I-T - If Revenue initiates penalty proceedings after six months of receipt of adjudicatory order, such proceeding is beyond period of limitation imposed u/s 275: HC
By TIOL News Service
NEW DELHI, FEB 22, 2018: THE issue before the Bench is - Whether if the Revenue initiates penalty proceedings after six months of receipt of adjudicatory order, such proceeding is beyond the period of limitation imposed u/s 275. YES is the High Court's verdict.
Facts of the case
The assessee-company, engaged in manufacturing & selling TV sets and components thereof, filed returns for the relevant AY, declaring a loss. The Deputy Commr. assessed the amount of loss at a particular figure. The AO also calculated the assessee's book profits. The assessee appealed to the CIT(A) who partly allowed the assessee's submissions, retaining some of the additions made. Such findings of the CIT(A) were accepted by the assessee. Meanwhile, the AO proposed to initiate penalty proceedings u/s 271(1)(c) for concealment of income. The assessee contested the same as being barred by Section 275(1)(a) since a valid penalty could be imposed only within six months of the end of the month in which the order of the CIT (A) was received by the AO. Thereby, since the assessee received the order in January 1994, penalty proceedings could validly be initiated by July 1994, and so penalty proceedings initiated from August 1997 was without jurisdiction & illegal. The AO rejected the assessee's submissions and imposed penalty. However, the same was set aside when the assessee appealed to the CIT(A). On appeal by the Revenue, the Tribunal set aside the order of the CIT(A) granting relief to the assessee. Hence the present appeal by the assessee.
On hearing the matter, the High Court held that,
++ considered the provisions of Sections 254(1) & 275 of the Act. Also considered relevant findings of the Apex Court in Commissioner of Income Tax v. B. N. Bhattacharjee , and those of the Madras High Court in A.V. Sreenivasalu Naidu v. CIT . A plain and textual reading of 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. Any other interpretation would inject a great deal of uncertainty because in either case of maintainability of an appeal preferred by either the Revenue or the assessee, in the eventuality of withdrawal of that appeal, without an adjudicatory order, the period of limitation would be deemed to subsist. The law abhors uncertainty. Therefore, the dependence of the period of the limitation upon whether an order becomes final at the instance of one party, i.e. that filing and prosecution or withdrawal of an appeal (by one party or the other) would be, in the opinion of the Court one such event which leaves the legal position inchoate and unsatisfactory. Instead, an interpretation that permits certainty should be adopted. Viewed as such, the CIT's order provided a fixed date from which to reckon the end of the period of limitation - some time in early July 1994. The absence of an appeal by the assessee (against the CIT(A)'s appellate adjudicatory order) meant that at least with respect to the amount that it had accepted in the adjudicatory order as an addition, the penalty proceedings survived. As far as the other issue was concerned, perhaps there was no occasion for a further penalty proceeding given that the issue might have been rendered debatable, even in the eventuality of an order favouring the revenue. In other words, as far as deletion was concerned, the assessee definitely was not aggrieved.
++ in these circumstances, it was incumbent upon the Revenue to complete the penalty proceedings and pass order within the six months period. It did not. Its reliance upon the crutches of a non-appeal, which is what its effort at appeal to the ITAT eventually became in the present case, could not have been legitimately upheld as was done by the order. For these reasons, the question of law is answered in favour of the assessee and against the Revenue.
Thus both issues were settled in favor of the assessee.
(See 2018-TIOL-328-HC-DEL-IT)
