ROMAA HOUSING PRIVATE LIMITED,CHENNAI vs. ITO, CHENNAI

Bar of limitation for imposing penalties 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.

Order dated 05.08.2021; and thus, in such factual background according to Ld AR, the second limb of sec.275(1)(c) of the Act is applicable i.e. the Competent Authority (the Addl.CIT) had to pass the penalty order within six months from the end of the month in which action for imposition of penalty is initiated. In other words, in the present case, according to Ld AR, the Addl.CIT had to pass penalty order within six months from the end of the month, in which, action for imposition of penalty is initiated.

And since, the AO had initiated/given report [for AY 2018-19] to the Addl.CIT on 12.08.2021, the limitation starts running from the end of the month i.e. 30.08.2021 and gets time barred to pass the penalty within six months from 30.08.2021 i.e. on or before 28th February, 2022, and since, in the present case for AY 2018-19, the penalty order has been passed by the Addl.CIT on 30.08.2022, according to her, it is wholly without jurisdiction and beyond the limitation day i.e. 28th February, 2022. For such a proposition, she relied on the decision of the Hon’ble Delhi High Court in the case of PCIT v. JKD Capital & Finlease Ltd., in dated 13.10.2015, wherein the Hon’ble Delhi High Court in a similar case (penalty levied u/s.271E of the Act for violation of sec.269T of the Act) held as under:

1. This appeal by the Revenue under Section 260A of the Income Tax Act, 1961 ('Act') is directed against the impugned order dated 27th March 2015 passed by the Income Tax Appellate Tribunal ('ITAT') in for the Assessment Year ('AY') 2005-06.

to 1347/Chny/2024 (AY 2018-19 & AY 2019-20) M/s.Romaa Housing Pvt. Ltd.

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3. While finalising the assessment order dated 28th December 2007 the Assessing Officer ['AO'] in the concluding paragraph issued a direction to initiate proceedings against the Assessee under Sections 271 (1) (c) and 271- E of the Act. Admittedly, under Section 271-E (2) of the Act, any penalty under Section 271-E (1) can only be imposed by the Joint Commissioner of Income Tax ['Joint CIT']. Consequently, the AO referred the matter to the Additional CIT.

4. A perusal of the order dated 20th March 2012 of the Additional CIT shows that a show-cause notice initiating penalty proceedings under Section 271-E was issued to the Assessee on 12th March 2012 requiring it to explain as to why penalty should not be levied on it under Section 271- E 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 CIT proceeded to confirm the penalty in the sum of Rs. 17,90,000.

5. The Assessee challenged the above order before the CIT (A). In the order dated 22nd July 2013, the CIT (A) deleted the above penalty inter alia on the ground that, in terms of Section 275 (1) (c) of the Act, the penalty order could have only been passed on or before 30th June 2008 and therefore, the penalty order passed on 20th March 2012 was barred by limitation.

6. The ITAT has, in the impugned order dated 27 th March 2015, affirmed the above order of the CIT (A) by referring to the decision of this Court in CIT v. Worldwide Township Projects Limited (2014) 269 CTR 444. The ITAT has observed that the date on which the CIT (A) had passed the order in the quantum proceedings had no relevance as it did not have any bearing on the issue of penalty.

8. We are unable to agree with the above submission of learned Standing counsel for the Revenue. Section 275 (1) (c) reads as under:

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(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.

9. 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 28th December 2007. Going by this date, the penalty order could not have been passed later than 31st March 2008. 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 December 2007, the last date by which the penalty order could have been passed is 30th June 2008. The later of the two dates is 30th June 2008.

10. 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. This position has been made explicit in the decision in CIT v. Worldwide Township Projects Limited (supra) in which the Court concurred with the view expressed in Commissioner of Income- Tax v. Hissaria Bros. (2007) 291 ITR 244(Raj) in the following terms:

"The expression other relevant thing used in s. 275(1)(a) and cl. (b) of Sub-s. (1) of S. 275 is significantly missing from cl. (c) of s. 275(1) to make out this distinction very clear. We are, therefore, of the opinion that since penalty proceedings for default in not having transactions through the bank as required under ss. 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 ss. 271D and 271E may have been initiated has no relevance for sustaining or not sustaining the penalty proceedings and, therefore, cl. (a) of sub-s. (1) of s. 275 cannot be attracted to such proceedings. If that were not so cl. (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 to 1347/Chny/2024 (AY 2018-19 & AY 2019-20) M/s.Romaa Housing Pvt. Ltd. made. Either of the contingencies does not affect the computation of taxable income and levy of correct tax on chargeable income; if cl. (a) was to be invoked, no necessity of cl. (c) would arise." (emphasis supplied)

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).

