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Facts
The assessee appealed against an order confirming a penalty levied under Section 271D for alleged violation of Section 269SS of the Income Tax Act. The penalty was imposed for allegedly receiving Rs.4.20 Cr. in cash for property sale. The assessee contended that the Assessing Officer (AO) failed to record his satisfaction regarding the violation in the assessment order.
Held
The Tribunal held that recording the AO's satisfaction regarding the violation of Section 269SS in the assessment order is mandatory for initiating penalty proceedings under Section 271D. Since the AO failed to record such satisfaction, the penalty was not validly initiated.
Key Issues
Whether penalty under Section 271D can be levied if the Assessing Officer does not record satisfaction of violation of Section 269SS in the assessment order.
Sections Cited
153C, 271D, 269SS, 271E, 271(1)(c)
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Income Tax Appellate Tribunal, ‘B’ BENCH: CHENNAI
Before: SHRI ABY T. VARKEY & SHRI AMITABH SHUKLA
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)/NFAC, (hereinafter in short "the Ld.CIT(A)”), Chennai/Delhi, dated 30.04.2024 for the Assessment Year (hereinafter in short "AY”) 2016-17 against the action of the Ld.CIT(A) confirming the penalty levied u/s.271D of the Income Tax Act, 1961 (hereinafter in short "the Act”) by the Addl.CIT dated 30.08.2022.
The brief facts are that the AO passed the assessment order against the company u/s.153C of the Act dated 16.08.2021 and assessed income of Rs.9,04,35,576/- in place of returned income of Rs.4,44,350/-.
Thereafter, the Addl. CIT issued notice dated 07.02.2022 proposing levy of penalty u/s.271D for violation of provisions of Sec.269SS of the Act alleging that assessee has received Rs.4.20 Cr. in cash for sale of property to M/s.KMV Projects Ltd., vide sale agreements dated 03.12.2015 and other documents. However, the assessee objected to the levy of penalty by submitting its reply on 18.02.2022 & 26.08.2022, which has been reproduced by the Addl.CIT in his penalty order at Page Nos.2 & 3; and after giving his reasons for rejecting the explanation of the assessee, levied penalty of Rs.4.20 Cr. u/s.271D by order dated 30.08.2022 which has been challenged before the Ld.CIT(A) without success. Therefore, the assessee is in appeal before this Tribunal.
We have heard both the parties and perused the material available on record. 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 u/s.153C of the Act dated 16.08.2021. In order to support such a contention, he drew our attention to the assessment order passed by the AO u/s.153C dated 16.08.2021, which is found placed at Page Nos.13-21 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] which could have attracted penalty u/s.271D of the Act. According to Ld AR, 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 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 [supra], 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:
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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:
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.
5. 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 :: 5 ::
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 dated 07.06.2019] 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 153C dated 16.08.2021, 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 levying Rs.4.20 Crs. 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 by the assessee and
In the result, appeal filed by the assessee is allowed.
Order pronounced on the 08th day of January, 2025, in Chennai.