Action for Imposition of Penalty is Initiated u/s 271C Income Tax Act: Delhi HC Explains

The Delhi High Court has clarified that the initiation of action for the imposition of penalty under Section 271C of the Income Tax Act, due to failure to deduct tax at source, occurs when the Assessing Officer (AO) makes a reference to the Joint Commissioner. This point of initiation is critical for computing the limitation period for passing penalty orders. The court noted that merely issuing a show cause notice is not sufficient for initiating action. This ruling emphasizes the procedural aspect of tax law enforcement, ensuring that authorities adhere to proper timelines and protocols, ultimately protecting the rights of taxpayers against arbitrary penalties.