M/s. Sarvottam Constructions Pvt. Ltd, New Delhi V. ACIT, New Delhi

ITA 1650/DEL/2009

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 7176 (ITAT-DELHI)
• Duration Of Justice: 9 year(s) 2 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-07-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 17-05-2017
• Assessment Year: 2003-2004
• Appeal Filed On: 22-04-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K TEWARI
• Keywords: Period of limitation; Initiation of penalty proceedings; Competent authority; Time period of passing order; Reassessment proceedings
• Section: 143(3); 147; 246; 263

Judgement Text

ITA NO. 1650/DEL/2009 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: G NEW DELHI BEFORE SHRI G.D. AGRAWAL, HONBLE PRESIDENT & SHRI K. NARASIMHA CHARY, JUDICIAL MEMBER ITA NO.-1650/DEL/2009 ( ASSESSMENT YEAR: 2003-04) SARVOTTAM CONSTRUCTION P. LTD. 31/15, EAST PATEL NAGAR, NEW DELHI. PAN NO. AAGCS3124G VS ACIT RANGE-7, NEW DELHI. ASSESSEE BY SH. TARANDEEP SINGH, ADV. REVENUE BY SH. K. TEWARI, SR. DR ORDER PER K. NARASIMHA CHARY, J.M. ASSESSEE PREFERRED THIS APPEAL CHALLENGING THE ORDE R DATED 09/02/2009 IN APPEAL NO. 8/08-09 ON THE FILE OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-X, NEW DELHI ( LD. CIT(A)). 2. BRIEF FACTS OF THE CASE ARE THAT, THE ASSESSEE I S A COMPANY. THE ORIGINAL ASSESSMENT WAS COMPLETE UNDER SECTION 143(3) OF THE ACT ON 28/02/2006 DETERMINING THE INCOME AT RS. 53,97,726/-AGAINST THE RETURNED INCOME OF RS. 86, 9 66/-. DURING THE SCRUTINY LEARNED ASSESSING OFFICER (LD. AO) FOUND THAT THE ASSESSEE RECEIVED A SUM OF RS. 25 LAKHS FR OM ONE SMT. DATE OF HEARING 11.07.2018 DATE OF PRONOUNCEMENT 11.07.2018 ITA NO. 1650/DEL/2009 2 KAVITA AGGARWAL AS ADVANCE FOR SALE OF PROPERTY, BU T THE ASSESSING OFFICER TREATED THE SAME AS LOAN. STATING THAT THE ASSESSEE VIOLATED THE PROVISIONS OF SECTION 269 SS OF THE ACT, LD. AO INITIATED PENALTY PROCEEDINGS UNDER SECTION 271 D OF THE ACT. DURING THE PENALTY PROCEEDINGS SMT. KAVITA AGGARWAL STATED THAT SHE HAS NOT GIVEN ANY MONEY TO THE ASSE SSEE AND SHE WAS NOT IN TOWN FROM AUGUST 2006 TO 28/10/2006. 3. BASING ON THIS STATEMENT OF SMT. KAVITA AGGARWAL CASE WAS REOPENED UNDER SECTION 147 OF THE ACT. DURING T HE REASSESSMENT PROCEEDINGS SMT. KAVITHA AGGARWAL TURN ED AROUND AND CONFIRMED THAT SHE HAD ENTERED INTO AN A GREEMENT WITH THE ASSESSEE FOR PURCHASE OF PROPERTY AND PAID A SUM OF RS. 25 LACS IN CASH AS ADVANCE. AGAIN BASING ON THI S STATEMENT OF SMT. KAVITA AGGARWAL, THE LD. AO PASSED THE ORDE R ASSESSING THE INCOME AS WAS DECIDED ON 28/02/2006. HOWEVER SUBSEQUENTLY BY ORDER DATED 20/06/2008 UNDER SECTIO N 271D OF THE ACT AND THE ADDITIONAL COMMISSIONER OF INCOM E TAX LEVIED A PENALTY OF RS. 25 LAKHS ON THE ASSESSEE CO MPANY. 4. ASSESSEE PREFERRED APPEAL BEFORE THE LD. CIT(A) AND THE IMPUGNED ORDER REVEALS THAT THE ASSESSEE CHALLENGED THE SAME BOTH ON THE TECHNICAL GROUND OF LIMITATION AND ALSO ON MERITS. LD. CIT(A) BY WAY OF IMPUGNED ORDER HELD THAT THE O RDER DATED 30/06/2008 PASSED BY THE ADDITIONAL COMMISSIONER OF INCOME TAX WAS WITHIN LIMITATION PERIOD PRESCRIBED UNDER S ECTION 275 (1) (C) OF THE ACT AS IT WAS WITHIN 6 MONTHS FROM T HE END OF THE MONTH IN WHICH ACTION FOR IMPOSITION OF PENALTY WAS INITIATED. ON MERITS ALSO