ACIT, CENTRAL CIRCLE-2(4), HYDERABAD vs. BAPU REDDY JALA , NIZAMABAD

The Revenue has raised the following grounds of appeal: "1. The Ld. CIT(Appeals) erred both in law and on facts of the case in granting relief to the assessee.

Facts of the case, in brief, are that the Assessing Officer, during the course of assessment proceedings, noticed that the assessee was in receipt of monies by ways other than on account payee cheque or through drafts or use of electronic clearing system which were received from Shri Balakrishna Goud, Managing Partner of M/s. Bharat Engineering Enterprises as an advance of sale consideration of land. In this case, Police Authorities have recovered an amount of Rs.75,00,000/- in theft case from one Mr. Ravi Kumar. On investigation, it has come to light that the amount was stolen from the residence of the assessee. In the statement recorded by Inspector of Police, Pet Basheerbad P.S on 17/11/2018, the assessee stated that cash of Rs.75,00,000/- was received by him on a/c of sale of land to M/s. Bharat Engineering Enterprises represented by its M.D Shri B. Balakrishna Goud. During the assessment proceedings, he submitted that only a cash receipt dated 16.11.2018 for Rs.75,00,000/- was received by the assessee and Rs.5,00,000/ will be received at the time of registration.

The Assessing Officer completed the scrutiny assessment for the A.Y 2019-20 and penalty u/s 271D for violation of provisions u/s 269SS was also proposed for imposition. Against the above-mentioned infractions of section 269SS, penalty proceedings u/s 271D were initiated.

The assessee preferred an appeal before the learned CIT (A) who deleted the penalty imposed by the Assessing Officer.

The learned DR submitted that in this case, the learned CIT(A) had deleted the penalty imposed by the Assessing Officer and the finding of the learned CIT (A) are given in Para 6.0 to 6.3 which read as under: “"6.0 I have considered the submissions of the A.R. and the penalty order. The ground of appeal no. 1 being the legal issue, challenging the treatment of the advance as 'specified sum' after taxing the same as unexplained income, is taken up first. During the course of assessment proceedings, the AO treated the said cash received as advance from the sale of land as unexplained income and taxed the same under the provisions of Section 69A r.w.s. 115BBE of the I.T. Act. There is no dispute on this issue. The A.R. Contended that once the amount so received is treated as unexplained income, it cannot again be treated as 'specified sum' to penalize the assessee under the provisions of Section 269SS r.w.s 271D of the I.T, Act. To examine this issue, for ready reference, Section 2695S is reproduced below: "269SS: Mode of taking or accepting certain loans, deposits and specified sum. No person shall take or accept from any other person (herein referred to as the depositor), any payee loan or bank deposit draft or any specified sum, or otherwise than by an account payee cheque or account or use of electronic clearing system through a bank account, if (a) deposit the amount of such loan or deposit or specified sum or the aggregate amount of such loan, and specified sum; or (b) on the date of taking or accepting such loan or deposit or specified sum, any loan or deposit or specified sum taken or accepted earlier by such person from the depositor is (whether remaining has fallen due or not), the amount or the aggregate amount remaining unpaid; or (c) the amount or the aggregate amount referred to in clause (a) together with the amount or the aggregate amount referred to in clause (b), is twenty thousand rupees or more; 6.1 Section 2695S specifies the mode of taking or accepting certain loans, deposits and specified sum. It states that no person shall take Page 3 of 15 or accept from any other person, any loan or deposit or any specific sum other than by account payee cheque or account payee bank draft or through the use of electronic clearing system through a bank acro The question now is, whether the Department can, on the one hand contend that the cash received is undisclosed income in the hands of the appellant and at the same time seek to initiate proceedings against the appellant for violation of the provisions of Section 26955 of the Act by treating it as was 'specified sum'? This question answered by the Hon'ble High Court of Delhi CIT VS. R.P. Singh and Co., Put. Ltd. (2012) 340 ITR 217 (pel). The relevant extract of the ratio is. reproduced below: "5. M. Rashmi Chopra, learned counsel for the Revenue, has referred to substantial question of law to be question (a) as arising which emerges for consideration in this appeal. The said question reads as under: "Whether the learned Income-tax Appellate Tribunal erred in law and on the merits in deleting the penalty under section 271D of the Income Tax Act, 1961, by holding that share application money received in Cash was not deposit in contravention of section 2695S of the Income Tax Act, 1961? 6 Mr. Kochar, learned counsel for the assessee, submitted that the said question does not arise in the case at hand inasmuch as both the Commissioner of Income-tax (Appeals) and the Tribunal have recorded a finding that once the Assessing Officer has treated it as an undisclosed income, it could not have proceeded on the foundation that it is a deposit. In our considered opinion, this submission canvassed by Mr. Kochar has substantial force and the question raised by the Revenue really does not arise in this case. Needless to say that the said question may arise where the facts would be different but the same has no relevance to the case at hand. In view of the aforesaid analysis, the appeal being devoid of merit stands dismissed without any order as to Costs. 6.2 Further, in CIT Vs. Standard Brands Ltd. (2006) 285 ITR 295 (Delhi), the Delhi High Court has held that once the Revenue took a stand that the income was undisclosed A.Y 2019-20 income in the hands of the assessee, it could not resort to proceedings u/s. Z69SS r.w.s. 271D of the Act. The relevant portion of the ratio is reproduced below: "8. On these facts, we are of the view that the Revenue could not, on the one assessee contend and that the amount of Rs. 3 lakhs is undisclosed income in the hands of the at the same time seek to initiate proceedings against the assessee for violation of the provisions of section 26955 of the Act which deals with cash deposits or loans in excess of Rs. 20,000/-.

