Facts of the Case

  • The Assessees (Rishikesh Buildcon Pvt. Ltd., Rishikesh Properties Pvt. Ltd., and Rupa Promoters Pvt. Ltd.) were engaged in land development business.
  • During assessment proceedings (AY 2006-07), the Assessing Officer (AO) observed that the assessees received substantial cash amounts exceeding ₹20,000 in violation of Section 269SS.
  • Assessment orders were passed on 17th & 18th December 2008, wherein the AO initiated penalty proceedings under Section 271D.
  • Reference was made to the competent authority in March 2009 and show cause notices were issued on 24 March 2009.
  • Penalty orders were passed on 29 September 2009.
  • CIT(A) deleted the penalties on merits.
  • ITAT allowed the appeal on limitation ground, holding penalty orders time-barred.
  • Revenue appealed before the Delhi High Court.

Issues Involved

  1. Whether limitation under Section 275(1)(c) begins from:
    • the date of initiation of penalty in the assessment order, OR
    • the date of issuance of show cause notice by the competent authority?
  2. Whether penalty orders passed on 29 September 2009 were barred by limitation?

Petitioner’s Arguments (Revenue)

  • The AO is not the competent authority to impose penalty under Section 271D.
  • Limitation should commence from date of issuance of show cause notice (24 March 2009).
  • Penalty orders passed within six months from March 2009 were within limitation.
  • ITAT erred in relying on earlier precedents without appreciating factual distinctions.

Respondent’s Arguments (Assessee)

  • Penalty proceedings were initiated in the assessment order itself (December 2008).
  • Limitation must be computed from end of December 2008.
  • Penalty orders passed in September 2009 exceeded six months limit.
  • Issue already settled by Delhi High Court in:
    • PCIT vs JKD Capital & Finlease Ltd.
    • PCIT vs Mahesh Wood Products Pvt. Ltd.
  • Therefore, no substantial question of law arises.

Court Findings / Judgment

  • The Court upheld ITAT’s view and dismissed Revenue’s appeals.
  • It held that:
    • Initiation of penalty proceedings occurs when AO records satisfaction in the assessment order.
    • The date of issuance of show cause notice is not the starting point for limitation.
  • Since penalty proceedings were initiated in December 2008, limitation expired on 30 June 2009.
  • Penalty orders passed on 29 September 2009 were therefore time-barred.

Important Clarification

  • Even though AO is not the authority to levy penalty under Section 271D,
    his act of initiating penalty in the assessment order is sufficient to trigger limitation under Section 275(1)(c).
  • The limitation period cannot be extended based on administrative delays in issuing show cause notices.

Sections Involved

  • Section 275(1)(c) of the Income Tax Act, 1961
  • Section 271D of the Income Tax Act, 1961
  • Section 269SS of the Income Tax Act, 1961
  • Section 143(2) & 142(1) (Assessment Proceedings)

Link to download the order -https://delhihighcourt.nic.in/app/showFileJudgment/58917112022ITA5772018_181800.pdf

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