Under Section 271D penalty is imposable by Joint Commissioner for failure to comply 269SS i.e. accepting loan or deposit for Rs. 20,000/- or more otherwise than through account payee cheque equal to amount of loan or deposit. Similarly Under Section 271E, there is penalty for repayment of the amount of loan or deposit otherwise than through account payee cheque, where loan or deposit is outstanding for Rs. 20,000 ruprees or more.
In the case of World wide Township Projects, there were certain credits in the balance sheet of the assesse, which he explained were on account of land purchased on his behalf by certain persons. AO said that since the transaction falls u/s 269SS, penalty proceedings are liable to be initiated. Although, the Assessing Officer, by its assessment accepted the income as returned by the assessee he issued directions for initiating penalty proceedings under Section 271D of the Act for alleged violation of the provisions of Section 269SS/269T of the Act. CIT A rejected the appeal filed by the assesse. Penalty thereafter was imposed. The assesse in appeal contended that penalty order is barred by limitation.
U/s 275(1)(a), where relevant assessment order is subject matter of appeal penalty order can be passed
- a)before the expiry of financial year in which the proceedings, in the course of which action for imposition of penalty has been initiated, are completed OR
- b)within one year from the end of the financial year in which the order of the Commissioner (Appeals) is received by the 2[Principal Chief Commissioner or] Chief Commissioner or2[Principal Commissioner or] Commissioner,
which ever is later
However, it was opined by the Delhi High Court in World Wide Township Projects that penalty u/s 271D/E has no relevance to assessment of Income and also the appeal proceedings there to have no relevance to initiation of penalty proceedings for violation of S. 269SS/T.
Hence section 275(1)(c) shall be invoked in such a case and hence limitation period shall be later of :
- a)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
- b)six months from the end of the month in which action for imposition of penalty is initiated.
Since the period of limitation u/s 275(1)(c ) had expired in the above case, no penalty can be levied u/s 271D/E
Also Rajasthan High Court in Hissaria Bros 291 ITR 244 (Raj.) has held that to interpret otherwise shall result in provisions of S. 271D/E being declared redundant. High Court held that the same is also true for penalty levied for non deduction of tax.
CBDT in circular No. 10/2016 dated 26-04-2016 has accepted the above position of law.
And has taken a stand that in case of penalties not linked to assessment, limitation period shall be governed by S. 275(1)(c) and not 275(1)(a)
The next issue comes the Determination of point of initiation of penalty because penalty limitation period is end of financial year in which penalty proceedings initiated or six months from the end of month in which penalty proceedings initiated.
Hence whether penalty shall get initiated during assessment proceedings mentioning the default in his assessment order or when penalty notice is issued by Joint Commissioner.
Kerala High Court in Grihlaxmi Vision [63taxmann.com 196] has pronounced that from statutory provision, it is clear that the competent authority to levy penalty is the Joint Commissioner. Therefore, only the Joint Commissioner can initiate proceedings for levy of penalty. Such initiation of proceedings could not have been done by the Assessing Officer. The statement in the assessment order that the proceedings under sections 271D and E are initiated is inconsequential. On the other hand, if the assessment order is taken as the initiation of penalty proceedings, such initiation is by an authority who is incompetent and the proceedings thereafter would be proceedings without jurisdiction. If that be so, the initiation of the penalty proceedings is only with the issuance of the notice issued by the Joint Commissioner to the assessee to which he has filed his reply
CBDT in Circular 9/2016 dated 26-04-2016 has asked officials to follow Grihlaxmi Vision (Kerala High Court) and has termed it as “Departmental View”. Special Bench of ITAT Chandigarh in Dewan Chand Amrit Lal (2006) 98 ITD 200 has upheld the same view.
CBDT has also stated that The Assessing Officer, (below the rank of Joint Commissioner of Income Tax) shall not issue the notice in this regard. The Range Head will issue the penalty notice and shall dispose/complete the proceedings within the limitation prescribed under section 275(1)(c) of the Act.
However Rajasthan High Court in Jitendra Singh Rathore [2013] 31 taxmann.com 52 (Rajasthan) has pronounced that “………………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 proceedings was not to be reckoned form the issue of first show cause by the Joint Commissioner; but the period of limitation was to be reckoned from the date of issue of first show cause for initiation of such penalty proceedings………….”
The decision of Rajasthan High Court has been followed by ITAT Rajkot in Dipak Kantilal Takvan [2013] 39 taxmann.com 53 (Rajkot – Trib.) (TM) and Jaipur Tribunal in MDS University [2014] 49 taxmann.com 297 (Jaipur – Trib.) JANUARY 23, 2014