SRIDHAR MALLAMPATI,HYDERABAD vs. DCIT, CENTRAL CIRCLE-1(2), HYDERABAD

PER VIJAY PAL RAO, VICE PRESIDENT:

This appeal by the Assessee is directed against the Order dated 04.10.2025 of the learned CIT(A), Hyderabad-11, Hyderabad arising from penalty Order passed u/sec.271D of the Income Tax Act [in short "the Act"], 1961, for the assessment year 2021-2022.

“The penalty order of the Ld. CIT(A) dated 04.10.2025 is 1) erroneous both on facts and in law to the extent the order is prejudicial to the interests of the appellant. 2) The Ld. CIT(A) ought to have appreciated that the Assessing Officer erred in levying penalty of Rs.2,00,00,000/- u/s 271D of the Act without appreciating the facts of the case. 3) The Ld. CIT(A) ought to have considered that the AO has initiated the penalty proceedings in the assessment order dated 02-02-2024, the said order is to be taken as relevant for bar of limitation u/s 275(1)(C). 4) The Ld. CIT(A) erred in considering the fact that the Assessing officer initiated the penalty proceedings on 02-02- 2024 and six months from the end of the month in which action of imposition of penalty was expired on 31-08-2024,

3 ITA.No.2195/Hyd./2025

penalty order passed on 10-09-2024 was barred by limitation. 5) The Ld. CIT(A) erred in upholding the penalty order passed by the AO without appreciating that the assessee, in his sworn statements recorded under section 131 of the IT Act, has clearly stated that the he did not taken any cash loan. 6) The Ld. CIT(A) failed to appreciate the fact that the penalty was levied solely on presumptions and without any corroborative evidence establishing that the assessee received cash loan from GVV Satyanarayana Murthy. 7) The Ld. CIT(A) ought to have appreciated the fact that the assessee already produced the documentary evidence which clearly shows that the transaction was not in the nature of cash loan. 8) The Ld. CIT(A) erred in considering the fact that the assessee already produced valid evidence such as agreement of sale, which clearly shows that the transaction did not represent any cash loan OR deposit u/s 269SS states that no penalty u/s 271D was levied. 9) The appellant may add OR alter OR amend OR modify OR substitute OR delete and/ OR rescind all OR any of the grounds of appeal at any time before OR at the time of hearing of the appeal.”

4 ITA.No.2195/Hyd./2025 matter therefore, we first take up this issue for hearing and adjudication.

5 ITA.No.2195/Hyd./2025 issuing a show cause notice u/sec.274 r.w.s.271D of the Act dated 04.03.2024. The Assessing Officer levied the penalty u/sec.271D of Rs.2 crores vide Order dated 10.09.2024 which was challenged by the assessee before the learned CIT(A) but could not succeed.

6 ITA.No.2195/Hyd./2025 as well as in the case of PCIT vs. Rishikesh Buildcon (P.) Ltd., [2023] 451 ITR 108 (Del.). Thus, the learned Authorised Representative of the Assessee has submitted that once the Assessing Officer has initiated the penalty proceedings by recording satisfaction and recommending for penalty in the assessment order then, the limitation would reckon from the date of assessment order or end of the month in which assessment order was passed.

7 ITA.No.2195/Hyd./2025 the penalty proceedings by making a separate Reference to the ACIT, Central for levy of penalty u/sec.271D of the Act as recorded in Para no.4.4 of the Order as under:

“4.4. The entries in the documents found and the copies of signed blank cheques, stamp papers and promissory notes clearly evidence the loan of Rs.2,00,00,000/-in cash taken by the assessee from Sri Godavari Satya Venkata Phani Bhushan. Though sufficient opportunities have been afforded to the assessee to submit any information/clarification on the documents found during the Search in the case of Sri Godavari Satya Venkata Phani Bhushan which evidence the loan of Rs.2,00,00,000/- in cash taken by the assessee, the assessee has failed to comply/respond and did not utilize the opportunity accorded. The loan of Rs.2,00,00,000/- taken in cash by the assessee is in clear violation of the provisions of Sec.269SS of the Act. Hence, penalty proceedings u/s.271D are attracted in the case. The same are Intimated separately to the Addl. CIT, Central Range-1, Hyderabad, the competent authority to levy penalty u/s.271D, for Initiation of the penalty proceedings.”

