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Judgment
PER MAHAVIR SINGH, VP:
These are quantum as well as penalty appeals filed by the Assessee are directed against the respective orders of the Ld. First Appellate Authority relevant to assessment year 2017-18 in appeal No. CIT(A), Delhi-23/10431/2016-17 & appeal No. CIT(A), Delhi-23/10466/2016-17 both dated 20.1.2016.
At the outset, Ld. Counsel for the assessee argued that Ld. CIT(A) erred in confirming the action of the AO in assuming jurisdiction for framing assessment u/s. 153C of the Income Tax Act, 1961 (hereinafter referred as Act) which is bad in law, illegal and against the facts and circumstances of the case.
The brief facts of the case are that the assessee filed his original return of income u/s. 139(1) of the Act on 27.12.2017. Subsequently, a search and seizure action u/s. 132 of the Act was carried out in the case of Corporate International Financial Services Ltd. (CIFSL) and others on 10.10.2018. The Assessing Officer of CIFSL during the course of assessments proceedings noticed that certain incriminating documents found and seized which pertains to the assessee. No search was conducted on the Assessee. The Assessing Officer after going through the contents of incriminating documents recorded satisfaction. Subsequently the papers were transferred to the Assessing Officer of assessee and Assessing Officer of assassee recorded satisfaction as required under section 153C of the Act for initiation of assessment proceedings vide satisfaction note dated 10th June 2021 which is enclosed at Assesses paper Book page no. 11-12. The Assessing Officer of the assessee i.e. ACIT Central Circle 4 New Delhi after recording of satisfaction note issued notice under Section 153C of the Act dated 13th July 2021. The assesse filed return of income in response to notice under section 153C of the Act on 7.5.2022. According to the Ld. Counsel for the Assessee in view of the decision of the Hon’ble Supreme Court in the case of CIT vs. Jasjit Singh reported in 458 ITR 437 (SC) wherein search conducted at 3rd party premises and seized material were handed over, the date of handing over of the seized material was to be construed as date of initiation of search action, the other person in terms of provisions of section 153C of the Act. Further the Hon’ble Supreme Court has confirmed the decision of the Delhi High Court. Accordingly, learned counsel for the assesse argued that in terms of satisfaction note recorded by the Assessing Officer dated 10.6.2021 when he received the seized material that is the date of search in the case of assessee. But Ld. Cousnel further argued that as there is amendment in the provisions of sub-section 3 of section 153C whereby as per first proviso there is a bar for invoking the provisions of section 153C of the Act with effect from 1 April 2021. Ld. Counsel stated that in the present case also the documents were received by the AO of the assessee on 10.6.2021 on which date he recorded his satisfaction which is enclosed in the APB that means the AO issued notice u/s. 153C of the act is bad in law whereas assessment should have been framed u/s. 148 read with section 143(3) of the Act. For this proposition, Ld. Counsel for the assessee relied on the decision of the CIT vs. Jasjit Singh (Supra) and the also the decision of the Hon’ble Madras High Court in the case of Harigovvind vs. ACIT 485 ITR 509 (Madras).
When these facts were confronted to the Ld. CIT (DR) she could not controvert the above fact situation, but she relied on the assessment order and the order of the learned CIT.
We have heard the rival contentions and gone through the facts and circumstance of the case. We noted that the search was conducted on CIFSL Group under Section 132 of the Act on 10th October 2018. The Assesse Company being other person then the searched person, his incriminating material were handed over by the AO of the other person, other than the searched person to the AO of the assessee on 10.6.2021 when satisfaction note was recorded. There is no dispute about these facts. Admittedly, assessment was also framed by the AO of the assessee u/s. 153C of the Act for the assessment year 2017-18 on 25.3.20\23. The above proposition is very clear and squarely covered by the decision of the Hon’ble Supreme Court in the case of Jasjit Singh that when initiation of search capacity in the case of other person other than the searched person. The Hon’ble Supreme Court in the case of CIT vs. Jasjit Singh held that searched in the other person other than the searched person is to be considered to have been initiated when the seized material was handed over to the assessee’s AO and satisfaction note was not drawn. Hon’ble Supreme Court of India in the case of CIT vs. Jasjit Singh (supra) observed as under:-
“9.It is evident on a plain interpretation of Section 153C(1) that the Parliamentary intent to enact the proviso was to cater not merely to the question of abatement but also with regard to the date from which the six year period was to be reckoned, in respect of which the returns were to be filed by the third party (whose premises are not searched and in respect of whom the specific provision under section 153C was enacted. The revenue argued that the proviso [to Section 153©(1)] is confined in its application to the question of abatement.
