The Delhi High Court recently ruled that the penalty proceedings initiated after six months of receipt of the adjudicatory order is barred by Limitation under Section 275 (1) (a) of the Income Tax Act, 1961.
In instant case Assessee, is a limited company engaged in the manufacture and sale of TV sets and their components and filed return declaring the loss. Assessee preferred an appeal in connection with the computation of book profit by AO where appellate authority partly allowed the appeal and sustained some addition. Senior Advocate Salil Kapoor and Advocate Sumit Lalchandani appeared for the appellants.
Subsequently, AO imposed a penalty for concealment of income thereafter Assessee argued that penalty proceedings were barred in view of Section 275 (1) (a) of the Act as a valid penalty could be imposed within six months of the end of the month in which the order of the CIT (A) was received by the AO. Eventually, AO made penalty by rejecting Assessee’s arguments.
After that CIT (A) allowed the appeal of Assessee by deleting the penal proceedings of AO and held that such imposition must be canceled as the same has been passed beyond the limitation date.
When Revenue carried the matter to the Tribunal, the Tribunal set aside the CIT (A) order and reasoned that assessee’s contention regarding the penalty order is beyond the period of limitation cannot be accepted since period of limitation in tribunal’s opinion, available to the AO u/s 275(1)(a) is a period of six months from the date on which the order of the Tribunal permitting the withdrawal was received by the department.
Before the bench, the revenue contended that partial success of Assessee meant that some of the additions are sustained and Revenue observed that assessee complains about despite the CIT(A)’s order, the Revenue did not complete the penalty proceedings within the six month period mandated by Section 275.
The High Court including Justice S. Ravindra Bhat and Justice A.K. Chawla accepted the contention of Assessee and held that since it imposed a limitation upon the power of the AO to inflict the penalty, it ought to be given the full effect.
The Court observed that section 275(1A) clarifies that the expiry of six months prescribed is to be reckoned “from the date of completion of proceedings or from the end of the month in which the order of the CIT (A) or as the case may be the appellate tribunal is received. “If the logic of the provision is kept in mind, it is obviously an adjudicatory “order” which culminates in “the proceedings” (i.e. an order that determines inter alia the rights of the parties finally) that is to be deemed a terminus quo for the completion of penalty proceedings.”
The Court observed that it is the duty of Revenue to complete the penalty proceedings and to pass the order within the six months period. Accordingly, the Court ordered in favor of assessee that ITAT was right in law in holding that the order passed by the Assessing Officer under Section 271 (1) (c) was within the period of limitation, prescribed in Section 275 (1) (a) of the Income Tax Act, 1961.
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