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Income Tax Appellate Tribunal, DELHI BENCH “B” NEW DELHI
Before: SHRI SHAMIM YAHYA & MS. ASTHA CHANDRA
आदेश /O R D E R PER SHAMIM YAHYA, A.M.
This appeal by the assessee is directed against the order of Learned CIT (Appeals) dated 03.11.2022 and pertains to the assessment year 2005-06. Grounds of appeal reads as under: -
1. Ground no. 1 1.1 That on the facts and circumstances of the case and in the law, the order passed u/s 250(6) r.w.s 271C of the Act, dismissing the appeal filed by the Appellant and confirming the levy of penalty of Rs. 1,05,36,376/- by the Ld. CIT(A), without giving any justifiable reasoning and ignoring the submissions made before the Ld. CIT(A) and without appreciating the facts of the case and judicial precedents, is bad in law and is liable to be quashed. 1.2 That the Order dated 31.10.2019 passed by the Joint Commissioner of Income Tax - Range 74, imposing the penalty of Rs. 1,05,36,376/- is bad in law for the reason that said order has been issued without the Document Identification Number (“DIN ), which is mandatory in terms of Circular No. 19 of 2019 dated 14.08.2019 issued by the Central Board of Direct Taxes (“CBDT”).
2. Ground no. 2 2.1 That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) failed to appreciate the fact that the order of penalty passed by the Ld. AO u/s 271C of the Act is bad in law and void ab initio, since the penalty proceedings have been initiated after almost 14 years from the end of the financial year which cannot be considered reasonable time period for initiating proceedings as held by various judicial authorities. 2.1.1 That apart, the penalty proceedings have been initiated on the basis of the assessment completed under section 143(3) of the Act on 17.12.2008. It is submitted that the Ld. AO had knowledge of the disallowance made by the 2
I.T.A.No.3018/Del/2022 & Stay Appl. No. 413/Del/2022
AO under section 40(a)(i) since prior to 17.12.2008, and therefore, the penalty proceedings are barred by limitation. 2.2 That on the facts and in the circumstances of the case and in law, the penalty order passed by the Ld. AO is barred by limitation in terms of the second limb of the section 275(1)(c) of the Act since the penalty order has been passed after six months from the end of the month in which the penalty proceedings were initiated by the Ld. AO (Joint CIT) (vide letter dt. Mar 27, 2019). 2.3 That on the facts and circumstances of the case, the Ld. CIT(A)/ Ld. AO erred in not considering the submission and various judicial precedents holding that the penalty proceedings must be initiated in course of some proceedings pending against the assessee related to the year for which penalty is to be levied. Accordingly, the penalty order passed u/s 271C is liable to be quashed since no proceedings are initiated u/s 201 of the Act on the Appellant company for the FY 2004- OS whereas the assessment under Section 143(3) of the Act was completed on Dec 17, 2008. Without prejudice to the above, 2.4 That on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in confirming penalty levied by the Ld. AO u/s 271C of the Act, on the suo-moto disallowances of the year-end provisions made by the Appellant company u/s 40(a)(i) of the Act, without appreciating that no tax was deductible on the provisions created by the Appellant. 2.5 That on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in confirming penalty levied by the Ld. AO u/s 271C of the Act, on the suo-moto disallowances of the year-end provisions made by the Appellant company u/s 40(a)(i) of the Act without appreciating that the entire exercise of creating a provision and adding it back in the next year without claiming deduction in the present year is revenue neutral and, therefore, no penalty ought to be levied. 2.6 That on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in confirming penalty levied by the Ld. AO u/s 271C of the Act, on the suo-moto
I.T.A.No.3018/Del/2022 & Stay Appl. No. 413/Del/2022 disallowances of the year-end provisions made by the Appellant company u/s 40(a)(i) of the Act without appreciating that there was ‘reasonable cause’ for the said failure as per the provisions of Sec 273B of the Act. That the above grounds are independent and without prejudice to each other. The Appellant craves leave to add, amend, alter, delete, rescind, forgo or withdraw any of the above grounds of appeal either before or during the course of the appellate proceedings in the interest of the natural justice.”
2. In this case, assessment order was completed under section 143(3) of the Act on 17.12.2008. The return of income in this regard was filed on 30.10.2005. In the computation of income the assessee suo moto disallowed under section 40A(ia) of the Act amounting to Rs.39,80,73,391/-. The JCIT, Special Range-4, New Delhi sent a proposal for penalty under section 271C of the Act on 27.03.2019 for the said assessment year 2004-05. The said proposal was regarding non deduction of tax at source on the transaction amount of Rs.39,80,73,391/- under provisions of Section 194C of the Act. The tax not deducted at source worked out of Rs.1,05,36,376/-. The AO invoked the provisions of Section 271C of the Act and levied penalty.
Before the learned CIT(Appeals) the assessee submitted, inter alia, as under:
"1. The notice is barred by limitation and is accordingly bad in law . 2. There was delay in and not failure in deduction of tax at source at the time of crediting the sum to party's account as the amount in question was on account of year end provisions 4
I.T.A.No.3018/Del/2022 & Stay Appl. No. 413/Del/2022 created on estimations in view. Therefore the Assessee may not of mercantile system of accounting view of amendment in Sec 40(a)(ia) vide Finance Act, 2002 . 3. No penalty can be levied u/s 271C of the Act if there is a reasonable cause for the said failure. 4. The parties to whom payments were made are believed to had paid full taxes on the income earned on their own ...” 4. However, learned CIT(A) was not convinced. He confirmed the levy of penalty. Against this order assessee is in appeal before us.