10.This Court is of the opinion that the revenue’s argument is insubstantial and without merit. It is quite plausible that without the kind of interpretation which SSP Aviation adopted, the AO seized of the materials – of the search party, under section 132 – would take his own time to forward the papers and materials belonging to the third party, to the concerned AO. In that even if the date would virtually “relate back” as is sought to be contended by the revenue, (to the date of the seizure), the prejudice caused to the third party, who would be drawn into proceedings as it were unwittingly (and in many cases have no concern with it at all), is disproportionate. For instance, if the papers are in fact assigned under section 153C after a period of four years, the third party assessee’s prejudice in writ large as it would have to virtually preserve the records for at least 10 years which is not the requirement in law. Such disastrous and harsh consequences cannot be attributed to Parliament. On the other hand, a plain reading of section 153-C supports the interpretation which this Court adopts.
Further, Hon’ble Madras High Court in the case of Harigovind vs. ACIT (Supra) has considered this issue and held that in case where search is initiated after 1st April 2021 the provisions of section 153C will not apply and assessment can only be framed in terms of section 148 of the Act. Hon’ble Madras High Court considered decision of Honorable Supreme Court in the case of CIT versus Jasjit Singh (supra) and has held as under:-
47.A reading of the above shows that the Hon’ble Apex Court had rejected the contention of the respondent and hence, it is clear that the first proviso to Sub-Section (1) of Section 153C is not only for the purpose of abatement but also for all other purposes, viz., initiation of search for other person in terms of section 153C(3) of the Act. In such case, the date of initiation of search for the petitioner is the date, on which the documents were handed over to the JAO of the petitioner, i.e., 25.11.2022 is the date of initiation of search for the petition.
48.In terms of Sub-Section (3) of Section 3 of Section 153C, the provision of Section 153C will not apply for any search, which is initiated on or after 1.4.2021.
49.As stated above, in this case, the date of handing over of seized material to the petitioner’s JAO is on 25.11.2022 And the said date is the date of initiation of search for the petitioner. Thus, in the present case, it is crystal clear like cloudless sky that the initiation of search was subsequent to 1.4.2021, for which, the provisions of section 153C will not apply. Therefore, the impugned notices dated 7.2.2023 is unsustainable and the same were issued without authority and against the provisions of sub-section (3) of Section 153C of the Act.
50.In such view of the matter, all the impugned notices are liable be quashed and accordingly, all the impugned notices dated 7.2.2023 issued by the 2nd respondent are quashed.”
As the issues are covered, in the present case notice under section 153C of the Act dated 13th July 2021 is without jurisdiction and hence quashed and its consequent assessment is also quashed. As regards other pleadings are concerned the same have become academic.
In the result, the appeal of the assessee is allowed.
ITA NO. 2777/DEL/2026 (AY 2017-18)
The first jurisdiction issue raised by the assessee in this appeal is as regards to order of Ld. Commissioner of Income Tax (Appeal) confirming the action of the Additional CIT levied penalty and passed the impugned penalty order despite the fact that the penalty became time barred. For this, assessee has raised following ground no. 3:-
“3.That having regard to the facts and circumstances of the case, Ld CIT (Appeal) has heard in law and on facts in confirming the absence of learned additional CIT in imposing penalty under section 271D of the Act, as the impugned penalty order has been passed beyond the period of limitation prescribed under the Act and is therefore barred by limitation and liable to be quashed.
Brief facts of the case are that the assessment u/s. 153C of the Act was framed in the case of the assessee u/s. 153C of the Act vide order dated 25.3.2023. The DCIT, CC-4, New Delhi the then AO made a reference for imposition of penalty u/s. 271D of the Act vide his letter F.No. DCIT/CC-04/2022-23/1203 dated 26.3.2023 to theACIT, Central Range-I, Delhi. Ld. Counsel for the assesse stated that this penalty was initiated by the AO on 26.3.2023 by making a reference to the Addl. CIT for levy of penalty u/s. 271D of the Act for violation of provisions of section 269SS of the Act. Ld. Counsel for the assessee stated that this penalty was levied vide order dated 30.10.2023 u/s. 271D of the Act. Ld. Counsel for the assessee firstly drew our attention to the relevant provisions of section 275(1C) and argued that limitation in terms of section 275(1)(c) it would begin to run from the date on which AO recommended or initiated penalty proceedings vide show cause notice. Ld. Counsel for the assessee further stated that in the present case the limitation in terms of section 275(1) will end on 30.9.2023 and the penalty order was passed by the JCIT, Central Range-I, Delhi on 30.10.2023 and according to him this penalty is barred by limitation.
When these facts were confronted to the Ld. CIT(DR) she argued that the penalty is not barred by limitation and she also relied upon the provisions of section 275(1)(c) of the Act and stated that in terms of this provision the penalty can be levied upto 31.3.2024 for the reasons that as per this provision the penalty can be levied upto 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. According to her, the penalty can be levied upto 31.3.2024. She relied upon the penalty order and the order of the CIT(A).
