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Facts
The assessee filed appeals against the penalty orders passed under sections 271D and 271E of the Income-tax Act. The penalty orders were passed by the Additional Commissioner of Income-tax after the assessment was completed. The core issue revolves around whether the penalty orders were passed within the prescribed limitation period.
Held
The Tribunal held that the limitation period for passing penalty orders is governed by Section 275(1)(c) of the Act. The crucial factor is the date of initiation of penalty proceedings, which, in cases where the Assessing Officer (AO) refers the matter to a higher authority, is considered to be the date when the competent authority (like the Additional Commissioner) issues a show-cause notice or takes the first step in imposing the penalty. The Tribunal found that the penalty orders in this case were passed beyond the statutory time limit.
Key Issues
Whether the penalty orders passed under Sections 271D and 271E were barred by limitation as per Section 275(1)(c) of the Income-tax Act, considering the date of initiation of penalty proceedings.
Sections Cited
271D, 271E, 274(2), 275(1)(c), 143(3), 269SS, 269T
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCHES ‘C’: NEW DELHI.
Before: SHRI S.RIFAUR RAHMAN & SHRI VIMAL KUMAR
to 2926/Del/2025 Date of Hearing : 04.11.2025 Date of Order : 09.01.2026 O R D E R
PER S. RIFAUR RAHMAN, ACCOUNTANT MEMBER :
The assessee has filed appeals against the order of the Learned Commissioner of Income Tax (Appeals)-26, New Delhi [“Ld. CIT(A)”, for short] dated 15.03.2025, for the Assessment Years 2015-16 and 2018-19 affirming the penalty orders passed u/s 271D and 271E of the Income-tax Act, 1961 (for short ‘the Act’).
2. Since the issues are common and the appeals are connected, hence the same are heard together and being disposed off by this common order. We take up the assessee’s appeal being for Assessment Year 2015-16 as lead case to adjudicate the issues under consideration.
Brief facts relating to the issues raised by the assessee arising out of penalty imposed u/s 271E of the Act brought to our notice by the ld. AR of the assessee are, the assessment order in which the proceedings were initiated u/s 269SS and 269T were initiated and completed on 29.12.2022. The relevant quantum appeals for AY 2015-16, 2017-18 and 2018-19 are pending before ld. CIT (A)-26 and no quantum appeal was pending before first appellate authority for AY 2016-17. The issue raised by the assessee in appeals before us are, the assessment was completed on to 2926/Del/2025 29.12.2022 and Addl. Commissioner of Income-tax, Central Range 04, Delhi passed the penalty order on 30.01.2024, therefore, the penalty order passed by the Assessing Officer is barred by limitation for imposition of the penalty. In this regard, he relied on the following case laws :- (i) ITAT, Jaipur Bench in Jagdish Chandra Suwalka vs. JCIT – IT Appeal No.376(JP) of 2022; (ii) Hon’ble High Court of Karnataka in Pr. CIT vs. K Umesh Shett in IT Appeal No.165 of 2020, January 17,2025; (iii) Hon’ble Delhi High Court in Pr. CIT vs. Rishikesh Buildcon (P) Ltd. in IT Appeals Nos.577, 580 & 583 of 2019 November 17, 2022; (iv) Hon’ble Delhi High Court in Property Plus Realtors vs. UOI & Ors. – WP(C) 17371/2024, January 20, 2025.
He prayed that the various courts have held that penalty order should be completed after the expiry of financial year in which proceedings are completed for which action for imposition of penalty initiated or six months from the end of the month in which action for imposition of penalty is initiated, whichever period expires later. In this regard, he submitted that the Assessing Officer should have completed after completion of assessment proceedings after the expiry of financial year or from the date of initiation of proceedings to impose the penalty by him whereas in this case, penalty order was passed only on 30.01.2021 which is beyond period of limitation. to 2926/Del/2025 5. On the other hand, ld. DR submitted as under :- “1. Introductory Submission • The Revenue respectfully submits that the penalty order passed by the Learned Additional Commissioner of Income Tax, Central Range-04, Delhi, under Section 27lE of the Income-tax Act, 1961 on 30.01.2024, is legally valid and within the prescribed limitation period. • The assessee has sought to contend that the penalty order is barred by limitation under Section 275(1)(c) of the Act, relying upon various judicial pronouncements. The Revenue humbly submits that the facts of the present case are materially distinguishable from the cases cited by the assessee and that the ratio of those decisions does not govern the instant matter.
