Kerala High Court
M/S. Vee Ess Hardwares vs Assistant Commissioner Of Income Tax on 31 January, 2025
Author: Bechu Kurian Thomas
Bench: Bechu Kurian Thomas
W.P.(C) No.37927/24 1
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IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT
THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS
FRIDAY, THE 31ST DAY OF JANUARY 2025 / 11TH MAGHA, 1946
WP(C) NO. 37927 OF 2024
PETITIONER:
M/S. VEE ESS HARDWARES,
IV/1255, VALANJAVAZHY,
AMBALAPUZHA,
ALAPPUZHA DISTRICT, PIN - 688005
REPRESENTED BY ITS MANAGING PARTNER
SRI. SHAMSUDHEEN,
BY ADV JOHN VARGHESE
SMT. AYISHA T.S.
RESPONDENTS:
1 ASSISTANT COMMISSIONER OF INCOME TAX,
GOVERNMENT OF INDIA, MINISTRY OF FINANCE,
INCOME TAX DEPARTMENT, INCOME TAX OFFICE,
CIRCLE, ARATTUKULANGARA COMPLEX,
ADJACENT TO ALAPPUZHA MEDICAL COLLEGE,
A.N. PURAM, ALAPPUZHA, PIN - 688011
2 ASSISTANT COMMISSIONER OF INCOME TAX,
GOVERNMENT OF INDIA, MINISTRY OF FINANCE,
INCOME TAX DEPARTMENT, INCOME TAX OFFICE,
CIRCLE CENTRAL, AAYAKAR BHAVAN,
KARBALA JUNCTION, RAILWAY STATION ROAD,
KOLLAM, PIN - 691001
SRI.JOSE JOSEPH,SR. SC
SRI.NAVANEETH N.NATH, JR. SC
THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON
13.01.2025, THE COURT ON 31.01.2025 DELIVERED THE FOLLOWING:
W.P.(C) No.37927/24 2
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"C.R."
BECHU KURIAN THOMAS, J.
--------------------------------
W.P.(C) No.37927 of 2024
---------------------------------
Dated this the 31st day of January, 2025
JUDGMENT
Petitioner challenges an order of penalty imposed under section 271B
of the Income Tax Act, 1961 (for short 'the Act') on the ground of limitation.
2. Petitioner is a firm engaged in the business of retail trade of
Hardwares and Ceramic Tiles. Consequent to a survey carried out under
section 133A of the Act, petitioner was assessed to income tax under section
143(3) of the Act for the assessment year 2017-18, by an order dated
26.12.2019. In the aforesaid order, though the Assessing Officer specifically
observed that proceedings for imposition of penalty under section 270A ought
to be initiated, there was no reference for initiating proceedings under section
271B of the Act. More than four years later, on 21.03.2024, a notice was
issued under section 274 of the Act proposing to impose penalty under
section 271B of the Act, for not filing the audit report in the prescribed form as
required under section 44AB of the Act for the above referred assessment
year. By the impugned order dated 25.09.2024, a penalty of Rs.1,50,000/-
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was imposed upon the petitioner under the said provision. Consequent
demand has also been issued. Petitioner challenges the order imposing
penalty contending that it was issued beyond the time limit specified in
section 275(1)(c) of the Act.
3. A statement has been filed on behalf of the respondents pleading
that petitioner was required to tax audit its returns and books of account as
per section 44AB of the Act and ought to have furnished the audit report
within the due date for filing the return of income. Since petitioner had not
furnished the audit report at any time during the course of the assessment
proceedings, it was liable to be imposed with penalty. After referring to
section 275(1)(c) of the Act, it was pleaded that, though the assessment order
was issued on 26.12.2019, there was no reference at all to any penalty
proceedings under section 271B of the Act, while the show cause notice for
imposing penalty was issued only on 21.03.2024 and hence the proceedings
are not barred by time.
4. Sri. John Varghese, the learned counsel for the petitioner contended
that the proceeding for imposition of penalty was initiated and completed
almost four and a half years after the assessment proceedings and is hence
beyond the time limit stipulated in section 275(1)(c) of the Act. It was further
submitted that the proceedings ought to have been initiated within a
reasonable time of the assessment order and at any rate within six months
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from the assessment order. It was submitted that, even if the benefit of the
Taxation and Other Laws (Relaxation and Amendment of Certain Provisions)
Act, 2020 is applied, still, the respondent cannot have an extended period till
2024. The decision of the Allahabad High Court in Commissioner of
Income-tax v. E.C.C. Project Pvt. Ltd. (2015) 374 ITR 44 as well as the
decision of the Delhi High Court in Commissioner of Income Tax (TDS)-2,
Delhi v. Turner General Entertainment Networks India Pvt Ltd (2024
SCC OnLine Del 7760) apart from that of the Madras High Court in
Jagadeesan Jaganathan vs. Joint Commissioner of Income Tax (W.P.