The Revenue, having taken the stand that the income was undisclosed income in the hands of the assessee, it could not resort

It was submitted that the amount which was stolen from the premises of the assessee was treated as explained by the learned CIT (A) in the quantum assessment proceedings, then the said amount had acquired the status of “specified sum” within the meaning of section 271D r.w.s. 269SS of the Act. He had also relied upon the Board Circular No.220 (F.No.206/17/76 IT(A-II) dated 31.05.1977 to buttress the argument.

Per contra, the learned AR had made threefold submissions that the learned CIT (A) in the quantum proceeding had granted the relief to the assessee and our attention was drawn to the order passed by the learned CIT (A) wherein the learned CIT (A) after giving opportunity to the assessee had decided the issue in Para 5.5 to 5.53 at Page 11 to 13 of the order which read as under: “ 5.5 I have considered the submissions of the AR and the order of the AO. It is seen that appellant has entered into an agreement of sale on 16.11.2018 with M/s. Bharat Engineering Enterprises represented by its managing partner Shri B. Balakrishna Goud towards sale of land admeasuring Ac.4-32gts in Sy.No.451/e, 453 and 455 of Kothur village, Mulugu Mandal, Siddipet District for a total consideration of Rs.80 lakhs out of which Rs.75 lakhs was received in cash at the time of agreement. Later, the said property was registered vide Sale Deed No, S408/2019 on 20.04.2019 for a consideration of Rs.80 lakhs as agreed at the time of Agreement of Sale. A theft happened at the appellant's house and FIR was lodged and the amount was recovered from one Sri Ravi Kumar by the Police. On a prayer before the Metropolitan Magistrate XV, Cyberabad at Medchal, the Hon'ble Magistrate vide his order dated 13-12-18 has ordered its release to the appellant, subject to bank guarantee and has directed the Police to inform the Income Tax Department about cash seizure. The department seized the cash and made addition of the cash as unexplained money u/s.69A. 5.5.1 The appellant claimed that the cash of Rs.75 lakhs was received from the purchaser Shri B. Balakrishna Goud towards sale of the land and the above land is an agricultural land, therefore proceeds received from the sale of the agricultural land cannot be accounted as undisclosed income u/s 69À of the Act. The appellant submitted copies of cash receipt, certificate issued by Panchayath Secretary of Kothur Grampanchayat and google map pictures to substantiate its claim. The AO made the addition u/s 69A of the Act on the basis that no agreement of sale was submitted during assessment proceedings and sources for cash of Rs.75 lakhs could not be explained. However, on perusal of the cash receipt submitted by the appellant, it is observed that it contains all the necessary elements of an agreement of sale such as name and address of the seller and purchaser, details of the land sold, sale consideration, advance received and the time for payment of balance sale consideration and signatures of two witnesses in addition to the purchaser and seller on a revenue stamp which in itself is an enforceable agreement as there were revenue stamps and witnesses to the agreement. Therefore, in the present case, this cash receipt can be treated as an agreement of sale b tween the appellant and the purchaser. 5.5.2 Further, the sources for cash of Rs.75 lakhs belong to Shri B. Balakrishna Goud as mentioned in the cash receipt and also accepted by both the appellant and Shri B. Balakrishna Goud in the statements recorded before the Department. This was also stated before the police and the Court/Metropolitan Magistrate who in turn enquired about the application of Section 194|A of the Act. Also, the sale consideration mentioned in the final Sale deed No.5408/2019 is same as was agreed in the argument of sale mentioned in the cash receipt. Therefore, the A0's contention that the amount paid at the time of agreement was not mentioned in the sale deed as the