GORLAS INFRASTRUCTURE PRIVATE LIMITED,HYDERABAD vs. DCIT, CIRCLE-2(1), HYDERABAD

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ITA 2313/HYD/2025Status: DisposedITAT Hyderabad02 September 2026AY 2017-1814 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the penalty proceedings were vitiated due to the absence of satisfaction recorded by the AO during assessment proceedings. Furthermore, the alleged contravention of Section 269SS occurred in AY 2018-19, not AY 2017-18, making the penalty unsustainable.

What were the facts?

The assessee company purchased property via an Agreement of Sale-cum-GPA in 2006-07, paying full consideration. Sale deeds were executed in favour of the assessee in 2017-18. The AO initiated penalty proceedings under Section 271D for AY 2017-18, alleging cash payment contravening Section 269SS.

What were the issues?

Whether penalty under Section 271D can be levied without AO's satisfaction during assessment, and whether the penalty was levied for the correct assessment year.

Which sections of the Income-tax Act were involved?

Section 271D,Section 269SS,Section 143(3),Section 274,Section 292B

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, Hyderabad ‘ A ‘ Bench, Hyderabad

For Respondent: DR Seema Meena

आदेश / ORDER

PER MANJUNATHA G., A.M :

This appeal filed by the assessee company is directed against the order of the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre [in short “NFAC”], Delhi, dated 27.10.2025, pertaining to the assessment year 2017- 18.

2.

The brief facts of the case are that the assessee company “Gorlas Infrastructure Private Limited”, is engaged in the business of builders, contractors, etc., filed its return of income for AY 2017-18 on 31-10-2017, declaring income of Rs.1,17,33,250/-. The case was selected for scrutiny and assessment was completed under Section 143(3) of Income-tax Act, 1961 on 23-12-2019, and the returned income was accepted. Subsequently, penalty proceedings under Section 271D of the Act, were initiated and a show-cause notice under Section 274 r.w.s. 271D dated 13-02- 2020 was issued, and the A.O. called upon the assessee company to file its objections, if any, for proposed penalty proceedings. In response, the assessee company by letter dated 31-05-2021

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submitted that, the assessee company purchased the property admeasuring Acres 18.21 guntas in Survey No.170 of Athivelli Village, Gram Panchayat, Medchal Mandal, R.R. District by entering into an Agreement of Sale-cum-GPA on 09-09-2006, bearing document number 19137/2006, and Agreement of Sale- cum-GPA bearing document number 22720/2006, in respect of the property admeasuring Acres 4.34 guntas in Survey No.164/1, Acres 4.35 guntas in Survey No.165/1 and Acres 0.29 guntas in Survey No.166, aggregating to Acres 10.18 guntas, situated at Athivelli Village, Gram Panchayat, Medchal Mandal, R.R. District. Both the documents were registered before the SRO, Medchal. The company was appointed as Lawful Attorney to deal with the schedule property as the owner of the property. The sale consideration was paid and the possession of the property was also taken, as the assessee company was only power of attorney holder to deal with the schedule property as an owner. However, the land was not in the name of the assessee company. Assessee company has executed two sale deeds on 13-07-2017 transferring the property in favour of the assessee company, the vendor and the vendee being the assessee company itself. However, no consideration has been paid as on the date of sale deed. The

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assessee company further submitted that since the transfer of property has taken place by way of Agreement of Sale-cum-GPA in the financial year 2006-07, relevant to the assessment year 2007- 08, and further, the final sale deed have been executed by the assessee company itself in the year 2017-18, relevant to the assessment year 2018-19, show-cause notice issued for the assessment year under consideration is invalid.

3.

The A.O., after considering the relevant submissions of the assessee company, observed that, as per the sale deeds, the assessee company had accepted cash in contravention of provisions of Section 269SS of the Act, during the financial year 2016-17, relevant to the assessment year 2017-18 and hence, it can be inferred from the above facts that the assessee company has contravened the provisions of Section 269SS, which attracts the penalty under Section 271D of the Act. Therefore, the A.O. levied penalty of Rs.5,50,52,500/-, being a sum equal to the amount of cash receipt for purchase of the property.

4.

Aggrieved by the penalty order, the assessee company preferred an appeal before the Ld. CIT(A), and before the Ld. CIT(A), the assessee company reiterated its facts and claimed that, the

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property was purchased in the financial year 2006-07 relevant to the assessment year 2007-08, and the final sale deeds were executed by and between the assessee company in the year 2017- 18, relevant to the assessment year 2018-19, and therefore, the show-cause notice issued for the assessment year under consideration is invalid. The assessee company further submitted that since the property was purchased by way of Agreement of Sale-cum-GPA in the financial year 2006-07, and also the consideration was paid in full, the question of making payment of cash consideration as on the date of sale deed does not arise and further, the assessee company cannot pay cash to itself, as alleged by the A.O.

5.

