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N.V. Vasudevan, J M. "On the facts and circumstances of the case the learned Commissioner (Appeals) was not justified in cancelling the penalty of Rs. 12,55,000 levied by the Addl. CIT, Range-I, Raipur under section 271D."

2. The facts and circumstances under which the penalty came to be levied under section 271D by the assessing officer are as follows:

The assessee is an individual carrying on the business of iron and steel tube, steel fittings, plastic tank, hand pump, spares, etc. In the course of the assessment proceedings for the assessment year 1997-98, the assessing officer noticed that the assessee had taken loans to the tune of Rs. 15,35,000. The assessee filed the confirmations from the various creditors. The assessing officer also examined some of the creditors. On such examination, it transpired that the loans to the extent of Rs. 12,55,000 were taken in cash and the loan taken in each case exceeded Rs. 20,000 thereby violating the provisions of section 269SS of the Income Tax Act. According to the provisions of section 269SS of the Income Tax Act, 1961, no person shall accept from any other person any loan otherwise than by a account-payee cheque or account payee draft if loan so availed together with loan already taken earlier and remaining unpaid exceeded a sum of Rs. 20,000. The violation of provisions of section 269SS attracts penalty and section 271D provides for imposition of penalty for violation of the provisions of section 269SS. It is in this context, the assessing officer, in para 7, in the order of assessment has observed as follows :

"(I) That the assessee was not conversant with the provisions of section 269SS of the Act;

(II) That the money was borrowed and utilised for construction and partly for personal purposes.

(III) That levy of penalty is a discretion vested with the authorities under section 273B of the Income Tax Act and such discretion is to be exercised in a just and fair manner having regard to the entire relevant facts and material of the case."

The assessee also relied on certain case law and these case law, according to the assessee, supported his case that no penalty could be imposed in the case of the assessee. The Addl. Commissioner, however, rejected the contentions putforth by the assessee. The plea of ignorance of the provisions of section 269SS was rejected by the Additional Commissioner on the ground that he could have sought advice from his tax consultant and since the assessee failed to do so, he held that ignorance of provisions of law pleaded cannot be accepted. He also held that no reasonable cause had been made by the assessee for having availed of the loans in cash and, therefore, the provisions of section 273B were also not applicable to the case of the assessee. The Additional Commissioner distinguished all the case law relied upon by the learned counsel for the assessee and finally concluded that the assessee was liable to penalty under the provisions of section 271D of the Act and accordingly, imposed a penalty of Rs. 12,55,000 equal to the value of loans availed by the assessee in violation of the provisions of section 269SS of the Act.

In the instant case, as it is patently clear from the assessment order under section 143(3), dated 7-3-2000, for the assessment year 1997-98 passed by the Income Tax Officer Ward 1(1), Raipur, that proceedings were initiated under section 271D on 7-3-2000 for the alleged violation of the provisions of section 269SS. In other words, initiation of proceedings under section 271D on 7-3-2000, has been clearly indicated in para 7 of the said assessment order which reads as under:

"During the financial year 1996-97, the assessee had taken loans aggregating to Rs. 12.55 lakhs. Confirmations from different creditors were obtained and the statements of the loan creditors were also recorded. On -enquiry and verification, it was found that cash loans aggregating to Rs. 12,55,000 (exceeding Rs. 20,000) were taken by the assessee in contravention of provisions of section 269SS. Therefore, penalty proceedings under section 271D have been initiated." (translated from Hindi) Therefore, the date of initiation of the final proceedings under section 271D, in the instant case, is 7-3-2000. Accordingly, the proceedings are to be completed/disposed of within the time-limit prescribed under section 275(1)(c) by taking the date which expires later. The first date expires on 31-3-2000, being the last day of the financial year in which the proceedings, in course of which action for imposition of penalty has been initiated were completed and the second date is to be counted from the end of the month in which action for imposition of penalty is initiated and in the instant case the period of six months is to be counted from 31-3-2000, being the end of the month in which the proceedings for imposition of penalty were initiated. Counting from 31-3-2000, the period of six months expires on 30-9-2000, within which the proceedings were required to be completed/disposed of. But in the present case, the impugned order under section 271D was passed on 16-11-2000, i.e., after a delay of one month and sixteen days from the expiry of the period of six months as stated above. The issuance of show-cause notice on 2-5-2000, by the Addl. CIT, Range-I, Raipur, cannot be treated as the date of initiation of the penalty proceedings and, therefore, the period of six months cannot be counted from 31-5-2000, being the end of the month of issuance of the notice by the Addl. CIT, Range-I, Raipur, who, though, is the authority to impose penalty under section 271D is not the authority to initiate penalty proceedings under section 271D which power squarely rests only with the assessing officer only.

