PREMJI BHURLAL GALA ,MUMBAI vs. ADDL CIT RANG 24(1), MUMBAI

10. The Assessing Officer thus ultimately, on being satisfied that this is a fit case for levy of penalty under Section 271D, levied a penalty of Rs. 64,25,000/- under such section.

10. The Appellant filed appeal with Commissioner of Income tax (Appeals) against arbitrary order passed by the AO against addition of Income and requested stay of penalty proceedings against the order till the appeal is heard. 11 The Appellant again reiterated that he has not received any alleged cash loan from M/s. Evergreen Enterprises or Mr. Nilesh Bharani or any of his related entities and requested stay on penalty proceedings since levy of penalty is dependent on addition of Income which itself is disputed and appealed against which is pending with Commissioner of Income Tax (Appeals).”

5. Findings and Reasons The core of the appeal filed by the appellant revolves around challenging the penalty of Rs. 64,25,000/- levied under Section 2710 of the Income-tax Act, 1961, for alleged acceptance of cash loan in violation of Section 269SS. The appellant denies the very existence of such cash loans and contends that the penalty is premature, unjustified, and procedurally flawed. After carefully considering the facts of the case, the order of the AO, the grounds of appeal, and the submissions made by the appellant, the following findings are recorded: i. Applicability of Section 269SS and Section 271D:- Section 269SS mandates that no person shall accept any loan or deposit of Rs. 20,000 or more otherwise than by account payee cheque or bank draft. Violation of this Section attracts penalty under Section 271D equal to the amount so accepted. The AO has brought on record evidence in the form of statements of Mr Nilesh Bharani, Mr Ashwin Rathod, Mrs. Vibha Sachin Rawate, and other employees during the search in M/s Evergreen Enterprises, documents evidencing ledger entries and transaction details indicating acceptance of cash loans by the appellant. These form a prima facie and credible basis for concluding that the appellant had accepted cash loans in contravention of Section 269SS. ii. Retraction of Statement: The appellant has placed reliance on the retraction affidavit of Mr. Nilesh Bharani dated 14.10.2017. However, no cross- verification or evidence has been produced to prove that the affidavit was accepted by the department or that the original statement was invalidated. The retraction, being after a considerable lapse of time and not backed by substantial justification, cannot override the evidentiary value of contemporaneous statements recorded under oath. iii. Lack of Cross-Examination: of cross-examination, the assessment was was completed under Section 144 due to non-compliance by the appellant himself. Hence, the appellant cannot now claim denial of opportunity when he failed to respond within the time provided during the assessment proceedings. iv. Reasonable Cause under Section 2738: The appellant has not provided any cogent evidence or explanation showing reasonable cause for the acceptance of loan, even assuming such a loan was taken. Mere denial of transaction or pendency of quantum appeal does not constitute reasonable cause under Section 273B. v. Penalty Proceedings Independent of Assessment:- It is well settled in law that penalty u/s 271D is independent of the outcome of the quantum assessment. Even if an appeal is pending against the addition, the existence of a loan/deposit accepted in cash can separately attract penalty under 271D. In this case, the AO has clearly established the fact of cash loan being accepted in violation of Section 269SS, and the appellant has failed to discharge the onus of proving otherwise or to establish reasonable cause for such acceptance. In light of the above discussion and after considering the totality of facts, I am of the considered opinion that. a) The appellant has falled to rebut the findings of the AO with any credible evidence. b) No reasonable cause has been demonstrated for accepting cash loans. c) Procedural violations, if any, are not fatal to the validity of penalty in this case due to lack of compliance on the part of the appellant during assessment proceedings. Accordingly, the appeal filed by the appellant is dismissed, and the penalty of Rs. 64,25,000/- levied u/s 271D is confirmed.

14. Thus, the Assessee being aggrieved has preferred the instant appeal against the impugned order, which is under challenge. The ld. Counsel for the Assessee at the outset has claimed that the Hon’ble Coordinate Bench of the Tribunal in the quantum appeal filed against the assessment order/addition made by the A.O. has ultimately, deleted the aforesaid addition of Rs. 64,25,000/- in & ors, relevant for the assessment year 2016-17, decided on 12.06.2024, by observing and holding has under:

8. We heard the rival submission and considered the documents available on record. The assessment was initiated against notice U/s 148. The observation in 'recorded reason' is itself erroneous. The addition of un-explained cash loan is contradicting the violation of Section 269SS r.w.s. 271D related penalty. The entire assessment & addition is based on the statement of the partners of M/s Evergreen Enterprises. No other evidence is brought to record by the Id. AO. The issue is squarely covered by the order of assessee's own case for AY 2012-13 bearing ITA No.3081/Mum/2022(supra). We respectfully relied on the order of the Sanjiv Amritlal Cheda (supra)&the order of Coordinate Bench of ITAT Mumbai. The Id. DR unable to bring any contrary fact against the submission of the Id. AR. In our considered view we set aside the impugned appeal order. The addition U/s 68 of the Act amounts to Rs. 66 lakh is quashed. So, the appeal of the assessee is succeeded.

