Expression ‘Action For Imposition Of Penalty Is Initiated’ U/S. 275(1)(c) of Income Tax Act Refers To Date On Which First Introductory Step For Such Action Is Taken: Delhi HC

The High Court was considering an appeal filed by the Revenue under Section 260A of the Income Tax Act, 1961 impugning an order of the Income Tax Appellate Tribunal (ITAT).

Referring to Section 275(1)(c), the Division Bench of Jutsice Vibhu Bakhru and Justice Swarana Kanta Sharma asserted, “The expression ‘action for imposition of penalty is initiated’ must, thus, clearly refers to the date on which the first introductory step for such action is taken, it must necessarily mean the start of such action. It must mean the commencement of action for imposition of penalty”

Advocate Sanjay Kumar represented the Appellant while Advocate Manuj Sabharwal represented the Respondent.

The sole issue in this case was whether the penalty proceedings were initiated on receipt of reference on September 25, 2014 or on issuance of the show cause notice on August 4, 2014.

The assessee had filed his return of income for the assessment year 2011-2012 declaring a total loss of ₹2,62,04,18,432. The tax audit report furnished by the assessee had reported that the assessee had not deducted ₹5,00,40,103 as tax at source which was deductible by the assessee. The return was selected for scrutiny and the assessment proceedings under Section 143(3) of the Act were completed. The Assessing Officer (AO) was of the view that the default in deducting and depositing tax at source was admitted, as it was reflected in the tax audit report. Accordingly, the AO made a reference to the JCIT.

The concerned JCIT issued the show cause notice after the lapse of almost one year of receipt of the reference from the AO and passed an order levying a penalty of ₹5,00,40,103 under Section 271C. The assessee’s appeal before the CIT(A) was allowed and the penalty was deleted on the ground that it was barred by limitation.

The assessee contended that the penalty proceedings were initiated on receipt of the reference on September 25,2014 and thus the proceedings were required to be completed by March 31,2015. On the other hand, it was the Revenue’s contention that the date of initiation of penalty proceedings was required to be considered as the date of issuance of the show cause notice; that is, August 4, 2015. CIT(A) passed a decision in favour of Assessee. Aggrieved thereby, the Revenue filed an appeal before the High Court.

The Bench observed that the expression initiated is not defined under the Act and must be construed in its normal sense. The period of limitation within which the proceedings under Section 271C of the Act are to be completed is covered under Section 275(1)(c) of the Act. This provision puts bar of limitation for imposing penalties and it is stated therein that no order imposing a penalty is to be passed in any other case, after the expiry of the financial year in which the proceedings, in the course of which action for the imposition of penalty has been initiated, are completed, or six months from the end of the month in which action for imposition of penalty is initiated, whichever period expires later.

The Bench clarified that the expression ‘action for imposition of penalty is initiated’ clearly refers to the date on which the first introductory step for such action is taken. It means the commencement of action for imposition of penalty.

The AO had found that it was the admitted case that the assessee had defaulted in deduction of TDS, which it was obliged to do. It had, accordingly, made a reference to the JCIT. On this aspect, the Bench said, “This was obviously for the purposes of imposition of penalty. The reference, thus, clearly marked the first step for initiation of action for imposition of penalty. The Show Cause Notice issued subsequently was to provide the assessee an opportunity to show cause why penalty not be imposed.”

The Bench further added, “In the given context, this was in the beginning of the action for imposition of penalty. The same had commenced earlier with the AO determining that there was a cause for such imposition.”

Thus, finding no infirmity with the decision of the ITAT that the penalty proceedings had been initiated at the earliest on September 25, 2014 and the order of penalty passed by the JCIT (TDS) was barred by limitation, the High Court dismissed the petition.

Cause Title: Commissioner of Income Tax (TDS)-2 Delhi v. Turner General Entertainment Networks India [ITA 547/2024]

Appearance:

Appellant: Advocate Sanjay Kumar

Respondent: Advocates Manuj Sabharwal, Drona Negi & Devrat Tiwari

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