"We have considered the rival submissions and also perused the relevant material on record. The facts which are not in dispute in the present context are that the penalty order under section 271D in the present case was passed on 26-8-2002, and that it is governed by the provisions of section 275(1)(c) so far as the limitation period for passing the order is concerned. The dispute however, relates to the date of initiation of penalty proceedings. According to the assessee, the assessing officer having recorded the observation in the assessment order passed for the year under consideration on 29-1-2001 to the effect that the provisions of section 269SS were contravened by the assessee and the proposal for initiation of penalty being submitted to the Addl. CIT, Range 3, Kolhapur, the action for imposition of penalty was initiated by the assessing officer on 29-1-2001 itself and the penalty order under section 271D having been passed on 26-8-2002 i.e., beyond six months from the initiation, it was barred by limitation as provided in section 275(1)(c). The revenue's stand, on the other hand, is that the assessing officer was not competent to impose the penalty and since the officer of the rank of Jt. CIT only was competent to impose such penalty in accordance with the provisions of sub-section (2) of section 271D, he alone was competent to initiate the penalty proceedings. The contention of the learned Departmental Representative, therefore, was that the penalty notice having been issued by the Jt. CIT, Sangli Range, Sangli, only on 7-2-2002, the penalty order passed in the present case on 26-8-2002 was within the time-limit prescribed in section 275(1)(c). As regards the assessing officer's competence to initiate the penalty proceedings under section 271D, the learned counsel for the assessee has relied on the decision of Jodhpur Bench of Tribunal in the case of Hissaria Bros. (supra), wherein the Tribunal has held that issuance of notice for initiation of penalty proceedings under sections 271D and 271E may appropriately and validly be done by the assessing officer and the Joint Commissioner competent to levy the penalty under sections 271D(2) and 272(2) can levy the penalty without insisting on further issuance of notice for the said penalty. Explaining further, the Tribunal observed that in such a situation, these penalty proceedings will have to be held as having been initiated during the course of assessment proceedings by the assessing officer when he completed the assessment proceedings after taking cognizance of the violations of the relevant provisions of law and the initiation of the penalty proceedings cannot be said to have been on the dates when the A. CIT issued notices again under section 271D. The Departmental Representative, on the other hand, has relied on the decision of Ahmedabad Bench of Tribunal in the case of Harsiddh Construction (P) Ltd. (supra) in which the Tribunal held that when no authority below the rank of the Dy. CIT or Dy. Director of IT could impose the penalty under section 272A(2)(g), Income Tax Officer was neither having jurisdiction nor was competent to initiate such penalty proceedings. Accordingly, the Tribunal held such proceedings initiated by the assessing officer to be untenable in the eye of law and upheld the penalty order passed on 22-12-1994, in pursuance of the penalty notice issued by the Dy. CIT on 24-1-1994, holding the same to be passed within the prescribed period of six months. It is thus clear that a contrary view on this issue has been expressed by the two Benches of the Tribunal. However, the fact remains to be seen is that in both these cases cited by the rival parties, a show-cause notice initiating the penalty proceedings was issued by the assessing officer whereas in the present case, no such notice was issued by the assessing officer. In this regard, the contention of the learned counsel for the assessee before us was that the observations of the assessing officer regarding the contravention of the provisions of section 269SS on the part of the assessee and the forwarding of proposal to the Addl. CIT for imposition of penalty, recorded in the assessment order tantamount to initiation of penalty proceedings irrespective of the fact that no show-cause notice was actually issued by the assessing officer. We find it difficult to accept this contention raised by the learned counsel for the assessee. In our opinion, such observations recorded by the assessing officer in his assessment, by no means, can be regarded as the valid initiation of penalty proceedings especially when no show-cause notice was issued by him to the assessee. The issue of show-cause notice is the starting point of penalty proceedings and the initiation in the absence of such notice assumes great importance especially in the context of time-limit prescribed under section 275. Since proper initiation of penalty proceeding is the foundation of jurisdiction in the matters of penalty, strict observance of the same is absolutely necessary. As no such notice was admittedly issued by the assessing officer in the present case, we have no hesitation to hold that there was no valid initiation of penalty proceedings by the assessing officer and it was only the Joint Commissioner who initiated the penalty proceedings validly by issuing a show-cause notice to that effect on 7-2-2002. Consequently, the penalty order having been passed on 26-8-2002, was completed within the period of six months from the end of month in which action for imposition of penalty was initiated and this being so, the same, in our opinion, was done within the period specified in section 275(1)(c). As such, considering the facts of the case and for the reasons given hereinabove, we are of the view that the penalty order passed under section 271D was not barred by limitation and ground No. 2 challenging the validity of penalty order on this basis is liable to be dismissed."