7.1. This fact is again acknowledged by the ACIT, Central Range-1, Hyderabad in the penalty Order dated 10.09.2024 passed u/sec.271D of the Act in Para no.3 as under:

“3. On perusal of the seized material and assessment order, it is evident that the assessee had received loan in cash of

8 ITA.No.2195/Hyd./2025 Rs.2,00,00,000/- from Sri Godavari Satya Venkata Phani Bhushan, Rajahmundry on 04.06.2020 in the FY: 2020-21 relevant to the AY: 2021-22, which is in violation of the provisions of section 269SS of the I.T. Act. The Assessing Officer recorded his findings about the violation of provisions of section 269SS vide para 4.4 in the Assessment Order. Subsequently, the assessing officer has submitted proposal vide letter dated 06.02.2024 to this office for initiation of penalty proceedings u/s 271D of the Act for violation of provisions of section 269SS of the Act for the AY 2021- 22, as the JCIT/AddI. CIT is the competent authority proceedings. to initiate these proceedings.”

7.2. Thus, there is no dispute that the Assessing Officer initiated the penalty proceedings u/sec.271D by making a Reference to the JCIT during the assessment order itself and therefore, the question arises whether for the purpose of limitation provided u/sec.275(1)(c) the relevant date is when the Assessing Officer recommended/made a Reference to the JCIT for initiation of the penalty proceedings or the date of show cause notice issued by the JCIT/Addl. CIT. This question has been considered by the Hon’ble Delhi High Court in the case of PCIT vs. Mahesh Wood Products (P.) Ltd., (supra), in Para nos.8 to 10 as under:

9 ITA.No.2195/Hyd./2025 “8. At the outset, the Court observes that no question arose in IKEA Trading Hong Kong Ltd. (supra) as to whether the starting point of limitation could be a date earlier than the issuance of the SCN, viz., the date on which the AO wrote a letter to the ACIT recommending such initiation. No such contention appears to have been raised or dealt with in the said case. Therefore, the said decision is distinguishable on facts. 9. However, this question came up for consideration in JKD Capital & Finlease Ltd. (supra). The date on which the AO recommended the initiation of penalty proceedings was taken to be the relevant date as far as Section 275(1)(c) was concerned. There was no explanation for the delay of nearly five years in the ACIT acting on the said recommendation. The Court held that the starting point would be the initiation' of penalty proceedings. Given the scheme of Section 275(1)(c) it would be the date on which the AO wrote a letter to the ACIT recommending the issuance of the SCN. While it is true that the ACIT had the discretion whether or not to issue the SCN, if he did decide to issue a SCN, the limitation would begin to run from the date of letter of the AO recommending 'initiation' of the penalty proceedings. 10. In the present case, the limitation in terms of Section 275 (1) (iii) of the Act began to run on 23rd July, 2012 and the last date for passing the penalty orders was 31 January, 2013. Therefore, the penalty orders Issued on 26th February 2013 were clearly barred by limitation.”

7.3. Thus, the Hon’ble Delhi High Court has held that the starting point would be for initiation of the penalty proceedings i.e., the date on which the Assessing Officer

10 ITA.No.2195/Hyd./2025 wrote a letter to the ACIT recommending for issuing of show cause notice and not the date of show cause notice. Hence, the Hon’ble Delhi High Court has held that the limitation would reckon from the date of letter of the Assessing Officer recommending initiation of the penalty proceedings. Similarly, the Hon’ble Delhi High Court in the case of PCIT vs. Rishikesh Buildcon (P.) Ltd., (supra), has held in Para nos.9 to 13 as under:

