Penalty is not leviable where the penalty proceedings were initiated long after the completion of assessment and order was silent about the levy of penalty

short Overview : Since AO initiated the penalty proceedings after a period of more than 4 ½ years from the date of original assessment order and there was no such mention of the initiation of penalty proceedings under section 271B in the assessment order, penalty proceeding initiated by the AO was barred by limitation.

AO initiated penalty proceedings under section 271B on the ground that assessee had shown receipts from booking (net) freight whereas the gross freight was admitted by assessee to have been received. Against the above receipts, assessee had claimed to have paid an amount. AO, therefore, issued a show-cause notice asking the assessee to explain as to why penalty under section 271B should not be levied. Before CIT(A), it was submitted that penalty proceedings initiated after a long gap of more than 4 ½ years from the date of original assessment order passed in remanded matter by Tribunal, thus penalty imposed was barred by limitation. However, CIT(A) dismissed the appeal of assessee.

It is held that : Penalty is not leviable where the penalty proceedings were initiated long after the completion of assessment and order was silent about the levy of penalty under section 271B. Since AO initiated the penalty proceedings after a period of more than 4 ½ years from the date of original assessment order and there was no such mention of the initiation of penalty proceedings under section 271B, penalty proceeding initiated by the AO was barred by limitation.

Decision: In assessee’s favour

Referred: CIT v. NHK Japan Broadcasting Corporation (2008) 305 ITR 132 (SC) : 2008 TaxPub(DT) 1996 (SC) and CIT v. Hissaria Brothers (2007) 291 ITR 0244 (Raj) : 2007 TaxPub(DT) 0413 (Raj-HC).

IN THE ITAT, DELHI BENCH

R.K. PANDA, A.M.

Amit Sabharwal v. ITO

ITA No. 886/Del/2018

14 May, 2019

Assessee by: Dr. Rakesh Gupta and Somil Aggarwal, Advocates

Revenue by: S.L. Anuragi, Sr. DR

This appeal by the assessee is directed against the Order, dated 13-10-2017 passed by the Commissioner (Appeals), Ghaziabad, relating to assessment year 2009-10.

2. Levy of penalty of Rs. 1 lakh under section 271B of the Act by the assessing officer which has been upheld by the Commissioner (Appeals), is the only issue raised by the assessee in the grounds of appeal.

3. Facts of the case, in brief, are that the assessee is an individual and filed his return of income on 30-9-2009 declaring the total income of Rs. 4,73,090.

The assessing officer concluded the assessment under section 143(3) determining the total income at Rs. 30,13,660 by making various additions. The assessee preferred appeal before the Commissioner (Appeals), but, without any success. Subsequently, the assessee preferred appeal before the Tribunal and the Tribunal vide ITA No. 5413/Del/2012, Order, dated 5-2-2016, restored the issue to the assessing officer with certain directions.

Thereafter, the assessing officer passed the order on 21-11-2016 determining the total income at Rs. 6,73,090. In the mean time, the assessing officer has initiated penalty proceedings under section 271B of the Income Tax Act on the ground that the assessee had shown receipts from booking (net) at Rs. 20,58,378 whereas the gross freight of Rs. 2,08,31,714 which was admitted by the assessee to have been received. Against the above receipts, the assessee has claimed to have paid an amount of Rs. 1,87,73,336 and the net receipt was shown at Rs. 20,58,378. The assessing officer, therefore, issued a show-cause notice asking the assessee to explain as to why penalty under section 271B should not be levied. Rejecting the various explanations given by the assessee and observing that the assessee has admitted to have received gross freight of Rs. 2,08,31,714, the assessing officer, invoking the provisions of section 44AB of the Act and the provisions of section 271A of the Act, levied a penalty of Rs. 1 lakh.

4. Before the Commissioner (Appeals), it was submitted that the original assessment order was passed by the assessing officer on 29-12-2011 wherein some additions were made by the assessing officer which was confirmed by the Commissioner (Appeals), and on further appeal by the assessee, the Tribunal restored the issue to the file of the assessing officer. The assessing officer, at the time of passing the order, did not impose any penalty under section 271B. The assessing officer has issued the first penalty notice on 24-8-2016 and levied penalty of Rs. 1 lakh which is barred by limitation. It was further argued that penalty under section 271B was for non-auditing of accounts and it has no relevance with addition of income. Since it is barred by limitation, therefore, the penalty levied by the assessing officer deserves to be deleted.

5. However, the learned Commissioner (Appeals), was not satisfied with the arguments advanced by the assessee. She noted that the assessee filed the return of income on 30-9-2016 along with unaudited Profit & Loss Account and balance sheet. Since the assessee failed to get its accounts audited as per the provisions of section 44AB and since there is no limitation for initiation of penalty under section 271B and such penalty need not be initiated during the course of any assessment proceedings only, the learned Commissioner (Appeals) confirmed the penalty so levied by the assessing officer.