Factual Context of the Present Case In the instant case: • The Assessing Officer (AO) completed the assessment u/s 143(3) on 29.12.2022, and recorded satisfaction for initiation of penalty u/s 271E. • The AO made a reference to the Additional Commissioner of Income Tax, being the competent authority u/s 274(2), for further necessary action. • The Addl. CIT thereafter issued a Show Cause Notice dated 12.10.2023 and passed the penalty order on 30.01.2024 after granting the assessee full opportunity of hearing. • Thus, the penalty proceedings commenced only when the Addl. CIT issued the show-cause notice, in exercise of statutory jurisdiction vested in him.
3. Legal Position on Limitation under Section 275(1)(c) • Section 275(1)(c) of the Act provides that no order imposing a penalty shall be passed after expiry of six months from the end of the month in• which the proceedings, in the course of which action for imposition of penalty has been initiated, are completed. • In the present case, since the AO is not the competent authority to initiate or impose penalty u/s 271D/271E, the "action for imposition of penalty" can be said to have been initiated only when the competent authority (Addl. CIT) issued the notice dated 12.10.2023. Consequently, limitation is to be reckoned from the end of October 2023, rendering the order dated 30.01.2024 well within time.
to 2926/Del/2025 4. Distinguishing the cases cited by the Assessee The assessee's reliance on the following decisions is misplaced and distinguishable on both facts and law: • Jagdish Chandra Suwalka v .. JCIT (ITAT Jaipur 'SMC' - A.Y. 2015-16) In the said case, the same Assessing Officer who completed the assessment had jurisdiction to initiate and impose penalty u/s 271D, and the penalty proceedings were considered a continuation of the assessment proceedings. The Tribunal found that the JCIT's satisfaction was recorded in the assessment order itself, and hence limitation commenced from completion of assessment. Distinction: • In the present case, however, the Assessing Officer had no competence to impose penalty u/s 271E and had merely made a reference to the Addl, CIT. • The independent satisfaction and initiation of proceedings by the Addl. CIT took place only on 12.10.2023, when he issued the show-cause notice. Therefore, the factual foundation that existed in Suwalka's case does not exist here. • Pro CIT V. K. Umesb Shetty (Karnataka High Court, of 2020, dated 17.01.2025) In that case, the reference by the AO and the issuance of notice by the Add!. CIT were separated by nearly one year, and the High Court observed unexplained delay on the part of the Department, holding that limitation must run from the date of reference. Distinction: • In the instant matter, the Addl. CIT's action followed the AO's reference within a reasonable administrative time, and the penalty order was passed soon thereafter on 30.01.2024. • Moreover, Umesh Shetty turned on unexplained departmental inaction, which is absent in the present case. The proceedings here reflect diligent administrative processing and timely initiation by the competent authority. • Pro CIT V. Rishikesb Buildcon (p.) Ltd. (Delhi High Court, 580 & 583 of 2018, dated 17.11.2022) to 2926/Del/2025 The issue before the Hon'ble Delhi High Court concerned penalty under Section 271(l)(c) initiated and imposed by the same Assessing Officer, and not by a different designated authority under Section 274(2). The ratio therein is confined to cases where the AO himself records satisfaction and initiates penalty proceedings within his jurisdiction. Distinction: • In the case at hand, the AO had no jurisdiction to impose penalty U/S 271E and merely made a reference to the competent authority. The Addl. CIT's independent initiation on 12.10.2023 marks the actual commencement of penalty proceedings. • Hence, the judgment in Rishikesh Buildcon (p.) Ltd. is factually inapplicable and does not govern the limitation computation under Section 275(1)(c) for penalties u/s 271E. • Property Plus Realtors V. Union of India & Ors. (Delhi High Court, W.P.(C) 17371/2024, dated 20.01.2025) The writ petition in Property Plus Realtors primarily examined the validity and timing of penalty initiation vis-a-vis satisfaction recorded in the assessment proceedings. The decision pertained to direct initiation of penalty by the AO and did not involve the distinct statutory process applicable to penalties u/s 271D/271E, which must be initiated and imposed by the Joint/Additional Commissioner. Distinction: • In the present case, since the AO' s role was limited to making a reference, the Addl. CIT's notice constitutes the first legal act of initiation. Therefore, the ratio in Property Plus Realtors - which turned on simultaneous initiation by the AO - cannot be imported here.