basis for addition cannot sustain as the sale agreement would not be valid if the sale deed is conditional to repayment of the cash advance. Besides, the ownership and the source of cash was admitted before the Police and the court. The Hon'ble Metropolitan Magistrate, after considering the facts, has directed to handover the amount to the petitioner after identification and bank guarantee. After all these developments, it is difficult to sustain the AO's argument that the said sum is unexplained income of the assessee, 5.5.3 As rightly pointed out by the AR, Section 69A of the Act is attracted when the amount is not reflected in the books and the assessee offers no satisfaction explanation of the amount. in this case, assessee explained the source as the amount received towards sale advance, not only before the department but before the Police and the Metropolitan Magistrate. Besides the cash receipt with revenue stamps also prove the source which was also not denied by the buyer. Also the department has made an addition of Rs.75 lakhs in the hands of the buyer, viz., Bharat Engineering Enterprise vide order dated 29-09-2021 which goes against the view of the AO that the cash is assessee's unexplained income. Since the sources for the cash amount stands explained, Section 69A is not attracted.” 8.1 The A.R relied upon the following decisions in support of assessee’s case. It was submitted that the undisclosed income and violation of section 269SS are mutually exclusive: a) Hon'ble Delhi High Court in the case of CIT vs. R.P. Singh & Co. (P) Ltd (2012) 21 Taxmann.com 50 b) Hon'ble Delhi High Court in the case of CIT vs. Standard Brands Ltd (2006) 155 Taxman 383. c) Hon'ble High Court of Orissa in the case of PCIT vs. Akash Infra-com Projects (P) Ltd (2022) 42 Taxmann.com 281. d) Hon'ble Gujarat High Court in the case of CIT vs. Panchsheel Owners Associations (2017) 88 Taxmann.com 504 e) Hon'ble Madras High Court in the case of CIT vs. T. Perumal (2015) 53 Taxmann.com 17 f) Hon'ble Allahabad High Court in the case of CIT vs. Smt. Dimpal Yadav (2015) 61 taxmann.com 219 g) Hon'ble Madras High Court in the case of CIT vs. M/s. Balaji Traders (2008) 167 Taxmann 27 h) Hon'ble Madras High Court in the case of CIT vs. M/s. Rashi Injection Molders (2016)67 Taxmann.com 179 i) Hon'ble Delhi High Court in the case of Priya Desh Gupta vs. Dy.CIT (2016) 70 Taxmann.com 258 j) Hon'ble Gujarat High Court in the case of Aryan Arcade Ltd vs. DCIT (1997) 92 Taxmann 534 k) Hon'ble Supreme Court in the case of Andhra Bank Ltd vs. CIT (1997)

Further, the learned Counsel for the assessee drew the attention of the Bench to the assessment order for the year 2019-20 wherein the Assessing Officer has not recorded any satisfaction in the assessment order on the basis of which it can be inferred that penalty can be initiated u/s 271D of the Act. He also drew the attention of the Bench to Para 4.3 in Page 5 of the assessment order of the Assessing Officer. The learned AR had also drew the attention of the Bench to the decision of the Hon'ble Supreme Court in the case of Jayalakshmi Rice Mills Ltd reported in 64 Taxman wherein the hon Supreme Court had deleted the penalty as there was no satisfaction was recorded by the Assessing Officer.

He had also relied upon the decision of the Hon'ble Delhi High Court in the case of Standard Brand Ltd (Supra).

We have heard the rival arguments made by both the sides and perused the material available on record. Firstly, the Hon'ble Delhi High Court in the case of CIT vs. Standard Brand reported in 285 ITR 295 had decided the issue in favour of the assessee by holding that the penalty cannot be imposed on the basis of alleged undisclosed income and simultaneously treating the said amount in violation of 269SS of the Act. In our view, the requirement of 269SS is that the specified sum had been accepted by the assessee in cash which is prohibited by the Act. However, undisclosed income is contrary to the disclosed income i.e. specified sum disclosed in the return.

