Madras HC quashes Vijay’s plea against tax penalty

THe Madras heights margaret court on fri dismissed a judicial writ petition filed by worker and Tamilaga Vettri Kazhagam (TVK) president C Joseph Vijay challenging the imposition of a ₹1.5 crore penalty by the Income Tax Department for “not voluntarily disclosing” additional income of ₹15 crore during the financial year 2015–16.Justice Senthilkumar Ramamoorthy held that the Income Tax Department had issued the show cause notice “within the two-year limitation period prescribed under Section 263 of the Income Tax Act.” The judge said he did not find any legal infirmity in the issuance of the notice and declined to examine the merits of the penalty proceedings.The Court however, granted liberty to Vijay, an actor turned politician, to challenge the notice and the consequential penalty order before the Income Tax Appellate Tribunal (ITAT) on grounds other than that of limitation.In September 2015, the IT department authorities had conducted search and seizure operations at Vijay’s residence. Following the search, the department claimed to have unearthed undisclosed income. Vijay subsequently disclosed an additional income of ₹15 crore for the assessment year 2016–17 and paid tax on it.In December 2017, the department passed an assessment order determining Vijay’s taxable income at ₹38.25 crore after disallowing certain claims, including depreciation and expenses linked to his fan association, Rasigar Mandram. Then, in December 2018, the department initiated penalty proceedings under Section 271AAB(1) of the Act.Vijay challenged the assessment before the Commissioner of Income Tax (Appeals), who partly accepted his case. The department then approached the ITAT, which partly ruled in its favour after holding that certain expenses linked to the fan association could not qualify for exemption.Separately, the department continued penalty proceedings in relation to the ₹15 crore surrendered during the search. In July 2019, it issued a show cause notice seeking to revise the assessment order, asserting that the penalty proceedings had not been properly initiated.Vijay challenged the revision proceedings before the ITAT. In May 2022, the tribunal set aside the Section 263 proceedings, holding that they served no purpose since the department had already initiated penalty proceedings under Section 271AAB.Vijay then moved the High Court, arguing that the penalty proceedings suffered from limitation and perversity. He contended that the authorities failed to appreciate the scope of the ITAT’s order and that the limitation period for imposing penalty had expired even before the issuance of the Section 263 notice.The Income Tax Department opposed the plea and maintained that it had lawfully imposed the penalty.Justice Ramamoorthy rejected Vijay’s limitation challenge and held that the department had acted within time. The judge thus, the writ petition while leaving other remedies open before the appellate tribunal.