Time-Barred OGE Abates Assessment: Bombay HC Invalidates Penalty u/s 271(1)(c) of Income Tax Act [Read Order]

In a recent decision, the Bombay High Court invalidated penalty proceedings under Section 27191)(c) of the Income Tax Act, 1961 and ruled that the time barred order giving effect (OGE) abates assessment order.

The petitioner, Global Hospitality Licensing SARL, a Luxembourg-based Marriott group company, challenged a penalty order under Section 271(1)(c) of the Income-tax Act after the Assessing Officer (AO) failed to pass an Order Giving Effect (OGE) to the Commissioner of Income Tax (Appeals) [CIT(A)]'s order within the limitation period prescribed under Section 153.

The AO's assessment order treated the petitioner's receipts from Indian hotels as taxable business income, raised a tax demand, and initiated penalty proceedings. The CIT(A) held the receipts to be royalty taxable at the beneficial rate and directed the AO to pass the OGE after granting the petitioner an opportunity of hearing.

As no OGE was passed within the prescribed time, the petitioner withdrew its appeal before the Income Tax Appellate Tribunal (ITAT), contending that the assessment had abated, and sought a refund. Despite this, the AO revived the penalty proceedings and imposed a penalty of Rs. 12.11 lakhs, leading to the present writ petition.

Also Read:Search Assessment Invalid Without Incriminating Evidence: ITAT Quashes Section 153A Additions [Read Order]

The counsel for the petitioner submitted that since the order of the CIT(A) was undisputedly received by the Respondent concerned on or before 31st March 2019, the time limit for passing the OGE as per Section 153(5) read with Section 153(3) of the Income Tax Act was nine months from the end of the Financial Year in which the order of the CIT(A) was received. Accordingly, the due date for passing the OGE in the present case was 31st December 2019. As no such order was passed till date, the assessment proceedings, consequently, stand abated.

The counsel for the Revenue contended that no adverse consequence could follow merely because an order giving effect has not been passed within the stipulated timelines, and the same is not fatal to the assessment, since it is only an Administrative Order and that in case of a delay in passing the order giving effect, the Assessee is granted interest under Section 244A(1A) of the Income Tax Act, and, hence, no prejudice is caused to the Assessee.

A division bench of Justice B. P. Colabawalla and Justice Firdosh P. Pooniwalla observed that “The grant of such interest cannot validate or cure a belated Assessment Order. Further, in a situation where demand is sought to be raised, the Department cannot impose a tax liability if the OGE is not passed within the period of limitation provided for. It is a settled principle that the Department cannot take advantage of its own default. Article 265 of the Constitution mandates that no tax shall be levied or collected except by authority of law. Consequently, any excess tax collected must be refunded, and Section 244A(1A) of the Income Tax Act merely compensates an Assessee for delays in grant of such refunds; it does not legitimize proceedings or orders that are otherwise time-barred .”

The Court noted that the Assessing Officer failed to pass the Order Giving Effect (OGE) to the appellate order within the limitation period prescribed under Section 153 of the Income-tax Act. Consequently, the assessment stood abated and the petitioner's return of income had to be treated as accepted.

The Bench observed that the penalty proceedings under Section 271(1)(c), which were founded on the original assessment treating the petitioner's IMPPA receipts as business income, could not survive once the assessment had abated. Since penalty under Section 271(1)(c) is leviable only on tax sought to be evaded, and no such tax liability survived, the penalty order was held to be unsustainable.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates