Income Tax Appellate Tribunal - Pune
Chhajer Packaging And Plastics (P) Ltd. vs Addl. C.I.T. Range 2 on 22 March, 2004
Equivalent citations: (2005)97TTJ(PUNE)153
ORDER
H.L. Karwa, Judicial Member
1. This is an appeal by the assessee and is directed against the order of the CIT(A)-I, Nagpur dated 3.4.2001, relating to assessment year 1996-97 confirming the penalty of Rs. 2,70,000/- imposed by the Addl. CIT, Range 2, Jalgaon, Under Section 269SS read with Section 271D of the Income-tax Act, 1961.
2. In this appeal, the assessee has taken the following grounds:
"1. Order passed Under Section 271D is bad in law being barred by limitation.
2. On the facts, in the circumstances of the case and as per law, the ld. CIT (A) erred in confirming the penalty Under Section 271D of Rs. 2,70,000/-.
3. On the facts and in law, the ld. CIT(A) failed to appreciate that the appellant had reasonable cause for the default Under Section 269SS and the amounts were taken from the directors and their relatives and therefore, in view of the reasonable cause, the penalty was not leviable and accordingly, the penalty levied Under Section 271D may be cancelled."
3. The main issue in this case is as to whether the penalty order passed by the Addl. CIT, Range 2, Jalgaon on 13.3.2000 is barred by limitation. Briefly stated, the facts of the case are that during the course of assessment proceedings, the AO (DCIT, Inv.Cifr.2(1), Jalgaon) noticed that the assessee had accepted loans/deposits by otherwise than account payee cheque/demand draft contravening the provisions of Section 269SS of the Act. The details of loans/deposits accepted by the assessee are as under:
S. Name of the persons from whom Amount Date on
No loan taken in cash which
-- -------- accepted
--------
1. Smt Chhagandevi Puglia Ramganj 30,000 15.6.95
-do- 10,000 25.7.95
2. Smt Rajudevi Puglia 30,000 30.5.95
-do- 10,000 26.7.95
-do- 25,000 11.11.95
-do- 20,000 1.12.95
3. Smt Panadevi Sethia 25,000 15.5.95
4. Chhatramal Chhajed 10,000 29.7.95
-do- 15,000 1.12.95
-do- 30,000 4.3.96
-do- 20,000 18.3.96
5. Shri Madanlal Chhajed 25,000 11.11.95
-do- 20,000 18.3.96
--------
Total: 270,000
--------
4. Aggrieved by the order of the Addl. CIT, the assessee carried the matter in appeal before the CIT (A)-I, Nagpur. Before him, it was submitted that the assessee was under the bona fide belief and honest impression that temporary transfer of funds could be taken in cash since they were genuine. It was further submitted that the transactions through crossed cheques and bank drafts were required only in case of payments in excess of Rs. 20,000/-. It was also one of the contentions of the assessee before the CIT(A) that all the expenditure incurred on purchases were through account payee cheque and drafts only and the assessee company did not contravene the provisions of Section 269SS deliberately. Reliance was also placed on the decision of the Hon'ble Supreme Court in the case of Motilal Padampat Sugar Mills Co. Ltd. v. State of Uttar Pradesh and Ors. . Further, it was submitted that the assessee had not taken any loan or deposit but it was mere transfer of fund from the directors/close relatives of the directors of the company. According to the assessee, these funds were neither kept for fixed period nor repayable on demand and they were merely current accounts. The other contention of the assessee was that the order of the Addl. CIT was time barred, as it was not passed on or before 30.9.1999.
5. After considering the submissions of the assessee, the ld. CIT (A) held that there was no force in the contention of the assessee that the penalty order passed by the Addl. CIT was time barred. According to him, proceedings under Section 271D are independent of assessment and the same should not be taken as commencing along with the assessment order. He also rejected this contention of the assessee that default was on account of ignorance of law. According to him, the directors of the assessee company were well acquainted with the provisions of law. He further observed that copies of accounts of the depositors submitted by the assessee clearly revealed that the assessee had paid interest to the depositors. He also rejected the plea of the assessee that the amounts in question were kept in current account and were received on transfer. Finally, he observed that this is a clear case of contravention of provisions of Section 269SS of the Act.
In view of the above, the ld. CIT (A) confirmed the penalty imposed by the Addl. CIT Under Section 269SS read with Section 271D of the Act.
6. Now, the assessee is in further appeal before this Bench of the Tribunal against the order of the CIT (A)-I, Nagpur.
7. Before us, Shri S.U. Pathak, the ld. Counsel for the assessee, vehemently argued that the penalty order passed by the Addl. CIT was clearly barred by limitation and he, therefore, submitted that on this score alone the orders of the lower authorities may be quashed. He farther submitted that the date on which the Dy.CIT/Jt.CIT/Addl.CIT, as the case may be, records his satisfaction and issues show cause notice Under Section 271D is the relevant date for purposes of limitation for imposing the penalty under this section and not the date of completion of assessment by the AO and reference to Dy.CIT/ Jt.CIT/Addl. CIT for that purpose. According to the ld. Counsel for the assessee, the AO had no authority to levy penalty Under Section 271D and, therefore, he was not competent to initiate such proceedings at the time of completing the assessment. Shri S.U. Pathak, the ld. Counsel for the assessee vehemently submitted that Section 275(1)(c) of the Income-tax Act, 1961 is applicable to the facts of the present case and the same prescribes the time limit for completing the penalty proceedings. In view of the provisions of Section 275(1)(c) of the Act, in the instant case, the date on which the Addl.CIT recorded his satisfaction and issued notice calling upon the assessee to show cause why penalty Under Section 271D should not be imposed, would be the date when the proceedings can be said to have been initiated, in this case, notice Under Section 271D was issued by the Addl. CIT on 6.4.1999 asking the assessee to show cause as to why an order imposing penalty Under Section 271D should not be made for contravention of the provisions of Section 269SS of the Act, which was duly served upon the assessee. He further submitted that the order imposing penalty Under Section 271D was passed on 13.3.2000, which period was beyond the limitation prescribed Under Section 275(1)(c) of the Act. According to the ld. Counsel for the assessee, Section 275(1)(c) imposes a time limit for passing an order of penalty within a period of six months from the end of the month in which penalty proceedings were Initiated. He, therefore, submitted that the penalty order passed by the Addl. CIT was clearly barred by limitation. Reliance was placed on the following decisions:
1) Manoharlal v. DCIT (1995) 53 TTJ (Jp) 105,
2) ACIT v. Shree Nivas Chemicals (2003) 79 TTJ (Chd) 755 In view of the above, it was submitted by the ld. Counsel for the assessee that the impugned penalty may be cancelled.
8. Shri M.M. Srivastava, the ld. DR strongly supported the orders of the authorities below.
9. We have carefully considered the rival submissions and have also perused the orders of the authorities below. We have also gone through the relevant provisions of law to which our attention was drawn during the course of hearing of the appeal. It is noticed that in this case the AO, i.e. Dy. CIT, Inv. Cir. 2(1) Jalgaon observed in the assessment order dt. 30.3.1999 relating to the assessment year under consideration that, "All the aforesaid transactions are hit by the provisions of Section 269SS and 269T, the necessary action in this respect is being taken separately at the appropriate level." Admittedly, the AO referred the matter to the Addl. CIT, Range 2, Jalgaon, proposing levy of penalty Under Section 271 D, vide letter dt. 30.3.1999. The Addl. CIT initiated the penalty proceedings Under Section 271D on 6.4.1999, when show cause notice Under Section 274 read with Section 271D was issued, which was duty served upon the assessee. It is also true that the penalty order was passed on 13.3.2000. In view of Section 275(1)(c) which prescribes the limitation for completing such proceedings within a period of 6 months from the end of the month in which penalty proceedings were initiated, penalty order passed by the Addl. CIT on 13.3.2000 was clearly barred by limitation, in other words, the period of limitation shall be 6 months from the end of the month In which penalty proceedings are initiated, i.e. from 1st May, 1999 the six months period will end on 31st October, 1999. Thus, the penalty imposed on 13.3.2000 was clearly out of prescribed period of limitation. While taking such a view, we are also fortified by the decision of the Jaipur Bench of the Tribunal in the case of Manoharlal v. DCIT (supra). In the said case, the Jaipur Bench of the Tribunal has made the following important observations (Head Note):
"Penalties under Sections 271D and 271E are quite independent of the assessment proceedings. It is true that defaults under those sections would normally be noticed in the course of assessment proceedings only, but once having noticed the defaults, these penalty proceedings will be independent of the assessment proceedings and the penalties shall be imposable by Dy. CIT only. Even initiation of these penalty proceedings can be independent of the assessment proceedings and, hence, Section 275 has undergone drastic changes to take care of such proceedings. It is Clause (c) which takes care of such cases. From the Clause (c) of Section 275(1), it will be seen that the later part that is, commencing from the words 'of six months...', envisages and takes care of the limitation period in those cases where penalty proceedings can be initiated independent of the assessment proceedings. The earlier part of Clause (c) is meant for those penalty proceedings which are initiated in the course of assessment or any other proceedings. Under both the situations it is contemplated that there will not be any necessity to extent the period of limitation on account of appellate proceedings and hence, are clubbed together in the same clause. Thus, In the present case, the limitation prescribed under Clause (c) of Sub-section (1) of Section 275 would be applicable. It is undisputed that penalty proceedings were initiated on 25th June, 1992. The period of limitation shall be six months from the end of the month in which penalty proceedings are initiated, that is, from 1st July, 1992 the six months' period will end on 31st Dec. 1992. The penalty is imposed on 24th Aug. 1993 and, hence, clearly out of the prescribed period of limitation. Even if the penalty proceedings are linked with the assessment proceedings, the limitation period will end on 31st March 1993, that is, at the end of the financial year in which assessment proceedings were completed. The assessment proceedings were completed on 26th June, and hence, the financial year in which they were completed expired on 31st March, 1993. But under no circumstances, the case would fall under Clause (a) of Sub-section (1) of Section 275. The penalties imposed under Sections 271D and 271E are, therefore, cancelled on the ground of limitation. - Bhushan Chemicals v. Dy. CIT (1995) 54 ITD 5 (Pune) followed."
At this stage, we may also refer to the provisions of Section 275(1)(c) of the income-tax Act, 1961, which prescribes the limitation for completing such penalty proceedings. It reads as under:
"275(1) No order imposing a penalty under this Chapter shall be passed -
(a)...
(b)...
(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 months from the end of the month in which action for imposition of penalty is initiated, whichever period expires later."
As regards the limitation, the Chandigarh Bench of the Tribunal in the case of ACIT v. Shree Nivas Chemicals (supra) held that Section 275(1)(c) prescribes the time limit for completing the penalty proceedings Under Section 271D. The Chandigarh Bench of the Tribunal observed that since the AO has no authority to impose penalty Under Section 271D, he cannot initiate penalty proceedings on his/her own as it is not his/her satisfaction which matters, rather it is the satisfaction of the authority who is competent to impose such penalties. It was also observed that the date on which the Dy. CIT recorded his satisfaction and issued notices calling upon the assessee to show cause why penalty Under Section 271D should not be imposed, would be the date when the proceedings can be said to have been initiated. The AO who had no authority to levy such penalty was not competent to initiate such proceedings at the time of completing the assessment. It was also observed by the Tribunal that Section 275(1)(c) imposes a time limit for passing an order of penalty within a period of 6 months from the end of the month in which penalty proceedings were initiated. The Tribunal concluded that the date of initiation of penalty proceedings should be reckoned from the date when the authority competent to levy such penalty issue the show cause notice.
Keeping in view the decision of the Chandigarh Bench of the Tribunal (supra), we are of the view that in the instant case the date of initiation of penalty proceedings would be 6.4.1999, i.e. the date when the authority competent to impose such penalty had issued show cause notice. Therefore, the order passed by the Add). CIT on 13.3.2000 for Imposing the impugned penalty was barred by limitation and, therefore, we cancel the impugned penalty.
10. Since we have held that penalty order passed by the Addl. CIT on 13.3.2000 was barred by limitation and have cancelled the penalty and, therefore, we do not wish to discuss the merits of the case.
11. In the result, the appeal is allowed.