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Facts
The Revenue appealed against the deletion of a penalty levied by the Addl. CIT under Section 271D of the Income Tax Act, 1961. The penalty was imposed on the assessee for alleged unaccounted scrap sales treated as an advance from a director, violating Section 269SS.
Held
The Tribunal held that the penalty under Section 271D of the Act cannot be levied without the Assessing Officer recording his satisfaction of violation of Section 269SS in the assessment order. Since no such satisfaction was recorded in the assessment order, the penalty proceedings were invalid.
Key Issues
Whether the penalty levied under Section 271D of the Income Tax Act is valid without the Assessing Officer recording his satisfaction in the assessment order regarding the violation of Section 269SS?
Sections Cited
271D, 269SS, 143(3), 274, 271E
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Income Tax Appellate Tribunal, ‘C’ BENCH: CHENNAI
Before: SHRI ABY T. VARKEY & SHRI S.R.RAGHUNATHA
आदेश / O R D E R
PER ABY T. VARKEY, JM:
1. This is an appeal preferred by the Revenue and Cross-Objection filed by the assessee against the order of the Learned Commissioner of Income Tax (Appeals)/NFAC, (hereinafter in short ‘the Ld.CIT(A)’), Delhi, dated 07.06.2023 against the penalty levied by the Addl.CIT u/s.271D of the Income Tax Act, 1961 (hereinafter in short ‘the Act’). The Revenue has assailed the impugned action of the Ld.CIT(A) deleting the penalty (AY 2015-16) CO No.12/Chny/2024 (AY 2015-16) M/s. AKMG Alloys Pvt. Ltd :: 2 ::
whereas the assessee by filing the Cross-Objection is supporting the action of the Ld.CIT(A) as well as has raised a legal issue in support of its ground against jurisdiction of Addl.CIT passing the penalty order.
Since the assessee has also raised legal issue against the penalty levied by the Addl.CIT, by preferring Cross-Objection, the same is admitted, we relying on the decision of the Hon’ble Supreme Court in the case of National Thermal Power Co. Ltd. v. CIT reported in (1998) 229 ITR 383; and proceeding further, we note that the legal issue raised by the assessee in its Cross-Objection is as under:
"That, in the facts and circumstances of the case, the order of penalty passed by the learned Additional Commissioner of Income Tax, Dindigul being initiated and concluded without meeting the mandatory requirement of the satisfaction being recorded by the learned Assessing Officer at the time of framing the original assessment order dated 27.12.2017, is contrary to law and thus void ab-initio, as declared by the Hon'ble Supreme Court in the case of CIT Vs M/s. Jai Laxmi Rice Mills?" For the above additional ground and such other grounds that may be urged at the time of hearing, with kind permission, respondent most humbly submit and pray that the Hon'ble Bench may kindly be pleased to dismiss the subject Appeal filed by the revenue and thus uphold impugned order 07.06.2023 in the interest of justice.
The brief facts of the case are that assessee company was incorporated on 05.08.2010 to manufacture steel ingots and had filed its Return of income (RoI) for AY 2015-16 on 22.09.2015 admitting total loss of Rs.19,58,84,351/- which RoI was later selected for complete scrutiny and the AO completed the assessment on 27.12.2017 u/s.143(3) of the Act accepting the returned income declared by the assessee. Thereafter, (AY 2015-16) CO No.12/Chny/2024 (AY 2015-16) M/s. AKMG Alloys Pvt. Ltd the AO vide letter dated 28.12.2017 brought to the notice of the Addl.CIT that assessee company had carried out unaccounted scrap sales to the tune of Rs.5.70 Crs. and this entry was booked in its book as “credit in the advance from Director’s account”. And explained that as they were unable to collect VAT from buyers as it was unaccounted transactions, it avoided indirect taxation also on it, and also admitted its inability to produce any evidence of such amount and offered it as “advance from Director’s account”. However, according to the Addl.CIT, since the assessee company failed to produce any documentary evidence to consider Rs.5.70 Crs. as “advance from the Director’s account” and such a transaction violated sec.269SS of the Act, it attracted penalty u/s.271D of the Act. Therefore, he issued notice u/s.274 r.w.s.271D dated 16.01.2018 informing the assessee his desire to levy of penalty u/s.271D of the Act.
And after reproducing the written submissions of the assessee at Page Nos.2-3 of the penalty order, the Addl.CIT was of the opinion that the assessee couldn’t explain that Rs.5.70 Cr. was “Advance from Director” and since the assessee failed to make out a case that, there was a reasonable cause for its failure to comply with the provisions of Sec.269SS of the Act, he levied penalty of Rs.5.70 Crs. u/s.271D of the Act by order dated 18.07.2018 which action of the Addl.CIT has been deleted by the Ld.CIT(A) by holding that there was no justification to invoke provisions of Sec.269SS of the Act based on the facts of the case.