LD. CIT(A) HELD THAT RS. 25 LACS WAS TAKEN BY ITA NO. 1650/DEL/2009 3 THE ASSESSEE IN CASH FROM SMT. KAVITHA GARHWAL WAS A LOAN TO MEET THE DAY-TO-DAY EXPENSES OF THE COMPANY, BUT TH E LOAN WAS CAMOUFLAGED AS PART ADVANCE FOR SALE OF THE PROPERT Y AT 193 JOR BAGH FOR RS. 80 LAKHS ONLY TO GET OUT OF THE AMBIT OF SECTION 269 SS AND SECTION 271 D OF THE ACT. 5. THE ASSESSEE, THEREFORE, CHALLENGED THE IMPUGNED ORDER BEFORE US STATING THAT THE ORDER PASSED UNDER SECTI ON 271D OF THE ACT IS BARRED BY LIMITATION AND IS LIABLE TO BE ANNULLED. IT IS FURTHER STATED THAT THE AUTHORITIES BELOW OUGHT TO HAVE ACCEPTED THE ACCELERATION OF THE ASSESSEE THAT IN THE SUM OF RS. 25 LACS WAS RECEIVED BY THE ASSESSEE FROM SMT. KAVITA AGGAR WAL TOWARDS THE ADVANCE FOR PURCHASE OF PROPERTY AND TH E AUTHORITIES ERRED IN HOLDING THAT IT WAS LOAN. 6. IN SUPPORT OF THE SUBMISSION THAT THE PENALTY OR DER WAS BARRED BY LIMITATION, LD. AR SUBMITTED THAT THE SHO W CAUSE NOTICE UNDER SECTION 271-D OF THE ACT WAS ISSUED ON 09/03/2006 AND THE PENALTY WAS LEVIED ON 20/06/2008 WHEREAS THE LIMITATION PRESCRIBED IN SECTION 275 OF THE ACT IS ONLY 6 MONTHS. HE FURTHER SUBMITTED THAT THE PENALT Y UNDER SECTION 271-D HAS NOTHING TO DO WITH THE ASSESSMENT OR OTHER ORDER INASMUCH AS SECTION 271-D STATES THAT IF A PE RSON TAKES ON ACCEPTS ANY LOAN OR DEPOSIT OR SPECIFIED SUM IN CONTRAVENTION OF THE PROVISIONS OF SECTION 269-SS H E SHALL BE LIABLE TO PAY, BY WAY OF PENALTY, A SUM EQUAL TO TH E AMOUNT OF THE LOAN OR DEPOSIT ARE SPECIFIED SUM SO TAKEN ON A CCEPTED. IN VIEW OF THIS WORDING OF SECTION 271-D READ WITH SEC TION 275 (1) (C) OF THE ACT, THE PENALTY PROCEEDINGS SHOULD BE C OMPLETE ITA NO. 1650/DEL/2009 4 WITHIN 6 MONTHS FROM THE DATE OF INITIATION OF PROC EEDINGS. FOR THIS PURPOSE HE PLACED RELIANCE ON THE EDITION REPO RTED IN CIT VS. HISSARIA BROS. [2007] 291 ITR 244 (RAJ), WHICH WAS UPHELD BY THE HONBLE SUPREME COURT IN CIVIL APPEAL NO. 52 54 OF 2008. 7. IN RESPECT OF THE MERITS OF THE CASE, IT IS THE SUBMISSION OF THE LD. AR THAT WAS REALLY THERE WAS AN AGREEMENT W ITH ONE SIBEL, BUT SINCE MR SIBEL DID NOT LIKE THE INTERIOR OF THE PROPERTY AND WANTED EXTENSIVE RENOVATION, AS AN ALTERNATIVE , THE ASSESSEE ENTERED INTO AN AGREEMENT WITH SMT. KAVITH A AGGARWAL AND RECEIVED AN ADVANCE OF RS. 25 LACS BUT SUBSEQUE NTLY THE AGREEMENT WITH MR SIBEL WAS MATERIALISED, AS A CONS EQUENCE OF WHICH THE ADVANCE RECEIVED FROM SMT. KAVITHA AGGARW AL WAS RETURNED. 8. PER CONTRA, IT IS THE ARGUMENT OF THE LD. DR THA T IN THIS MATTER BY INITIATION OF PROCEEDINGS UNDER SECTION 1 47 OF THE ACT, THE NATURE AND CHARACTER OF THE PROCEEDINGS WAS CHA NGED AND THE NATURE OF THE AMOUNT WAS IN DOUBT BECAUSE OF TH E 1 ST STATEMENT MADE BY SMT. KAVITHA AGGARWAL BUT IS ONLY WITH HER STATEMENT DURING THE PROCEEDINGS UNDER SECTION 147 OF THE ACT, THERE IS CLARITY FURTHER AUTHORITIES TO DETERMINE T HE NATURE OF RECEIPT FROM SMT. KAVITA AGGARWAL, AS SUCH IT IS TH E DATE OF ISSUANCE OF NOTICE BY THE ADDITIONAL COMMISSIONER O F INCOME TAX ON 26/05/2008 UNDER SECTION 271-D OF THE ACT, T HE PRESENT PENALTY PROCEEDINGS WERE INITIATED. IT IS, THEREFOR E, A MATTER OF RECORD THAT THE PENALTY ORDER DATED 20/06/2008 IS W ITHIN 6 MONTHS FROM 26/05/2008 ON WHICH THE CURRENT PENALTY PROCEEDINGS WERE