Further, we are of the opinion that recording of the satisfaction by the Assessing Officer is sine qua non for initiating the penalty u/s 271D of the Act. The Assessing Officer in Para 3 of his order, though had mentioned that the Assessing Officer has proposed the imposition of penalty u/s 271D for violation of the provisions of section 269SS of the Act, however, after looking into the assessment order reproduced herein below, it is abundantly clear that neither such proposal for imposition of penalty u/s 271D was proposed by the Assessing Officer nor any satisfaction for initiation of penalty was recorded in the assessment order vide Para 4.0 & 5 are reproduced herein below: “"4.0 In his defense, the AR of the assessee claimed that the sale transaction of the agricultural land was entered after the banking hours. However, as per the assessee, by depositing the cash in the day bank, the purchaser agreed to give DD on the next day. On the same was theft took place from the assessee's house and later, the cash recovered by the police. As per direction of the court, the Police Department handed over the cash to the Income Tax Department. According to the assessee, in these circumstances the said transaction could not be routed through the bank. 5.0 The assessee's claim that the purchaser intended to deposit the cash and obtain a Demand Draft for payment to the acceptable. There was no cognizable need for the assessee to keep cash in his custody when he intended to get paid by a Demand Draft on the very next day. The claim of the assessee is mere afterthought which is not corroborated by any independent documentation. In the absence of the same, the submission of the assessee is rejected as an afterthought and unsubstantiated. Since, both the payer and payee in transaction possessed valid operational bank accounts, no reasonable cause has been demonstrated for receiving the monies outside the banking channels. Moreover, the assessee could not substantiate the unavoidable circumstances/bonafide reasons under which it accepted the cash more than Rs.20,000/-, otherwise than by an account payee cheque or account payee draft or use of electronic clearing system through a bank account”.

It may be relevant to note here that the Coordinate Bench of the Tribunal in the case of Raja Reddy Nalla vs. Addl. CIT in & 522/Hyd/2022 dated 31/05/2023 while deciding an identical issue had observed as under: “12. We have heard the rival arguments made by both the sides, perused the orders of the AO and the learned CIT (A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us by both sides. We find the AO in the instant case levied penalty of Rs.40.00 lakhs u/s 271D of the I.T. Act on the ground that the assessee has violated the provisions of section 269SS by accepting cash of Rs.40.00 lakhs being his share for sale of the immovable property. We find the learned CIT (A) confirmed the penalty levied by the Assessing Officer, the reasons of which have already been reproduced in the preceding paragraph. Before deciding the issue on merit as per grounds of appeal, we would first like to adjudicate the additional ground raised by the assessee challenging the validity of the levy of penalty u/s 271D in absence of recording of satisfaction in the body of the assessment order.

It would be useful to refer to Section 271E of the Act also at this stage which deals with penalty for failure to comply with the provisions of Section 269T of the Act. Be it stated that Section 269T of the Act provides that no branch of a banking company or a cooperative bank and no other company or cooperative society and no firm or other person shall repay any loan or deposit made with it or any specified advance received by it otherwise than by an account payee cheque or account payee bank draft drawn in the name of the person who had made the loan or deposit or who had paid the specified advance or by use of electronic clearing system through a bank account or through such other electronic mode as may be prescribed, if such an amount is twenty thousand rupees or more. As in the case of Section 269SS, Section 269T of the Act also does not apply to the Government, banking company, post office savings bank etc. Section 271E of the Act reads as under: Penalty for failure to comply with the provisions of section 269T. 271E. [(1)] If a person repays any [loan or] deposit [or specified advance] referred to in section 269T otherwise than in Page 12 of 15 accordance with the provisions of that section, he shall be liable to pay, by way of penalty, a sum equal to the amount of the [loan or] deposit [or specified advance] so repaid.] [(2) Any penalty imposable under sub-section (1) shall be imposed by the [Joint] Commissioner.] 21. Thus, sub-section (1) of Section 271E of the Act provides that if a person repays any loan or deposit or specified advance referred to in Section 269T of the Act otherwise than in accordance with the provisions of that section, he shall be liable to pay by way of penalty a sum equal to the amount of the loan or deposit or specified advance so repaid. Sub-section (2) clarifies that any penalty imposable under sub-section (1) shall be imposed by the Joint Commissioner.