“9. The legal principle for determining the date of initiation of penalty proceedings has been settled by the predecessor bench of this Court in its decision of JKD Capital & Finlease Ltd. (supra) which reads as under:- "2... While finalising the assessment order dated December 28, 2007 the Assessing Officer ("the AO") in the concluding paragraph issued a direction to initiate proceedings against the assessee under sections 271(1)(c) and 271E of the Act. Admittedly, under section 271E(2) of the Act, any penalty under section 271E(1) can only be imposed by the Joint Commissioner of Income-tax ("the Joint CIT"). Consequently, the Assessing Officer referred the matter to the Additional Commissioner of Income-tax. 3. A perusal of the order dated March 20, 2012, of the Additional Commissioner of Income-tax shows that a show-cause notice initiating penalty proceedings under

11 ITA.No.2195/Hyd./2025 section 271E was issued to the assessee on March 12, 2012, requiring it to explain as to why penalty should not be levied on it under section 271E on account of violation or the provisions of section 269T of the Act. With the assessee having failed to furnish the required information, the Additional Commissioner of Income-tax proceeded to confirm the penalty in the sum of Rs.17,90,000. ** ** ** 6. Mr. Kamal Sawhney, learned senior standing counsel appearing for the Revenue, submitted that the Assessing Officer has no power to initiate the penalty proceedings under section 271E of the Act and it was only the Joint Commissioner of Income-tax who could have done so. Therefore, for the purpose of limitation under section 275(1) (c), the relevant date should be the date on which notice in relation to the penalty proceedings were issued. In the present case, as the Additional Commissioner of Income-tax issued notice to the assessee on March 12, 2012, the order of the Additional Commissioner of Income-tax passed on March 20, 2012, was within limitation. 7. We are unable to agree with the above submission of learned standing counsel for the Revenue. Section 275(1)(c) reads as under: "275. (1) No order imposing a penalty under this Chapter shall be passed....

12 ITA.No.2195/Hyd./2025 (c) in any other case, after the expiry of the financial year in which the proceedings, in the course of which action for the imposition of penalty has been initiated, are completed, or six months from the end of the month in which action for imposition of penalty is initiated, whichever period expires later." 8. In terms of the above provision, there are two distinct periods of limitation for passing a penalty order, and one that expires later will apply. One is the end of the financial year in which the quantum proceedings are completed in the first instance. In the present case, at the level of the Assessing Officer, the quantum proceedings was completed on December 28, 2007. Going by this date, the penalty order could not have been passed later than March 31, 2008. The second possible date is the expiry of six months from the month in which the penalty proceedings were initiated. With the Assessing Officer having initiated the penalty proceedings in December 2007, the last date by which the penalty order could have been passed is June 30, 2008. The later of the two dates is June 30, 2008. (Emphasis Supplied) 10. The contentions urged by the leamed counsel for the Revenue in the present appeals are therefore reiteration of pleas which have been categorically rejected by the predecessor bench of this Court in the aforesaid judgments. 11. In the present appeals, a perusal of the assessment order(s) shows that the penalty proceedings were initiated by the AO in the assessment order(s) itself. Illustratively, the direction contained in the assessment order dated 17th December, 2008,

13 ITA.No.2195/Hyd./2025 pertaining to ITA No.577/2018, Rishikesh Buildcon Pvt. Ltd. may be 9 referred to, which reads as under:- "... Initiate penalty proceedings u/s, 271(1)(c) for concealment of income & 271(1)(b) for non-compliance of statutory notices, & 271 D for violating the provisions of Section 269 SS as discussed above." 12. The predecessor bench of this Court in the aforesaid judgments has held that where the AO has initiated the penalty proceedings in his/her assessment order, the said date is to be taken as the relevant date as far as the section 275(1)(c) of the Act is concerned. In these cases, the quantum proceedings were completed by the AO on 17th/18th December, 2008, and the AO initiated the penalty proceedings in December, 2008, thus, the last date by which the penalty order could have been passed is 30th June, 2009. The six months from the end of the month from which action of imposition of penalty was initiated would expire on 30th June, 2009, However, in this case, admittedly, the penalty order(s) were passed on 29th September, 2009, and therefore, the ITAT rightly concluded that the order(s) were barred by limitation. 13. Consequently, we answer the question of law against the Revenue and in favour of the Assessee by holding that, in the facts and circumstances of the present appeals, the ITAT was correct in law in deleting the penalty imposed by the Additional Commissioner of Income Tax, under section 271D of the Act, on the ground that the penalty order(s) dated 29th September, 2009, was passed beyond the time period prescribed by Section 275(1)(c) of the Act, the same having been passed after the lapse of six months from the end of the month in which the penalty proceedings were initiated by the AO.”

