Facts of the Case

The assessee, Turner General Entertainment Networks India Pvt. Ltd., filed its return of income for Assessment Year 2011–12 on 30.11.2011 declaring a loss of ₹2,62,04,18,432/-. The tax audit report disclosed that tax deductible at source amounting to ₹5,00,40,103/- had not been deducted.

The return was selected for scrutiny and assessment under Section 143(3) was completed on 26.03.2014. Considering the admitted default reflected in the tax audit report, the Assessing Officer made a reference on 25.09.2014 to the Joint Commissioner of Income Tax for initiation of penalty proceedings under Section 271C.

The Joint Commissioner issued a show cause notice only on 04.08.2015, almost one year after receipt of the reference, and thereafter passed a penalty order dated 25.02.2016 levying penalty of ₹5,00,40,103/-. The CIT(A) deleted the penalty holding it to be barred by limitation, and the ITAT upheld the deletion.

Issues Involved

Whether penalty proceedings under Section 271C were barred by limitation under Section 275(1)(c) and whether initiation of penalty proceedings is to be reckoned from the date of the Assessing Officer’s reference or from the date of issuance of the show cause notice.

Petitioner’s Arguments (Revenue)

The Revenue contended that penalty proceedings were initiated only upon issuance of the show cause notice dated 04.08.2015 and, therefore, the penalty order dated 25.02.2016 was within limitation. It was argued that mere reference by the Assessing Officer could not be treated as initiation of penalty proceedings.

Respondent’s Arguments (Assessee)

The assessee argued that initiation of penalty proceedings commenced when the Assessing Officer made a reference to the Joint Commissioner on 25.09.2014. It was submitted that inordinate delay by the Joint Commissioner in issuing the show cause notice could not extend statutory limitation and that the penalty order was clearly time-barred under Section 275(1)(c).

Court Order / Findings

The Delhi High Court upheld the orders of the CIT(A) and the ITAT. The Court held that the expression “action for imposition of penalty is initiated” under Section 275(1)(c) refers to the first introductory step for imposition of penalty. In the present case, that step was the reference made by the Assessing Officer on 25.09.2014.

Relying on binding precedents including JKD Capital & Finlease Ltd. and Mahesh Wood Products Pvt. Ltd., the Court held that initiation of penalty proceedings cannot be arbitrarily delayed and must be reckoned from the date on which the competent authority is first moved to impose penalty.

The Court rejected the Revenue’s argument that initiation should be reckoned from the date of issuance of the show cause notice and held that accepting such an interpretation would defeat the object of Section 275(1)(c).

Important Clarification

The Court clarified that the term “initiated” must be understood in its ordinary sense as commencement of action. Once the Assessing Officer determines that a case for penalty exists and makes a reference to the competent authority, penalty proceedings stand initiated, and subsequent administrative delay cannot extend limitation.

Final Outcome

The appeal filed by the Revenue was dismissed. The Delhi High Court held that penalty proceedings under Section 271C were initiated on 25.09.2014 and the penalty order dated 25.02.2016 was barred by limitation under Section 275(1)(c) of the Income-tax Act, 1961.

 

Link to download the order - https://www.mytaxexpert.co.in/uploads/1769850415_COMMISSIONEROFINCOMETAXTDS2DELHIVsTURNERGENERALENTERTAINMENTNETWORKSINDIAPVT.LTD..pdf

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