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Income Tax Appellate Tribunal, “B” BENCH : BANGALORE
Before: SHRI N.V. VASUDEVAN & SHRI JASON P. BOAZ
O R D E R Per N V Vasudevan, Vice President
This appeal by the Assessee is directed against the order dated 31.8.2017 of Commissioner of Income Tax (Appeals)-3, Bengaluru [CIT(A)] confirming the order of the Assessing Officer (AO) imposing penalty on the Assessee u/s.271-E of the Income Tax Act, 1961 (the Act), in relation to assessment year 2013-14.
The Assessee is an individual, engaged in the business of civil construction contracts for Government and private parties. In the course of assessment completed for AY 2013-14 u/s.143(3) of the Act, the AO noticed that the Assessee had repaid loan of Rs.10,00,000 availed from Mr.K.M. Kotresh, in cash. As per the provisions of Sec.269-T of the Act, no person shall repay any loan otherwise than by an account payee cheque or account payee bank draft drawn in the name of the person who gave the loan, if the loan or interest payable thereon exceeds Rs.20,000/-. Under section 271-E of the Act, if a person repays any loan or deposit or specified advance referred to in section 269T otherwise than in accordance with the provisions of that section, he shall be liable to pay, by way of penalty, a sum equal to the amount of the loan. In the order of assessment passed by the AO dated 24.3.2016, the AO i.e., the Asst. Commissioner of Income- Tax, Circle-3(2)(1), Bangalore, has observed as follows:-
Penalty u/s.271-E for repayment of loan given in cash in violation of provision of Sec.269-T will be attracted.
Section 271-E(2) of the Act provides that penalty imposable u/s. 271-E of the Act shall be imposed by Joint Commissioner of Income Tax (JCIT). The AO vide letter dated 9.8.2016 intimated the JCIT, range 3(2), Bangalore (JCIT) regarding the default u/s.269-T. The JCIT issued a show cause notice u/s.271-E of the Act before imposing penalty dated 10.8.2016. The JCIT finally by order dated 27.1.2017 imposed penalty on the Assessee.
It was the plea of the Assessee before CIT(A) that in terms of Section 275 (1) (c) of the Act, the penalty order could have only been passed on or before 30th September, 2016 and since the order imposing penalty u/s.271E was passed on 27.1.2017, the penalty order passed on 27.1.2017 was barred by limitation. Section 275(1)(c) of the Act reads thus:-
275. (1) No order imposing a penalty under this Chapter shall be passed (a).... (b)..... (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.
It was the submission of the Assessee before CIT(A) that In terms of the above provision, there are two distinct periods of limitation for passing a penalty order, and one that expires later will apply. One is the end of the financial year in which the quantum proceedings are completed in the first instance. In the present case, at the level of the AO, the quantum proceedings was completed on 24.3.2016. Going by this date, the penalty order could not have been passed later than 30th September, 2016. Considering that the subject matter of the quantum proceedings was the non-compliance with Section 269 T of the Act, there was no need for the appeal against the said order in the quantum proceedings to be disposed of before the penalty proceedings could be initiated. In other words, the initiation of penalty proceedings did not hinge on the completion of the appellate quantum proceedings. The second possible date is expiry of six months from the month in which the penalty proceedings were initiated. With the AO having initiated the penalty proceedings in his order of assessment dated 24.3.2016, the last date by which the penalty order could have been passed is 30th September, 2016. The later of the two dates is 30th September, 2016.
Before the CIT(A), the Assessee placed reliance on decision of Hon’ble Rajasthan High Court in the case of CIT Vs. Hissaria Bros. 291 ITR 244 (Raj) and Delhi High court in the case of Pr.CIT Vs. Mahesh Wood products Pvt.Ltd. 394 ITR 312 (Del) wherein it was held that when the subject matter of the quantum proceedings was the non-compliance with Section 269 T of the Act, there was no need for the appeal against the said order in the quantum proceedings to be disposed of before the penalty proceedings could be initiated. In other words, the initiation of penalty proceedings did not hinge on the completion of the appellate quantum proceedings.
