a notice under Section 153A of the Act was issued to the Assessee, leading to the passing of an Assessment Order by the Assessing Officer (‘AO’) on 30 December, 2011 for the AY in question. As rightly pointed out by learned counsel for the Assessee, before issuance of notice under Section 153A of the Act, approval of the Joint Commissioner of Income Tax (‘JCIT’) would have been taken for issuing the notice under Section 153 A. As it transpires, in the Assessment Order itself, there was no initiation of penalty proceedings. More than six months thereafter, on 23rd July, 2012, the AO made a reference to the Additional Commissioner of Income Tax (‘ACIT’) on the basis of which a notice was issued on 28 August, 2012 by the ACIT asking the Assessee to show cause as to why penalty be not levied under Sections 271D and 271E of the Act as a result of the contravention of Sections 269SS and 269T of the Act. A further notice was sent on 25 September, 2012, seeking the Assessee's reply, which ultimately was submitted on 10 October, 2012.
4. In the reply itself, the Assessee contended that the penalty proceedings were barred by limitation under Section 275(1)(c) of the Act, which reads as under:
“275. Bar of limitation for imposing penalties
(1) No order imposing a penalty under this Chapter shall be 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.”
5. After considering the reply, the ACIT, on 26 February, 2013, passed the two penalty orders in which the plea of limitation was negated. It was noted that initiation of penalty proceedings was not linked to any pending assessment proceedings. The Assessee then went in appeal before the CIT(A). Two separate orders dated 10 September, 2013 were passed and the penalty imposed was cancelled on merits. However, on the aspect of penalty orders being barred by limitation, the CIT(A) negated the plea of the Assessee.
6. Aggrieved by the above order of the CIT(A), the Revenue filed the aforementioned two appeals before the ITAT. In the impugned common order the ITAT referred to its earlier decision in DCIT, Central Circle-03, New Delhi v. Raj Katha Products P. Ltd. (order dated 8 March, 2016) which, in turn, relied upon on the decision of this Court in PCIT-5 v. JKD Capital & Finlease Ltd. (2015) 378 ITR 640 (Del). The ITAT, accordingly, held that the penalty orders were barred by limitation under Section 275(1)(c) of the Act.
7. Mr. Sanjay Kumar, learned counsel for the Revenue has sought to place reliance on the decision of this Court in Commissioner of Income Tax (TDS) v. IKEA Trading Hong Kong Ltd., [2011] 333 ITR 565 (Del) to urge that it is the date of issuance of the Show Cause Notice (‘SCN’) that would be the relevant starting point. Accordingly he submits that the date of issuance of the SCN by the ACIT being 28 August, 2012, limitation would expire on 28 February, 2013. Therefore, the penalty orders having been passed on 26 February, 2013 would not barred by limitation. He also sought to distinguish the decision of this Court in PCIT-5 v. JKD Capital & Finlease Ltd. (supra) by stating that in the said case, the gap between the intimation send by the AO recommending initiation of penalty proceedings and the action taken by the ACIT was nearly five years, whereas in the present case, it was slightly over one month.
8. At the outset, the Court observes that no question arose in Commissioner of Income Tax (TDS) v. IKEA Trading Hong Kong Ltd. (supra) as to whether the starting point of limitation could be a date earlier than the issuance of the SCN, viz., the date on which the AO wrote a letter to the ACIT recommending such initiation. No such contention appears to have been raised or dealt with in the said case. Therefore, the said decision is distinguishable on facts.
9. However, this question came up for consideration in PCIT v. JKD Capital & Finlease Ltd. (supra). The date on which the AO recommended the initiation of penalty proceedings was taken to be the relevant date as far as Section 275(1)(c) was concerned. There was no explanation for the delay of nearly five years in the ACIT acting on the said recommendation. The Court held that the starting point would be the ‘initiation’ of penalty proceedings. Given the scheme of Section 275(1)(c) it would be the date on which the AO wrote a letter to the ACIT recommending the issuance of the SCN. While it is true that the ACIT had the discretion whether or not to issue the SCN, if he did decide to issue a SCN, the limitation would begin to run from the date of letter of the AO recommending ‘initiation’ of the penalty proceedings.
10. In the present case, the limitation in terms of Section 275(1)(iii) of the Act began to run on 23 July, 2012 and the last date for passing the penalty orders was 31st January, 2013. Therefore, the penalty orders issued on 26 February 2013 were clearly barred by limitation.
11. No substantial question of law arises for consideration from the impugned common order of the ITAT. The appeals are dismissed.
CM APPL. 41567/2016 in ITA No. 786/2016
12. Allowed, subject to all just exceptions.
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