INITIATED. ITA NO. 1650/DEL/2009 5 9. LD. DR FURTHER SUBMITTED THAT THE LD. AO WAS NOT COMPETENT TO INITIATE PROCEEDINGS UNDER SECTION 271 -D OF THE ACT AND IT IS ONLY THE JOINT COMMISSIONER THAT ALON E IS COMPETENT TO INITIATE SUCH PROCEEDINGS, AS SUCH, TH E PENALTY PROCEEDINGS CANNOT BE SAID TO HAVE BEEN COMMENCED O N 09/03/2006 WHEN AN INCOMPETENT OFFICER ISSUED THE S HOW CAUSE BUT THE PENALTY PROCEEDINGS ARE PROPERLY INIT IATED ONLY WHEN THE COMPETENT AUTHORITY ISSUED NOTICE UNDER SE CTION 271- D ON 26 TH MAY 2008. INSOFAR AS THE MERITS OF THE CASE ARE CONCERNED, LD. DR HEAVILY RELIED ON THE ORDERS OF T HE AUTHORITIES BELOW. 10. IN REPLY, LD. AR SUBMITTED THAT IN THIS MATTER THE PROCEEDINGS OF PENALTY UNDER SECTION 271-D ARE INIT IATED ON THE DAY ON WHICH THE SHOW CAUSE NOTICE DATED 09/03/2006 WAS ISSUED. IN SUPPORT OF THIS ARGUMENT HE PLACED RELIA NCE ON THE EDITION REPORTED IN VERSES JITENDRA SINGH RATHORE ( 2013) 31 TAXMANN.COM 52 (RAJASTHAN) WHEREIN IT WAS HELD THAT EVEN THOUGH THE AUTHORITY COMPETENT TO IMPOSE PENALTY UN DER SECTION 271-D IS A JOINT COMMISSIONER, PERIOD OF LI MITATION FOR PURPOSE OF PENALTY PROCEEDINGS CANNOT BE RECOMMENDE D FROM THE ISSUE OF 1 ST SHOW CAUSE NOTICE BY JOINT COMMISSIONER, BUT FROM THE DATE OF ISSUE OF 1 ST SHOW CAUSE, EVEN BY LD. AO, FOR INITIATION OF PENALTY PROCEEDINGS. 11. WE HAVE GONE THROUGH THE RECORD IN THE LIGHT OF THE SUBMISSIONS ON EITHER SIDE. INSOFAR AS THE FACTS PL EADED, ABSOLUTELY THERE IS NO DISPUTE. ORIGINAL ASSESSMENT WAS COMPLETED BY ORDER DATED 28/02/2006 WERE UNDER IT W AS STATED ITA NO. 1650/DEL/2009 6 THAT THE PROCEEDINGS UNDER SECTION 271-D WERE INITI ATED. SHOW CAUSE NOTICE WAS ISSUED ON 09/03/2006. INITIALLY SM T. KAVITHA AGGARWAL DENIED TO HAVE PAID ANY ADVANCE TO THE ASS ESSEE AND SHE PLEADED TOTAL IGNORANCE TO THE TRANSACTION, BAS ING ON WHICH THE LD. AO STARTED REASSESSMENT PROCEEDINGS UNDER S ECTION 147 OF THE ACT. HOWEVER DURING SUCH PROCEEDINGS SMT. KA VITHA AGGARWAL GAVE A GO BYE TO HER EARLIER STATEMENT AND STATED THAT AS A MATTER OF FACT SHE PAID THE ADVANCE AMOUNT OF RS. 25 LAKHS TO THE ASSESSEE AND FURTHER STATED THAT WHATEVER SH E HAD STATED ON EARLIER OCCASION WAS INCORRECT. LD. AO, THEREFOR E, PASSED ORDER UNDER SECTION 147 OF THE ACT DETERMINING THE INCOME OF ASSESSEE AS HE DID IN THE ORIGINAL ASSESSMENT PROCE EDINGS. VIRTUALLY PROCEEDINGS UNDER SECTION 147 OF THE ACT WERE DROPPED. 12. SUBSEQUENTLY, HOWEVER, A NOTICE DATED 26/05/200 8 WAS ISSUED BY THE ADDITIONAL COMMISSIONER OF INCOME TAX AND THE PROCEEDINGS WERE CONCLUDED BY THE ORDER DATED 20/06 /2008 WITH THE LEVY OF PENALTY OF RS. 25 LAKHS. THE PRELI MINARY ISSUE IN THIS MATTER REVOLVES AROUND THE QUESTION WHETHER THE PENALTY PROCEEDINGS WERE COMMENCED WITH THE ISSUANCE OF THE 1 ST SHOW CAUSE NOTICE DATED 09/03/2006, OR THOSE WERE COMMEN CED WHEN THE ADDITIONAL COMMISSIONER OF INCOME TAX ISSU ED THE SHOW CAUSE NOTICE DATED 26/05/2008. 