The argument did not find favour with the CIT(A), who held that the proceedings were not barred by time. The CIT(A) firstly held that in the assessment order dated 24.3.2016, the AO has not initiated penalty proceedings u/s.271-E of the Act and has merely made an observation that there is a default attracting penalty u/s.271E of the Act. Secondly, he held that the letter of the AO to the JCIT recommending penalty was dated 9.8.2016 and on the basis of the same the JCIT issued show cause notice to the Assessee u/s.271-E of the Act on 10.8.2016. That was the date of initiation according to him. Six months from the end of the month in which proceedings were initiated would therefore be 28.2.2017 and since the impugned order was passed on 27.1.2017, the CIT(A) held that the order passed was well within time. The following were the observations of the CIT(A):-
“5.1 On perusal of the above two decisions, it is observed that in the case of CIT vs Hissaria Bros. (Supra), the penalty was initiated by the AO during the assessment proceeding itself. However, in the case under consideration no such initiation of penalty has been done by the AO. A mere observation regarding the default by the AO in the assessment order in the case under consideration, as reproduced supra in para 4.0, does not amount to initiation of penalty proceedings. No notice for initiation of penalty u/s 271E of the Act was sent by the AO to the appellant along with the assessment order. In fact, in the case under consideration the AO has not even used the words 'initiated', so the possibility of considering the observation of the AO in the order to be 'initiation of penalty' would not arise. Considering these facts, the decision of the Rajasthan High Court, as relied upon by the appellant, would not be applicable to the facts of case under consideration. 5.2 As regards, decision of Delhi High Court in the case of Mahesh Wood Products (Supra), the same holds that the date of issue of letter by the AO to the Addl CIT recommending the issuance of notice of penalty is the date of initiation of penalty. Accordingly the order u/s 271E should be passed within six months from the end of the month in which letter recommending initiation of penalty proceeding is sent by the AO or end of the financial year in which such letter is written, whichever is later. In the case under consideration, as noted supra in para 4.1, such a letter was issued by AO on 09.08.2016. Accordingly, six months from the end of August 2016 would end on 28.02.2017. Accordingly, the time barring date in the case under consideration would be 31.03.2017, being end of the financial year. The order u/s 271E has been passed by JCIT on 27.01.2017, which is well within time limitation period. This is important to note that the decision in case of Mahesh Wood Products (Supra) was rendered by the Hon'ble High Court by relying on the decision in case of Principal Commissioner of Income-tax-5 v. JKD Capital & Finlease Ltd [2015] 378 ITR 614 (Delhi). The decision in case of CIT vs Hissaria Bros. (Supra) was duly considered in the above referred decision in case of JKD Capital & Finlease Ltd(Supra), and the court decided that the date of initiation of Penalty would be date of issue of letter by the AO to the Addl CIT recommending the issuance of notice of penalty. Anyhow due to different facts of the case under consideration, as discussed supra, the decision in case of CIT vs Hissaria Bros. (Supra) would not be applicable. As regards decision in case of Mahesh Wood Products (Supra), the order in the case under consideration has been passed well within the time barring date.”
The learned counsel for the Assessee relied on the decision of the Hon'ble Delhi High court in CIT (Principal) Vs JKD Capital and Finley Ltd 378 ITR 614 for the proposition that if the assessing officer mentions in the assessment order that the penalty proceedings u/s 271E of the Act are to be initiated, the date of initiation of penalty proceedings as per the later portion of S.275(1)(c ) of the Act is the date of the assessment order. The ld. AR relies on the observation in paragraph 11, page 619 wherein it was observed as under:-
In a case where the proceedings stood initiated with the order passed by the Assessing Officer, by delaying the issuance of the notice under section 271E beyond June 30, 2008, the Additional Commissioner of Income-tax defeated the very object of section 275(1)(c)
The Hon'ble High Court has relied on the decision of the Rajasthan High court in CIT Vs Hissaria Brothers 291 ITR 244. It is submitted that the decision of the Rajasthan High court in Hissaria Brothers has been approved by Supreme court on this issue in CIT Vs Hissaria Brothers 3S6 ITR 719.
He also relied on the following observations of the Hon'ble Rajasthan High court in paragraph 5 page 248 wherein it noted the fact that the penalty proceedings u/s 271D and 271E respectively were initiated during the assessment proceedings. On the basis of such facts the Tribunal held that the order of penalty should have been passed within six months from the end of the month in which the assessment was completed (paragraph 9 at page 249 of the report). This order of the Tribunal was upheld by the High Court in 291 ITR 244 and further upheld by the Hon'ble Supreme court in 386 ITR 719.
He submitted that the ld. CIT(Appeals) has distinguished the above decision on the ground that in the present assessee’s case, there is no initiation of the proceedings by the assessing officer in the assessment order. It was submitted that this finding of the CIT(Appeals) is contrary to the observation of the learned assessing officer in page 4 of the assessment order wherein it has been stated as under:-
“Penalty u/s 271E for repayment of loan is given in cash in violations of provisions of S.269T will be attracted.” 11. It was also submitted that the act of AO in noting in the assessment order that according to him, there is a violation of section 269T and consequently section 271E is attracted would amount to initiation by the AO. Hence, the finding of the learned CIT(Appeals) on this issue is clearly erroneous.
The learned DR appearing for the Revenue submitted that the AO has no power to initiate the penalty proceedings under Section 271E of the Act and it was only the Joint CIT who could have done so. Therefore, for the purpose of limitation under Section 275 (1) (c), the relevant date should be the date on which notice in relation to the penalty proceedings was issued by the JCIT. In the present case, as the Additional CIT issued notice to the Assessee on 10.8.2016, the order passed on 27.1.2017 was within limitation.
