Karnataka High Court
Pr Commissioner Of Income Tax vs Shri K Umesh Shetty on 17 January, 2025
Author: Krishna S Dixit
Bench: Krishna S Dixit
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ITA No. 165 of 2020
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 17TH DAY OF JANUARY, 2025 R
PRESENT
THE HON'BLE MR JUSTICE KRISHNA S DIXIT
AND
THE HON'BLE MR JUSTICE G BASAVARAJA
INCOME TAX APPEAL NO. 165 OF 2020
BETWEEN:
1 . THE PR. COMMISSIONER OF INCOME TAX
5TH FLOOR, BMTC BUILDING,
80 FEET ROAD, KORAMANGALA,
BENGALURU-560 095.
2 . THE INCOME-TAX OFFICER,
WARD-3(2)(4) PRESENT ADDRESS,
WARD 3(2)(2), 2ND FLOOR,
BMTC BUILDING, 80 FEET ROAD,
KORAMANGALA, BENGALURU-560 095.
...APPELLANTS
(BY SRI. Y V RAVIRAJ., ADVOCATE AND
SRI. SUSHAL TIWARI N, ADVOCATE)
Digitally signed AND:
by SHARADA
VANI B
Location: HIGH SHRI. K UMESH SHETTY
COURT OF NO.1441, KAMADHENU,
KARNATAKA
II CROSS, II PHASE, CHANDRA LAYOUT,
VIJAYANAGAR, BENGALURU-560 040.
PAN AUGPS 2714M.
...RESPONDENT
(BY SRI. SANDEEP HUILGOL., ADVOCATE)
THIS ITA/INCOME TAX APPEAL UNDER SEC.260-A OF
INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED
20/09/2019 PASSED IN ITA NO. 2544/BANG/2018, FOR THE
ASSESSMENT YEAR 2012-2013, PRAYING TO 1. FORMULATE
THE SUBSTANTIAL QUESTIONS OF LAW STATED ABOVE AND
ETC.,
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ITA No. 165 of 2020
THIS ITA HAVING BEEN HEARD AND RESERVED FOR
ORDER, THIS DAY, KRISHNA S. DIXIT.J., PRONOUNCED THE
FOLLOWING:
CORAM: HON'BLE MR JUSTICE KRISHNA S DIXIT
and
HON'BLE MR JUSTICE G BASAVARAJA
CAV JUDGMENT
(PER: HON’BLE MR JUSTICE KRISHNA S DIXIT)
This appeal filed under Sec.260A of the Income Tax
Act, 1961 seeks to call in question the order dated
20.09.2019 passed by the Income Tax Appellate Tribunal,
Bengaluru in Revenue’s ITA No.2544/Bang/2018.
2. The Revenue has formulated the following
substantial question of law:
“Whether on the facts and circumstances of
the case and in law, the Tribunal was justified
in setting aside penalty order passed under
section 271D by the Range Head on 22/8/2018
by holding that same is barred limitation
without appreciating that in the instant case,
the Additional Commissioner has initiated the
penalty proceedings by issuance of notice
under section 271D of the Act on 10/11/2017,
thereby the time limit for computation of
penalty proceedings as stipulated in section
275(1)(c) of the Act expires on 31/5/2018,
which is within six months from 10/11/2017
and not 31/5/2017 as held by Tribunal”?.
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ITA No. 165 of 2020A Co-ordinate Bench of this court vide order dated
14.12.2020 had admitted the appeal on the above
substantial question of law, of course, which has not been
well articulated. Be that as it may.
3. After service of notice, Respondent-Assessee
having entered appearance through his counsel resisted
the appeal, making submission in justification of the
impugned orders and the reasons on which they have
been constructed.
4. BRIEF FACTS OF THE CASE EMERGING FROM
THE RECORD:
4.1 Assessee is a businessman inter alia doing digital
printing. He had filed IT Return for the Assessment Year
2012-13. That was picked up for Scrutiny Assessment
u/s.143(3) of the 1961 Act and that eventually resulted
into passing of Assessment Order on 26.02.2015 by the
2nd respondent- ITO, whereby two additions were made to
the declared income.