No.16335 of 2022) were relied upon.
5. Sri. Jose Joseph, the learned Standing Counsel, on the other hand,
countered petitioner's submissions and pointed out that section 275(1)(c) of
the Act postulates completion of proceedings only within six months from the
issuance of show cause notice. It was also submitted that since the
proceeding for imposing penalty was completed within six months of issuing
the show cause notice, there is no merit in the challenge.
6. While considering the rival submissions, it needs to be noted that the
assessment was completed under section 143(3) of the Act on 26.12.2019
and in the assessment order, it was observed that a penalty proceeding is
being initiated under section 270A of the Act. There is no reference in the
assessment order for initiating any proceeding under section 271B of the Act.
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Of course, under section 271B of the Act, it is not stipulated that it must be
initiated 'in the course of proceedings' as in the case under sections 270A
and 271(1) of the Act. The terminology used in section 271B indicates that
even if it is not in the course of proceedings under the Act, a penalty under
the said provision can be imposed. Therefore, it is not necessary that the
proceedings under section 271B of the Act must be initiated during the course
of the assessment proceeding itself. The imposition of penalty under section
271B of the Act is independent of the assessment proceedings. A recitation
by the Assessing Officer in the assessment order directing initiation of penal
proceedings under section 271B of the Act is not imperative and penal
proceedings can be initiated without such a specific direction. With respect,
this Court is unable to subscribe to the contrary view of the Allahabad High
Court in Commissioner of Income-tax v. E.C.C. Project Pvt. Ltd. (2015)
374 ITR 44).
7. Nonetheless, the requirement of an audit report under section 44AB
of the Act will generally become obvious to the Assessing Officer at the time
of passing an order of assessment. Penalty proceedings under section 271B
of the Act can follow the assessment order. As per section 275(1)(c) of the
Act, the penalty proceedings will have to be completed either before the end
of the financial year in the course of which action for imposition of penalty has
been initiated or within six months of initiating proceedings for imposing
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penalty. For the purpose of reference, section 275(1)(c) of the Act is extracted
as below:
275. Bar of limitation for imposing penalties. -
(1) No order imposing a penalty under this Chapter shall be passed -
(a) xxx
(b) xxx
(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.
8. A perusal of the above-extracted provision indicates that the
legislative intention is to create a time limit within which the proceedings for
initiation and completion of penalty proceedings ought to be carried out. It
cannot be kept in an uncertain or indefinite manner.
9. In this context, it is appropriate to refer to the decisions relied upon
by the learned Counsel for the petitioner. In Commissioner of Income Tax
(TDS)-2, Delhi v. Turner General Entertainment Networks India Pvt. Ltd.
(2024 SCC OnLine Del 7760), a Division Bench of the Delhi High Court
interpreted the expression 'action for imposition of penalty is initiated' as
appearing in section 275(1)(c) of the Act, to mean the date on which the first
introductory step for such action is taken, which must necessarily mean the
start of such an action. In Jagadeesan Jaganathan v. The Joint
Commissioner of Income Tax (W.P. No.16335 of 2022) a learned Single
Judge of the Madras High Court held that though a time limit for issuance of a
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notice under section 275(1)(c) has not been specified, it has to be assumed
that the notice ought to be issued before the end of the financial year itself. In
that case, the assessment order was issued on 31.03.2020 and the court
found that since notice should have been issued by 31.03.2020 itself, the last
date for passing the order expired on 30.09.2020.
10. In Commissioner of Income-tax vs. Chhajer Packaging and
Plastics P. Ltd., (2007 SCC OnLine Bom 1332), a Division Bench of the
Bombay High Court observed that, though assessment proceedings were
completed on 30.03.1999, the show cause notice was issued on 06.04.1999
and the period of limitation expired within six months from the show cause
notice, i.e., October 29, 1999, which would be the last date for the period of
limitation computed as per the second part of clause (c) of section 275(1) of
the Act. A Division Bench of the Karnataka High Court also considered a
similar issue in Shanbhag Restaurant v. The Deputy Commissioner of
Income-Tax (2003 SCC OnLine Kar 680) and held that in cases where the
proceedings initiated falls under the second part of section 275(1)(c) of the
Act, the order of penalty must be passed within six months from the end of
the month in which action for imposition of penalty is initiated.