6. Aggrieved with such order of the Commissioner (Appeals), the assessee is in appeal before the Tribunal.

7. The learned counsel for the assessee, referred to the decision of the Hon’ble Rajasthan High Court in the case of CIT v. Hissaria Bros reported in (2007) 291 ITR 0244 (Raj) : 2007 TaxPub(DT) 0413 (Raj-HC) and submitted that the Hon’ble High Court in the said decision has held that penalty proceedings for default under section 269SS and 269T not being related to the assessment proceedings, completion of appellate proceedings arising out of the assessment proceedings or other proceedings have no relevance and the limitation under section 275(1)(c) applies to such proceedings and, therefore, impugned penalty orders under section 271D passed beyond 6 months from the end of the month in which the assessments were completed were barred by time. He submitted that the SLP filed by the Revenue was dismissed by the Hon’ble Supreme Court as reported in (2016) 386 ITR 0719 (SC) : 2016 TaxPub(DT) 3869 (SC).

8. Referring to the decision of the Cochin Bench of the Tribunal in the case of Noble Pictures v. JCIT reported in (2004) 90 ITD 248 (Coch) : 2004 TaxPub(DT) 0294 (Coch-Trib), he submitted that the Tribunal in the said decision has held that there should be a reasonable time within which penalty proceeding is to be initiated or to be completed. Even if a time is not prescribed under the law, however, the penalty cannot hang on the head of an assessee as sword of Damocles indefinitely and it should be initiated and completed within a reasonable time. Referring to the decision of the Hon’ble Calcutta High Court in the case of Indian Handloom Textiles v. ITO reported in (1999) 68 ITD 0560 (Cal) : 1999 TaxPub(DT) 0682 (Cal-Trib), he submitted that the penalty proceedings under section 271B initiated 34 months after the completion of assessment was held to be invalid. He accordingly submitted that since, in the instant case, the penalty proceedings have been initiated after a period of more than four years, therefore, the penalty so levied by the assessing officer and upheld by the Commissioner (Appeals) is not justified. He also relied on the decision of the Hon’ble Delhi High Court in the case of CIT v. NHK Japan Corporation (2008) 305 ITR 132 (SC) : 2008 TaxPub(DT) 1996 (SC).

9. The learned Departmental Representative, on the other hand, heavily relied on the order of the Commissioner (Appeals). He submitted that the turnover of the assessee is more than the prescribed limit and, therefore, the assessee should have got its accounts audited. Since the assessee has failed to comply with the provisions of section 44AB and there was no reasonable cause for not getting its accounts audited, therefore, the learned Commissioner (Appeals) was fully justified in upholding the penalty so levied by the assessing officer under section 271B of the Act.

Referring to the decision of the Hon’ble Allahabad High Court in the case of Rama Medical Store v. CIT 2016-TIOL-2750, he submitted that for the purpose of imposing penalty under section 271B, its initiation in the course of the assessment proceedings is not necessary within the meaning of section 275(1)(c).

10. I have heard the rival arguments made by both the sides and perused the orders of the authorities below. I have also considered the various decisions cited before me.

I find the assessing officer completed the original assessment under section 143(3) on 29-12-2011 determining the total income of the assessee at Rs. 30,13,680. At that time, as appears from para 2 onwards, the assessing officer has mentioned in the assessment order that the gross receipt is at Rs. 2,29,72,281, whereas as per the assessee the gross receipts were Rs. 2,08,31,714. However, the assessing officer has not initiated penalty proceedings under section 271B of the Act either during the course of initial assessment proceedings or thereafter. Only when the matter was set aside by the Tribunal to the file of the assessing officer that the assessing officer initiated the penalty proceedings under section 271B of the Income Tax Act by issue of notice on 24-8-2016. Thus, the penalty notice was issued after more than 4 ½ years from the end of the original assessment. As per the provisions of section 275(1)(c), no order imposing a penalty under this Chapter shall be passed in any case, after the expiry of the financial year in which the proceedings, in the course of which action for the imposition of penalty has been initiated, are completed or six months from the end of the month in which action for imposition of penalty is initiated, whichever period expires later. As per the various decisions relied on by the ld. counsel for the assessee, penalty is not leviable where the penalty proceedings were not initiated long after the completion of the assessment and the assessment order was silent about the levy of penalty under section 271B of the Act. Since the assessing officer in the instant case has initiated the penalty proceedings after a period of more than 4 ½ years from the date of original assessment order and there was no such mention of the initiation of penalty proceedings under section 271B of the Act and the fact of higher gross receipt was very much available to the assessing officer which has been mentioned in the body of the original assessment order, therefore, the penalty proceeding initiated by the assessing officer in the instant case in my opinion is barred by limitation. The decision relied on by the learned Departmental Representative will not help the Revenue since the same relates to initiation of penalty proceedings under section 271B in the course of assessment proceedings. The decision does not speak of levy of penalty after inordinate delay. In view of the above discussion, I am of the considered opinion that the penalty proceedings initiated after a long gap of more than 4 ½ years from the date of original assessment order is not sustainable in law being barred by limitation. Therefore, the order of the learned Commissioner (Appeals) is set aside and the grounds raised by the assessee are allowed.

11. In the result, the appeal filed by the assessee is allowed.