4.2 In the light of said Assessment Order, the 2nd
appellant made a reference to the Addl. Commissioner of
Income Tax vide letter dated 16.11.2016 for the
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ITA No. 165 of 2020imposition of penalty u/s.271-D alleging violation of
Sec.269-SS. Pursuant to this, the Addl. CIT issued Notice
dated 10.11.2017 calling upon the Assessee to show cause
as to why Penalty Order should not be made u/s.271-D.
The Assessee filed his objections to the same, principally
contending delay & laches. The said objections having
been overruled the order dated 22.02.2018 came to be
passed under the said provision.
4.3 Assessee’s Appeal against the above order came to
be negatived by the Commissioner of Income Tax
(Appeals), vide order dated 10.07.2018. Unfazed, he took
the matter for a further challenge in Appeal before the
ITAT which agreed with his contention and granted the
relief vide order dated 20.09.2019. The same has been
impugned in the Revenue’s Appeal now at our hands.
5. Though this Appeal was admitted by the
Coordinate Bench on the substantial question of law
reproduced above, we have reframed the same with the
assistance at the Bar, as under:
“i) Whether the order levying penalty u/s
271-D of the 1961 Act is liable to be set at
naught, since initiation of penalty proceedings
itself was barred by delay & laches…?
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ITA No. 165 of 2020
ii) When are the penalty proceedings u/s
271-D of the Act said to have been initiated…?”
(In a way, the second question is inbuilt in the
first).
Both the sides have made their elaborate submissions and
pressed into service certain Rulings in support of their rival
contentions.
6. Having heard the learned counsel for the parties
and having perused the Appeal papers as also the written
submissions, we decline indulgence in the matter, for the
following reasons:
6.1 Both the sides in all fairness agreed that the period
of limitation within which the proceedings u/s 271-C of the
1961 Act that are to be completed is covered u/s
275(1)(c) and therefore, the same is reproduced:
“275.Bar of limitation for imposing penalties –
(i) No order imposing a penalty under this
Chapter shall be passed-…
(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
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ITA No. 165 of 2020which action for imposition of penalty is
initiated, whichever period expires later.”
Learned Panel Counsel submitted that the Law Maker’s
intent is as clear as Gangetic Waters; the above provision
prescribes a specific limitation period for accomplishing the
penalty proceedings, once initiated; apparently, no
limitation period is prescribed for initiation of such
proceedings; penalty proceedings are initiated once the
competent authority issues notice to the Assessee to show
cause against the proposed levy of penalty; in the instant
case, admittedly the initiation is unfettered by any
statutorily imposed limitation and the order imposing
penalty is well within the prescribed time and therefore,
the ITAT grossly erred in relieving the Assessee from the
penalty. Per contra, learned counsel appearing for the
Assessee contended that: the intent of the Law Makers is
to ensure that penalty proceedings cannot be taken up
whimsically whenever the authorities want; when the ITO
makes reference to the competent authority, that itself is
the triggering point of initiation; reckoned from such
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reference, the order imposing penalty is time barred and
therefore, unsustainable.
6.2 Textually speaking, Parliament has prescribed the
limitation period for imposing penalties by accomplishing
penalty proceedings and obviously, no limitation period is
fixed for the initiation of such proceedings. Linguistically,
there is a certain difference between initiation of
proceedings and accomplishment of proceedings. The
former precedes the latter. This aspect of the matter is
discussed by a Division Bench of Hon’ble Delhi High Court
in COMMISSIONER OF INCOME TAX (TDS)-2, DELHI
v. TURNER GENERAL ENTERTAINMENT NETWORKS
INDIA PVT. LTD.1, The discussion at Paragraph Nos. 14
to 19 as under:
“The expression initiated is not defined under
the Act and must be construed in its normal
sense.
