The imposition of penalty under the Income Tax Act for cash loan violations is valid when conducted within extended limitation periods, particularly during COVID-19 constraints, allowing subsequent appeals on substantive merit.

ORDER :

C.Saravanan, J.

In this writ petition, petitioner has challenged the Penalty Order dated 19.08.2021 passed by the 2^nd respondent under Section 271D of the INCOME TAX ACT , 1961 (hereinafter referred to as “IT Act”).

2. By the impugned order, the 2^nd respondent has imposed a sum of Rs.34,00,000/- (Rupees Thirty Four Lakhs Only) as penalty under Section 271D of the IT Act, for the violation of Section 269SS of the IT Act. Operative portion of the impugned Penalty Order reads as under:-

"7. The submission given by the assessee are given due consideration but found to be not acceptable. It was clearly mentioned in the assessment order that the assessee have taken loans amounting to Rs. 34,00,000/- in cash and the assessing officer has clearly recorded his findings that the loans were received in cash after making detailed enquiry. The contention of the assessee to keep the proceedings u/s 271D in abeyance cannot be accepted as the assessee has filed appeal for the quantum addition only. In the absence of any supporting documents explanation of the assessee is rejected. Therefore, in my opinion, the assessee has violated provision of section 269SS and hence liable to pay, by way of penalty a sum equal to the amount of the loan or deposit so taken or accepted. Accordingly, I hereby levy a penalty of Rs. 34,00,000/- (Rs. Thirty-four lakhs) u/s.271D of the INCOME TAX ACT , 1961.

Demand notice and challan issued along with this order."

3. The petitioner had suffered an Assessment Order dated 30.12.2019 for the Assessment Year 2017-2018 in the hands of the 1^st respondent. The aforesaid Assessment Order was unsuccessfully challenged by the petitioner before this Court in W.P.No.2668 of 2020.

4. The said writ petition came to be dismissed on 05.02.2020 with a liberty to file an appeal against the Assessment Order dated 30.12.2019, before the Commissioner of Income Tax (Appeals). The petitioner thus filed an appeal dated 25.02.2020 before the Commissioner of Income Tax (Appeals) (hereinafter referred to as “Appellate Commissioner”) in Form 35 under Section 246A of the IT Act.

5. The aforesaid appeal filed by the petitioner under Section 246A of the IT Act is said to be pending before the Appellate Commissioner as on date.

6. Pursuant to the aforesaid Assessment Order dated 30.12.2019, the 2^nd respondent issued Show Cause Notice dated 18.02.2020 under Section 274 r/w. Section 271D of the IT Act to the petitioner, to show cause as to why penalty should not be imposed on the petitioner under the aforesaid provisions of the IT Act for violation of Section 269SS of the said Act.

7. Thereafter, the petitioner was served with a reminder dated 19.05.2021 and another Show Cause Notice dated 16.08.2021, to which, the petitioner replied on 02.07.2021 & 19.08.2021. However, on the very same date, the 2^nd respondent has passed the impugned Penalty Order dated 19.08.2021 under Section 271 D of the IT Act.

8. The specific case of the petitioner is that the limitation period under Section 275(1)(c) of the IT Act had already expired for imposing the penalty under Section 271D of the said Act.

9. It is the case of the petitioner that the limitation period under Section 275(1)(c) of the IT Act for passing the impugned Penalty Order expired on 31.03.2020 i.e., at the end of the Financial Year in which the Assessment Order dated 30.12.2019 was passed and therefore, the impugned Penalty Order dated 19.08.2021 was without jurisdiction.

10. Alternatively, it was submitted that even if the limitation period was to be computed from the date of issuance of the Show Cause Notice dated 18.02.2020, the limitation period of six months from the end of the month in which t