We have heard the rival contentions and perused the records. Admittedly the show cause notice was issued by the AO for initiation of penalty by making reference for imposition of penalty u/s. 271D of the Act vide letter F.No. DCIT/CC-04/2022-23/1203 dated 26.3.2026 wherein, it is stated that “in respect to the above mentioned subject kindly refer to para 4.11 of the assessment order u/s. 153C of the Income Tax Act, 1961 (hereinafter referred to as the Act) dated 25.3.2023 passed in the case of the assessee. Vide para 4.12 of the assessment order, it is established that the assessee has accepted sum of Rs. 10617500/- in cash in contravention of the section 269SS of the Act. As per provisions of section 271D of the Act, the assessee is liable for penalty for failure to comply with the provisions of section 269SS of the Act. Further, it is provided in section 271D(2) that any penalty u/s. 271D(1) of the Act shall be imposed by the Joint/Addl. Commissioner of Income Tax. Therefore, in consequence of observation made in par 4.8 and 4.11 of the assessment order, the case is being referred to the office of your goodself for necessary action as provided in section 271D of the Act. The relevant provision of section 275(1(c) read as under:-
“275(1(c) ..in any other 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 moths from the end of the month in which action for imposition of penalty is initiated, whichever period expires later….
We note that this issue now stands covered by the decision of the Hon’ble Delhi High Court and by a series of judgements of various High Courts. The Hon’ble Delhi High Court in the case of PCIT vs Mahesh Woods Products P Ltd. reported in 394 ITR 312 (Delhi) has considered the relevant provisions of section 275(1)(c) and observed that in the given scheme of section 275(1)(c) it would begin to run on which date when AO wrote letter to the JCIT recommended the issuance of show cause notice and the limitation to begin to run from the date of the letter of the AO recommending the initiation of penalty proceedings. The provisions of section 275(1)(c) also makes it clear that no order imposing penalty under this Chapter shall be passed in any other case that means the penalty are not related to the assessment, as in the present case the penalty u/s. 271D. In that case after expiry of the financial year in which the penalty proceedings in the course of which action for imposing of penalty has been initiated. In this case penalty is initiated by the AO on 26.3.2023 which means it is not possible to levy penalty upto 31.3.2023 within this financial year. That means the scheme of limitation of clause (c) of section 275(1) comes into play and six months limitation from the end of the month in which the action of imposition of penalty is initiated will come into play. It means the limitation will expire in the present case on 30.9.2023. This view of our is strengthened by the case law cited by the Ld. Counsel for the assessee in the case of PCIT vs. Mahesh Woods Products (P) Ltd. wherein, the Hon’ble Delhi High Court has observed as under:-
8.At the outset, the Court observes that no question arose in Idea Trading Hong Kong Ltd. (supra) as to whether the starting point of limitation could be a date earlier than the issuance of the SCN, viz., the date on which the AO wrote a letter to the ACIT recommending such initiation. No such contention appears to have been raised or dealt with in the said case. Therefore, the said decision is distinguishable on facts.
9.However, this question came up for consideration in JKD Capital and Finlease Ltd. (supra). The date on which the AO recommended the initiation of penalty proceedings was taken to be the relevant date as far as Section 275 (1)(c) was concerned. There was no explanation for the delay of nearly five years in the ACIT acting on the said recommendation. The Court held that the starting point would be the ‘initiation’ of penalty proceedings. Given the Scheme of Section 275 (1)© it would be date on which the AO wrote a letter to the ACIT recommending the issuance of the SCN. While it is true that the ACIT had the discretion whether or not to issue the SCN, if he did decide to issue a SCN, the limitation would begin to run from the date of letter of the AO recommending ‘initiation’ of the penalty proceedings.
10.In the present case, the limitation in terms of Section 275(1)(iii) of the Act began to run on 23rd July, 2012 and the last date for passing the penalty orders was 31st January, 2013. Therefore, the penalty orders issued on 26th February, 2013 were clearly barred by limitation.
11.No substantial question of law arises for consideration from the impugned common order of the ITAT. The appeals are dismissed.”
As the facts are not disputed, admittedly the penalty was initiated on 26.3.2023 and in view of the provisions of section 275(1)(c) of the Act, the limitation expired on 30.9.2023 whereas the penalty order was passed on 30.10.2023. This is clearly barred by limitation, hence, we quash the penalty order and allow the appeal of the assesse on this jurisdictional issue. Since we have already allowed the jurisdictional issue, as aforesaid, thus the other grounds have become academic and need not be adjudicated. Resultantly, the appeal of the assessee is allowed in very terms, as aforesaid.
In the result, both the appeals of the assessee are allowed.