Facts of the Case

The assessee, M/s Adma Solutions Pvt. Ltd., formerly known as M/s Infovision Information Services Pvt. Ltd., is engaged in the business of providing call centre services. A survey under Section 133A of the Income-tax Act, 1961 was conducted at the assessee’s premises in January 2008 by the TDS Wing to verify compliance with TDS provisions.

Certain defaults relating to non-deduction and delayed deposit of TDS were noted. On 30.03.2011, the Assessing Officer passed an order under Section 201(1) read with Section 201(1A) treating the assessee as an assessee in default and referred the matter to the Joint Commissioner for initiation of penalty proceedings under Sections 271C, 272A(2)(c), and 272A(2)(k).

A show cause notice was issued on 31.01.2013, and a penalty order dated 29.07.2013 was passed. The Commissioner of Income Tax (Appeals) deleted the penalty, and the ITAT dismissed the Revenue’s appeal.

Issues Involved

Whether the penalty proceedings were vitiated on account of issuance of notices in the old name of the assessee company, and whether the penalty order was barred by limitation under Section 275(1)(c) owing to inordinate delay in initiation and completion of penalty proceedings.

Petitioner’s Arguments (Revenue)

The Revenue contended that issuance of notices and penalty orders in the old name of the assessee was a curable defect protected by Section 292B, as there was only a change in name and not in the constitution of the entity. It was further argued that Section 275(1)(c) prescribes limitation only for passing of penalty orders and not for issuance of show cause notices, and that the penalty order dated 29.07.2013 was within six months from issuance of the show cause notice.

Respondent’s Arguments (Assessee)

The assessee submitted that the penalty proceedings were initiated after an inordinate and unexplained delay of nearly five years from the date of survey, which rendered the proceedings unsustainable. It was argued that even where no express limitation is prescribed for initiation, action must be taken within a reasonable period, and the penalty order passed long after initiation was barred by limitation under Section 275(1)(c).

Court Order / Findings

On the issue of notice issued in the old name, the Delhi High Court held that mere change of name does not result in cessation of the entity and such defect is curable under Section 292B. The Court therefore set aside the ITAT’s finding on this limited aspect in favour of the Revenue.

However, on the core issue of limitation, the Court upheld the findings of the ITAT. The Court held that although Section 275(1)(c) does not expressly prescribe a time limit for initiation of penalty proceedings, the law requires such proceedings to be initiated within a reasonable period. Relying on binding precedents including NHK Japan Broadcasting Corporation and JKD Capital & Finlease Ltd., the Court held that delay of almost five years in issuance of the show cause notice was unreasonable.

The Court further held that the penalty proceedings stood initiated when the Assessing Officer referred the matter for penalty, and reckoning limitation from that date, the penalty order dated 29.07.2013 was clearly beyond the period prescribed under Section 275(1)(c).

Important Clarification

The Court clarified that absence of an express statutory trigger for initiation of penalty proceedings does not permit the Revenue to act at its discretion indefinitely. Even in such cases, initiation and completion of proceedings must occur within a reasonable timeframe, failing which the proceedings are vitiated.

Final Outcome

The appeal filed by the Revenue was dismissed. The Delhi High Court upheld deletion of the penalty on the ground that the penalty order was barred by limitation under Section 275(1)(c) of the Income-tax Act, 1961, and affirmed the order of the ITAT in favour of M/s Adma Solutions Pvt. Ltd.

 

Link to download the order - https://www.mytaxexpert.co.in/uploads/1769850356_COMMISSIONEROFINCOMETAXTDS1VsMSADMASOLUTIONSPVT.LTD.FORMERLYKNOWNASMSINFOVISIONINFORMATIONSERVICESPVT.LTD..pdf

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