11. In view of the above divergence of opinion amongst different High
Courts, it is necessary to consider the question whether the show cause
notice issued in the instant case on 21.03.2024 is legally valid.
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12. Section 275(1)(c) of the Act provides a time limit for initiation of
proceedings for penalty. As per the said provision, two timelines are given.
The first timeline is before the end of the financial year in the course of which,
action for imposition of penalty has been initiated. The second timeline is
within six months from the end of the month in which action for imposition of
penalty is initiated.
13. However, it is significant to note that even within the two timelines
given, the proceeding for imposition of penalty ought to be completed within a
reasonable time. The latter part of section 275(1)(c) of the Act, providing for a
period of six months, is clearly indicative that the Income Tax Officers cannot
be given a long handle to initiate proceedings at any point of time, according
to their caprice. The possibility of initiating proceedings against an assessee
cannot be kept pending over his head like a Damocle's sword, indefinitely.
Indisputably, the return filed by an assessee is verified at the time of
assessment. Though penalty proceeding under section 271B of the Act is
independent of the assessment, as far as the time limit is concerned, it
cannot be wholly extricated from the assessment order. Once an assessment
is completed, it will act as a leash, compelling the Officers to act within a
reasonable time from its completion, for the purpose of imposing a penalty.
14. It needs no elaborate discussion that if no period of time is
prescribed by a statute, it must be exercised within a reasonable period which
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would depend upon the nature of the statute, rights and liabilities thereunder
and other relevant factors. The reasonable period, must, no doubt, be found
out from the scheme of the statute and in particular the tenor of the provision
under consideration. Reference to the decision in State of Punjab and
Others v. Bhatinda District Cooperative Milk Producers Union Ltd
[(2007) 11 SCC 363] is relevant in this context.
15. The penalty under section 271B is imposed for failure to attach an
audit report. The absence of an audit report along with the return will become
evident during the assessment proceedings. Bearing in mind the nature of
violation for which penalty is imposed under section 271B of the Act,
proceedings for imposing penalty cannot be too distant from the assessment
order. Thus, if the case falls under the latter part of section 275(1)(c) of the
Act, in respect of penalty proceedings under section 271B of the Act, the
show cause notice must be issued within a reasonable time of the completion
of the assessment proceedings and be completed within six months
thereafter. What is a reasonable period will depend upon the facts of each
case.
16. Viewed in the above perspective, this Court holds that if a case falls
under the latter part of section 275(1)(c) of the Act, proceedings for imposition
of penalty under section 271B of the Act must be initiated and completed
within a reasonable time of the assessment order.
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17. Since the assessment order in the instant case does not refer to any
proceeding for imposition of penalty under section 271B, the time limit cannot
be said to have emanated from the assessment order. However, as the
assessment proceedings itself would have revealed the absence of an audit
report, as contemplated under sections 44A and 44B, the show cause notice
should have been issued within a reasonable time of the assessment order.
By applying the provisions of the Taxation and Other Laws (Relaxation and
Amendment of Certain Provisions) Act, 2020, the end date for passing orders
was extended till 31.03.2022, and the respondents were entitled to issue a
notice within a reasonable time of the expiry of the said period. Taking into
reckoning the aforesaid statute, the respondents ought to have issued a show
cause notice at least in the year 2022. Instead of initiating any proceedings
either in 2022 or 2023, they have proceeded to issue the show cause notice
only on 21.03.2024. Such a period is beyond the statutory contemplation. The
show cause notice in the instant case is hence time-barred under section
275(1)(c) of the Act.
18. Accordingly, I find that the impugned order imposing penalty under
section 271B of the Act is invalid. Hence, Exhibit P2 order is set aside.
This writ petition is allowed.
Sd/-
BECHU KURIAN THOMAS
JUDGE
vps
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APPENDIX OF WP(C) 37927/2024
PETITIONER EXHIBITS
Exhibit P-1 TRUE COPY OF THE ASSESSMENT ORDER DATED
26-12-2019 ISSUED BY THE 1ST RESPONDENT
Exhibit P-2 TRUE COPY OF THE ORDER DATED 25-09-2024
ISSUED BY THE 2ND RESPONDENT
Exhibit P-3 TRUE COPY OF THE DEMAND NOTICE DATED
25-09-2024 ISSUED BY THE 2ND RESPONDENT TO
THE PETITIONER
Exhibit P-4 TRUE COPY OF THE COMPUTATION SHEET ISSUED
ALONG WITH EXHIBIT P-3 DATED 25-09-2024
