Facts of the Case

The present case involves three connected appeals filed by the Revenue against different assessees, namely Rishikesh Buildcon Pvt. Ltd., Rishikesh Properties Pvt. Ltd., and Rupa Promoters Pvt. Ltd., for Assessment Year 2006–07.

During assessment proceedings conducted in December 2008, the Assessing Officer (AO) observed that the assessees had accepted substantial cash amounts exceeding ₹20,000, thereby violating Section 269SS of the Income Tax Act. Consequently, the AO initiated penalty proceedings under Section 271D in the assessment orders themselves.

Subsequently, a reference was made to the competent authority in March 2009, which issued show cause notices on 24 March 2009. The penalty orders were eventually passed on 29 September 2009.

Issues Involved

  1. Whether the limitation period under Section 275(1)(c) of the Income Tax Act is to be computed from:
    • the date of initiation of penalty proceedings by the AO in the assessment order, or
    • the date of issuance of show cause notice by the competent authority?
  2. Whether the penalty orders passed on 29 September 2009 were barred by limitation?

Petitioner’s Arguments (Revenue)

  • The Revenue contended that the limitation period should be computed from the date when the competent authority issued the show cause notice, i.e., 24 March 2009.
  • It was argued that the AO is not the competent authority to impose penalty under Section 271D; hence, initiation by AO is not relevant for limitation.
  • The Revenue relied on judicial precedents to argue that the relevant starting point should be when the competent authority assumes jurisdiction.
  • It was further submitted that the penalty orders were passed within six months from March 2009 and were therefore within limitation.

Respondent’s Arguments (Assessee)

  • The assessees contended that penalty proceedings were clearly initiated in December 2008 in the assessment orders themselves.
  • Therefore, limitation under Section 275(1)(c) should be calculated from the end of December 2008.
  • They relied on precedents including:
    • CIT vs JKD Capital and Finlease Ltd.
    • PCIT vs Mahesh Wood Products Pvt. Ltd.
  • It was argued that since penalty orders were passed on 29 September 2009, they were beyond the permissible limitation period.

Court’s Findings / Order

    • The initiation of penalty proceedings occurs when the AO records satisfaction in the assessment order.
    • The date of issuance of show cause notice by the competent authority is not the relevant starting point for limitation under Section 275(1)(c).
  • The Court reaffirmed that:
    • Where penalty proceedings are initiated in the assessment order, limitation must be computed from that date.
  • In the present case:
    • Penalty proceedings were initiated in December 2008
    • The limitation expired on 30 June 2009
    • Penalty orders dated 29 September 2009 were beyond limitation

Accordingly, the Court held that the penalty orders were time-barred and dismissed the Revenue’s appeals.

Important Clarification

  • The judgment clarifies that:
    • Initiation of penalty proceedings = date of recording satisfaction in assessment order by AO
    • Even if the competent authority issues notice later, limitation does not shift
  • The ruling reinforces consistency with earlier precedents and ensures strict interpretation of limitation provisions

Sections Involved

  • Section 269SS – Acceptance of loans/deposits in cash
  • 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/58917112022ITA5802018_182207.pdf

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