We have considered the rival submissions. There is no dispute that the period of limitation is required to be examined in the light of the provisions of Section 275(1)(c) of the Act. The issue in the present case is as to, what is the starting point of time u/s.275(1)(c) of the Act in the present case. As far as applicability of the first part of sec.275(1)(c) of the Act is concerned, the same is with regard to “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.” In the present case, at the level of the AO, the quantum proceedings was completed on 24.3.2016. Going by this date, the penalty order could not have been passed later than 30.9.2016. Considering that the subject matter of the quantum proceedings was the non-compliance with Section 269 T of the Act, there was no need for the appeal against the said order in the quantum proceedings to be disposed of before the penalty proceedings could be initiated. In other words, the initiation of penalty proceedings did not hinge on the completion of the appellate quantum proceedings. The Hon’ble Rajasthan High Court in the case of Commissioner of Income- Tax v. Hissaria Bros. (2007) 291 ITR 244(Raj) took the view that default in not having transactions through the bank as required under sections 269SS and 269T are not related to the assessment proceeding but are independent of it, therefore, the completion of appellate proceedings arising out of the assessment proceedings or the other proceedings during which the penalty proceedings under sections 271D and 271E may have been initiated has no relevance. It was also held that if that were not so, clause (c) of s. 275(1) would be redundant because otherwise, as a matter of fact, every penalty proceeding is usually initiated when during some proceedings such default is noticed, though the final fact finding in this proceeding may not have any bearing on the issues relating to establishing default e.g. penalty for not deducting tax at source while making payment to employees, or contractor, or for that matter not making payment through cheque or demand draft where it is so required to be made. Therefore, even going by the first part of Sec.275(1)(c) of the Act, the starting point of time will be 24.3.2016.
As far as the second part of Sec.275(1)(c) of the Act is concerned, the same relates to “expiry of six months from the month in which the penalty proceedings were initiated”. We do not agree with the conclusion of the CIT(A) that that in the assessment order dated 24.3.2016, the AO has not initiated penalty proceedings u/s.271-E of the Act and has merely made an observation that there is a default attracting penalty u/s.271E of the Act. In this regard, we find that the Hon’ble Delhi High Court in the case of JKD Capital and Finlease Ltd. (supra) observed that the AO when he notices default u/s.269-T of the Act in the order of assessment has to be conscious of the time limit laid down in Sec.275(1)( c) of the Act and the revenue cannot be heard to say that the date of initiation of proceedings u/s.271-E of the Act is the date on which the proposal to levy penalty is conveyed by the AO to the officer who is competent to impose penalty u/s.271-E of the Act. The following were the relevant observations of the Court:-
11. In fact, when the AO recommended the initiation of penalty proceedings the AO appeared to be conscious of the fact that he did not have the power to issue notice as far as the penalty proceedings under Section 271-E was concerned. He, therefore, referred the matter concerning penalty proceedings under Section 271-E to the Additional CIT. For some reason, the Additional CIT did not issue a show cause notice to the Assessee under Section 271-E (1) till 20th March 2012. There is no explanation whatsoever for the delay of nearly five years after the assessment order in the Additional CIT issuing notice under Section 271-E of the Act. The Additional CIT ought to have been conscious of the limitation under Section 275 (1) (c), i.e., that no order of penalty could have been passed under Section 271-E after the expiry of the financial year in which the quantum proceedings were completed or beyond six months after the month in which they were initiated, whichever was later. In a case where the proceedings stood initiated with the order passed by the AO, by delaying the issuance of the notice under Section 271- E beyond 30th June 2008, the Additional CIT defeated the very object of Section 275 (1) (c).
Therefore, it is futile to contend that the date of initiation of proceedings is the date on which the JCIT receives intimation from the AO or the date on which the JCIT issues show cause notice to the Assessee u/s.271-E of the Act. In that view of the matter, we hold that the AO having initiated the penalty proceedings on 24.3.2016, the last date by which the penalty order could have been passed is 30th September 2016.
Thus, later of the two dates is 30th September, 2016 in the present case. With the AO having initiated the penalty proceedings in his order of assessment dated 24.3.2016, the last date by which the penalty order could have been passed is 30th September, 2016. The penalty order was passed only on 27.1.2017. Therefore the same is barred by time. The order imposing penalty is therefore held to be bad in law and is hereby cancelled.
Since the order is held to be bad and cancelled on the ground of limitation, we are not going into the existence of reasonable cause which will exonerate the Assessee from imposition of penalty u/s.273B of the Act.
In the result, appeal by the Assessee is allowed. Pronounced in the open court on this 02nd day of August, 2019.