JCIT vs Mohit Aggarwal

“ a) The Ld. Commissioner of Income Tax (Appeals) has erred both on facts and in law in holding that the initiation of penalty proceedings under section 271D of the Income Tax Act. 1961 is to be reckoned from the date on which the Assessing Officer made a reference to the Addl. commissioner of Income Tax for initiation of such proceedings.

b)

The Ld. CIT(A) failed to appreciate that a mere reference or proposal made by the Assessing Officer does not constitute initiation of penalty proceedings under section 271D, as the Assessing Officer is not the prescribed authority empowered under the Act to initiate or levy penalty under the said provision.

c)

The Ld. CIT(A) erred in law in not appreciating that, as per the express provisions of the Income Tax Act, 1961, the power to initiate and levy penalty under section 271D vests exclusively with the Joint Commissioner of Income tax. and therefore. the initiation of penalty proceedings can be said to have occurred only on the date of issuance of the first statutory notice under section 27lD by the Joint Commissioner to the assessee, and not on any earlier date of internal or administrative correspondence. ”

“5.1.7

It is thus evident that as per Chapter XXI of the Income Tax Act, 1961, there are two distinct periods of limitation for passing such penalty order and one that expires later will apply. One is the end of the financial year in which the quantum proceedings are completed, which is the first instance. The second possible date is expiry of six months from the end of the month in which the penalty proceedings are initiated. I also notice that CBDT Circular F. No. 279/Misc./M-140/2015-ITJ dated 26th April, 2016 has now clarified in unequivocal terms that period of limitation of penalty proceedings u/s 271D and u/s 271E of the Income Tax Act, 1961 is governd by section 275(1)(c) of the Income Tax Act, 1961.In the present case, the original quantum assessment proceeding from whereupon the reference point for penalty under Section 271D of the IT Act,1961had emanated was passed on 25.02.2023, and so the first limitation date as per Section 275(1) (c) of the IT Act, 1961 was the end of financial year, i.e, 31/03/2024 itself.

5.1.8

Thereafter, the Addl. CIT, Central Range 2, Delhi issued notices and Show Cause Notice to the appellant respectively, asking the appellant to show cause as to why a penalty w/s 271D of the Act, should not be imposed upon it for receipt of loan of Rs. 2,04,86,092/-in cash as the appellant has violated the provision of section 269SS of the Income Tax Act, 1961. Thereafter, the impugned Penalty Order was passed by the Addl. CIT, Central Range 2, Delhi on 29.01.2024. Thus, in the instant case, as per Section 275(1)(c) of the Income tax Act,1961, the limitation for penalty would be calculated at "six months from the end of the month in which action for imposition of penalty is initiated". Therefore, at this juncture, it becomes imperative to determine first as to exactly constitutes the "action point for imposition of penalty," and from when is to be reckoned from, i.e., whether the limitation begins from the cognizance/reference for penalty made by AO to JCIT in the assessment order itself reckoning it as the action point for initiation of penalty proceeding, or whether the action for penalty initiates from issuance of notice by the JCIT. In this context, the appellant has drawn my attention to the Hon'ble jurisdictional High Court decision in the case of PCIT vs. JKD Capital & Finlease Ltd., ITA No. 780 of 2015 wherein it was held that proceedings u/s 271D/271E of the Income Tax Act, 1961 (both provisions being part materia) are initiated when the Assessing officer draws a reference/cognizance/ to the JCIT for issuing notice under the respective relevant provisions in the primary assessment order itself wherein violation is noted, which is actually passed with Addl. CIT's approval and hence Addl. CIT concerned becomes cognizant of the same. The relevant portion of the Order in the case of PCIT vs. JKD Capital & Finlease Ltd., ITA No. 780 2015wherein the view was held is as following:

"11.

In fact, when the AO recommended the initiation of penalty proceedings the AO appeared to be conscious of the fact that he did not have the power to issue notice as far as the penalty proceedings under Section 271-E was concerned. He, therefore, referred the matter concerning penalty proceedings under Section 271-E to the Additional CIT. For some reason, the Additional CIT did not issue a show cause notice to the Assessee under Section 271-E (1) rill 20th March 2012. There is no explanation whatsoever for the delay of nearly five years after the assessment order in the Additional CIT issuing notice under Section 271-E of the Act. The Additional CIT ought to have been conscious of the limitation under Section 275 (1) (c), i.e., that no order of penalty could have been passed under Section 271-E after the expiry of the financial year in which the quantum proceedings were completed or beyond six months after the month in which they were Initiated, whichever was later. In a case where the proceedings stood initiated with the order passed by the AO, by delaying the issuance of the notice under Section 271-E beyond 30th Jume 2008, the Additional CIT defeated the very object of Section 275 (1) (c).

12.

In that view of the matter, the order of the CIT (A) which has been affirmed by the impugned order of the ITAT does not suffer from any legal infirmity."

5.1.9

The same view has consistently been re-iterated by Hon'ble Delhi High Court subsequently in the case of PCIT vs. Thapar Homes Ltd. reported [2024] 159 taxmann.com 450 (Delhi) and PCIT vs. Rishikesh Buildcon (P.) Ltd. reported in [2023] 147 taxmann.com 220 (Delhi).

5.1.10

In the light of settled jurisprudence on the subject, in the present case, the AO having initiated the penalty proceedings on 25.02.2023 (when Assessment Order was passed), by making a mention/reference to the Additional Commissioner of Income Tax, Central Range 2, Delhi for issuing notice u/s 271D of the Income Tax Act, 1961, the last date by which the penalty order u/s 271D of the Income tax Act, 1961 could have been passed by the Additional Commissioner of Income Tax, Range 2, Central Delhi was 31 August, 2023. The later of the two dates (as per section 275(1)(c) of the Income Tax Act, 1961) is 31" August 2023. However, the impugned order u/s 271D of the Income tax Act, 1961 having been passed on 29.01.2024, the same is time barred as per section 275(1)(c) of the Income Tax Act, 1961.”