Principle of Harmonious Interpretation • A purposive reading of Sections 274(2) and 27S(l)(c) reveals that the legislature intended to afford a reasonable statutory window to the competent authority after the AO's reference. • To construe the limitation period as commencing from the AO's completion of assessment - when he has no authority to impose penalty - would render Section 274(2) nugatory and create administrative impossibility . to 2926/Del/2025 • Therefore, the correct interpretation, consistent with legislative intent and judicial balance, is that limitation commences only when the Addl. CIT assumes jurisdiction and initiates proceedings.”
Considered the rival submissions and material placed on record. We observed that on the similar factual matrix, the Hon’ble Delhi High Court in the case of PCIT vs. Rishikesh Buildcon (P.) Ltd. (2023) 147 taxmann.com 220 (Delhi) held as under :-
“7. The relevant admitted facts for determining the controversy in the present appeals are: a. The quantum proceedings with respect to the three Assessee(s) were completed in December, 2008 and the penalty proceedings against the Assessee(s), inter alia under Section 271D of the Act for violating the provision of Section 269SS of the Act, had been initiated by the AO at the time of the completion of the said assessment. b. The SCNs under Section 271D of the Act were issued by prescribed authority on 24th March, 2009. c. The penalty order(s) were passed on 29th September, 2009.
8. The contention of the learned senior standing counsel for the Revenue that the date of the issuance of the SCNs would be the relevant starting point i.e., 24th March, 2009, was specifically noted and rejected by this Court in the Mahesh Wood Products Pvt. Ltd. (supra). The relevant portion of the said judgment reads as follows:- "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. xxx xxx xxx 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 to 2926/Del/2025 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." (Emphasis Supplied) 9. The legal principle for determining the date of initiation of penalty proceedings has been settled by the predecessor bench of this Court in its decision of JKD Capital and Finlease Ltd. (supra) which reads as under: - "2...While finalising the assessment order dated December 28, 2007 the Assessing Officer ("the AO") in the concluding paragraph issued a direction to initiate proceedings against the assessee under sections 271(1)(c) and 271E of the Act. Admittedly, under section 271E(2) of the Act, any penalty under section 271E(1)can only be imposed by the Joint Commissioner of Income-tax ("the Joint CIT").Consequently, the Assessing Officer referred the matter to the Additional Commissioner of Income-tax.
3. A perusal of the order dated March 20, 2012, of the Additional Commissioner of Income-tax shows that a show-cause notice initiating penalty proceedings under section 271E was issued to the assessee on March 12, 2012, requiring it to explain as to why penalty should not be levied on it under section 271E on account of violation or the provisions of section 269T of the Act. With the assessee having failed to furnish the required information, the Additional Commissioner of Income-tax proceeded to confirm the penalty in the sum of Rs. 17,90,000. xxx xxx xxx 6. Mr. Kamal Sawhney, learned senior standing counsel appearing for the Revenue, submitted that the Assessing Officer has no power to initiate the penalty proceedings under section 271E of the Act and it was only the Joint Commissioner of Income-tax 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 were issued. In the present case, as the Additional Commissioner of Income-tax issued notice to the assessee on March 12, 2012, the order of the Additional Commissioner of Income-tax passed on March 20, 2012, was within limitation.
7. We are unable to agree with the above submission of learned standing counsel for the Revenue. Section 275(1)(c) reads as under: "275. (1) No order imposing a penalty under this Chapter shall be passed... to 2926/Del/2025 (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."