The Ld. CIT(A.), after considering the submissions of the assessee company and also taking note of relevant facts, observed that the registered sale deeds placed on record clearly contain specific narration that the sale consideration was paid in cash and duly received by the vendor on the date of registration. Once the registered instrument specifically records that the consideration was paid in cash, the initial onus lies on the assessee company to demonstrate with credible evidence, that such consideration was

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not actually paid in cash. Therefore, the Ld. CIT(A.) observed that there is a clear violation of Section 269SS, which attracts penalty under Section 271D of the Act. The Ld. CIT(A.) further observed that the ground taken by the assessee company challenging the validity of issuance of the notice under consideration is also devoid of merit going by the facts of the present case, because this issue was never raised by the assessee company during the penalty proceedings and the assessee company participated in the proceedings and filed explanations and cooperated with the A.O. on merits, without objecting to the year of assessment. Further, even assuming without admitting that there is any default in the mentioning of assessment year in the penalty order, such a defect is merely technical and procedural in nature. The substantive fact, i.e., the acceptance of cash beyond the permissible limit remains undisputed. Therefore, by taking into account the provisions of Section 292B of the Act, the Ld. CIT(A.) held that no order shall be treated as invalid merely by reason of any mistake, defect or omission, if it is in substance and effect in conformity with the intent and purpose of the Act and, therefore, the Ld. CIT(A.) rejected the arguments of the assessee company and upheld the levy of penalty under Section 271D of the Act.

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6.

Aggrieved by the order of Ld. CIT(A), the assessee is now in appeal before the Tribunal.

7.

The learned counsel for the assessee company, Shri Mohd. Afzal, Advocate, submitted that the Ld. CIT(A) erred in sustaining the penalty levied by the A.O. under Section 271D of the Act, for a sum of Rs.5,50,52,500/-, without appreciating the fact that there is no satisfaction from the A.O. during the assessment proceedings for initiation of penalty proceedings under Section 271D of the Act, which is evident from the assessment order passed by the A.O., where there is no reference of initiation of proceedings for violation of Section 269SS of the Act. In this regard, he relied upon the decision of ITAT, Hyderabad in the case of Venkata Ramana Murthy versus ITO in ITA No.1961/2025, and also the decision of the Hon'ble Supreme Court in the case of CIT Vs. Jayalakshmi Rice Mills, Ambala City, reported in (2015) 379 ITR 521 (SC). The learned counsel for the assessee company further, referring to various documents, including the Agreement of Sale-cum-GPA with possession dated 09-09-2006, submitted that, the company has purchased the property in the financial year 2006-07, relevant to the assessment year 2007-08, and also

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paid full consideration and taken possession of the property. Further, since the assessee company was only a power of attorney holder, has executed two sale deeds on 13-07-2017 to legally transfer the property in favour of the assessee company. However, no consideration has been paid in cash as alleged by the A.O. Further, the sale deeds have taken place in the financial year 2017-18, relevant to the assessment year 2018-19, and thus, contravention of provisions of Section 269SS shall be considered for AY 2018-19, but not for AY 2017-18. The A.O., without appreciating the relevant facts, initiated penalty proceedings and levied penalty under Section 271D for AY 2017-18, even though the transaction does not pertain to the assessment year under consideration. Therefore, he submitted that the penalty levied by the A.O. should be deleted.

8.

The Ld. CIT-DR, Ms. Seema Meena, on the other hand, supporting the order of the Ld. CIT(A), submitted that there is no requirement of satisfaction from the A.O. for initiation of penalty proceedings under Section 271D, because the competent authority for initiating and levying the penalty is the Joint Commissioner of Income Tax, and therefore, if any satisfaction is required, the

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same should be recorded by the authority, who has initiated the penalty proceedings, but not by the A.O. The Ld. CIT-DR further submitted that the assessee company has not raised any objection regarding any defect in the notice issued by the JCIT for assessment year 2017-18 and also participated in the penalty proceedings and submitted details, and therefore, questioning the validity of the penalty proceedings at this stage in light of the subsequent sale deeds is incorrect. The Ld. CIT(A), after considering the relevant facts, has rightly rejected the arguments of the assessee company and upheld the penalty levied by the A.O., and, therefore, she submitted that the order of the Ld. CIT(A.) should be upheld.

9.

We have heard both parties, perused the material available on record, and had gone through the orders of the authorities below. The assessee company has challenged the penalty levied under Section 271D of the Act on multiple grounds, including on the issue of not recording satisfaction in the assessment proceedings by the A.O. and levying penalty for the assessment year under consideration i.e., AY 2017-18, instead of A.Y. 2018-19. Insofar as the issue of satisfaction by the A.O., it is a well-settled principle of