14 ITA.No.2195/Hyd./2025 7.4. The Hon’ble Delhi High Court has reiterated its view by holding that the six months period of limitation would reckon from the end of the month in which the Assessing Officer recommended the initiation of penalty proceedings. This issue has also been considered by the Hon’ble Karnataka High Court in the case of PCIT vs. K Umesh Shetty [2025] 170 taxmann.com 748 (Karnataka) and held in Para nos.6.7 to 6.9 as under:

“6.7. In the facts of this case, these twin purposes can be achieved by treating the reference by the ITO to the Additional Commissioner as the triggering point or initiation of penalty proceedings. The ITO vide letter dated 16.11.2016 had admittedly made the reference. The Additional Commissioner of Income Tax issued the Show Cause Notice only on 10.11.2017 (neatly a year later) proposing the levy of penalty u's 271D of the Act. The Penalty Order was made on 22.02.2018. If the reckoning point is 16.11.2016, it is clear that the proceedings were completed beyond the period of limitation, as rightly contended by the learned counsel appearing for the Assessee. Even otherwise, the concept of delay & latches would crop in; no explanation whatsoever has been offered by the Revenue for the laxity shown in belatedly issuing the the show cause notice/proposition notice which they claim, amounted to initiation of penalty proceedings. This view has has animated the reasoning of the impugned order of the Tribunal, may be a bit inarticulately.

15 ITA.No.2195/Hyd./2025 6.8. The reliance of Panel Counsel for the Revenue on the Coordinate Bench decision in Commissioner of Income-tax v. Tam Tam Pedda Guruva Reddy [2006] 287 ITR 72 (Karnataka) does not come to his aid since the same has been rendered largely fact- specific. The other decision namely Grihalakshmi Vision v. Additional Commissioner of Income-tax [2015] 63 taxmann.com 196/379 ITR 100 (Kerala) at para 10 observed as under: "Question to be considered is whether proceedings for levy of penalty, are initiated with the passing of the order of assessment by the Assessing Officer or whether such proceedings have commenced with the issuance of the notice issued by the Joint Commissioner. From statutory provision, it is clear that the competent authority to levy penalty being the Joint Commissioner. Therefore, only the Joint Commissioner can initiate proceedings for levy of penalty... These observations arguably support the view of Revenue, is true. However, we respectfully disagree with the said view. That apart, a perusal of the said judgment does not show that there was any reference made by the ITO to the competent authority, unlike in the case at hand. Further the following observations in para 10 in D M Manasvi v. Commissioner of Income Tax (1973) 3 SCC 207 would cast some doubt on the correctness of Grihalakshmi supra. "We are also not impressed by the argument advanced on behalf of the appellant that the proceedings for the imposition of penalty were initiated not by the Income Tax Officer but by the Inspecting Assistant Commissioner when the matter had been referred to him under section 274(2) of the Act. The proceedings for the imposition of