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 Assessing Officer, the quantum proceedings was completed on December 28, 2007. Going by this date, the penalty order could not have been passed later than March 31, 2008. The second possible date is the expiry of six months from the month in which the penalty proceedings were initiated. With the Assessing Officer having initiated the penalty proceedings in December 2007, the last date by which the penalty order could have been passed is June 30, 2008. The later of the two dates is June 30, 2008." (Emphasis Supplied) 10. The contentions urged by the learned counsel for the Revenue in the present appeals are therefore reiteration of pleas which have been categorically rejected by the predecessor bench of this Court in the aforesaid judgments.
In the present appeals, a perusal of the assessment order(s) shows that the penalty proceedings were initiated by the AO in the assessment order(s) itself. Illustratively, the direction contained in the assessment order dated 17th December, 2008, pertaining to Rishikesh Buildcon Pvt. Ltd. may be referred to, which reads as under:- "... Initiate penalty proceedings u/s, 271(1)(c) for concealment of income & 27l(1)(b) for non-compliance of statutory notices, & 271 D for violating the provisions of Section 269 SS as discussed above."
The predecessor bench of this Court in the aforesaid judgments has held that where the AO has initiated the penalty proceedings in his/her assessment order, the said date is to be taken as the relevant date as far as the Section 275(1)(c) of the Act is concerned. In these cases, the quantum proceedings were completed by the AO on 17th/18th December, 2008, and the AO initiated the penalty proceedings in December, 2008, thus, the last date by which the penalty order could have been passed is 30th June, 2009. The six months from the end of the month from which action of imposition of penalty was initiated would expire on 30th June, 2009. However, in this case, admittedly, the penalty order(s) were passed on 29th September, 2009, and therefore, the ITAT rightly concluded that the order(s) were barred by limitation. to 2926/Del/2025 13. Consequently, we answer the question of law against the Revenue and in favour of the Assessee by holding that, in the facts and circumstances of the present appeals, the ITAT was correct in law in deleting the penalty imposed by the Additional Commissioner of Income Tax, under Section 271D of the Act, on the ground that the penalty order(s) dated 29th September, 2009, was passed beyond the time period prescribed by Section 275(1)(c) of the Act, the same having been passed after the lapse of six months from the end of the month in which the penalty proceedings were initiated by the AO.”
We observed that in the above decision, the Revenue also had made similar plea which was made before us by the ld. DR of the Revenue. Since the issue was elaborately dealt by the Hon’ble Delhi High Court and since the facts are exactly similar, we are inclined to decide the issue in favour of the assessee for the simple reason that the provisions of section 275(1)(c) is very clear that the penalty order must be passed after the expiry of financial year from the date of passing of the assessment order or six months from the end of the month in which action for imposition of penalty is initiated. In the given case, ld. DR brought to our notice the relevant facts that the assessment order was completed u/s 143(3) on 29.12.2022 and recorded the satisfaction for initiation of penalty u/s 271E and also submitted that Assessing Officer made a reference to the Addl.CIT being a competent authority u/s 274(2) for further necessary action. However, ACIT issued a show-cause notice only on 12.10.2023. As per the provisions of section 275(1)(c), the period of six months is counted from the date on which the Assessing Officer made a reference for imposition of penalty. As held by Hon’ble to 2926/Del/2025 Delhi High Court, it is not relevant when ACIT approves or issues a show-cause notice, therefore, respectfully following the decision of Hon’ble Delhi High Court in the above case, we are inclined to allow the relevant ground raised
by the assessee in the four appeals arising out of penalty imposed u/s 271E of the Act for AYs 2015-16 to 2018-19 and the appeals relating to the same are allowed.
8. Since the facts in the cases of imposition of penalty u/s 271E are exactly similar to imposition of penalty u/s 271D of the Act, therefore, the findings in the above appeals relating to penalty u/s 271E are applicable mutatis mutandis in other four appeals relating to penalty u/s 271D of the Act. Accordingly, the appeals filed by the assessee arising out of penalty u/s 271D for AYs 2015-16 & 2018-19 are allowed.
9. To sum up : all the appeals filed by the assessee are allowed. Order pronounced in the open court on this 9th day of January, 2025.