Limitation Trigger for Penalties under Sections 271D and 271E: ITAT Delhi Treats AO’s Initiation as Starting Point

Background of the Appeals

The Delhi Bench of the Income Tax Appellate Tribunal dealt with a group of eight connected appeals filed by the assessee, arising from penalties levied under Section 271D and Section 271E of the Income Tax Act 1961 for Assessment Years 2015-16 to 2018-19. The impugned orders were passed by the Learned Commissioner of Income Tax (Appeals)-26, New Delhi, who had confirmed the penalties imposed by the competent authority.

Since all appeals involved a common legal question regarding limitation under Section 275(1)(c), the Tribunal heard them together and disposed of them through a consolidated order. For convenience, the appeal in ITA No. 2919/Del/2025 for AY 2015-16 was treated as the lead matter.

Core Facts Leading to the Dispute

Assessment and Initiation of Penalty

  1. The assessments for the relevant years were completed under Section 143(3) on 29.12.2022.
  2. In these assessment orders, the Assessing Officer:
    • Recorded satisfaction regarding alleged contraventions of Section 269SS and Section 269T; and
    • Specifically initiated penalty proceedings under Section 271D and Section 271E.
  3. After recording satisfaction, the Assessing Officer referred the matter to the Additional Commissioner of Income Tax, Central Range-04, Delhi, as the competent authority in terms of Section 274(2).

Subsequent Proceedings before Addl. CIT

  • The Additional CIT issued show-cause notices on 12.10.2023 for the proposed penalties under Section 271D and Section 271E.
  • Penalty orders were ultimately passed on 30.01.2024.

The assessee contended that these penalty orders were barred by limitation as per Section 275(1)(c) because the limitation period must run from the date of initiation of penalty proceedings by the Assessing Officer (i.e., in December 2022), not from the date of show-cause notice issued by the Additional CIT.

The assessee argued that the statutory time limit for passing penalty orders under Section 271D and Section 271E is governed by Section 275(1)(c), which prescribes:

The penalty order must be passed after the expiry of the financial year in which the proceedings, during the course of which action for imposition of penalty is initiated, are completed or within six months from the end of the month in which such action is initiated, whichever is later.

Application to the Present Case

  • The assessment order was completed on 29.12.2022, and in that very order, the Assessing Officer initiated penalty proceedings by recording satisfaction regarding violation of Section 269SS and Section 269T.
  • According to the assessee, this constituted “action for imposition of penalty” for the purpose of Section 275(1)(c).
  • Therefore:
    • One terminal date for limitation is the end of the financial year in which the assessment was completed, i.e., 31.03.2023.
    • The other terminal date is six months from the end of the month in which the penalty was initiated, i.e., six months from 31.12.2022, which would expire on 30.06.2023.
  • The later of these dates is 30.06.2023. Hence, any penalty order passed after 30.06.2023 would be time-barred.
  • Since the penalty orders were passed on 30.01.2024, the assessee argued they were clearly beyond the permissible limitation period.

Judicial Precedents Relied upon by the Assessee

To substantiate this proposition, the assessee drew support from the following decisions:

  • ITAT, Jaipur Bench in Jagdish Chandra Suwalka vs. JCIT – IT Appeal No. 376(JP) of 2022
  • Pr. CIT vs. K Umesh Shett, IT Appeal No. 165 of 2020, Karnataka High Court, dated 17.01.2025
  • Pr. CIT vs. Rishikesh Buildcon (P) Ltd., IT Appeals Nos. 577, 580 & 583 of 2019, Delhi High Court, dated 17.11.2022
  • Property Plus Realtors vs. UOI & Ors. – WP(C) 17371/2024, Delhi High Court, dated 20.01.2025

The assessee’s consistent plea was that once the Assessing Officer has recorded satisfaction and initiated penalty proceedings in the assessment order, the clock for limitation under Section 275(1)(c) starts running from that point, irrespective of when the Additional CIT issues a show-cause notice or actually passes the penalty order.

Revenue’s Counter-Contentions