Notice u/s 274 of Income Tax Act not to be issued before Period of Limitation: Delhi HC dismisses Income Tax Appeal [Read Order]

The Delhi High Court dismissed an income tax appeal and observed that the Notice under Section 274 of the Income Tax Act, 1961 not to be issued before the period of limitation.

The respondent in the present matter is Thapar Homes Limited. The assessment order concerning the AY in issue, i.e., 2008-09, was passed on 31.12.2010. While passing the assessment order, the Assessing Officer (AO) issued notice for initiation of penalty proceedings under Section 271AAA, 271 D, and 271 E of the Income Tax Act.

The Additional Commissioner of Income Tax [“ACIT”], who is equivalent in rank and power to the Joint Commissioner of Income Tax, issued a notice on 13.06.2011 under Section 274 and 271E of the Income Tax Act. The impugned penalty order was passed by the ACIT on 30.12.2011

The question that arose before the Court for consideration is whether the Income Tax Appellate Tribunal [ITAT] misdirected itself on facts and in law, in deleting the penalty imposed under Section 271E of the Income Tax Act, 1961 on the ground that it was beyond the period of limitation, as prescribed under Section 275 (1)(c) of the Income Tax Act?

A Division Bench comprising Justices Rajiv Shakdher and Girish Kathpalia observed that “A perusal of the aforesaid provision shows that there are two limbs embedded therein, for the purpose of calculating the end date when the limitation expires, depending on whichever is the later date. The first limb points in the direction that the end of the Financial Year in which the quantum proceedings are taken out, in the course of which action for imposition of penalty is initiated are completed. This would provide the end date when limitation would expire under the first limb.”

The Court further noted that according to the second limb, limitation is to be calculated having regard to the end of the month in which the action taken for imposition of penalty is initiated. Thus under this limb, limitation would commence from the end of the month in which the action for imposition of penalty is initiated (except where the two dates coincide). The prescribed period of limitation, i.e., 6 months, will run from the said date.

The Court concluded by noting that once the appellant/revenue decides to trigger penalty proceedings against the respondent/assessee, it is incumbent upon them to keep an eye on the limitation period prescribed under Section 275 (1)(c) of the Income Tax Act. If the limitation period is connected to when the concerned officer issues notice, then the appellant/ revenue can extend the period of limitation, way beyond the timeline prescribed in Section 275 (1)(c).

To Read the full text of the Order CLICK HERE

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