Facts of the Case

  • The petitioner filed its return for AY 2007-08 and later revised it, adding back expenses under Section 40(a)(ia).
  • The same expenses were claimed as deduction in AY 2008-09.
  • Assessment under Section 143(3) was completed on 28.10.2011.
  • Internal communication recommending penalty was made in 2013 and 2014.
  • However, Show Cause Notice under Section 274 was issued only on 09.11.2017, nearly 6 years after assessment.
  • The petitioner challenged the SCN and subsequent penalty proceedings as barred by limitation and jurisdictionally invalid.

 Issues Involved

  1. Whether penalty proceedings under Section 271C can be initiated after an unreasonable delay.
  2. Whether Section 275(1)(c) permits indefinite delay in initiation of penalty proceedings.
  3. Whether issuance of SCN after several years violates the principle of reasonable time.

 Petitioner’s Arguments

  • The SCN was issued after an inordinate delay of nearly 9–10 years, making it arbitrary.
  • Even if no specific limitation is prescribed for initiation, courts must read a “reasonable period” into the statute.
  • Reliance was placed on:
    • Bharti Airtel Ltd. vs Union of India
    • PCIT vs Rishikesh Buildcon Pvt. Ltd.
  • Allowing such delay would give uncontrolled discretion to the Revenue, defeating fairness.

 Respondent’s Arguments

  • Penalty proceedings under Section 271C are independent and separate from assessment proceedings.
  • Limitation under Section 275(1)(c) begins only upon issuance of SCN under Section 274.
  • No statutory restriction exists on when such proceedings must be initiated.
  • Reliance was placed on:
    • CIT (TDS) vs IKEA Trading Hong Kong Ltd.
    • Subodh Kumar Bhargava vs CIT

 Court’s Findings / Order

  • The Court held that absence of explicit limitation does not allow indefinite delay.
  • The concept of “reasonable period” must be read into the statute.
  • Delay from 2011 (assessment) to 2017 (SCN) was unexplained and inexcusable.
  • Accepting Revenue’s argument would lead to arbitrary and endless initiation of penalty proceedings.
  • Therefore:
    • SCN dated 09.11.2017 → Quashed
    • Order dated 14.06.2018 → Set aside
    • Subsequent SCN dated 27.06.2018 → Invalidated

 Important Clarification

  • Even where statute is silent, initiation of penalty proceedings must occur within a “reasonable period”.
  • Revenue cannot delay issuance of SCN indefinitely to suit its convenience.
  • Section 275(1)(c) limitation cannot be interpreted in a manner that defeats natural justice.

Link to download the order -https://delhihighcourt.nic.in/app/showFileJudgment/RAS16022023CW73262018_161703.pdf

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