CBDT Circular 09/2016 Reg Commencement of limitation for Penalty Proceedings U/s 271D and 271E of the Income tax Act, 1961



Section 271D and 271E of the Act provides for penalty for failure to comply with the provisions of Section 269SS and 269T (i.e. Acceptance or repayment of loans and deposits by modes otherwise than account payee cheque or account payee bank draft). Sub section (2) of both these provisions provides that any penalty imposable under the section shall be imposed by the Joint Commissioner.


Section 275(1)(c) provides that no penalty shall be levied under Section 271D or 271E after 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 six months from the end of the month in which action for imposition of penalty is initiated, whichever period expires later.


The issue in conflict was that whether limitation for imposition of penalty u/s 271D and 271E of the Income Tax Act, 1961 commences at the level of Assessing Officer or at the level of Range authority i.e. JCIT. In other words, 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.


CBDT Circular


CBDT vide its circular 09/2016 dated 26.04.2016 expressed its view that the proceeding commence at the level of the JCIT. Hence, the Assessing Officer (below the rank of JCIT) shall not issue the notice in this regard. The range head will issue the penalty notice and shall dispose/complete the proceedings within the limitation prescribed u/s 275(1)(C) of the Act.


The said view was expressed in line with the judgement of the Hon’ble Kerala High Court in Grihlaxmi Vision vs. ACIT dated 08.07.2015 ITA No 83 & 86/2014 wherein it was observed that “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. Such initiation of proceedings could not have been done by the Assessing Officer. The statement in the assessment order that the proceedings under Section 271D and E are initiated is inconsequential. On the other hand, if the assessment order is taken as the initiation of penalty proceedings, such initiation is by an authority who is incompetent and the proceedings thereafter would be proceedings without jurisdiction. If that be so, the initiation of the penalty proceedings is only with the issuance of the notice issued by the Joint Commissioner”


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