SHIVALIK VIHAR SITES PVT. LTD,PUNJAB vs. JOINT COMMISSIONER OF INCOME TAX, CHANDIGARH

The assessee was assessed u/s 143(3) on 26-12-2019 wherein the returned income of the assessee was accepted. No penalty whatsoever has been initiated by Ld. AO in the assessment order. However, later on, penalty proceedings were initiated by appropriate authority u/s 271D and the assessee was show-caused on 08-03-2022 on the ground that the assessee received cash of Rs.47.40 Lacs from five buyers which was deposited in its bank account. The same was in violation of the provisions of Sec.269SS which mandate the assessee to receive such sales consideration through banking channels only.

The assessee opposed the proposed penalty on the ground that it was engaged in developing and constructing flats. Due to financial losses, the assessee was in dire need to repay the creditors. Accordingly, the flats were sold to rural buyers against cash consideration. Nevertheless, the sale transactions were genuine and therefore, no penalty could be levied. However, rejecting the same, Ld. AO levied impugned penalty which stood confirmed by Ld. CIT(A). Aggrieved, the assessee is in further appeal before us.

The Ld. AR raised a pertinent legal ground and stated that impugned penalty is necessarily to be initiated in the quantum assessment order itself. In the present case, there was no such satisfaction of Ld. AO on factual matrix. Without this exercise, the impugned penalty could not be sustained in the eyes of law. To support the same, reliance was placed on CBDT Circular no. 09/DV/2016 dated 26-04-2016 advising Assessing Officer to make a reference to the Range Head regarding violation of provisions of Sec.269SS and 269T during the course of assessment proceedings itself. In support of its submissions, the Ld. AR referred to the decision of Hon’ble Supreme Court in the case of CIT vs. Jai Laxmi Rice Mills (379 ITR 521) which specified that no penalty could be levied u/s 271E without recording the satisfaction. The assessee also referred to the decision of Chennai Tribunal in the case of Shri Subramanium Thanu (ITA Nos.785/Chny/2023 & ors. dated 13-03-2024) which deleted similar penalty u/s 271D by following various decisions including this decision as well as the decision of Hon’ble High Court of Andhra Pradesh and Telangana in Srinivasa Reddy Reddeppagiri vs. JCIT (332 CTR 0614 Telangana). The Ld. Sr. DR, on the other hand, pleaded for literal interpretation of the penal provisions and submitted that there was no such requirement in the statute.

It clearly emerges that the assessment was framed on 21-12-2019 wherein no satisfaction qua initiation of penalty proceedings u/s 271D have been recorded by Ld. AO. Another fact is that penalty proceedings have been initiated after considerable gap of time since first show cause notice has been issued by appropriate authority on 08-03-2022. The same is in violation of CBDT Circular no. 09/DV/2016 dated 26-04-2016 advising Assessing Officer to make a reference to the Range Head regarding violation of provisions of Sec.269SS and 269T during the course of assessment proceedings itself. Thus, the action of Ld. AO was in gross violation of departmental circular. Secondly, the case of the assessee is covered by the decision of Hon’ble Apex Court in the case of CIT vs. Jai Laxmi Rice Mills (supra) which specifically provide that no penalty could be levied u/s 271E without recording the satisfaction. This decision has been followed by Hon’ble High Court of Andhra Pradesh and Telangana in Srinivasa Reddy Reddeppagiri vs. JCIT (332 CTR 0614 Telangana). By considering the ratio of these decisions, it could be said that the recording of satisfaction in the assessment order regarding the violation of provisions of Sec.269SS was a mandatory requirement for valid initiation of penalty proceedings u/s 271D of the Act. No such penalty could be levied if AO failed to record such satisfaction in the assessment order. Therefore, in our considered opinion, the impugned penalty could not be sustained in law. We order so. Delving into other grounds has been rendered mere academic in nature.

In the result, the appeal stand allowed. Order pronounced on 13/10/2025 Sd/- Sd/- (RAJPAL YADAV) (MANOJ KUMAR AGGARWAL) VICE PRESIDENT ACCOUNTANT MEMBER Dated: 13/10/2025 आदेश की �ितिलिप अ�ेिषत /Copy of the Order forwarded to : 1. अपीलाथ�/Appellant 2. ��थ�/Respondent 3. आयकरआयु�/CIT 4. िवभागीय�ितिनिध/DR 5. गाड�फाईल/GF ASSISTANT REGISTRAR