13. THIS QUESTION HAD FALLEN FOR CONSIDERATION BEFO RE THE HONBLE RAJASTHAN HIGH COURT AND BY ORDER DATED ON 21 JULY, 2006, IN COMMISSIONER OF INCOME-TAX VS HISSARIA BRO S. [2007] ITA NO. 1650/DEL/2009 7 291 ITR 244 (RAJ), HONBLE RAJASTHAN HIGH COURT ELA BORATELY CONSIDERED THIS ISSUE AND HELD THAT, 23. UNDER THE INCOME-TAX ACT, 1961 AS ORIGINALLY ENAC TED, NO LIMITATION WAS PRESCRIBED FOR COMPLETION OF THE PENA LTY PROCEEDINGS. HOWEVER, CONSIDERING THAT THERE SHOULD NOT BE ANY I NORDINATE DELAY IN IMPOSING PENALTY AND TO STREAMLINE THE LEVY OF PENAL TY WITHIN REASONABLE TIME IN THE ACT OF 1961, SECTION 275 WAS ENACTED AS A NEW PROVISION FOR REGULARISING IMPOSITION OF PENALT Y. IT IS PERTINENT TO NOTICE THAT IF AT THE RELEVANT TIME WHEN THE SCHEME FOR LEVY OF PENALTY WAS ENACTED IN THE 1961 ACT, THE CASE IN WHICH THE PE NALTY WAS ENVISAGED UNDER CHAPTER XXI, THE PENALTY PROCEEDINGS WERE REQUIRED TO BE INITIATED DURING THE COURSE OF RELEVANT ASSES SMENT PROCEEDINGS OR ITS APPELLATE PROCEEDINGS BY THE APPELLATE AUTHO RITY. ATTENTION MAY BE INVITED TO THE PROVISIONS CONTAINED IN SECTIONS 271 AND 273 WHICH WERE THE PRINCIPAL PROVISIONS FOR IMPOSING PENALTY. THE SIMPLE PROVISION WHICH WAS ENACTED WAS THAT NO ORDER IN TH IS CHAPTER SHALL BE PASSED AFTER THE EXPIRATION OF TWO YEARS FROM THE COMPLETION OF PROCEEDINGS, IN THE COURSE OF WHICH THE PROCEEDINGS FOR IMPOSITION OF PENALTY HAVE BEEN COMMENCED. THUS, THE LIMITATION FO R IMPOSING PENALTY UNDER SECTION 275 AS ORIGINALLY ENACTED WAS DIRECTLY LINKED WITH THE COMPLETION OF PROCEEDINGS IN THE COURSE OF W HICH THE PENALTY PROCEEDINGS WERE INITIATED IN TERMS OF SECTION 271 OR SECTION 273 WHICH WERE THE PRINCIPAL PROVISIONS FOR IMPOSING PE NALTY UNDER CHAPTER XXI. SINCE THE INITIATION OF PENALTY PROCEED INGS WAS LINKED WITH ASSESSMENT PROCEEDINGS AND THE ORDERS IN SUCH AS SESSMENTS WERE SUBJECT TO APPEAL, THE FINDINGS IN SUCH PROCEE DINGS ORDINARILY BECAME THE FOUNDATION FOR INITIATING PROCEEDINGS FOR P ENALTY AND REMAINED RELEVANT EVIDENCE TO REACH A FINAL CONCLUS ION IN PENALTY PROCEEDINGS WHICH WERE OTHERWISE INDEPENDENT. WHERE ASSESSMENT PROCEEDINGS IN THE COURSE OF WHICH PENALTY PROCEEDIN GS WERE INITIATED BECAME THE SUBJECT-MATTER OF APPEAL AND THERE WAS MOD IFICATION OR REVERSAL OF FINDINGS, IT AFFECTED FINAL RESULT OF P ENALTY PROCEEDINGS ALSO. 24. SECTION 275 WAS SUBSTITUTED BY THE TAXATION LAW S (AMENDMENT) ACT, 1970 WHICH CAME INTO EFFECT WITH EFFECT FROM AP RIL 1, 1971. THE CHANGE WAS EXPLAINED BY THE BOARD VIDE CIRCULAR 56 DATED MARCH 19, 1971. SIGNIFICANTLY, IT POSTULATED THAT SECTION 275 OF THE INCOME-TAX ACT WHICH SPECIFIED THE TIME-LIMIT FOR COMPLETION OF PENALTY PROCEEDINGS HAS BEEN SUBSTITUTED BY A NEW SECTION. U NDER THE EXISTING SECTION, PENALTY PROCEEDINGS FOR CONCEALME NT OF INCOME OR DEFAULTS IN FURNISHING THE RETURN OR ACCOUNTS CALLE D FOR BY NOTICE OR FAILURE TO PAY ADVANCE TAX ON THE TAXPAYER'S OWN ES TIMATE, ETC., ARE REQUIRED TO BE COMPLETED WITHIN TWO YEARS FROM THE D ATE OF COMPLETION OF THE PROCEEDINGS IN THE COURSE OF WHICH THE PENAL TY PROCEEDINGS WERE COMMENCED. THE OPERATION OF THIS TIME-LIMIT HAS RESULTED IN PRACTICAL DIFFICULTIES IN CASES WHERE THE APPELLATE ASSISTANT ITA NO. 1650/DEL/2009 8 COMMISSIONER REMANDS THE APPEAL AGAINST THE ASSESSM ENT FOR FURTHER ENQUIRY BY THE INCOME-TAX OFFICER OR DELETES OR REDUC ES THE ADDITION MADE ON ACCOUNT OF CONCEALED INCOME AND THE DEPARTME NT TAKES UP THE MATTER IN FURTHER APPEAL BEFORE THE APPELLATE TRIB UNAL. SOMETIMES, A FINAL DECISION ON THE QUANTUM OF THE CONCEALED IN COME BECOMES AVAILABLE ONLY AFTER THE EXPIRY OF THE TWO-YEAR TIME LIMIT. 