The Madras High Court Where penalty proceedings under section 271AAB of the Income Tax Act were initiated in assessment order that became subject of appeal before Commissioner (Appeals) and Tribunal, limitation for passing penalty order would be governed by section 275(1)(a) and not residuary clause (c) of section 275(1)
The Court explained that Clause (c) of section 275 opens with the phrase ‘in any other case’. Taking into consideration the preambular phrase ‘in any other case’, it is beyond doubt that Parliament intended that clause (c) would apply only to cases wherein clauses (a) and (b) of section 275(1) of the Income Tax Act do not apply.
A Single Judge Bench of Justice Senthilkumar Ramamoorthy observed that many of the penalties for breach of other provisions of the Income Tax Act under Chapter XXI are subject to a reasonable cause defence under section 273B. The common thread running through the whole of the second category of penalties is that they are typically not strongly linked to assessment or other proceedings.
The Single Judge recognised that the breaches could have been noticed either in course of assessment or other proceedings or otherwise. Hence, the expressions “in the course of any proceedings under this Act” or “during the course of any proceedings under this Act” are not found in the provisions relating to these penalties. A third, small, category is discernible. This relates to penalties originating in search proceedings and sections 271AAA and 271AAB fall in this category.
From the text of section 271AAB, the Bench emphasised that it only applies to a case where a search was initiated under section 132 after 1-7-2012. Secondly, as the provision stood at the relevant time, only the assessing officer could direct that penalty be paid by the assessee. Thirdly, as pre-conditions for limiting penalty to 10 per cent of the undisclosed income under section 271AAB(1)(a), the assessee should have admitted the undisclosed income in the course of the search; and paid the tax along with interest and filed the return of income before the due date.
If such return were to be accepted, there would be no assessment order under section 143(3) and, consequently, no scope for the initiation of action for the imposition of penalty in the assessment order. Action for the initiation of penalty proceedings could, however, be taken independently. In that situation, limitation for the imposition of penalty under section 271AAB would be determined as per section 275(1)(c), added the Bench.
On the other hand, the Bench opined that if an assessment order were to be issued, such order would take within its fold the undisclosed income admitted in course of search proceedings and included in the return of income. It also becomes possible to initiate action for the imposition of penalty in such assessment order.
In the instant case, the Bench found that the while it may appear anomalous that two different methods of computing limitation could apply to the same penalty, the rationale underlying clause (a) is that it applies when the action for the initiation of penalty originates in the assessment order, which, in turn is carried in appeal. In those circumstances, the period of limitation gets linked to the date of conclusion of appellate proceedings on the basis that there is a reasonable link between assessment and penalty proceedings.
Because all necessary conditions for the application of clause (a) are fulfilled and there is nothing in section 271AAB that per se delinks such proceedings from tax proceedings, clause (a) – and not clause (c), which is a residuary clause – of section 275(1) is attracted, concluded the Bench.
Briefly, during search, the petitioner/assessee submitted a sworn statement admitting that he received undisclosed cash income of Rs. 15 crore. Thereafter, the petitioner filed return declaring income which included the admitted cash income of Rs. 15 crore. The assessment was passed making certain additions, and recording that penalty proceedings under section 271(1)(c)/271AAB would be initiated separately.
Meanwhile, a notice under section 274 read with section 271AAB was issued. Though assessee filed objections, a penalty order was passed under section 271AAB imposing penalty at 10 per cent on the admitted cash income of Rs.15 crores.
Appearances:
Advocates A.S. Sriraman and G. Tarun, for the Petitioner/ Taxpayer
Advocate A.P. Srinivas, for the Respondent/ Revenue
