Income Tax Penalty proceeding u/s 271E cannot be initiated while completing assessment proceedings

The Income Tax Appellate Tribunal (ITAT), in the matter of Late Shri Pawan Kumar Vs. JCIT, ordered that an Income Tax Penalty proceeding u/s 271E cannot be initiated while completing assessment proceedings.

Key points of the Judgment:

The appeal filed by the assessee is directed against the order dated 02.02.2023 of the Ld. Commissioner of Income Tax (Appeals), NFAC, Delhi [“CIT(A)”], whereby he confirmed the penalty of Rs. 1,40,000 imposed by the JCIT, Range-2, Ghaziabad under section 271E of the Income Tax Act, 1961 (the “Act”) pertaining to Assessment Year (“A.Y.”) 2014-15 on reference made by the ITO, Ward-2(1), Ghaziabad (“AO”).

The assessee has challenged the order of the Ld. CIT(A) on the following grounds:

“1. On the facts and circumstance of the case, the order passed by the Ld. Commissioner of Income Tax (Appeals) (CIT(A)] NFAC dt. 02.02.2023 is bad both in the eye of Law and on facts and decided the appeal on the ground which were never raised by the appellant.

2. That the learned CIT(A) erred in not deciding the following grounds as raised by the appellant (I) That the Learned JCIT issue the penalty order U/s 271E imposing penalty of Rs. 140000.00 without jurisdiction illegal, wrong, void and liable to be canceled.

(II) That no cause of action arise to initiate the penalty proceeding for AY 2014-15 which was the foundation of penalty proceeding was not in existence at the time of issue penalty notice i.e. no proceeding for relevant AY 2014-15 were Pending at the relevant point of time. That in any case penalty notice and order for AY 2014-15 is beyond jurisdiction and untenable in law as per covered case judgment.

3. That the Learned CIT(A) further erred in passing the order in the name of deceased person while the fact is that the appellant expired on 22.11.2018 and legal heir were place on the appeal file records.

4. The Applicant craves leave to add, amend, or alter any of the grounds.”

Relevant Text of the Order:

11. It is an established fact that penalty under section 271E of Act for A.Y. 2014-15 in the case of the assessee has been initiated while completing assessment proceedings for A.Y. 2015-16. This, in our view, is not legally tenable. Penalty proceedings can be initiated at any time while the Ld. AO is in seisen of the assessment proceedings of the relevant A.Y. in which the default occurred and not afterwards. On facts similar to that of the assessee, the Hon’ble Punjab & Haryana High Court held in Mahonar Lal Thakral (supra) that it being a case of processing the return of income, there is no finding in the assessing officer’s order with regard to the applicability or otherwise of section 269T of the Act to the assessee’s case. It was within the purview of the AO to bring the assessee’s case to scrutiny and to make regular assessment under section 143(3) of the Act. It was also within the power of the AO at the

appropriate stage to initiate proceedings under section 147 of the Act against the assessee. No such action was taken.

12. It is not in dispute that there were no proceedings pending before the Ld. AO qua the assessee for A.Y. 2014-15. We, therefore hold that initiation of penalty proceedings under section 271E of the Act on the basis of assessment order for A.Y. 2015-16 is bad in law and imposition of impugned penalty by Ld. JCIT and confirmation thereof by the Ld. CIT(A) is not sustainable. The plea of Ld. Sr. DR that penalty under section 271D and 271E can be initiated dehors any pending proceedings for relevant A.Y. is devoid of merit.

13. We agree with the contention of the assessee that the Ld. CIT(A) decided the appeal on ground of ‘reasonable cause’ which was not raised by the assessee before him. The assessee has also challenged the order of the Ld. CIT(A) on the ground that it has been passed in the name of deceased person which too is fatal.

14. On the facts and in the circumstances of the case, we hold that the impugned penalty is not sustainable. It does not rest on sound legal footing. We, therefore delete it. 

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