The word ‘initiated’ is a past tense of the word
‘initiate’. The Shorter Oxford English Dictionary
defines the word ‘initiate’ as under: “to begin,
commence, enter upon, to introduce, set going,
originate.” In Webster’s Third New International
Dictionary, the word ‘initiate’ has, inter alia,
1
2024 SCC OnLine Del 7760
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ITA No. 165 of 2020been defined thus: “to begin or set going: make
a beginning of: perform or facilitate the first
actions, steps, or stages of:” The Words and
Phrases (Permanent Edition) defines ‘initiate’ to
mean: “an introductory step or action, a first
move; beginning; start, and to initiate as
meaning – to commence.” In Om Prakash
Jaiswal v. D.K. Mittal & Anr.: (2000) 3 SCC 171,
the Supreme Court had considered the meaning
of the expression ‘initiate any proceedings for
contempt’ by referring to the dictionary meaning
of the said word. It is relevant to refer to
paragraph 10 of the said decision, which is set
out below: The expression–“initiate any
proceedings for contempt” is not defined in the
Act. Words and Phrases (Permanent Edition)
defines “initiate” to mean – an introductory step
or action, a first move; beginning; start, and “to
initiate” as meaning to commence. Black’s Law
Dictionary (6th Edn.) defines “initiate” to mean
commence; start; originate; introduce;
inchoate. In section 20, the word “initiate”
qualifies “any proceedings for contempt”. It is
not the initiation of just any proceedings; the
proceedings initiated have to be proceedings for
contempt.” The expression ‘action for imposition
of penalty is initiated’ must, thus, clearly refers
to the date on which the first introductory step
for such action is taken, it must necessarily
mean the start of such action. It must mean the
commencement of action for imposition of
penalty. As noted above, the AO had found that
it was the admitted case that the assessee had
defaulted in deduction of TDS, which it was
obliged to do. It had, accordingly, made a
reference to the learned JCIT. This was
obviously for the purposes of imposition of
penalty. The reference, thus, clearly marked the
first step for initiation of action for imposition of
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penalty. The Show Cause Notice issued
subsequently was to provide the assessee an
opportunity to show cause why penalty not be
imposed.”
6.3 Another Division Bench of Delhi High Court in CLIX
CAPITAL SERVICES PVT. LTD., v. JOINT
COMMISSIONER OF INCOME TAX2, having scanned the
text of Section 275(1)(c) of the 1961 Act has at Paragraph
Nos.15, 16, 17 & 20 has observed as under:
“It is, therefore, Mr Maratha’s submission, that
since the legislature has not provided a trigger
point for completion of proceedings under
Section 271C, the date of commencement can
only be that date when the SCN is issued under
Section 274 of the Act…According to us, at the
heart of the matter, is the interpretation that is
required to be given to the provisions contained
under Section 275(1)(c) of the Act…As would be
evident, the aforementioned provision has two
limbs. The first limb concerns fixation of period
of limitation when penalty is sought to be
imposed as fallout of action taken in another
proceeding. On the other hand, the second limb
of clause (c) of Sub-section (1) of Section 275
of the Act fixes the period of limitation, where
initiation of action of imposition of penalty is
taken on a stand-alone basis i.e., not as a
consequence of action taken in another
proceeding. [17.1] For the second limb, the
legislature has provided a limitation of six
months from the end of the month in which
action for imposition of penalty is initiated.
2
(2023) 459 ITR 470 (Delhi)
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[17.2] It is apparent, that while a timeframe has
been provided for the conclusion of penalty
proceedings once initiated, there is no
indication, as to when the period of six months
ought to commence. In other words, can
initiation of penalty proceeding be left to the
whims and fancies of the revenue or it should be
hitched to the dicta of “reasonable period”
adopted by Courts in such situations, in the
absence of a statutory provision?…However, we
are inclined to agree with the submission made
on behalf of the petitioner i.e., the assessee,
and the reason for that is quite simple. If we
were to accept the respondent/revenue’s stand,
then it could end up [as it has in this case] in a
situation, where the revenue could decide the
date when it could trigger a SCN to fulfil, as a
mere formality, the principles of natural justice,
which are engrafted under Section 274 of the
Act. Section 274 of the Act, inter alia, mandates
that no order imposing a penalty under the
Chapter i.e., Chapter XXI shall be made unless
the assessee has been heard, or has been given
a reasonable opportunity of being heard.”
This decision adopts the doctrine of delay & laches as
contradistinguished from any specific limitation period for
initiating the Penalty Proceedings.
6.4 After all, law of limitation, in whichever statutes it be
enacted, is of repose & peace, vide DallasC.J. in TOLSON
v. KAYE3, It cannot be treated as a matter of technicality.
3
3 Br. & Bp.223
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It is a matter of State Policy that the potential or
possibility of dispute/litigation in matters like this should
not be kept alive beyond a particular point of time.
Halsburys Laws of England (Fifth Edition, Volume 68, Para
905) summarises the view of English courts on the State
policy of limitation as follows:
“The Courts have expressed three differing
reasons supporting the existence of statutes of
limitation, namely (1) that long dormant claims
have more cruelty than justice to them, (2)
that the defendant might have lost the
evidence to disprove a stale claim, and (3) that
persons with good causes of action who are
able to enforce them should pursue with
reasonable diligence.”
