Delhi HC Dismisses Revenue’s Appeal as Penalty u/s 271E Held Time-Barred: Limitation Starts from AO’s Notice, Not ACIT’s Action [Read Order]

The Delhi High Court reaffirmed in Thapar Homes Pvt. Ltd. that penalty proceedings under Section 271E of the Income Tax Act, 1961, must be completed within the statutory limitation period calculated from the date of initiation by the Assessing Officer (AO), not from action taken by the Additional Commissioner of Income Tax (ACIT).

The dispute arose from Assessment Year (AY) 2009–10. The AO had passed an assessment order under Section 143(3) on 31 December 2010, observing that penalty proceedings under Section 271E would be initiated separately. Thereafter, a reference was made by the AO to the ACIT on 7 June 2011, following which the ACIT issued a notice and imposed a penalty of ₹3,44,15,000 on 30 December 2011 which is equivalent to the amount paid contrary to Section 269T of the Act.

However, Commissioner of Income Tax (Appeals)(CIT(A)) set aside the penalty, as it was barred by limitation under Section 275(1)(c) and that the six month limitation period begins when the AO records to initiate penalty proceedings, not when the ACIT later issued notice.

Also Read: ITAT Strikes Down Rs. 57.27 Lakh Penalty u/s 271E as there was reasonable cause onassessee’s part

The CIT(A) reiled on the Delhi High Court’s judgement in PCIT v. JKD Capital & Finlease Ltd. (2015) and CBDT Circular No. 9 dated 26 April 2016, concluded that since the AO had initiated penalty proceedings on the order, should have been passed by 30 June 2011, passing it on 30 December 2011 therefore rendered it null and void

The ITAT reiterated this finding that the penalty was imposed beyond the permissible time limit.

Before the High Court, the Revenue argued that limitation should be calculated from the date the ACIT, being the competent authority, issued notice and not from the AO’s earlier reference.

However, the Bench relied on its own precedent in Pr. Commissioner of Income Tax (Central-II), Delhi v. Thapar Homes Ltd.(2023), where it had categorically held that the Revenue cannot extend limitation “at its whim and fancy” by delaying issuance of notice. The Court observed that accepting the Revenue’s argument would “lead to absurdity,” as it would allow indefinite extension of limitation contrary to the scheme of Section 275(1)(c).

Also Read: Alleged Failureto Deduct TDS on Salary: ITAT quashes Time-Barred Income Tax Penalty u/s 271C

The Bench comprising Justice V. Kameswar Rao and Justice Vinod Kumar, dismissed the appeal filed by the Revenue and upheld the ITAT’s order in favour of Thapar Homes Pvt. Ltd., holding that the penalty under Section 271E was time-barred as the limitation period commenced from the AO’s initiation of proceedings and not from the ACIT’s subsequent notice

The Revenue was represented by Ruchir Bhatia along with Anant Mann and Aditi Sabharwal, while none appeared for the assessee.

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