12. In that view of the matter, the order of the CIT (A) which has been affirmed by the impugned order of the ITAT does not suffer from any legal infirmity.

6. In the light of the aforesaid facts and the Hon’ble Delhi High Court order in the case of JKD Capital & Finlease Ltd. (supra), the Ld.AR prays that penalty order passed by the Addl.CIT u/s.271D of the Act for violation of sec.269SS dated 30.08.2022 is bad in law. And on the same reason, according to her the penalty levied by the Addl.CIT u/s.271E for violation of Sec.269T passed on 30.08.2022 is also time barred and so, is bad in law. to 1347/Chny/2024 (AY 2018-19 & AY 2019-20) M/s.Romaa Housing Pvt. Ltd.

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7. The Ld.DR for Revenue, stoutly opposed the contention of the assessee and supported the impugned penalty order and according to him, was passed within time and submitted the written submissions, which reads as under:

The assessee in this case has filed appeals against the order of CIT Appeals dated 07.03.2024 deleting penalty under section 271 D and 271 E of the Act for the AY 2018-19.

2. In the written submissions filed by the assessee on 29.07.2024, the assessee has raised certain contentions. The Revenue prays that it may be permitted to discuss the same and place its submissions with reference to the same before the Hon'ble ITAT, as below:

3.1 In this regard, reliance is placed on the decision of the Special Bench of the ITAT, Chandigarh Bench in 98 ITD 200. The relevant portion of the decision is extracted below:

"21. Another factor that deserves consideration is the requirement of recording of satisfaction in the course of any proceedings. When the language of provisions of Section 271 is compared with Section 271D/271E, the distinction is prominently visible. Under Section 271, recording of satisfaction before initiation of penalty in the course of proceedings is a condition precedent for imposition of penalty for specified defaults. Under Sections 271D and 271E, there is no such requirement of recording of satisfaction in the course of any proceedings. Moreover, the authority for imposition of penalty under Section 271 is the AO or the CIT(A), as the case may be. On the other hand, the authority for imposition of penalty under Sections 27ID and 271E is the Dy. CIT which has later on been substituted by the Jt. CIT. With reference to the proceedings of Section 271, their Lordships of the Punjab & Haryana (High Court) also in the case of CIT v. Munish Iron Store, held that jurisdiction to impose penalty under Section 271 flows from recording of satisfaction of the AO regarding concealment of income. Similar view has been taken by the Delhi High Court in the case of CIT v. Vikas Promoters (P) Ltd, and earlier in some other cases. However, these decisions lose significance when we compare the plain language of provisions of Sections 2710 and 271E vis-avis that of Section 271. It is evident from the language used by the legislature that the condition precedent of recording satisfaction as required for the defaults specified under Section 271 is not intended for the purposes of defaults contemplated under Sections 271D and 271E to 1347/Chny/2024 (AY 2018-19 & AY 2019-20) M/s.Romaa Housing Pvt. Ltd.

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3.2 The ITAT Bengaluru by decision dated 20.09.2021 in DCIT v. C. Gangadhara Murthy has held that Penalty proceedings under section 271D or 271E were Independent proceedings and had nothing to do with assessment proceedings or its outcome. Therefore, CIT(A) was not justified in cancelling the orders Imposing penalty on the ground that the assessment proceedings, during the course of which, penalty under section 2710 and 271E were Initiated had been held to be invalid

4. Another contention raised was that initiation of penalty proceedings under sec 275 (1)(C) of the IT Act starts from the date on which the AO wrote a letter recommending the issuance of Show cause notice and not from the date mentioned in the Show cause Notice.