The Law Commission of India in its 89th report made in
1983 had suo moto examined the law of limitation. It
concised its view as under:
“1.5 The policies underlying the law of
limitation are ultimately based on justice and
convenience. An individual should not live
under the threat of a possible action for an
indeterminate period, since it would be unjust.
Again the defendant should be saved the task
of defending stale causes of action as it is often
inconvenient. Further, vigilance in the pursuit
of rightful cases should be encouraged so that
these are the ethical or rational justifications
for the law of limitation. All that has been said
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ITA No. 165 of 2020can be summarised by stating that the law of
limitation rests upon three main foundations,
justice, convenience, and the need to
encourage diligence.”
6.5 The Parliament in its accumulated wisdom has enacted
a limitation period in the subject provision of the 1961 Act.
What is conspicuous is the absence of any provision for
condoning delay or extending the limitation period. In
jurisdictions built on the bedrock of Separation of Powers,
ordinarily, a judge is authorized to interpret an existing
text of a statute, but not to create a new one. Power to
alter a statutory text belongs to the domain of its author,
not of its interpreter. It hardly needs to be stated that in
their non-interpretive capacities, Courts do go beyond just
interpreting the text of a statute. Justice Felix Frankfurter
of U.S. Supreme Court in his article, ‘Some Reflections on
the Reading of Statutes’4 wrote:
“Legislation has an aim; it seeks to obviate
some mischief, to supply an inadequacy, to
effect a change of policy, to formulate a plan of
government. That aim, that policy, is not drawn
like nitrogen, out of the air; it is evinced in the
language of the statute, as read in the light of
other external manifestations of purpose. That is4
47 Colum.L.Rev 527, 543 (1947)
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ITA No. 165 of 2020what the judge must seek and effectuate, and
he ought not to be led off the trail by rests that
have overtones of subjective design.”
6.6. Acceding to the contention of the Revenue
Parliament has prescribed the limitation period for
accomplishing penalty proceedings and that no such
period is prescribed for initiating them and therefore they
can be initiated at any time, would defeat the very
purpose of such a prescription. One cannot justifiably
assume that the Parliament intended unfettered discretion
to initiate such a proceeding at any point of time, ie.,
even after a decade or more.
There is, in a system founded on the Rule of Law, nothing
like absolute or unfettered discretion. The basic principles
in this regard are explained by Prof. Sir William Wade5 as
under:
“The common theme of all the authorities so
far mentioned is that the notion of absolute or
unfettered discretion is rejected. Statutory
power conferred for public purposes is
conferred as it were upon trust, not
absolutely–that is to say, it can validly be used5
Administrative Law (9th Edn.) in the chapter entitled “Abuse of discretion”
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only in the right and proper way which
Parliament when conferring it is presumed to
have intended.”
We have already discussed the policy objective or the
purpose of limitation enactments or provisions relating to
limitation in other enactments. In matters like this, the
doctrine of purposive interpretation in law has to be
resorted to. In Cabell vs Markham (1945) 148 F2d 737
Learned Hand J explained the merits of purposive
interpretation as under:
“Of course it is true that the words used, even
in their literal sense are the primary and
ordinarily the most reliable, source of
interpreting the meaning of any writing; be it a
statute, a contract, or anything else. But it is
one of the surest indexes of a mature and
developed jurisprudence not to make a fortress
out of the dictionary; but to remember that
statutes always have some purpose or object
to accomplish, whose sympathetic and
imaginative discovery is the surest guide to
their meaning.”
(emphasis supplied)
Looked at in this background, the twin purposes that have
to guide our interpretation are the following (i) the policy
underlying the law of limitation rather than the black letter
has to be implemented and (ii) unfettered discretion in the
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hands of Additional Commissioner on the timing of
issuance of a show cause notice cannot be countenanced.