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law by the decision of the Hon'ble Supreme Court in the case of CIT Vs. Jai Laxmi Rice Mills, Ambala City (supra), wherein the Hon'ble Supreme Court held that, in the absence of satisfaction recorded in the fresh assessment order regarding initiation of penalty proceedings, penalty could not be levied. This principle has been followed by the Hon'ble High Court of Andhra Pradesh in the case of Grandhi Sri Venkata Amarendra v. Joint Commissioner of Income Tax, in CWP No.32872 of 2023, dated 04-10-2023, wherein it has been held that, the satisfaction of the A.O. is required to be recorded because the officer who passed the assessment order would not be able to levy the penalty under Section 271D of the Act, unless such satisfaction is recorded in the A.O.'s order, he cannot refer the file to the superior officer, i.e., Joint Commissioner of Income Tax, for initiation and levy of penalty. Unless the A.O., who is the primary authority, based on the material before him during the assessment proceedings, arrives at a finding that there is a violation of provisions like, in the present case, Section 269SS of the Act, there will not be any occasion for the Joint Commissioner, who is not the A.O., to exercise his jurisdiction to levy penalty under Section 271D of the Act. This principle is further followed in the case of Srinivasa

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Reddy Reddeppagari Vs. JCIT(A) in W.P. No.44285 of 2022, dated 26-12-2025. The sum and substance of the ratio laid down by the Hon'ble Supreme Court and the Hon'ble Andhra Pradesh High Court is that before initiating penalty proceedings under Section 271D of the Act, the satisfaction of the A.O. in the assessment proceedings is a must, and in case of no satisfaction by the A.O., the entire penalty proceedings become vitiated, null and void.

10.

Coming back to the issue on merit, there is no dispute with regard to the fact that the assessee company had purchased the property by way of Agreement of Sale-cum-GPA dated 09-09-2006, and as per the Agreement of Sale, the property has been purchased with possession and the entire consideration has been paid in the financial year 2006-07, relevant to the assessment year 2007-08. It is also an admitted fact that the assessee company, being power of attorney holder, has executed sale deeds in its favour by way of two registered sale deeds dated 13-07- 2017, which falls in the financial year 2017-18, relevant to the assessment year 2018-19. Since the transaction for alleged cash payment for purchase of property has taken place in the financial year 2017-18, relevant to the assessment year 2018-19, in our

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considered view, penalty, if any, levied for contravention of provisions of Section 269SS of the Act, should be levied in the year in which such contravention has taken place and in the present case, since the sale deeds have been registered in the financial year 2017-18, the A.O. ought to have levied penalty relevant to assessment year 2018-19. The present proceedings initiated by the A.O. by issuing show-cause notice under Section 274 r.w.s. 271D for AY 2017-18, on the premise that the assessee company has paid cash for purchase of property in the financial year 2016- 17, is contrary to the facts available on record and cannot be upheld.

11.

In so far as the findings of the Ld. CIT(A) on this issue, that the assessee company has not raised any objection on this issue and participated in the penalty proceedings, and in view of Section 292BB that the assessee company cannot question the jurisdiction of the A.O. merely by reason of any mistake or defect or omission in the notice issued by the A.O., is incorrect, because it is not a case of mistake in issuing the show-cause notice or defect or omission, but it is a clear case of issuing the show-cause notice for a different assessment year, even though the document

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clearly shows that the alleged transaction had taken place in 2017-18 relevant to the assessment year 2018-19. Therefore, in our considered view, the penalty levied by the A.O. under Section 271D for the assessment year 2017-18 is unsustainable in law both on merits and on the issue of absence of satisfaction. Thus, we quash the order passed by the A.O. under Section 271D and direct the A.O. to delete the penalty levied under Section 271D of the Act.

12.

In the result, the appeal filed by the assessee company is allowed.

Order pronounced in the Open Court on 2nd September, 2026.

Sd/- Sd/- श्री विजय पाल राि (मंजूनाथ जी) (VIJAY PAL RAO) (MANJUNATHA G.) उपाध्यक्ष /VICE PRESIDENT लेखा सदस्य/ACCOUNTANT MEMBER

Hyderabad, dated 02.09.2026. TYNM/sps

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आदेशकी प्रतततिति अग्रेतषत/ Copy of the order forwarded to:- 1. तनर्ााररती/The Assessee : GORLAS INFRASTRUCTURE PRIVATE LIMITED, SHOP NO-87 ON GROUND FLOOR BEARING MUNCIPAL NO- 11-70/5, PIPE LINE ROAD FATHENAGAR VILLAGE,GHMC KUKAPALLY CIRCLE, HYDERABAD-500033, TELANGANA 2. राजस्व/ The Revenue : DCIT, CIRCLE-2(1), O/O DCIT, CIRCLE-2(1), SIGNATURE TOWERS, KONDAPUR, HYDERABAD-500084, TELANGANA 3. The Principal Commissioner of Income Tax, Hyderabad. 4. तवभागीयप्रतततनतर्, आयकर अिीिीय अतर्करण, हैदराबाद / DR, ITAT, Hyderabad 5. गार्ाफ़ाईि / Guard file

आदेशानुसार / BY ORDER TIRUPATI Digitally signed by TIRUPATI YAMINI NAGA YAMINI NAGA MALLESWARI Date: 2026.09.03 17:17:51 MALLESWARI +05'30' Sr. Private Secretary ITAT, Hyderabad

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