4.1 The above proposition put forth by the assessee is not tenable. The Kerala High Court in the case of Grihalaxmi Vision Vs Addi Commissioner of Income Tax, Range 1, Kozhikode vide its order dt 08.0.2015 in & 86 of 2014 has observed that "Question to be considered is whether proceedings for levy of penalty, are initiated with the passing of the order of assessment by the Assessing Officer or whether such proceedings have commenced with the issuance of the notice issued by the Joint Commissioner. From statutory provision, it is clear that the competent authority to levy penalty being the Joint Commissioner. Therefore, only the Joint Commissioner can initiate proceedings for levy of penalty. Such initiation of proceedings could not have been done by the Assessing Officer. The statement in the assessment order that the proceedings under Section 271D and E are initiated is inconsequential. On the other hand, if the assessment order is taken as the initiation of penalty proceedings, such Initiation is by an authority who is incompetent and the proceedings thereafter would be proceedings without jurisdiction. If that be so, the initiation of the penalty proceedings is only with the issuance of the notice issued by the Joint Commissioner to the assessee to which he has filed his reply."

4.2 Reliance is once again placed on the decision of the Special Bench of the ITAT, Chandigarh Bench in 98 ITD 200. In that case, the Lordships concluded the issue as below:

"28. In the final analysis, we hold that the authority competent to impose penalty under Sections 2710 and 271E is vested with the Dy. CIT (now Jt. CIT) and the AO does not have the power either to initiate the penalty proceedings or impose the same. There is no procedure for reference by the AO to the competent authority for imposition of penalty under Section 2710 or 271E. Therefore, the limitation for completion of penalty proceedings as provided under Section. 275(1)(c) has got to be computed from the date of issue of show-cause notice by the competent authority, which in the present case, is under Section 275(1)(c) has got to be computed from the date of issue of show-cause notice by the competent authority, which in the present case, is the Dy. CIT (now Jt. CIT). Since the respective orders under Section 271D have been passed within a. period of six months from the date of initiation by the competent authority, the penalty orders passed in the cases of the appellants herein are not barred by limitation." to 1347/Chny/2024 (AY 2018-19 & AY 2019-20) M/s.Romaa Housing Pvt. Ltd. :: 11 ::

5. On the factual side, it has been contended that the transaction being with a sister concern cannot be termed as loan or deposit.

5.1 In this regard, the Tax auditor in the Tax Audit report vide Column 31.c where 'Particulars of each repayment of loan or deposit or special advance in an amount exceeding the limit specified in Sec 269T made during the year " are supposed to be mentioned, has duly reported the amounts taken from M/s MR Steels as loan and has reported the repayment of Rs.60 lakhs to M/s Raymix Concrete India P Ltd as loan respectively.

'reasonable cause', the CIT(A) has dealt with the same in detail in the order. For such items not specifically mentioned in the above submissions, reliance is made on the order of the Ld CIT(A).

Prayer: It is humbly prayed that the order of the Ld CIT(A) may be sustained, and the appeal, rejected.

Submitted for favourable consideration of the Hon'ble Tribunal.

Later on, the AO on 12.08.2021 recommended to the Addl.CIT initiation of penalty u/s.271D of the Act for receiving loan/advance to the tune of Rs.2,20,90,000/- from M/s. MR Steels, Chennai, thus violating sec.269SS of the Act as well as sec.271E of the Act for re-paying cash loan of Rs.60 lakhs to M/s. Ray Mix Concrete in violation of Sec.269T of the Act. to 1347/Chny/2024 (AY 2018-19 & AY 2019-20) M/s.Romaa Housing Pvt. Ltd. :: 12 ::

Pursuant thereto, the Addl.CIT issued notice u/s.274 r.w.s.271D as well as sec.271E of the Act, to the assessee on 08.02.2022 and after considering the reply of the assessee, the Addl.CIT levied penalty u/s.271D/271E of the Act amounting to Rs.2,20,90,000/- and Rs.60 lakhs vide order dated 30.08.2022, which impugned action of the Addl.CIT dated 30.08.2022 has been challenged on the ground that it was time barred. According to the Ld.AR, in the present case, since the assessee accepted the assessment order passed by the AO dated 05.08.2021 u/s.143(3) of the Act, and since, the assessee didn’t file appeal against the assessment order dated 05.08.2021, the limitation period would be governed by sec.275(1)(c) of the Act i.e. the Addl.CIT had to pass penalty order within six months from the end of the month in which action for imposition of penalty is initiated i.e. the Addl.CIT has to impose penalty within six months from the month in which the action for imposition of penalty is initiated. Since, in the present case, the AO had initiated/given report to the Addl.CIT on 12.08.2021, the limitation starts from the end of the month i.e. 31.08.2021 and gets time barred on or before 28.02.2022.

However, since, the impugned penalty order has been passed by the Addl.CIT on 30.08.2022, it is time barred and therefore, the impugned action of the Addl.CIT is wholly without jurisdiction. For such a to 1347/Chny/2024 (AY 2018-19 & AY 2019-20) M/s.Romaa Housing Pvt. Ltd. proposition, we rely on the decision of the Hon’ble Delhi High Court in the case of PCIT v. JKD Capital & Finlease Ltd. (supra).

ITA No.1347/Chny/2024 for AY 2019-20

The aforesaid action of the penalty order passed by the Addl.CIT has been to 1347/Chny/2024 (AY 2018-19 & AY 2019-20) M/s.Romaa Housing Pvt. Ltd. challenged before us on the same lines that has been done for AY 2018- 19 and by relying on the decision of the Hon’ble Delhi High Court in the case of JKD Capital & Finlease Ltd., in dated 13.10.2015 (supra).

And as noted the assessee had filed its return of income u/s.139(4) of the Act on 11.03.2020 declaring total income of Rs.1,43,67,220/- and the AO accepted the returned income by order dated 30.09.2021 passed u/s.143(3) of the Act. Later on, the AO on 10.01.2022 recommended to the Addl.CIT initiation of penalty u/s.271D of the Act for violation of sec.269SS of the Act (for receiving loan/advance of Rs.3,15,61,569/- in cash from several entities) and pursuant thereto, the Addl.CIT is noted to have issued penalty notice u/s.274 r.w.s.271D of the Act on 08.02.2022 for AY 2019-20 and levied penalty u/s.271D of the Act on 30.08.2022, which action of the 30.08.2022 has been challenged on the ground that it was time barred. According to the Ld.AR, in the present case, since the AO accepted the returned income filed by the assessee by passing assessment order on 26.12.2019 u/s.143(3) of the Act and since the assessee didn’t file appeal against the assessment order dated 26.12.2019; in such factual back ground, the limitation period would be governed by sec.275(1)(c) of the Act i.e. the Addl.CIT has to pass penalty to 1347/Chny/2024 (AY 2018-19 & AY 2019-20) M/s.Romaa Housing Pvt. Ltd. within six (6) months from the end of the month, in which action for imposition of penalty is initiated i.e. the Addl.CIT has to pass within six months from the end of the month in which action for imposition of penalty is initiated. Since, in the present case, the AO had initiated/given report to the Addl.CIT on 10.01.2022, the limitation starts from the end of that month i.e. 31.01.2022 and gets time barred six months from 31.01.2022 i.e. on or before 31.07.2022 and since the penalty order has been passed by the Addl.CIT on 30.08.2022, it is held to be wholly without jurisdiction. For such a proposition, we rely on the decision of the Hon’ble Delhi High Court in the case of PCIT v. JKD Capital & Finlease Ltd. (supra). Eventhough the Ld.DR has relied on the decision of the Hon’ble Kerala High Court in the case of Grihalaxmi Vision v. Add.CIT order dated & 86 of 2014] which was held in favour of the Revenue, but as noted, the Ld.AR has relied on the decision of the Hon’ble Delhi High Court in the case of PCIT v. JKD Capital & Finlease Ltd. (supra) in favour of assessee on the aforesaid legal issue, and in such an event, we take note of the decision of the Hon’ble Supreme Court in the case of CIT v. Vegetable Products ltd. reported in [1973] 88 ITR 192 (SC) wherein the Hon’ble Supreme Court has held that in case of doubt or dispute [on an issue] interpretation/construction in favour of the assessee may be adopted. Therefore, in the facts and circumstance of the case to 1347/Chny/2024 (AY 2018-19 & AY 2019-20) M/s.Romaa Housing Pvt. Ltd. discussed, and in the light of Hon’ble Apex Court decision in CIT v.

Vegetable Products ltd.(supra), we are inclined to follow the decision of Hon’ble Delhi High Court in PCIT v. JKD Capital & Finlease Ltd. (supra) held in favour of assessee on the legal issue and allow the appeals and consequently, the impugned Penalty levied against the assessee are directed to be deleted.

Order pronounced on the 25th day of September, 2024, in Chennai.