Section 271 IT Act- Legislature Provides For Limitation Of Six Months From End Of Month In Which Action For Imposition Of Penalty Is Initiated: Delhi HC

The Delhi High Court recently dismissed an appeal preferred by the Revenue Department challenging the ITAT order deleting penalty levied on the Assessee under Section 271C of the Income Tax Act for failure to deduct tax at source under Section 194C after 11 years of passing the assessment order and 14 years from the filing of return.

The Division Bench comprising of Justice Rajiv Shakdher and Justice Girish Kathpalia observed that “if the dates and events, (which obtain in the matter and are not in dispute), are taken into account, even then, the proceedings would be time-barred as initiation of penalty proceedings commences with the proposal being submitted for triggering penalty proceedings”

Advocate Sachit Jolly appeared for the Assessee/Respondent while the Revenue/Appellant was represented by Advocate Puneet Rai.

The brief facts of the case were that the Assessee-company, filed its return declaring a loss of Rs.439.67 crore which was reduced to Rs.383.96 crore by disallowing Rs.55.72 crore out of which the Assessee suo motu sought disallowance of expenses of Rs.39.80 crore under Section 40(a)(ia). More than a decade later, the Revenue proposed initiation of penalty against the Assessee for failing to deduct tax at source, with regard to the aforementioned sou motu disallowance which was disclosed in Assessee’s return of income. Accordingly, the AO passed an order under Section 271C levying penalty which was set aside by the ITAT.

After considering the submission, the Bench pointed out that the legislative gap in the provision works to the disadvantage of the Assessee, as often the Revenue takes his own sweet time in making a proposal for the initiation of penalty proceedings.

Analyzing Section 275, the Bench observed that the second limb of Section 275 (1)(c) provides a limitation of six months, from the end of the month in which the action for imposition of penalty is initiated.

Noting that the Revenue agreed that the first limb of Section 275(1)(c) is not applicable, the Bench explained that the penalty proceedings would be time-barred as initiation of penalty proceedings commences with the proposal being submitted for triggering penalty proceedings, which in the present case was submitted by the JCIT on Mar 27, 2019 and the penalty order under Section 271C was passed on Oct 31, 2019 which was well beyond six months that expired on Sept 30, 2019.

Therefore, the Bench concluded that the word used in the provision of Section 275(1)(c) is ‘initiated’ which would be triggered on the date when the proposal for penalty is made.

Cause Title: Pr. Commissioner of Income Tax (TDS) v. Hindustan Coca Cola Beverages Pvt Ltd [Neutral Citation: 2023-DHC-5518-DB]

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