25. SECTION 275 AS SUBSTITUTED AIMS AT OBVIATING DIFF ICULTIES IN SUCH CASES, REDUCING AVOIDABLE WORK AND AVOIDING HARDSHI P TO THE ASSESSEES. IT PROVIDES THAT THE TIME-LIMIT FOR MAKI NG AN ORDER IMPOSING A PENALTY UNDER THE PROVISIONS OF CHAPTER X XI OF THE INCOME- TAX ACT WILL, ORDINARILY, BE TWO YEARS FROM THE END O F THE FINANCIAL YEAR IN WHICH THE PROCEEDINGS, IN THE COURSE OF WHI CH ACTION FOR IMPOSITION OF PENALTY HAS BEEN INITIATED, ARE COMPLE TED. HOWEVER, IN A CASE WHERE THE RELEVANT ASSESSMENT OR OTHER ORDER IS THE SUBJECT- MATTER OF AN APPEAL TO THE APPELLATE ASSISTANT COMMISSI ONER OR AN APPEAL BY THE INCOME-TAX OFFICER TO THE APPELLATE T RIBUNAL, THE TIME LIMIT FOR COMPLETING THE PENALTY PROCEEDINGS WILL B E EITHER THE TWO- YEARS PERIOD AS STATED ABOVE OR A PERIOD OF SIX MONTH S FROM THE END OF THE MONTH IN WHICH THE ORDER OF THE APPELLATE ASSIS TANT COMMISSIONER OR, AS THE CASE MAY BE, OF THE APPELLATE TRIBUNAL IS RECEIVED BY THE COMMISSIONER, WHICHEVER PERIOD EXPIRES LATER. IT MAY BE NOTED THAT THE TWO YEAR PERIOD WILL HENCEFORTH EXPIRE AT THE E ND OF A FINANCIAL YEAR, INSTEAD OF ON DIFFERENT DATES DURING THE FINA NCIAL YEAR, AND THE SIX MONTH PERIOD WILL EXPIRE AT THE END OF A CALEND AR MONTH. THIS FACILITATES THE EXERCISE OF VIGILANCE BY THE TAX ADMIN ISTRATION ON THE EXPIRY OF THE LIMITATION PERIOD AND ENSURE THAT PENAL TY PROCEEDINGS ARE COMPLETED IN ALL CASES IN TIME. 26. SECONDLY, THE DIRECT TAX LAWS (AMENDMENT) ACT, 1987 WHICH CAME INTO EFFECT WITH EFFECT FROM APRIL 1, 1989, SEC TION 275 WAS AMENDED. VIDE AMENDMENT, THE TIME LIMIT FOR COMPLETI ON OF PENALTY PROCEEDINGS WHICH WAS GENERALLY TWO YEARS FROM THE E ND OF FINANCIAL YEAR IN WHICH SUCH PROCEEDINGS WERE COMPLETED OR SIX MONTHS FROM THE END OF THE MONTH IN WHICH ACTION FOR IMPOSITION FOR PENALTY WAS INITIATED, WHICHEVER PERIOD EXPIRED LATER. 27. BY THESE AMENDMENTS, THE THREE CATEGORIES WERE MADE FOR APPLYING LIMITATION FOR COMPLETING THE PENALTY PROC EEDINGS TAKING INTO CONSIDERATION THE VARIOUS PENALTY PROCEEDINGS FOR DE FAULT OF CERTAIN PROVISIONS OF THE INCOME-TAX ACT WHICH ARE NOT NECES SARILY LINKED WITH PROCEEDINGS FOR ANY PARTICULAR ASSESSMENT YEAR IN TH E COURSE OF WHICH ONLY PENALTY PROCEEDINGS WERE REQUIRED TO BE I NITIATED. SUCH CONSEQUENCES OF DEFAULT WERE NOT LINKED WITH THE PR INCIPAL ASSESSMENT PROCEEDINGS FOR ANY SPECIFIC ASSESSMENT Y EAR BUT WERE INDEPENDENT OF IT. ITA NO. 1650/DEL/2009 9 28. BY SUBSTITUTING SECTION 275(1), WHICH BECAME OPER ATIVE FROM APRIL 1, 1989, THE PROVISION DIVIDED CASES FOR THE PURPOS E OF PRESCRIBING LIMITATION FOR COMPLETING PENALTY PROCEEDINGS INTO TH REE CATEGORIES: (I) CATEGORY I COVERS CASES WHERE THE ASSESSMENT TO WHICH THE PROCEEDINGS FOR IMPOSITION OF PENALTY RELATE IS THE SUBJECT-MATTER OF AN APPEAL TO THE DEPUTY COMMISSIONER (APPEALS) OR THE COM MISSIONER (APPEALS) UNDER SECTION 246 OR WITH EFFECT FROM JUNE 1, 2000 SECTION 246A OR AN APPEAL TO THE APPELLATE TRIBUNAL UNDER S ECTION 253; (II) CATEGORY II COVERS CASES WHERE THE RELEVANT AS SESSMENT IS THE SUBJECT-MATTER OF REVISION UNDER SECTION 263 ; AND (III) CATEGORY III COVERS ALL OTHER CASES NOT FALLI NG WITHIN CATEGORY I AND CATEGORY II WHICH IS GOVERNED BY CLAUSE (C). 