(AY 2015-16) CO No.12/Chny/2024 (AY 2015-16) M/s. AKMG Alloys Pvt. Ltd :: 4 ::
Aggrieved the aforesaid action of the Ld.CIT(A)/NFAC, the Revenue has preferred this appeal and in support of the action of the impugned order, the assessee has filed Cross-Objection and has raised the legal issue as noted supra.
We have heard both the parties and perused the material available on record. We note that the assessment order has been framed by the AO vide order dated 27.12.2017 u/s.143(3) of the Act by accepting the return filed by the assessee company [refer to Page No.3-4 of the Paper Book].
The assessee as noted in its Cross-Objection is challenging the impugned action of the Addl.CIT levying penalty u/s.271D of the Act has raised a legal issue that the AO while framing the assessment order has not recorded his satisfaction as to violation of the assessee u/s.269SS of the Act, which would attract levy of penalty u/s.271D of the Act while framing the assessment order dated 27.12.2017. In order to support such a contention, he drew our attention to the assessment order passed by the AO u/s.143(3) dated 27.12.2017, which is found placed at Page Nos.3-5 of the Paper Book, and brought to our notice that there is no satisfaction recorded by the AO about violation of sec.269SS of the Act [i.e. assessee receiving loan or deposit violating said section] which attract penalty u/s.271D of the Act. In the absence of satisfaction (AY 2015-16) CO No.12/Chny/2024 (AY 2015-16) M/s. AKMG Alloys Pvt. Ltd recorded by the AO as to violation by assessee u/s.269SS of the Act, the Ld.AR asserted that impugned penalty levied by the Addl.CIT is bad in law and in support of such a contention cited the decision of the Hon’ble Supreme Court in the case of CIT v. Jai Laxmi Rice Mills reported in [2015] 379 ITR 521 (SC) and also relied on the decision of the Hon’ble Telangana High Court in the case of Srinivasa Reddy Reddeppagari V.
JCIT in WP No.44285 of 2022 and several other coordinate bench decision of this Tribunal which will be discussed infra.
In this regard, in similar case, we note that the Hon’ble Supreme Court in the case of CIT v. Jai Laxmi Rice Mills , wherein, the Hon’ble Apex Court while examining similar contention/legal issue of levy of penalty u/s.271E which is pari materia to sec.271D of the Act held as under:
No penalty u/s 271E could be levied in the absence of recording of satisfaction by the AO in the assessment order. The relevant portion of the decision of the Hon'ble Supreme Court is reproduced as· under: 5. As pointed out above, insofar as, fresh assessment order is concerned, there was no satisfaction recorded regarding penalty proceeding under Section 27 JE of the Act, though in that order the Assessing Officer wanted penalty proceeding to be initiated under Section 271 (l)(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.
Thereafter, the Hon’ble Telangana High Court in the case of Sirnivasa Reddy Reddeppagari (supra) held as under:
(AY 2015-16) CO No.12/Chny/2024 (AY 2015-16) M/s. AKMG Alloys Pvt. Ltd :: 6 ::
While disposing off the writ filed against the penalty order passed u/s 271D of the Act. The Hon'ble High Court held that the provisions of secs 271D 271E are pari materia to each other and the decision of the Hon'ble Supreme Court in Jai Laxmi Rice Mills case is applicable to penalty u/s 271D also. The relevant portion of the decision of the Hon'ble High Court is extracted as under:
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 271 E 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 nova. In the fresh assessment order, no satisfaction was recorded by the assessing officer regarding initiation of penalty proceedings under Section 271 E 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.
(AY 2015-16) CO No.12/Chny/2024 (AY 2015-16) M/s. AKMG Alloys Pvt. Ltd :: 7 ::
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 (I 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.I 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. 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. I 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, it is the bounden (2013) 3 5 2 ITR 1 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.
Following the Hon’ble Courts decisions (supra), this Tribunal in several cases [T Shiju v. JCIT in dated07.06.2019] has held that recording of satisfaction by the AO in the assessment order regarding the violation of the provisions of section 269SS is a mandatory requirement for valid initiation of penalty proceedings us 271D of the Act and no penalty could be levied if the AO failed to record such satisfaction (AY 2015-16) CO No.12/Chny/2024 (AY 2015-16) M/s. AKMG Alloys Pvt. Ltd in the assessment order. In the present case, on perusal of the assessment order u/s 143(3) dated 27.12.2017, it is seen that no such satisfaction has been recorded by the AO in the said assessment order.
Hence, having regard to the failure of the AO to record his satisfaction in the assessment order with regard to the violation of the provisions of Sec.
269SS, it is held that the penalty proceedings u/s. 271D of the Act have not been validly initiated and consequently, the penalty order passed by the Addl. CIT is held to be bad in Law.
Since the assessee succeeds on the legal issue as noted supra as held by the Hon’ble Supreme Court & High Courts as well as this Tribunal supra, we are inclined to allow the legal issue raised in the Cross- Objection by the assessee and consequently, all other grounds raised by the Revenue have become academic in nature and therefore not adjudicated.
In the result, Cross-Objection filed by the assessee is allowed and the appeal filed by the Revenue is dismissed.
Order pronounced on the 10th day of January, 2025, in Chennai.