6.7 In the facts of this case, these twin purposes can be
achieved by treating the reference by the ITO to the
Additional Commissioner as the triggering point or
initiation of penalty proceedings. The ITO vide letter dated
16.11.2016 had admittedly made the reference. The
Additional Commissioner of Income Tax issued the Show
Cause Notice only on 10.11.2017 (nearly a year later)
proposing the levy of penalty u/s 271D of the Act. The
Penalty Order was made on 22.02.2018. If the reckoning
point is 16.11.2016, it is clear that the proceedings were
completed beyond the period of limitation, as rightly
contended by the learned counsel appearing for the
Assessee. Even otherwise , the concept of delay & latches
would crop in; no explanation whatsoever has been
offered by the Revenue for the laxity shown in belatedly
issuing the show cause notice / proposition notice which
they claim, amounted to initiation of penalty proceedings.
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This view has animated the reasoning of the impugned
order of the Tribunal, may be a bit inarticulately .
6.8. The reliance of Panel Counsel for the Revenue on the
Coordinate Bench decision in COMMISSIONER OF
INCOME TAX vs. TAM TAM PEDDA GURUVA
REDDY6does not come to his aid since the same has been
rendered largely fact-specific. The other decision namely
GRIHALAKSHMI VISION vs. ADDITIONAL
COMMISSIONER OF INCOME TAX7at para 10 observed
as under:
“Question to be considered is whether
proceedings for levy of penalty, are initiated
with the passing of the order of assessment by
the Assessing Officer or whether such
proceedings have commenced with the
issuance of the notice issued by the Joint
Commissioner. From statutory provision, it is
clear that the competent authority to levy
penalty being the Joint Commissioner.
Therefore, only the Joint Commissioner can
initiate proceedings for levy of penalty…”
These observations arguably support the view of Revenue,
is true. However, we respectfully disagree with the said
6
(2006) 287 ITR 72 (Kar)
7
(2015) 379 ITR 100 (Ker)
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view. That apart, a perusal of the said judgment does not
show that there was any reference made by the ITO to the
competent authority, unlike in the case at hand. Further
the following observations in para 10 in D M Manasvi vs
Commissioner of Income Tax (1973) 3 SCC 207 would
cast some doubt on the correctness of Grihalakshmi supra.
“We are also not impressed by the argument
advanced on behalf of the appellant that the
proceedings for the imposition of penalty were
initiated not by the Income Tax Officer but by
the Inspecting Assistant Commissioner when
the matter had been referred to him
under section 274(2) of the Act. The
proceedings for the imposition of penalty in
terms of sub- section (1) of section 271 have
necessarily to be initiated either by the Income
Tax Officer or by the Appellate Assistant
Commissioner. The fact that the Income Tax
Officer has to refer the case to the Inspecting
Assistant Commissioner if the minimum
imposable penalty exceeds the sum of rupees
one thousand in a case falling under clause (c)
of sub-section (1) of section 271 would not
show that the proceedings in such a case
cannot be initiated by the Income Tax Officer.
The Income Tax Officer in such an event can
refer the case to the Inspecting Assistant
Commissioner after initiating the proceedings.
It would, indeed, be the satisfaction of the
Income Tax Officer in the course of the
assessment proceedings regarding the
concealment of income which would constitute
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ITA No. 165 of 2020the basis and foundation of the proceedings for
levy of penalty”.
6.9 The reliance of the Panel Counsel on CBDT Circular
No.9/DV/2016 dated 26.04.2016 has been issued in terms
of GRIHALAKSHMI supra. Para 4 of the Circular states:
The above judgment reflects the “Departmental View”.
However, para 5 in a way suggests to follow the decision
of a High Court, within whose territorial jurisdictional limits
the penalty proceedings are taken up. The same reads as
under:
“Where any High Court decides this issue
contrary to the “Departmental View”, the
“Departmental View” thereon shall not be
operative in the area falling in the jurisdiction
of the relevant High Court. However, the CCIT
concerned should immediately bring the
judgment to the notice of the Central Technical
Committee. The CTC shall examine the said
judgment on priority to decide as to whether
filing of SLP to the Supreme Court will be
adequate response for the time being or some
legislative amendment is called for.”
Therefore, much reliance cannot be placed on this Circular.
In the above circumstances, the questions of law
framed by us have to be answered in favour of the
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ITA No. 165 of 2020
respondent assessee and as a consequence, appeal is
liable to be and accordingly dismissed, costs having been
made easy.
Sd/-
(KRISHNA S DIXIT)
JUDGE
Sd/-
(G BASAVARAJA)
JUDGE
Snb, Bsv, cbc
List No.: 1 Sl No.: 1
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