Facts of the Case

The present appeals were filed by the Revenue against a common order passed by the ITAT concerning Assessment Year 2006-07.

  • The Assessees were engaged in land development activities and had filed their returns declaring losses.
  • During assessment proceedings, the Assessing Officer (AO) observed that the assessees had accepted large cash amounts exceeding ₹20,000 from various entities.
  • The AO held that such transactions violated Section 269SS of the Income Tax Act and initiated penalty proceedings under Section 271D in December 2008.
  • A reference was made to the prescribed authority in March 2009, which issued show cause notices on 24.03.2009.
  • Penalty orders were ultimately passed on 29.09.2009.

 Issues Involved

  1. Whether the limitation period under Section 275(1)(c) begins from:
    • the date of initiation of penalty proceedings by the AO, or
    • the date of issuance of show cause notice by the prescribed authority?
  2. Whether the penalty order passed on 29.09.2009 was barred by limitation?

 Petitioner’s Arguments (Revenue)

  • The Revenue contended that limitation should be computed from March 2009, when the prescribed authority issued show cause notices.
  • It was argued that the AO is not competent to levy penalty under Section 271D; hence, initiation by AO is irrelevant.
  • Therefore, penalty orders passed within six months from March 2009 were within limitation.
  • Reliance was placed on judicial interpretation in Mahesh Wood Products Pvt. Ltd. case.

Respondent’s Arguments (Assessee)

  • The Assessees argued that penalty proceedings were initiated in December 2008 itself through the assessment order.
  • Hence, limitation must be computed from the end of December 2008.
  • The penalty orders passed on 29.09.2009 were beyond the prescribed six-month period.
  • Reliance was placed on:
    • PCIT vs JKD Capital & Finlease Ltd.
    • PCIT vs Mahesh Wood Products Pvt. Ltd.

 Court Findings / Order

  • The Delhi High Court held that:
    • The initiation of penalty proceedings occurs when the AO records satisfaction in the assessment order.
    • Even if the AO is not the competent authority to levy penalty, the initiation date remains relevant for limitation purposes.
  • The Court reaffirmed that:
    • Limitation under Section 275(1)(c) starts from the date of initiation of penalty proceedings, not from issuance of show cause notice.
  • Since penalty proceedings were initiated in December 2008, the last permissible date was 30.06.2009.
  • The penalty orders dated 29.09.2009 were therefore time-barred.

 Accordingly, the Court dismissed the Revenue’s appeals and upheld the ITAT’s decision.

 Important Clarification

  • The judgment clarifies a crucial legal position:
    • For Section 275(1)(c), initiation = AO’s action in assessment order, not the later procedural steps by competent authority.
  • This ensures certainty in limitation and prevents delay in penalty proceedings by authorities.

 Sections Involved

  • Section 269SS – Prohibition on acceptance of cash loans/deposits
  • Section 271D – Penalty for violation of Section 269SS
  • Section 275(1)(c) – Time limit for passing penalty orders
  • Section 143(2), 142(1) – Assessment proceedings

Link to download the order -https://delhihighcourt.nic.in/app/showFileJudgment/58917112022ITA5832018_182334.pdf

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