ITO , TDS WARD-75(2), NEW DELHI vs. KUSHAL INFRA PROJECT INDUSTRIES INDIA LTD., NEW DELHI

The appeal filed by the Department of Revenue is against order dated 30.07.2019 of Learned Commissioner of Income Tax (Appeals)-30, New Delhi [hereinafter referred to as ‘Ld. CIT(A)’] arising out of penalty order dated 14.07.2016 passed by the Assessing Officer, JCIT, Range - 75, New Delhi (hereinafter referred as ‘Ld. AO’) under section 271C of the Income Tax Act, 1961 [hereinafter referred to as “the Act”] for the Assessment Year 2010- 11. -2- ITA No.8071/Del/2019 A.Y. 2010-11

Brief facts of case are that the assessment for F.Y. 2009-10 was completed under section 143(3) of the Act at a loss of Rs.41,70,19,670/- on 20.03.2013 and penalty proceedings were initiated under section 271C(1)(a) of the Act for non compliance of provisions of section 192(1) of the Act. Show-cause notice dated 01.03.2016 was issued. Later on, show-cause notice was also sent on 15.06.2016. In response to notices, no one attended the proceedings. A final show-cause notice with final opportunity was issued on 04.07.2016. No one attended the proceedings. Penalty order dated 14.07.2016 was passed by learned AO.

Respondent/assessee preferred appeal before the learned CIT(A) which was allowed vide order dated 30.07.2019. 4. Being aggrieved, the Departmental Representative for the Department of Revenue preferred present appeal.

Learned Departmental Representative submitted that learned CIT(A) erred in not appreciating that the learned AO was merely a recommending authority and the limitation period for imposition of penalty starts from the date of issue of show-cause notice by learned JCIT/Addl.CIT(TDS). Learned CIT(A) erred in deleting the addition made on account of exemption claimed i.e. Rs. 36,66,75,500/- under section 2(14) of the Act. As the land was not agricultural land on date of sale. The characterization of property will not freeze on the basis of an event but depend on the -3- ITA No.8071/Del/2019 A.Y. 2010-11

Learned Authorized Representative for the appellant/assessee submitted that an ex-parte penalty order under section 271C of the Act dated 14.07.2016 was passed. Penalty of Rs.4,17,01,967/- was levied on the ground of TDS default on contractual payments. Penalty @10% was levied. Learned CIT(A) set aside the penalty order. No liability of assessee of TDS deduction on the additions made by the learned AO in order under section 143(3) of the Act. Five additions made by the AO i.e. payment to relatives of directors Rs.7.80 lakhs, unreasonable payments to director Rs. 33.10 lakh, Rs. 4 crores on capital asset issue, Rs. 36.66 crores on agriculture land sale and Rs. 6.5 lakhs u/s 35D of the Act. It is not clear as to why the penalty has been levied. Penalty order dated 14.07.2016 was time barred as per section 275(1)(c) of the Act. Assessment proceedings were completed on 20.03.2013 [i.e. order under section 143(3)] and in the same order penalty proceedings were also initiated. Learned AO intimated the CIT-TDS-1, New Delhi for imposition of penalty under section 271C on 25.12.2013. Hence, action for imposition of penalty initiated on 25.12.2013. Time

1 In the Assessment Order penalty under section 271C of the Act was initiated for non-compliance of section 192(1). Penalty levied for TDS non-compliance of contractual payments. No contractual payments in P&L account and the total expenditures debited in P&L account is Rs.5,43,78,655/-. Under clause 27(b) of Tax Audit Report, no TDS non-compliance reported. There is no Annexure G of Tax Audit Report. Reference to Annexure G is erroneous. No TDS non-compliance addition was made in the assessment u/s 143(3) of the Act. Incorrect facts and figures show non-application of mind by learned AO.

From examination of record in light of aforesaid rival contentions, it is crystal clear that penalty order dated 14.07.2016 was passed in pursuance to assessment order dated 20.03.2013. It is a material fact that the penalty proceedings were initiated by learned AO vide order dated 20.03.2013. -5- ITA No.8071/Del/2019 A.Y. 2010-11

1 Para 9 of Pr. CIT (Circle)-2 vs. Mahesh Wood Products (P.) Limited’s case (supra) provides “However, this question came up for consideration in 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.”

2 So, as per section 275(1)(c) of the Act the last date by which penalty order could have been passed was 30.06.2014. The penalty order was passed on 14.07.2016. Therefore, the penalty order dated 14.07.2016 was time barred.

3 Moreover, assessment order dated 20.03.2013 mentions “Penalty proceedings u/s 271C(1)(a) of the Act is initiated separately for non-compliance to the provision of section 192(1) of the Act”.

4 Penalty order dated 14.07.2016 refers to section 194C/194J/and Annexure G of Tax Audit Report. The reference is -6- ITA No.8071/Del/2019 A.Y. 2010-11

5 In the above material facts apparent on record, the submissions made by learned Departmental Representative and grounds of appeal being devoid of merit are dismissed.

In the result, appeal filed by the Revenue is dismissed.