29. BY DIVIDING INTO THREE CATEGORIES THE PERIOD OF LIMITATION FOR CASES FALLING UNDER CATEGORY (I) I.E. CLAUSE (1)(A) IS THE FINANCIAL YEAR IN WHICH THE PROCEEDINGS, IN THE COURSE OF WHICH ACTIO N FOR THE IMPOSITION OF PENALTY HAS BEEN INITIATED, ARE COMPLETED OR SIX MONTHS FROM THE END OF THE MONTH IN WHICH THE ORDER OF THE DEPUTY C OMMISSIONER (APPEALS) OR THE COMMISSIONER (APPEALS) OR, AS THE CASE MAY BE, THE APPELLATE TRIBUNAL IS RECEIVED BY THE CHIEF COMMISSI ONER OR COMMISSIONER WHICHEVER PERIOD EXPIRES LATER. 30. THE PERIOD OF LIMITATION FOR THE CASES FALLING U NDER CATEGORY (II) IS SIX MONTHS FROM THE END OF THE MONTH IN WHICH SUCH ORDER ON REVISION IS PASSED AND THE PERIOD OF LIMITATION FOR THE CASES FALLING UNDER THE ABOVE CATEGORY III IS THE FINANCIAL YEAR IN WHICH T HE PROCEEDINGS, IN THE COURSE OF WHICH ACTION FOR THE IMPOSITION OF PEN ALTY HAS BEEN INITIATED, ARE COMPLETED, OR SIX MONTHS FROM THE EN D OF THE MONTH IN WHICH ACTION FOR IMPOSITION OF PENALTY IS INITIATED , WHICHEVER PERIOD EXPIRES LATER. IN THE LAST CATEGORY FILING OF APPEA L IN RESPECT OF ORDER PASSED IN PROCEEDINGS DURING WHICH PENALTY PROCEEDI NGS WERE INITIATED IS NOT RELEVANT. 31. TO THIS EFFECT, A CIRCULAR NO. 551 DATED JANUAR Y 23, 1990 SEE [1990] 183 ITR (ST.) 7 AND ANOTHER CIRCULAR NO. 554 DATED FEBRUARY 13, 1990 (SEE [1990] 183 ITR (ST.) 130) WERE ISSUED BY THE CENTRAL BOARD OF DIRECT TAXES. 32. A CLOSE SCRUTINY OF SECTION 275 WHICH REPRODUCE D HEREINABOVE SHOWS THAT CLAUSE 1(A) COVERS THOSE CASES WHERE THE PENALTY PROCEEDINGS ARE IN RESPECT OF A DEFAULT RELATED TO P RINCIPAL ASSESSMENT FOR A PARTICULAR ASSESSMENT YEAR AND THE PENALTY PROCEEDINGS ARE REQUIRED TO BE INITIATED IN THE COU RSE OF THAT PROCEEDINGS ONLY. IN SUCH CASE WHERE THE RELEVANT A SSESSMENT ORDER OR OTHER ORDERS ARE THE SUBJECT-MATTER OF AN APPEAL TO THE COMMISSIONER (APPEALS) UNDER SECTION 246 OR AN APPE AL TO THE ITA NO. 1650/DEL/2009 10 APPELLATE TRIBUNAL UNDER SECTION 253, AFTER THE EXP IRY OF THE FINANCIAL YEAR IN WHICH THE PROCEEDINGS IN THE COURSE OF WHICH ACTION FOR THE IMPOSITION OF PENALTY HAS BEEN INITIATED, ARE COMPLE TED, OR 6 MONTHS FROM THE END OF THE MONTH IN WHICH THE ORDER OF COM MISSIONER (APPEALS) OR, AS THE CASE MAY BE, OF THE APPELLATE TRIBUNAL IS RECEIVED BY THE CHIEF COMMISSIONER OR COMMISSIONER, WHICHEVER PERIOD EXPIRES LATER. 33. APPARENTLY, CLAUSE (A) GOVERNS THE CATEGORIES WH ICH ARE INTEGRALLY RELATED TO THE ASSESSMENT PROCEEDINGS AND ARE NOT IND EPENDENT OF IT. 34. WE HAVE ALSO NOTICED THAT THIS PROVISION WAS BR OUGHT INTO EFFECT IN 1970 WITH EFFECT FROM APRIL 1, 1971, SO THAT PROCEEDI NGS MAY NOT REQUIRE RECTIFICATION OR MODIFICATION DEPENDING ON T HE OUTCOME OF THE APPEAL AGAINST THE ORDERS PASSED IN THE RELEVANT ASS ESSMENT PROCEEDINGS OR THE OTHER PROCEEDINGS IN THE COURSE O F WHICH THE PENALTY PROCEEDINGS ARE REQUIRED TO BE INITIATED. 35. WE HAVE ALSO NOTICED THAT SECTIONS 271 AND 273 WERE THE TWO ORIGINAL PENALTY PROVISIONS, WHICH REQUIRE THE PENA LTY PROCEEDINGS TO BE INITIATED DURING THE COURSE OF RELEVANT ASSESSMEN T PROCEEDINGS OR THE OTHER RELEVANT PROCEEDINGS AS THE CASE MAY BE. THE PENALTY PROCEEDINGS COULD ALSO BE INITIATED DURING THE APPE LLATE PROCEEDINGS ARISING OUT OF THE RELEVANT ASSESSMENT PROCEEDINGS. IT IS ONLY WHERE THE ASSESSMENT PROCEEDINGS ARE INDEPENDENT AND NOT DIRECTLY LINKED TO THE ASSESSMENT PROCEEDINGS THAT THE RESULT OF SU CH PROCEEDINGS IN THE COURSE OF WHICH THE PENALTY PROCEEDINGS WERE INIT IATED DOES NOT AFFECT THE LEVY OF PENALTY. ON SUCH PENALTY PROCEEDI NGS, INDEPENDENT OF THE ASSESSMENT PROCEEDINGS CLAUSE (C) HAS BEEN M ADE APPLICABLE. IN THIS CATEGORY THE PERIOD OF LIMITATION FOR COMPLE TING THE PENALTY PROCEEDINGS IS LINKED WITH THE INITIATION OF THE PEN ALTY PROCEEDINGS ITSELF. 