Notice u/s 274 of Income Tax Act should be issued before period of limitation: Delhi HC [Read Order]

In a recent decision the Delhi High Court observed that the notice under Section 274 of the Income Tax Act, 1961 should be issued before the period of limitation.

The record disclosed that the penalty proceedings were initiated against respondent/assessee for violating the provisions of Section 271D of the Income Tax Act, 1961. Section 271D is tied in with the provisions of Section 269SS of the Income Tax Act.

The case of the appellant/revenue was that the respondent/assessee had accepted monies from 29 parties, which led to addition of Rs. 16,69,53,000/- under Section 69C and 68 of the Income Tax Act. Accordingly, against this backdrop, the Assessing Officer (AO) initiated penalty proceedings under Section 271D, 271E, and 271AAA.

While framing the assessment order dated 31.12.2010, the AO initiated penalty proceedings under Section 271D, 271E and 271AAA. Therefore, in terms of the provisions of Section 275(1)(c), the penalty order could have been passed either before the expiry of the Financial Year [FY] in which proceedings in the course of which action for imposition of penalty was initiated is completed or within six months from the end of the month in which action for imposition of penalty was initiated, with the caveat that the appellant/revenue had the benefit of taking advantage of whichever period expired later.

Ruchir Bhatia, Senior Standing Counsel, who appeared on behalf of the appellant/revenue, argued that the AO was not empowered to pass the penalty order under the provisions referred to hereinabove and placesd reliance on Section 271E(2), which provides that the penalty imposable under sub-section (1) of the said section shall be imposed by the ACIT.

In PCIT vs. Thapar Homes Limited, it was observed that “Even though this may be an additional factor in this particular case, our reasons for holding the limitation period as prescribed under Section 275 (1) (c) of the Act had expired latest by 30.06.2011, is not confined only to this aspect of the matter. The appellant/ revenue, as noticed above, cannot extend the period of limitation by deciding at its whim and fancy when the notice has to be issued. The notice under Section 274 should have been issued before the period of limitation, as discussed above.”

 A Division Bench comprising Justices Rajiv Shakdher and Girish Kathpalia observed that “Therefore, in our opinion the impugned order requires no interference. Given the aforesaid position, the appeal is closed as no substantial question of law arises for consideration.”

To Read the full text of the Order CLICK HERE

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