From an analysis of Sections 271D and 271E of the Act, it is seen that both the provisions are pari materia to each other. While Section 271D of the Act would be attracted on a person accepting loan or deposit or specified sum in contravention of Section 269SS of the Act, penalty under Section 271E of the Act would be imposable on a person who makes or repays the loan or deposit or specified advance in contravention of Section 269T. Therefore, in a way, the two provisions are complimentary to each other.

In Jai Laxmi Rice Mills Ambala City (supra), Supreme Court considered the question as to whether penalty proceedings under Section 271D of the Act is independent of the assessment proceeding? In the facts of that case, it was found that the penalty order was issued following the assessment order. However, in appeal, Commissioner of Income Tax (Appeals) had set aside the original assessment order with a direction to frame assessment de novo. In the fresh assessment order, no satisfaction was recorded by the assessing officer regarding initiation of penalty proceedings under Section 271E of the Act. It was noticed that the penalty order was passed before the appeal of the assessee was allowed by the Commissioner of Income Tax (Appeals). It was in that context that Supreme Court held as follows: The Tribunal as well as the High Court has held that it could not be so for the simple reason that when the original assessment order itself was set aside, the satisfaction recorded therein for the purpose of initiation of the penalty proceeding under Section 271E would also not survive. This according to us is the correct proposition of law stated by the High Court in the impugned order. As pointed out above, insofar as, fresh assessment order is concerned, there was no satisfaction recorded regarding penalty proceeding under Section 271E of the Act, though in that order the Assessing Officer wanted penalty proceeding to be initiated under Section 271(1)(c) of the Act. Thus, insofar as penalty under Section 271E is concerned, it was without any satisfaction and, therefore, no such penalty could be levied. These appeals are, accordingly, dismissed. Page 13 of 15

Reverting back to the facts of the present case, we find that petitioner had submitted reply to the show cause notice on 02.06.2022. In his reply, petitioner mentioned that no satisfaction was recorded by the assessing officer in the assessment order as to infraction of Section 269SS of the Act. Therefore, no penalty could be levied under Section 271D of the Act without recorded satisfaction. In this connection, reference was made to the decision of the Supreme Court in Jai Laxmi Rice Mills Ambala City (1 supra) wherein it was clarified that provisions of Section 271E are in pari materia with the provisions of Section 271D of the Act. However, this aspect of the matter was not considered by respondent No.1 while passing the impugned order. Respondent No.1 relying upon the Kerala High Court decision in Grihalaxmi Vision (2 supra) noted that competent authority to levy penalty is the Joint Commissioner. He has also referred to an earlier decision of the Supreme Court in CIT V. Mac Data Ltd.3 wherein it was observed that assessing officer has to satisfy himself as to whether penalty proceedings should be initiated or not. Assessing officer is not required to record his satisfaction in a particular manner or reduce it into writing. Therefore, respondent No.1 imposed the penalty under Section 271D of the Act.

We are afraid respondent No.1 had completely overlooked the decision of the Supreme Court in Jai Laxmi Rice Mills Ambala City (1 supra). In the said decision as extracted above, Supreme Court had concurred with the view taken by the High Court holding that satisfaction must be recorded in the original assessment order for the purpose of initiation of penalty proceedings under Section 271E of the Act. We have already discussed above that provisions of Section 271E and 271D of the Act are in pari materia. When there is a decision of the Supreme Court ((2013) 352 ITR 1) it is the bounden duty of an adjudicating authority, be it an income tax authority or any other civil authority or for that matter any court in the country, to comply with the decision of the Supreme Court. 26. Article 141 of the Constitution of India is clear that law declared by the Supreme Court shall be binding on all courts within the territory of India. This is further clarified in Article 144, which says that all authorities, civil and judicial, in the territory of India shall act in aid of the Supreme Court. We are therefore, of the unhesitant view that respondent No.1 overlooked the relevant considerations while passing the impugned order dated.29.11.2022. 27. Further, issue in the present writ petition is not the competence of the Joint Commissioner in issuing the order of penalty. Therefore, reference to Grihalaxmi Vision (2 supra) was wholly unnecessary. 28. Consequently, we set aside the impugned order dated 29.11.2022 and remand the matter back to the file of respondent No.1 to pass a fresh order in accordance with law after giving a reasonable opportunity of hearing to the petitioner.

In the light of the above, we are of the opinion that the penalty imposed by the Assessing Officer had been rightly deleted by the learned CIT (A). In view of the above discussion, the appeal of the Revenue is dismissed.