16 ITA.No.2195/Hyd./2025 penalty in terms of sub-section (1) of section 271 have necessarily to be initiated either by the Income Tax Officer or by the Appellate Assistant Commissioner. The fact that the Income Tax Officer has to refer the case to the Inspecting Assistant Commissioner if the minimum imposable penalty exceeds the sum of rupees one thousand in a case falling under clause (c) of sub-section (1) of section 271 would not show that the proceedings in such a case cannot be initiated by the Income Tax Officer. The Income Tax Officer in such an event can refer the case to the Inspecting Assistant Commissioner after initiating the proceedings. It would, indeed, be the satisfaction of the Income Tax Officer in the course of the assessment proceedings regarding the concealment of income which would constitute the basis and foundation of the proceedings for levy of penalty". 6.9. The reliance of the Panel Counsel on CBDT Circular No.9/DV/2016 dated 26.04.2016 has been issued in terms of GRIHALAKSHMI supra. Para 4 of the Circular states: The above judgment reflects the "Departmental View". However, para 5 in a way suggests to follow the decision of a High Court, within whose territorial jurisdictional limits the penalty proceedings are taken up. The same reads as under: "Where any High Court decides this issue contrary to the "Departmental View", the "Departmental View" thereon shall not be operative in the area falling in the jurisdiction of the relevant High Court. However, the CCIT concerned should immediately bring the judgment to the notice of the Central Technical Committee. The CTC shall examine the said judgment on priority to decide as to whether

17 ITA.No.2195/Hyd./2025 filing of SLP to the Supreme Court will be adequate response for the time being or some legislative amendment is called for." Therefore, much reliance cannot be placed on this Circular. In the above circumstances, the questions of law framed by us have to be answered in favour of the respondent assessee and as a consequence, appeal is liable to be and accordingly dismissed, costs having been made easy.”

7.5. Thus, the Hon’ble High Courts have taken a consistent view that the Reference made by the Assessing Officer to the ACIT is a triggering point for initiation of penalty proceedings and therefore, the limitation would reckon from the end of the month in which Reference was made by the Assessing Officer to the ACIT for initiation of penalty. By considering all these judicial precedents the Coordinate Bench of this Tribunal in the case of Shri Balreddy Gade, Hyderabad vs. Addl. CIT, Central Range-1, Hyderabad in ITA.Nos.575 to 578/Hyd./2025 vide Order dated 28.08.2025 held in Para nos.15 to 17 asunder:

“15. On perusal of above we found that, the Hon'ble Karnataka High Court in PCIT vs. K. Umesh Shetty (supra), after considering the decision of Hon'ble Kerala High Court as well as the CBDT Circular No.09/DV/2016, has held that the reference

18 ITA.No.2195/Hyd./2025 made by the Ld. AO to the Ld. Addl. CIT is the date of initiation of penalty proceedings for the purpose of section 275(1)(c) of the Act. This decision of the Hon'ble Karnataka High Court, being later in time (17.01.2025) and after the CBDT circular (supra), deserves to be followed.

19 ITA.No.2195/Hyd./2025 7.6. Thus, it is now settled proposition of law that the limitation u/sec.275(1)(c) would reckon from the date of Reference made by the Assessing Officer to the ACIT for initiation of the penalty u/sec.271D of the Act and not from the date of show cause notice issued by the ACIT. In the case in hand, the Reference was made by the Assessing Officer on 06.02.2024 and therefore, the limitation would reckon from the end of February, 2024 and six months would expire on 31.08.2024 whereas the impugned order was passed on 10.09.2024 which is beyond the period of limitation and hence the same is invalid and liable to be quashed. Accordingly, the penalty levied u/sec.271D of the Act stands deleted. We Order accordingly.

Order pronounced in the open Court on 03.07.2026.

Sd/- Sd/- MANJUNATHA G VIJAY PAL RAO ACCOUNTANT MEMBER VICE PRESIDENT Hyderabad, Dated 03rd day of July, 2026 VBP

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Copy to: SRIDHAR MALLAMPATI, HYDERABAD C/O., P. MURALI 1 & CO., CHARTERED ACCOUNTANTS, 6-3-655/2/3, SOMAJIGUDA, HYDERABAD-500082,TELANGANA 2 DCIT, CENTRAL CIRCLE-1(2), HYDERABAD-, TELANGANA 3 THE Pr. CIT-(CENTRAL), HYDERABAD. 4 THE D.R., ITAT, HYDERABAD A-BENCH, HYDERABAD 5 GUARD FILE Digitally signed TRUE COPY VADREVU by VADREVU PRASADA RAO PRASADA Date: ASSISTANT REGISTRAR / RAO 2026.07.03 I.T.A.T., HYDERABAD 11:02:27 +05'30'