Undisclosed Income: Madras High Court Reserves Orders On Actor Vijay's Challenge To ₹1.5 Crore Income Tax Penalty

Justice Senthilkumar Ramamoorthy reserved orders on Friday. Another bench of the court had previously stayed the proceedings in 2022.

It all goes back to income tax searches carried out at Vijay's residence in September 2015. Following the search, the department alleged that undisclosed income had come to light.

An assessment order was passed in December 2017. Nearly a year later, in December 2018, the department issued a notice initiating penalty proceedings under Section 271AAB(1) of the Income Tax Act.

Vijay challenged the assessment before the Commissioner of Income Tax (Appeals), who partly accepted his case. Aggrived, the Income Tax Department then took the matter to the Income Tax Appellate Tribunal (ITAT).

The ITAT partly ruled in favour of the department  after finding that certain expenses were linked to Vijay's fan association, Rasigar Mandram, while computing his taxable income.

Separately, penalty proceedings were also pursued in relation to the Rs 15 crore that Vijay had surrendered during the search.

In July 2019, the Income Tax Department issued a show cause notice under Section 263 of the Income Tax Act, seeking to revise the assessment order. The department took the position that penalty proceedings relating to the Rs 15 crore surrendered during the search had not been properly initiated.

Vijay challenged the move before the Income Tax Appellate Tribunal. In May 2022, the ITAT set aside the revision proceedings, saying they were unnecessary as penalty proceedings under Section 271AAB had already been initiated.

When the case reached the High Court, Justice Anita Sumanth, who then heard the case,  made it clear that the issue was not about starting the penalty proceedings.

The real question was whether the final penalty order had been passed within the time limit set out in Section 275 of the Income Tax Act. At a preliminary stage, the court found that the order appeared to have been issued after the prescribed limitation and stayed recovery of the penalty.

Challenging the notice, Vijay contended that there was perversity in passing the order as the respondent had failed to appreciate the scope of appeal before the ITAT while challenging the order of revision under Section 263.

Further, it was argued that the authorities had failed to appreciate that the time limit for imposition of penalty expired even before the issuance of the show cause notice under Section 263 of the Act.

The Income Tax Department has opposed Vijay's plea and maintained that the penalty was lawfully imposed.

Case Title: C Joseph Vijay v. The Deputy Commissioner of Income Tax and others

Case No: WP No. 21006 of 2022