9. The bench has noticed that the issues raised by the assessee in the above appeals are equally similar on set of facts and grounds. Therefore, it is not imperative to repeat the facts and various grounds raised by the assessee. Hence, the bench feels that the decision taken by us in ITA 440/Mum/2024for the Assessment Year 2013-14 shall apply mutatis mutandis in the above listed appeals. In the result, the appeals of the assessee bearing ITA 440/Mum/2024, ITA 442/Mum/2024, and ITA 443/Mum/2024 are allowed.

15. Thus, the Assessing Officer, consequently drop the penalty proceedings initiated under Section 271 (1) (c) of the Act, vide order dated 26.02.2025.

"In these appeals, we are concerned with the question as to whether penalty proceeding under Section 271D of the Income Tax Act (hereinafter referred to as "the Act") is independent of the assessment proceeding and this question arises for consideration in respect of Assessment Years 1991-1992 and 1992-1993 under the following circumstances: In respect of Assessment Year 1992-1993, assessment order was passed on 26.02.1996 on the basis of CIB information informing the Department that the assessee is engaged in large scale purchase and sale of wheat, but it is not filing income tax return. Ex-parte proceedings were initiated, which resulted in the aforesaid order, as per which net taxable income of the assessee was assessed at 18,34,584/-While framing the assessment, the Assessing Officer also observed that the assessee had contravened the provisions of Section 269SS of the Act and because of this the Assessing Officer was satisfied that penalty proceedings under Section 271E of the Act were to be initiated. The assessee carried out this order in appeal. The Commissioner of Income Tax (Appeals) allowed the appeal and set aside the assessment order with a direction to frame the assessment de novo after affording adequate opportunity to the assessee. After remand, the Assessing Officer passed fresh assessment order. In this assessment order, however, no satisfaction regarding initiation of penalty proceedings under Section 271E of the Act was recorded. It so happened that on the basis of the original assessment order dated 26.02.1996, show cause notice was given to the assessee and it resulted in passing the penalty order dated 23.09.1996. Thus, this penalty order was passed before the appeal of the assessee against the original assessment order was heard and allowed thereby setting aside the assessment order itself. It is in this backdrop, a question has arisen as to whether the penalty order, which was passed on the basis of original assessment order and when that assessment order had been set aside, could still survive. 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.

10. We also take note of the distinguishing facts brought before us in respect of the judicial precedents relied upon by the Id. Sr. DR and we agree with the same. We also note that the contentions put forth by the Id. Sr. DR have been dealt with by the Co-ordinate Bench of ITAT in the case of Karan Empire Pvt. Ltd. (supra) in paragraph 9, wherein it is noted as under: “though undeniably, there is a difference in the facts of both the cases as in the case before the Hon'ble Apex Court, the assessment had been set aside with the direction to frame a fresh assessment. While in the present case before us, the assessment order passed has been held to be invalid, the proposition laid by the Hon'ble Apex Court Hon'ble Apex Court still applies since the ultimate effect of the facts in both the cases still results in the original assessment order, not surviving, as also the satisfaction recorded therein for the purpose of initiation of penalty proceedings under section 271E/271D of the Act." 10.1. Considering the facts on record and the judicial precedents dealt in above, more importantly, by placing reliance on the decision of the Hon'ble Supreme Court, in the case of Jayalakshmi Rice Mills (supra), and the decision of the Co-ordinate Bench of ITAT, Chandigarh in the case of Karan Empire Pvt. Ltd. (supra), which has dealt with the decision of Hon'ble Supreme Court as well as similar contentions put forth by ld. Sr. DR, we delete the levy of penalty u/s. 271E of the Act amounting to ₹11,40,000/-. Accordingly, ground No.1 taken by the assessee is allowed. All other grounds taken by the assessee are thus, rendered academic in nature.”

“28. We find an identical issue had come up before the Mumbai Bench of the Tribunal in the case of Ravi Nirman Nigam Ltd. vs. ACIT (supra) where the Tribunal has held that the penalty proceedings initiated u/s 271D of the Act do not survive once the assessment is held to be invalid. The relevant observations of the Tribunal from para 9 to 10.1 read as under: "9. We have heard the rival contentions and perused the material on record. Admittedly, it is a fact on record that the reassessment proceedings, ws. 147 of the Act in the course of which penalty proceedings u/s. 271D and 271E were initiated have been quashed as void ab initio by the Co-ordinate Bench. This fact was put forth before the ld. CIT(A) by the assessee but has been negated to upheld the penalty imposed by the ld. Assessing Officer. Based on these facts, we have perused the order of the Hon'ble Apex Court in the case of Jayalakshmi Rice Mills (supra), and find that it clearly applies in the present case to hold that with the quashing/annulling of the reassessment order passed in the case of the assessee by the ITAT, the penalty initiated there in ws. 271D did not survive.

by the assessee are accordingly allowed.

23. Thus, on the aforesaid analysis, the penalty levied and affirmed by the Ld. Commissioner, is unsustainable, hence the same is deleted.

Order pronounced in the open court on 28.01.2026.