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Facts
The assessee sold an agricultural plot for Rs. 27 lakhs and later deposited Rs. 23 lakhs in cash during the demonetization period. The AO accepted this as sale consideration. However, the Addl.CIT initiated penalty proceedings under Section 271D for alleged violation of Section 269SS.
Held
The Tribunal held that for levying penalty under Section 271D, it is mandatory for the Assessing Officer to record his satisfaction regarding the violation of Section 269SS in the assessment order. Since this was not done, the penalty proceedings were not validly initiated.
Key Issues
Whether the penalty under Section 271D is validly initiated without the Assessing Officer recording his satisfaction in the assessment order regarding the violation of Section 269SS.
Sections Cited
271D, 269SS, 143(3), 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 assessee against the order of the Learned Commissioner of Income Tax (Appeals), (hereinafter in short ‘the Ld.CIT(A)’), Chennai-16, dated 29.11.2023 for the Assessment Year (hereinafter in short ‘AY’) 2017-18 confirming the penalty levied u/s.271D of the Income Tax Act, 1961 (hereinafter in short ‘the Act’) passed by the Addl.CIT (International Taxation), Range-1, Chennai, on 26.03.2022.
The brief facts of the case are that assessee an individual had sold a plot at Vallalarr Street, Jyothi Nagar, Arakkonam, Ranipet District, for a sale consideration of Rs.27 lakhs which fact is evident from the copy of the Sale Deed dated 11.07.2016 [AY 2017-18]. And since there was cash deposit of Rs.23 lakhs during demonetization period in the assessee’s bank account, the AO called for details of nature and source of the cash deposits; and pursuant to which the assessee submitted that the deposit of Rs.23 lakhs cash/SBN [which he deposited during demonetization period], was out of the total sale consideration of Rs.27 lakhs he received in June-July, 2016 and drew the attention of the AO to the averments in the Sale Deed wherein the receipt of the cash as sale consideration was acknowledged and the AO accepted the explanation given by the assessee and didn’t draw any adverse inference against the assessee in this respect and accepted the retuned income of Rs.1,21,138/- filed by the assessee by passing the assessment order dated 31.10.2019 framed u/s.143(3) of the Act. Thereafter, penalty proceedings u/s.271D of the Act was initiated by the Addl.CIT and show cause notice was issued u/s.271D r.w.s.274 of the Act dated 24.02.2021 for violation of sec.269SS of the Act. In the show cause notice, the assessee was asked ‘as to why’ penalty u/s.271D of the Act should not be levied for violating sec.269SS of the Act. The assessee objected to the proposal to levy penalty which submission has been reproduced by the Addl.CIT at Para No.4 of his order. However, the Addl.CIT was not satisfied with the explanation given by the assessee that the buyer was an agriculturist and that he was forced to accept the cash, since it was beyond banking hours and that the source of Rs.23 lakhs deposited was out of the sale consideration of Rs.27 lakhs received from the purchase of his agricultural property. Therefore, assessee asserted that there was reasonable cause for non-levy of penalty by relying on the Hon’ble Madras High Court decision in the case of CIT v. Balaji trader reported in 303 ITR 312. However, the Addl.CIT was of the opinion that assessee couldn’t make out a case that there was a reasonable cause for non-levy of penalty and he imposed a penalty of Rs.27 lakhs u/s.271D of the Act.
Aggrieved, the assessee preferred an appeal before the Ld.CIT(A) who was pleased to dismiss the same.
Aggrieved, the assessee is in appeal before this Tribunal.
We have heard both the parties and perused the material available on record. The facts sated hereinabove are not disputed i.e. the genuineness of the cash deposit of Rs.23 lakhs during demonetization period has been accepted by the AO being part of the sale consideration received for sale of agricultural land of the assessee. Therefore, he accepted the return of income filed by the assessee as noted supra.
The assessee is challenging the impugned action of the Addl.CIT levying penalty u/s.271D of the Act on several grounds and especially 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 31.10.2019. In order to support such a contention, he drew our attention to the assessment order passed by the AO u/s.143(3) dated 31.10.2019, which is found placed at Page Nos.54-59 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 specified sum/loan or deposit] which attract penalty u/s.271D of the Act. In the absence of satisfaction recorded by the AO in the course of framing assessment order as to the 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) while deciding similar legal issue regarding levy of penalty u/s 271D for violating section 269SS held as under:
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.
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 in the assessment order. In the present case, on perusal of the assessment order u/s 143(3) dated 31.10.2019, 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.
(AY 2017-18) Mr. Sankaranarayanan Krishnamoorthy 10. 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 by the assessee and all other grounds raised by the assessee have become academic in nature and therefore not adjudicated.
In the result, appeal filed by the assessee is allowed.
Order pronounced on the 10th day of January, 2025, in Chennai.