SRI PARAMESWARI PROJECTS PVT.,,VISAKHAPATNAM vs. THE ADDL. CIT,, SRIKAKULAM

The assessee is challenging the validity of penalty order passed by the Addl. Commissioner and also contesting the levy of penalty of Rs.6,45,000/- imposed by him.

The facts relating to the issue are discussed in brief. The assessee is having a petrol bunk, cinema hall and also dealing in automobiles. The assessment order for the assessment year 2006-07 was completed by the Assessing Officer (AO) on 31.12.2008. During the course of assessment proceedings, the AO noticed that the assessee had received share application money to the tune of Rs.97.17 lakhs. The AO made enquiries with regard to the share applicants and finally made an addition of Rs.8,80,000/- u/s 69 of the Act. During the course of enquiry, the AO also examined certain persons who have applied for shares in the assessee company. The aggregate amount given by those persons was Rs.6,45,000/-. Though the AO accepted the credit worthiness of those share applicants, since the amount has been

Subsequently, Addl. Commissioner of Income Tax issued notice u/s 274 r.w.s.271 of the Act on 25.06.2009. The assessee submitted before the Addl.Commissioner of Income Tax that the share applicants mentioned below are agriculturists and they do not have bank accounts, since they do not have bank in their villages. The Addl. Commissioner of Income Tax was not convinced with the explanations of the assessee and accordingly levied penalty of Rs.6,45,000/- u/s 271D of the Act for violation of the provisions of section 269SS. S.No. Name of the Person Date Amount 1. Mahanti Satyam Naidu 1.6.2005 1,00,000 2. Kandi Chandra Shekar Rao 1.6.2005 1,00,000 3. Mahanti Bhaskara Rao 1.7.2005 50,000 4. Mahanti Sanakara Rao 1.7.2005 50,000 5. Pativada Gopala Rao 26.11.2005 50,000 6. Kandi Janardhana Rao 28.11.1005 60,000 7. Mahanti Chandra Babu 28.11.1005 50,000 8. M.Ramana 23.11.2005 50,000 9. Mahanti Venkatappala Naidu 24.11.1005 75,000 10. Vempatapu Tati Naidu 23.12.2005 60,000 Total 6,45,000

The assessee has raised a legal issue contesting the validity of the penalty order on the grounds of limitation. The Ld.AR submitted that the proceedings u/s 271D of the Act was initiated separately by the Addl. Commissioner of Income Tax on 25.06.2009 as per the provisions of section 275(1)(c) of the Act. He submitted that the order imposing penalty should have been passed within six months from the end of the month in which the action for imposition of penalty was initiated. Accordingly, the time limit for passing the order u/s 271D of the Act was available upto 31.12.2009. Since the impugned penalty order was passed on 30.03.2010, the Ld.AR contended that the same is barred by limitation.

The Ld.DR on the contrary, supported the orders passed by the tax authorities.

Having heard the rival submissions, we are of the view that there is merit in the contentions of the assessee. We have noticed earlier that the AO has stated in the assessment order that the penalty proceedings u/s 271D of the Act are being initiated separately. The assessing officer, in the present case, is Assistant Commissioner of Income-tax. As per sec. 271D(2) of the Act, the penalty u/s 271D(1) shall be imposed by the Joint Commissioner, meaning thereby, the Assessing officer, being an assistant commissioner, does not have the power to impose penalty u/s 271D of the Act. In any case, there is no material on record to show that the assessing officer issued any notice u/s 271D of the Act to the assessee.

At the instance of the AO, the Addl.Commisisoner of Income Tax has initiated the penalty proceedings separately by issuing notice to the assessee u/s 274 of the Act on 25.06.2009. In that case, as per the provisions of section 275(1)(c) of the Act, the penalty order should have been passed within six months from the end of the month in which the action for imposition of penalty is initiated, meaning, thereby the penalty order should have been passed by the Addl.Commissioner of Income

We have earlier observed that there is no material on record to show that the assessing officer has issued any notice u/s 271D of the Act. Even if it is assumed that the assessing officer has issued a notice u/s 271D on the date of assessment order, i.e., on 31-12-2008, the same would become time barred by 30-06-2009, i.e., within six months from the end of the month in which action for imposition of penalty is initiated, for the reason that the penalty proceedings u/s 271D of the Act cannot be considered to be an action initiated during the course of assessment proceedings. For this proposition, we rely upon the decision rendered by Hon’ble Rajasthan High Court in the case of CIT Vs. Hissaria Bros (291 ITR 244), which has been referred by the very same High Court in the case of CIT Vs. Jitendra Singh Rathore (I.T Appeal No.90 of 2007 dated 10-01-2014) as under:-

In view of the foregoing discussions, we hold that the penalty order passed by Addl. Commissioner of Income tax on 30-03-2010 is barred by limitation. Accordingly, we set aside the order passed by the Ld.CIT(A) and quash the penalty order passed by the Addl.Commissioner of Income Tax.

In the result, the appeal filed by the assessee is allowed.