We have heard both the parties and perused the record before us.
Learned Counsel of the assessee contended that penalty proceedings in this case has been initiated belatedly and much after reasonable period of 4/6 years. As a matter of fact learned Counsel submitted that penalty proceedings have been initiated 14 years after the assessment year concerned. He submitted that the proceedings are time barred. He further submitted that penalty proceeding is barred by limitation under section 275 of the Act. He further referred to several case laws in this regard. The proposition canvassed by the learned AR summarized as under:
“Proposition: 1) Penalty proceedings have been initiated belatedly after reasonable period of 4/6 years a) The limitation for reassessment at relevant time was 6 years b) Limitation for 201 proceedings is 7 years
I.T.A.No.3018/Del/2022 & Stay Appl. No. 413/Del/2022 c) After 8 years, no books of accounts are required to be maintained under Companies Act d) Therefore, initiation of penalty after 14 years is belated and beyond reasonable period as held by the jurisdictional High Court in CIT v. NHK Japan Broadcasting 172 Taxman 230 and Bharti Airtel v. UOI 291 CTR 254 e) Factum of disallowance/non-deduction was known to the AO, which as per the Impugned Penalty order is important - See para 9.3 @ Pg.79 2) Penalty proceedings barred by limitation under Section 275 of the Act a) Admittedly, JCIT Spcl Range-4, New Delhi forwarded the proposal on 27.03.2019 - See para 1 of Impugned Order. b) In terms of decisions of jurisdictional Delhi High Court in CIT v. Mahesh Woods Products (P) Ltd. 394 ITR 312 and PCIT v. Rishikesh Buildcon Pvt. Ltd. the date of initiation for the purposes of Section 275 is 27.03.2019 and, therefore, order ought to have been passed by 30.09.2019 whereas order has been passed on 31.10.2019. Hence, beyond limitation.”
Per contra, learned Departmental Representative relied upon the orders of the authorities below.
Upon careful consideration, we find that assessee deserves to succeed on both counts. Firstly, penalty proceedings have been initiated after 14 years and the same is belated and beyond reasonable limitation period of time and this proposition is supported by the decision of the Hon’ble Jurisdictional High Court in the case of CIT Vs. NHK Japan Broadcasting 172 Taxman 230 and Bharti Airtel vs. UOI 291 CTR 254. In this regard, we may refer to the decision in NHK Japan Broadcasting (supra) as under:-
I.T.A.No.3018/Del/2022 & Stay Appl. No. 413/Del/2022 “21. We are not inclined to disturb the time-limit of four years prescribed by the Tribunal and are of the view that in terms of the decision of the Supreme Court in Bhatinda District Co-op. Mil (P.) Union Ltd.'s case (supra) action must be initiated by the competent authority under the Income-tax Act where no limitation is prescribed as in section 201 of the Act within that period of four years.
Learned counsel for the revenue submitted that the Department came to know that the assessee was an assessee in default only in November, 1998 when a survey was conducted and it came to be known only then that when the assessee had not deducted tax at source on the global salary. We are of the opinion that the date of knowledge is not relevant for the purposes of exercising jurisdiction insofar as the provisions of the Income-tax Act are concerned. If it were so, the limitation period, as for example prescribed under section 147/148 of the Act would become meaningless if the concept of knowledge is imported into the scheme of the Act.” Further, in terms of jurisdictional Delhi High Court in CIT vs. Mahesh Woods Products (P) Ltd. 394 ITR 312 and PCIT vs. Rishikesh Buildcon Pvt. Ltd. when the date of initiation for the purposes of Section 275 is 27.03.2019 and, therefore, order ought to have been passed within six months i.e. by 30.09.2019, whereas order has been passed on 31.10.2019. Hence, beyond limitation. The said order in the case of Mahesh Woods Products (P) Ltd. (supra) reads as under :-
“9. 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 AD wrote a letter to the ACIT recommending the issuance of the SCN. While it is true that the ACIT had the 7
I.T.A.No.3018/Del/2022 & Stay Appl. No. 413/Del/2022 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 AD 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 23rd July, 2012 and the last date for passing the penalty orders was 31st January, 2013. Therefore, the penalty orders issued on 26th February 2013 were clearly barred by limitation.”
Learned Departmental Representative did not dispute the factual or legal veracity of the submission as above. Hence, respectfully following the above, we hold that the penalty levied in this case deserves to be deleted. Hence, we set aside the orders of the authorities below and delete the penalty.
Stay Appl. No. 413/Del/2022
By this stay application the assessee seeks stay outstanding demand of Rs.38,44,016/- in the aforesaid appeal adjudicated by us.
Since, we have already set aside the orders of the authorities below and deleted the levy of penalty, the issue of demand of the penalty amount becomes infructuous and accordingly, the stay application is dismissed as infructuous.
Order pronounced in the open court on 17/01/2023