The Madras High Court on Friday dismissed actor and politician Vijay’s challenge to a ₹1.5 crore income tax penalty arising from a 2015 search [Chandrasekaran Joseph Vijay Vs Income Tax Department].

Justice Senthilkumar Ramamoorthy held that the penalty order, though issued on the last permissible day, was still within the limitation (deadline) period.

The Court upheld the Income Tax Department’s action and rejected Vijay’s sole contention that the penalty order was time-barred.

The case arose from Vijay’s assessment for the financial year 2015–16 (assessment year 2016–17), in which the tax authorities scrutinised an expenditure head titled “Release & Rasigar Mandram Expenses."

Rasigar Mandram refers to organised fan clubs of Tamil film stars.

The total expenditure claimed under this head was ₹2.92 crore.

According to the assessment order, Vijay’s authorised representative stated that ₹2 crore was paid directly by the film’s producer to members of Rasigar Mandrams across Tamil Nadu and Puducherry and the remaining ₹92.44 lakh was paid in cash by Vijay himself to Rasigar Mandram members.

The Assessing Officer disallowed the ₹2 crore expenditure for want of proof and allowed only a portion of the cash payments.

In appeal, the Commissioner of Income Tax (Appeals) partly accepted Vijay’s case, and the Income Tax Appellate Tribunal ultimately allowed 50% of the total Rasigar Mandram expenditure.

The assessment followed a search conducted on September 30, 2015, during which Vijay admitted in a sworn statement that he had received ₹15 crore in cash as remuneration, in addition to cheque receipts of ₹16 crore. This cash income was later included in his return of income.

Penalty proceedings were subsequently initiated under the search-specific penalty provision and a penalty of ₹1.5 crore, calculated at 10 percent of the admitted undisclosed income, was imposed.

Based on the search, the department initiated penalty proceedings under Section 271AAB, a special provision dealing with penalties arising from search cases.

Section 271AAB allows the Assessing Officer to impose a penalty of 10 per cent, 20 per cent or up to 90 per cent of the undisclosed income, depending on whether the assessee admits the income during the search and complies with specified conditions.

In Vijay’s case, the department imposed a 10 per cent penalty, amounting to ₹1.5 crore, on the admitted cash income of ₹15 crore.

Before the High Court, Vijay confined his challenge solely to limitation. The period within which a penalty order must be passed is governed by Section 275 of the Act.

Vijay argued that the applicable provision was Section 275(1)(c), which applies to “any other case” and prescribes a shorter limitation period—six months from the end of the month in which penalty proceedings are initiated.

On this basis, he contended that the penalty order dated June 30, 2022 was time-barred.

However, the Income Tax Department relied on Section 275(1)(a), which applies where the assessment order itself is carried in appeal. This provision allows the penalty order to be passed up to six months from the end of the month in which the appellate order is received.

Vijay argued that the penalty proceedings were independent of the assessment appeals and that the shorter, residuary limitation provision should apply.

The Court rejected this and held that the relevant statutory scheme made a clear distinction between independent penalties and those linked to assessment proceedings.

Explaining the structure of the limitation provision, the Court noted that the residuary clause applies only “in any other case” and held that the parliament clearly intended it to operate only where the specific clauses governing appeals and revisions do not apply.

"In Chandro Process, this Court examined clause (c) and concluded that it is a residuary clause that applies only if the specific clauses [i.e. (a) or (b)] do not. I concur fully. Taking into consideration the preambular phrase 'in any other case', it is beyond doubt that Parliament intended that clause (c) would apply only to cases wherein clauses (a) and (b) of Section 275(1) do not apply," the Court held.

On facts, the Court found that the penalty proceedings in Vijay’s case were not independent but originated from and were closely related to the assessment order that had travelled in appeal up to the ITAT.

On the deadline and limitation, the Court held the following:

"If determined on this basis, the order of the ITAT was issued on 22.12.2021 and could not have been received prior thereto. Considering 22.12.2021 as the date of receipt, the relevant month ended on 31.12.2021. The 6 month period therefrom expired on 30.06.2022. The order imposing penalty was issued on 30.06.2022, which is the last date falling within the period of limitation computed on this basis. All that remains is to briefly touch on clause (b) of Section 275(1)."

Because the assessment order itself initiated penalty action and was carried through appellate proceedings, the Court held that the longer limitation period, linked to the conclusion of appeals, was applicable.

The High Court clarified that it had not examined the other grounds on which the penalty was opposed and had confined itself strictly to limitation. It was left open for Vijay to pursue remedies on grounds other than limitation before the appropriate appellate forum.

Finding no infirmity in the timing of the penalty order, the Court dismissed the petition and closed the connected petitions.

"For reasons aforesaid, I conclude that the order imposing penalty was issued within the period of limitation prescribed in Section 275(1)(a) of the I-T Act. Thus, I find no infirmity warranting interference. Therefore, the writ petition is dismissed without any order as to costs. Consequently, connected miscellaneous petitions are closed. As recorded at the outset, however, I have not examined the other grounds on which the imposition of penalty was opposed by the petitioner or recorded findings thereon. It is left open to the petitioner to assail the impugned order before the appellate authority on grounds other than limitation," the Court held.

Vijay was represented by advocates AS Sriram and G Tarun.

The IT department was represented by advocate AP Srinivas.

[Read Judgment]