36. IN SUCH CASES, THE PENALTY PROCEEDINGS CAN BE IN ITIATED INDEPENDENT OF ANY PROCEEDINGS BUT OBVIOUSLY, THE PE NALTY PROCEEDINGS CAN BE INITIATED ONLY WHEN THE DEFAULT I S BROUGHT TO THE NOTICE OF THE CONCERNED AUTHORITY WHICH MAY BE DURI NG THE COURSE OF ANY PROCEEDINGS AND, THEREFORE, FOR THIS TYPE OF CA SES WHERE THE PENALTY PROCEEDINGS HAVE BEEN INITIATED IN CONNECTI ON WITH THE DEFAULTS FOR WHICH NO STATUTORY MANDATE IS THERE ABOU T ANY PARTICULAR PROCEEDINGS DURING THE COURSE OF WHICH ONLY SUCH PEN ALTY PROCEEDINGS CAN BE INITIATED, A DIFFERENT PERIOD OF LIMITATION H AS BEEN PRESCRIBED UNDER CLAUSE (C) AS A SEPARATE CATEGORY. IN CASES FA LLING UNDER CLAUSE (C) PENALTY PROCEEDINGS ARE TO BE COMPLETED WITHIN 6 MONTHS FROM THE END OF THE MONTH IN WHICH THE PROCEEDINGS DURING WHICH THE ACTION FOR IMPOSITION OF PENALTY IS INITIATED, ARE COMPLETED, OR SIX MONTHS FROM THE END OF THE MONTH IN WHICH ACTION FO R IMPOSITION OF PENALTY IS INITIATED, WHICHEVER PERIOD EXPIRES LATE R. THERE IS NO PROVISION UNDER CLAUSE (C) FOR THE EXTENDED PERIOD OF LIMITATION ITA NO. 1650/DEL/2009 11 COMMENSURATING WITH COMPLETION OF THE APPELLATE PROC EEDINGS IF ANY ARISING FROM THE PROCEEDINGS DURING THE COURSE OF W HICH SUCH PENALTY PROCEEDINGS ARE INITIATED AS IN THE CASE WHERE THE PENALTY PROCEEDINGS ARE LINKED WITH THE ASSESSMENT PROCEEDI NGS OR THE OTHER RELEVANT PROCEEDINGS. 37. THE EXPRESSION OTHER RELEVANT THING USED IN SEC TION 275(1)(A) AND CLAUSE (B) OF SUB-SECTION (1) OF SECTION 275 IS SIG NIFICANTLY MISSING FROM CLAUSE (C) OF SECTION 275(1) TO MAKE OUT THIS D ISTINCTION VERY CLEAR. 38. WE ARE, THEREFORE, OF THE OPINION THAT SINCE PE NALTY PROCEEDINGS FOR DEFAULT IN NOT HAVING TRANSACTIONS THROUGH THE B ANK AS REQUIRED UNDER SECTIONS 269SS AND 269T ARE NOT RELATED TO TH E ASSESSMENT PROCEEDING BUT ARE INDEPENDENT OF IT, THEREFORE, THE COMPLETION OF APPELLATE PROCEEDINGS ARISING OUT OF THE ASSESSMENT PROCEEDINGS OR THE OTHER PROCEEDINGS DURING WHICH THE PENALTY PROC EEDINGS UNDER SECTIONS 271D AND 271E MAY HAVE BEEN INITIATED HAS N O RELEVANCE FOR SUSTAINING OR NOT SUSTAINING THE PENALTY PROCEEDI NGS AND, THEREFORE, CLAUSE (A) OF SUB-SECTION (1) OF SECTION 275 CANNOT BE ATTRACTED TO SUCH PROCEEDINGS. IF THAT WERE NOT SO CLAU SE (C) OF SECTION 275(1) WOULD BE REDUNDANT BECAUSE OTHERWISE AS A MA TTER OF FACT EVERY PENALTY PROCEEDING IS USUALLY INITIATED WHEN DURING SOME PROCEEDINGS SUCH DEFAULT IS NOTICED, THOUGH THE FINA L FACT FINDING IN THIS PROCEEDING MAY NOT HAVE ANY BEARING ON THE ISSU ES RELATING TO ESTABLISHING DEFAULT E.G. PENALTY FOR NOT DEDUCTING TAX AT SOURCE WHILE MAKING PAYMENT TO EMPLOYEES, OR CONTRACTOR, OR FOR T HAT MATTER NOT MAKING PAYMENT THROUGH CHEQUE OR DEMAND DRAFT WHERE IT IS SO REQUIRED TO BE MADE. EITHER OF THE CONTINGENCIES DO ES NOT AFFECT THE COMPUTATION OF TAXABLE INCOME AND LEVY OF CORRECT TA X ON CHARGEABLE INCOME; IF CLAUSE (A) WAS TO BE INVOKED, NO NECESSI TY OF CLAUSE (C) WOULD ARISE. 