RAJESH BIHARI KHETWANI ,MUMBAI vs. ITO WARD 23(3)(1), MUMBAI

Briefly, the facts of the case are that the assessment in this case was completed u/s.144 of the Income Tax Act, 1961 („the Act‟), vide order dt. 07-12-2019, wherein the assessed income was determined at Rs. 1,86,27,270/-, wherein the AO has disallowed the claim of deduction u/s. 57 of the Act amounting to Rs. 1,42,55,352/-, income claimed exempt

In absence of anything further appeal filed by the assessee, persuant to the order passed by the Ld.CIT(A), a fresh show cause u/s 270A was issued dt. 04-06-2025 which was not responded to by the assessee. Thereafter, a letter dt. 11-06-2025 was issued which also remain non- complied with and the matter was thereafter referred to verification unit for physical service of notice and pursuant thereto, the AO passed the penalty order u/s. 270A of the Act, dt. 25-06-2025, stating that it is a fit case to levy penalty u/s. 270A of the Act as the assessee has not adduced any reasonable cause of default and, therefore, he is satisfied to levy penalty u/s. 270A of the Act for under reporting of income and penalty @50% on the tax determined on the assessed income was levied on the assessee amounting to Rs. 39,47,463/-, after seeking prior approval of the Addl.CIT u/s. 274(2) of the Act.

The assessee thereafter carried the matter in appeal before the Ld.CIT(A), who has confirmed the levy of penalty and the order of the AO stating that the contention of the assessee raised in the statement of facts and the grounds of appeal are not supported by any documentary or legal evidences/explanation and hence did not find any merit. It is for the assessee to submit a detailed explanation so as to contradict the findings

Against the said order, the assessee has filed an appeal before us and has raised multiple grounds of appeal. Further, vide application dt. 12-01- 2026, the assessee also sought permission to raise following additional grounds of appeal: “1. The CIT(A) ought to have held that the penalty order passed by the Assessing Officer as well as the approval granted by the Additional Commissioner u/s. 274(2) of the Act are without application of mind and hence invalid and non-est.” 6. Further, vide another application dt. 13-01-2026, the assessee requested for addition of another additional grounds of appeal, which reads as under: “1. The Ld. CIT(A) ought to have held that the penalty order passed by the Assessing officer dated 25.06.2025 is time barred and non-est. 2. The Ld. CIT(A) ought to have appreciated that since appeal against the assessment order was dismissed by Faceless CIT(A) vide his order dated 20.09.2024 and since no appeal was filed against the said order, the penalty order ought to have been passed on or before 31.03.2025 being six months from the end of the quarter in which the order of the Faceless CIT(A) has been received by NFAC.” 7. During the course of hearing, the arguments of the Ld.AR were directed in respect of additional grounds of appeal, wherein the assessee has challenged the penalty order passed by the AO as barred by limitation. It was submitted that these are purely legal grounds of appeal and all relevant facts are on record and the assessee seeks permission for admission of these grounds of appeal. The ld DR didn‟t raise any specific objection against the admission of these grounds of appeal. After hearing both the parties and pursuing the grounds of appeal, we admit these grounds of appeal wherein the assessee has challenged the limitation of passing of the penalty order u/s 270A of the Act.

It was submitted by the Ld.AR that in the instant case in the quantum proceedings, the Ld.CIT(A) (Faceless appeal centre] has dismissed the appeal, vide order dt. 20-09-2024 and since no further appeal was filed before the Tribunal against the said order, the penalty order ought to have been passed on or before 31-03-2025, being six months from the end of the quarter in which the order of the Ld.CIT(A) [Faceless appeal centre] has been received by jurisdictional Principal Commissioner or Commissioner. It was submitted that though no information is available as to when the order so passed by the Ld.CIT(A), NFAC has been actually received by the jurisdictional Principal Commissioner or Commissioner, but assuming that the day the order was passed, the same was available on the portal and duly accessible to the jurisdictional Principal Commissioner or Commissioner, the six months limitation expired on 31-03-2025, where as the AO has passed the penalty order u/s. 270A of the Act on 25-06-2025.

In this regard, our reference was drawn to the provisions of section 275(1) of the Act, and in particular, clause (c) to section 275(1) of the Act which reads as under: 275. (1) No order imposing a penalty under this Chapter shall be passed after the expiry of six months from the end of the quarter in which,— (a) the proceedings, in the course of which action for the imposition of penalty has been initiated, are completed, if the relevant assessment or other order is not the subject matter of an appeal under section 246 or section 246A or section 253; (b) the order of revision under section 263 or section 264 is passed, if the relevant assessment or other order is the subject matter of revision under the said sections; (c) the order of appeal under section 246 or section 246A is received by the jurisdictional Principal Commissioner or Commissioner, if the relevant assessment or other order is the subject matter of an appeal under the said sections and no further appeal has been filed under section 253; (d) the order of appeal under section 253 is received by the jurisdictional Principal Commissioner or Commissioner, if the relevant assessment or other order is the subject matter of an appeal under the said section; (e) notice for imposition of penalty is issued, in any other case.

