CIT vs. Mohair Investment & Trading Co (Delhi High Court)

S. 275(1)(a) Penalty limitation period not curbed by Proviso

S. 275(1) (a) provides that no order imposing penalty shall be passed after the expiry of six months from the end of the month in which the quantum order of the CIT (A) or Tribunal is received by the CIT. The Proviso to s. 275(1)(a),as inserted by the FA 2003, provides that if the CIT (A) passes the order on the quantum appeal on or after 1.6.2003, the order imposing penalty has to be passed before the expiry of one year from the end of the financial year in which the order of the CIT (A) is received by the CIT. The Tribunal held that the effect of the Proviso was that one could only have regard to the order of the CIT (A) for determining limitation. The fact that an appeal was pending before the Tribunal was irrelevant. It accordingly held that the penalty order having been passed after 1 year of receipt of the CIT (A)’s order was barred by limitation. On appeal by the department, HELD reversing the Tribunal:

The period of six months provided for imposition of penalty u/s 275(1)(a) starts running after the successive appeals from an assessment order have been finally decided by the CIT(A) or the ITAT. The proviso to s. 275(1)(a) extends the period for imposing penalty from six months to one year of the receipt of the CIT (A)’s order after 1.6.2003. The proviso carves out an exception from the main section inasmuch as in cases where no appeal is filed before the ITAT the AO must impose penalty within a period of one year of the date of receipt of the CIT (A)’s order. To read the provision as suggested by the assessee would obliterate the main provision itself. A proviso is merely a subsidiary to the main section and must be construed harmoniously with the main provision. The proviso to s. 275(1)(a) does not nullify the availability to the AO of the period of limitation of six months from the end of the month when the order of the ITAT is received (Rayala Corporation 288 ITR 452 (Mad) followed).