14. THIS FINDING OF THE HONBLE RAJASTHAN HIGH COUR T WAS UPHELD IN APPEAL BY THE HONBLE APEX COURT IN CIVIL APPEAL NO. 50 TO 54 OF 2008. 15. FURTHER IN CIT VS. JITENDRA SINGH RATHORE (SUPR A) THE HONBLE RAJASTHAN HIGH COURT HELD IN UNEQUAL LOCAL TERMS THAT EVEN WHEN THE AUTHORITY COMPETENT TO IMPOSE PENALTY UNDER SECTION 271D WAS THE JOINT COMMISSIONER, THE PERIOD OF LIMITATION FOR THE PURPOSE OF SUCH PENALTY PROCEEDI NGS WAS NOT TO BE RECKONED FORM THE ISSUE OF FIRST SHOW CAUSE B Y THE JOINT ITA NO. 1650/DEL/2009 12 COMMISSIONER; BUT THE PERIOD OF LIMITATION WAS TO B E RECKONED FROM THE DATE OF ISSUE OF FIRST SHOW CAUSE FOR INIT IATION OF SUCH PENALTY PROCEEDINGS. 16. IN VIEW OF THE ABOVE DECISIONS, IT IS CLEAR THA T PENALTY PROCEEDINGS FOR DEFAULT IN NOT HAVING TRANSACTIONS THROUGH THE BANK AS REQUIRED UNDER SECTIONS 269SS AND 269T ARE NOT RELATED TO THE ASSESSMENT PROCEEDING BUT ARE INDEPE NDENT OF IT, AND THEREFORE, THE COMPLETION OF APPELLATE PROCEED INGS ARISING OUT OF THE ASSESSMENT PROCEEDINGS OR THE OTHER PROC EEDINGS DURING WHICH THE PENALTY PROCEEDINGS UNDER SECTIONS 271D AND 271E MAY HAVE BEEN INITIATED HAS NO RELEVANCE FOR S USTAINING OR NOT SUSTAINING THE PENALTY PROCEEDINGS AND, THER EFORE, CLAUSE (A) OF SUB-SECTION (1) OF SECTION 275 CANNOT BE ATTRACTED TO SUCH PROCEEDINGS. IT IS ALSO FURTHER CLEAR THAT EVEN THOUGH THE AUTHORITY COMPETENT TO IMPOSE PENALTY UNDER SEC TION 271-D IS A JOINT COMMISSIONER, PERIOD OF LIMITATION FOR P URPOSE OF PENALTY PROCEEDINGS CANNOT BE RECOMMENDED FROM THE ISSUE OF 1 ST SHOW CAUSE NOTICE BY JOINT COMMISSIONER, BUT FROM THE DATE OF ISSUE OF 1 ST SHOW CAUSE, EVEN BY LD. AO, FOR INITIATION OF PENALTY PROCEEDINGS. 17. IN VIEW OF THIS SETTLED LEGAL POSITION, WE ARE OF THE CONSIDERED OPINION THAT THE ORDER PASSED ON 20/06/2 008 LEVYING THE PENALTY OF RS. 25 LACS ON THE ASSESSEE IS CLEARLY BEYOND 6 MONTHS FROM 09/03/2006 WHEN THE PROCEEDING S OF PENALTY WERE INITIATED WITH ISSUANCE OF SHOW CAUSE NOTICE, AND , THEREFORE, IS BARRED BY LIMITATION. ON THIS SCORE I TSELF THE PENALTY CANNOT BE SUSTAINED AND HAS TO BE QUASHED. SINCE WE ITA NO. 1650/DEL/2009 13 HOLD THAT THE PENALTY ORDER WAS BARRED BY LIMITATIO N, WE DO NOT PROPOSE TO DELVE DEEPER INTO THE MERITS OF THE CASE . SUFFICE IT TO SAY THAT THE PENALTY CANNOT BE SUSTAINED AND IS, TH EREFORE, QUASHED. 18. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. ORDER PRONOUNCED IN THE OPEN COURT ON 11.07.2018 SD/- SD/- (G.D. AGRAWAL) (K. NARASIMHA CHARY) PRESIDENT JUDIC IAL MEMBER DATED: 11.07.2018 *KAVITA ARORA COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT TRUE COPY ASSISTANT REGISTRAR ITAT NEW DELHI DATE OF DICTATION 11.07.2018 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 11.07.2018 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P S/PS 11.7.18 DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 11.7.18 DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. PS/PS 11.7.18 DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WE BSITE OF ITAT 11.7.18 DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 11.7 .18 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER