In this article the author raises an important question of imposition of penalty even before the assessment proceedings are complete. The author opines that penalty imposition must wait until such time the order of the Tribunal is received by the Commissioner's office.
Amendment in section 275
By the Finance Act, 2003 section 275 has received a proviso, which directs the assessing officer to
impose penalty within a period of one year from the end of the financial year in which the order of Commissioner (Appeals) is received. Mind you this is so even if the assessee challenges the order of Commissioner (Appeals) before the Income tax Appellate Tribunal.
To be precise section 275 sets out the time limit within which the penalty proceedings must be completed. Section 275 requires completing the penalty proceedings before the expiry of the financial year in which the proceedings in the course of which the action for imposition of penalty has been initiated, are completed or within one year from the end of the financial year in which the order of Commissioner (Appeals) is received, whichever date is later. Section 275 more precisely reads as under:
" 275. Bar of limitation for imposing penalties. - (1) No order imposing a penalty under this Chapter shall be passed--
(a) in a case where the relevant assessment or other order is the subject matter of an appeal to the Commissioner (Appeals) under section 246 or section 246A or an appeal to the Appellate Tribunal under section 253, 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 the order of the Commissioner (Appeals) or, as the case may be, the Appellate Tribunal is received by the Chief Commissioner or Commissioner, whichever period expires later;
Provided that in a case where the relevant assessment or other order is the subject-matter of an appeal to the Commissioner (Appeals) under section 246 or section 246A, and the Commissioner (Appeals) passes the order on or after the 1st day of June, 2003 disposing of such appeal, an order imposing penalty shall be passed before the expiry of the financial year in which the proceedings, in the course of which action for imposition of penalty has been initiated, are completed, or within one year from the end of the financial year in which the order of the Commissioner (Appeals) is received by the Chief Commissioner or Commissioner, whichever is later ; "
Section 275 therefore primarily divides the cases into two categories. In the first category of cases is where the appellate order is made before 01.06.2003. The limitation for the cases falling under this category, is before the end of the financial year in which the proceedings, in the course of which the action for imposition of penalty has been initiated, were completed; or six months from the end of the month in which the order of the commissioner (A) or ITAT was received by the Commissioner, whichever period expires later. The second category covers a case where the order of Commissioner ( A) is passed after 01.06.2003 in which case the limitation is before the expiry of the end of the financial year in which the proceedings, in the course of which action for imposition of penalty has been initiated, are completed or one year from end of the financial year in which the order of Commissioner ( A ) is received. . The words "in which the proceedings, in the course of which action for imposition of penalty has been initiated, are completed" used in section 275 indicate that the penalty imposition must take place after the assessment proceedings are completed.
When do the assessment proceedings are complete?
Gujarat High Court
The Gujarat High Court in CIT v. Mayur Foundation (2005) 274ITR562 held that assessment proceedings cannot be said to be complete but are pending till the appeal is heard and disposed of by the Tribunal and the order of the Tribunal is given effect to by the assessing authority by computing the correct tax liability of an assessee. If this be so, it then follows that the assessing officer must wait until the passing of the order by the Income Tax Appellate Tribunal when the matter will reach its finality. In such a scenario the right course for him is to keep the penalty action in abeyance.
Patna High Court
The Patna High Court in Commissioner of Income-tax Vs. Jhaverbhai Biharilal & Co. (171ITR362) held that where the assessment being still open, it could not be said that there was any difference between the assessed income and the returned income and the question of levying penalty did not arise. The question of levy of any penalty would arise only after the Tribunal has decided the quantum matter.
The word 'proceedings' must be read as referring to assessment proceedings and till such time they are open no penalty imposition is warranted under the law even after such amendment made in section 275 by the Finance Act, 2003. One would therefore expect that a necessary instruction be issued in this regard by the Central Board of Direct Taxes to prevent the assessing officer from imposing penalty before the receipt of order of the Tribunal.
Amendment in section 275
By the Finance Act, 2003 section 275 has received a proviso, which directs the assessing officer to
impose penalty within a period of one year from the end of the financial year in which the order of Commissioner (Appeals) is received. Mind you this is so even if the assessee challenges the order of Commissioner (Appeals) before the Income tax Appellate Tribunal.
To be precise section 275 sets out the time limit within which the penalty proceedings must be completed. Section 275 requires completing the penalty proceedings before the expiry of the financial year in which the proceedings in the course of which the action for imposition of penalty has been initiated, are completed or within one year from the end of the financial year in which the order of Commissioner (Appeals) is received, whichever date is later. Section 275 more precisely reads as under:
" 275. Bar of limitation for imposing penalties. - (1) No order imposing a penalty under this Chapter shall be passed--
(a) in a case where the relevant assessment or other order is the subject matter of an appeal to the Commissioner (Appeals) under section 246 or section 246A or an appeal to the Appellate Tribunal under section 253, 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 the order of the Commissioner (Appeals) or, as the case may be, the Appellate Tribunal is received by the Chief Commissioner or Commissioner, whichever period expires later;
Provided that in a case where the relevant assessment or other order is the subject-matter of an appeal to the Commissioner (Appeals) under section 246 or section 246A, and the Commissioner (Appeals) passes the order on or after the 1st day of June, 2003 disposing of such appeal, an order imposing penalty shall be passed before the expiry of the financial year in which the proceedings, in the course of which action for imposition of penalty has been initiated, are completed, or within one year from the end of the financial year in which the order of the Commissioner (Appeals) is received by the Chief Commissioner or Commissioner, whichever is later ; "
Section 275 therefore primarily divides the cases into two categories. In the first category of cases is where the appellate order is made before 01.06.2003. The limitation for the cases falling under this category, is before the end of the financial year in which the proceedings, in the course of which the action for imposition of penalty has been initiated, were completed; or six months from the end of the month in which the order of the commissioner (A) or ITAT was received by the Commissioner, whichever period expires later. The second category covers a case where the order of Commissioner ( A) is passed after 01.06.2003 in which case the limitation is before the expiry of the end of the financial year in which the proceedings, in the course of which action for imposition of penalty has been initiated, are completed or one year from end of the financial year in which the order of Commissioner ( A ) is received. . The words "in which the proceedings, in the course of which action for imposition of penalty has been initiated, are completed" used in section 275 indicate that the penalty imposition must take place after the assessment proceedings are completed.
When do the assessment proceedings are complete?
Gujarat High Court
The Gujarat High Court in CIT v. Mayur Foundation (2005) 274ITR562 held that assessment proceedings cannot be said to be complete but are pending till the appeal is heard and disposed of by the Tribunal and the order of the Tribunal is given effect to by the assessing authority by computing the correct tax liability of an assessee. If this be so, it then follows that the assessing officer must wait until the passing of the order by the Income Tax Appellate Tribunal when the matter will reach its finality. In such a scenario the right course for him is to keep the penalty action in abeyance.
Patna High Court
The Patna High Court in Commissioner of Income-tax Vs. Jhaverbhai Biharilal & Co. (171ITR362) held that where the assessment being still open, it could not be said that there was any difference between the assessed income and the returned income and the question of levying penalty did not arise. The question of levy of any penalty would arise only after the Tribunal has decided the quantum matter.
The word 'proceedings' must be read as referring to assessment proceedings and till such time they are open no penalty imposition is warranted under the law even after such amendment made in section 275 by the Finance Act, 2003. One would therefore expect that a necessary instruction be issued in this regard by the Central Board of Direct Taxes to prevent the assessing officer from imposing penalty before the receipt of order of the Tribunal.
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