ITO vs. JKD Capital & Finlease Ltd (ITAT Delhi)

The AO initiated penalty proceedings as per assessment order passed u/s 143(3) dated 28.12.2007. The AO passed a penalty order u/s 271E dated 20.03.2012. The AO held that the time limit for passing of the penalty order had to be reckoned from the date of the passing of the order of the CIT(A) in the quantum appeal. The assessee claimed that the order of the CIT(A) was on a totally different issue and had no bearing on the issue on which penalty u/s 271E was imposed. The CIT(A) accepted the assessee’s claim and held that the penalty order should have been passed within the financial year itself in which the penalty proceedings were initiated or within six months from the end of the month in which the penalty proceedings were initiated, whichever period expires later, and in the present case the penalty order could have been passed on or before 30.06.2008. He held that the penalty order passed u/s 271E on 20.03.2012 is barred by limitation and deserves to be quashed on this ground alone. On appeal by the department to the Tribunal HELD dismissing the appeal:

In the present case, the penalty sought to be imposed on the assessee is for alleged violation of Section 269SS/ 269T of the Act. It is well settled that a penalty under this provision is independent of the assessment. The action inviting imposition of penalty is granting of loans above the prescribed limit otherwise than through banking channels and as such infringement of Section 269SS of the Act is not related to the income that may be assessed or finally adjudicated. In this view Section 275(1)(a) of the Act would not be applicable and the provisions of Section 275(1)(c) would be attracted. Since penalty proceedings for default in not having transactions through the bank as required under sections 269SS and 269T are not related to the assessment proceeding but are independent of it, therefore, the completion of appellate proceedings arising out of the assessment proceedings or the other proceedings during which the penalty proceedings under sections 271D and 271E may have been initiated has no relevance for sustaining or not sustaining the penalty proceedings and, therefore, clause (a) of sub-section (1) of section 275 cannot be attracted to such proceedings. If that were not so clause (c) of section 275(1) would be redundant because otherwise as a matter of fact every penalty proceeding is usually initiated when during some proceedings such default is noticed, though the final fact finding in this proceeding may not have any bearing on the issues relating to establishing default e.g. penalty for not deducting tax at source while making payment to employees, or contractor, or for that matter not making payment through cheque or demand draft where it is so required to be made. Either of the contingencies does not affect the computation of taxable income and levy of correct tax on chargeable income; if clause (a) was to be invoked, no necessity of clause (c) would arise (Commissioner of Income-Tax v. Hissaria Bros (2007) 291 ITR 244 (Raj.) and CIT vs. Worldwide Township Projects Ltd (269 CTR 444) (Del) followed)