In this regard, our reference was also drawn to the Memorandum explaining the Finance Bill, 2025, which provides that the amendment will take effect from First day of April, 2025 and the relevant contents of the Memorandum read as under: “XVII. Time limit to impose penalties rationalised The existing provisions of section 275 of the Act, inter-alia, provide for the bar of limitation for imposing penalties. Section 275 of the Act is having multiple timelines for imposition of penalties in various cases e.g. where a case is in appeal before the ITAT, time limit to impose penalty is end of the financial year in which the connected proceeding has been completed or six months from end of the month in which the appellate order is received, whichever is later. Similarly, different time-limits for imposition of penalty have been provided for cases in appeal to the JCIT(Appeal) or Commissioner (Appeal). This makes it difficult to keep track of multiple time barring dates for effective and efficient tax administration. 2. In view of the foregoing, it proposed to amend section 275 of the Act to provide that any order imposing a penalty under Chapter XXI shall not be passed after the expiry of six months from the end of the quarter in which the connected proceedings are completed, or the order of appeal is received by the jurisdictional Principal Commissioner or Commissioner, or the order of revision is passed, or the notice for imposition of penalty is issued, as the case maybe. Consequential amendment is also proposed in section 246A of the Act to update reference of the amended section 275 of the Act. 3. These amendments will take effect from the 1st day of April, 2025.”

It was submitted that the aforesaid provisions are as amended by the Finance Act, 2025 w.e.f. 01-04-2025 and, therefore, at the relevant point of time when the AO passed the penalty order, the amended law was applicable and as per which, the limitation expired on 31-03-2025 and the order so passed is clearly barred by limitation and therefore, the same deserve to be set-aside.

Further, reliance was placed on the following decisions: i. CIT vs. Bhikari Charan Panda, [1976] 104 ITR 73 (Orissa); ii. CIT vs. Savita M. Thakar, [1986] 158 ITR 729 (Patna)

Per contra, the Ld. CIT-DR is heard, who has submitted that it is an admitted fact that the assessee has not filed any further appeal against the order of the Ld.CIT(A)-NFAC and, therefore, the limitation for passing penalty order has to be seen at the relevant point of time when the order of the Ld.CIT(A)-NFAC has been received by the Pr. Commissioner or Commissioner. It was submitted that in the instant case, the Ld.CIT(A)- NFAC has passed the order on 20-09-2024 and at the relevant point in time, the un-amended provisions were applicable and in terms of the proviso to section 275(1)(a) of the Act, the AO had time of one year from the end of financial year in which the order of Ld.CIT(A)-NFAC is received by the Pr.CIT. It was submitted that in the instant case, the AO therefore had time till 31-03-2026 to pass the penalty order whereas he has been passed on 25-06-2025, which is well within the limitation period as per the proviso to section 275(1)(a) of the Act.

It was further submitted that the provisions of section 275(1) as amended by the Finance Act 2025 were no doubt made applicable from 1st April, 2025, however, in the instant case, going by the arguments of the Ld.AR where the limitation had already expired as per the amended provisions on 31-03-2025, there is no way the AO could have passed the penalty order on or before 31-03-2025 when the said amended law was not in force. It was accordingly submitted that the contention so raised by the Ld.AR deserves to be dismissed.

We have heard the rival contentions and perused the material available on record. In the instant case, the Ld.CIT(A)-NFAC has passed the order u/s 250 on 20-09-2024 and in terms of the proviso to section 275(1)(a) of the Act at the relevant point in time, the AO had time of one year from the end of financial year in which the order of Ld.CIT(A)-NFAC is

We therefore have a situation where the law governing the limitation period has been amended during the pendency of the penalty proceedings which provides for restricted period to the AO to pass the penalty order and in the instant case, as against the original limitation period till 31-03- 2026, as per the amended limitation, the AO has time only till 31-03-2025. No doubt, the limitation period where so rationalized by the legislature whether the effect thereof is in terms of reducing the initial period or for that matter, expanding the initial period, the AO has to adhere to the same. However, the question that arises is how the AO will adhere to the amended limitation period in the instant case.

At this stage, we refer to arguments of the Ld.CIT-DR where he stated that the provisions of section 275(1) as amended by the Finance Act 2025 were no doubt made applicable from 1st April, 2025, however, in the

We have also gone through the decisions cited at the Bar and find that the same have been rendered by the Hon‟ble Courts in peculiar facts and circumstances of the case, the same stand distinguishable and doesn‟t support the case of the assessee.

In light of the aforesaid decisions and in the entirety of facts and circumstances of the case, we find that the penalty order so passed by the

Now coming to merits of levy of appeal u/s 270A, we find that the assessee has taken multiple grounds of appeal stating lack of opportunity, non-consideration of the order passed u/s. 154 of the Act and non- consideration of the written submissions filed before the Ld.CIT(A), in these circumstances, we deem it fit and proper to set aside these grounds of appeal to the file of the Ld.CIT(A) for deciding the same afresh as per law, after providing reasonable opportunity to the assessee. We also direct the assessee to fully co-operate with the Ld.CIT(A) for expeditious disposal of the matter and is at liberty to file necessary explanation / documentation as so advised.

In the result, the appeal filed by the assessee is partly allowed for statistical purposes.