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Facts
The assessees received a significant portion of the sale consideration in cash for the transfer of an immovable property. The Joint Commissioner of Income Tax (JCIT) levied penalties under Section 271D for alleged violation of Section 269SS. The assessees contended that the cash was part of the final sale consideration, acknowledged at registration, and not an advance, and that penalty proceedings lacked proper satisfaction and were time-barred.
Held
The Tribunal held that cash received as sale consideration at the time of registration of the sale deed, and duly acknowledged therein, does not fall within the ambit of Section 269SS. Furthermore, the Tribunal found that initiation of penalty proceedings under Section 271D requires satisfaction recorded during assessment or related proceedings, and in its absence, the penalty is unsustainable.
Key Issues
Whether cash received as sale consideration for immovable property violates Section 269SS, and if penalty under Section 271D is sustainable without prior assessment satisfaction and within limitation.
Sections Cited
271D, 269SS, 143(1), 275, 271E, 274, 269T, 143(3)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, Hyderabad ‘B’ Bench, Hyderabad
Before: SHRI VIJAY PAL RAO & SHRI MANJUNATHA G.
PER VIJAY PAL RAO, VICE PRESIDENT :
1. These two appeals by two related assessees are directed against the two separate Orders of the learned CIT(A) dated 04.08.2025 and 02.10.2025 arising from penalty order
2 ITA.Nos.1617 & 1722/Hyd./2025 passed u/sec.271D respectively, for the assessment year 2017-2018.
The assessees have raised identical grounds in these appeals. For the purpose of recording the facts the appeal ITA.No.1617/Hyd./2025 is taken as “lead” case. The assessee has raised the following grounds in ITA.No.1617/ Hyd./2025.
The order of the learned Commissioner of Income Tax 1 (Appeals) is against the law, weight of evidence and probabilities of case.
2. The learned Commissioner erred in confirming the order of the JCIT-Range-15, u/s 271D of the IT Act, wherein, an amount of Rs.7,82,500/- is levied as penalty for violation of provision of section 269SS of the IT Act.
3. The learned Commissioner erred in confirming the order u/s 271D of the IT Act which does not mention the PAN number of the assessee which is a mandatory requirement.
4. The learned Joint Commissioner levied penalty u/s 271D of the IT Act at Rs.7,82,500/- in which there is no satisfaction recorded by the AO stating that there is a violation of section 269SS, which caused escapement of income OR concealment of income. in the absence of such a satisfaction by the Assessing Officer in the case of assessee, the learned Commissioner erred in confirming the order u/s 271D of the IT Act.
5. The learned Commissioner ought to have appreciated that the penalty u/s 271D of the IT Act at Rs.7,82,500/- is levied, wherein, the JCIT/AO has not initiated penalty proceedings u/s 274 r.w.s 3 ITA.Nos.1617 & 1722/Hyd./2025 271D and also the ICIT has not issued a show cause notice, according an opportunity to the assessee, therefore, there is a violation of principles of natural justice, therefore, the learned CIT erred in confirming penalty order u/s 271D of the IT Act.
6. The learned CIT erred in confirming the order of the JCIT, levying penalty u/s 271D of the IT Act amounting to Rs.7,82,500/- wherein, the provisions of section 275 are violated.
7. The appellant craves leave to add to, amend OR modify the 7 above grounds of appeal either before OR at the time of hearing of the appeal, if it is considered necessary.”
3. The assessees before us transferred an immovable property vide sale deed dated 29.07.2016 for a total sale consideration of Rs.45,21,000/- having 50% share each. Out of the total sale consideration, a sum of Rs.15,65,000/- was received in cash. The assessee has filed his return of income on 04.11.2017 declaring total income of Rs.3,76,590/- after claiming deduction of Rs.1,50,000/- under Chapter-VIA of the Income Tax Act [in short "the Act"], 1961. It appears that the return of income was processed u/sec.143(1) of the Act and thereafter, the penalty proceedings were initiated u/sec.271D of the Act for violation of the provisions of sec.269SS of the Act vide show cause notice dated 16.08.2019. The JCIT levied the penalty of Rs.7,82,500/-
4 ITA.Nos.1617 & 1722/Hyd./2025 u/sec.271D in each case being 50% share in receipt of cash in the transaction of sale of property. The assessee challenged the levy of penalty before the learned CIT(A) but could not succeed.
4. Before the Tribunal, the learned Authorised Representative of the Assessee has submitted that the cash was received as part of the sale consideration on transfer of the property in question and therefore, it does not fall in the ambit of sec.269SS of the Act being a specified sum whether as advance or otherwise. The learned Authorised Representative of the Assessee has further submitted that the receipt of the cash is acknowledged by the assessee at the time of the registration of the sale deed before the Sub- Registrar which is not in violation of the provisions of sec.269SS of the Act. In support of his contention, he has relied upon the Order of ITAT, Chennai Bench dated 29.12.2023 in the case of ITO, Ward-2, Kanchipuram vs. Shri R. Dhinagharan (HUF), Kanchipuram in ITA.No.3329/Chny/ 2019 and submitted that the Tribunal has held that the cash received as sale consideration for 5 ITA.Nos.1617 & 1722/Hyd./2025 transfer of the immovable property does not fall in the ambit of sec.269SS and consequently, penalty levied u/sec.271D of the Act is not sustainable in law. He has further submitted that when there is no proceedings of assessment or otherwise pending in the case of the assessee then, there cannot be any satisfaction as well as initiation of proceedings u/sec.271D of the Act. In support of his contention, he has relied upon the decision of ITAT, Hyderabad Tribunal dated 24.12.2025 in the case of Somireddy Sudhakar Reddy, Ibrahimpatnam, RR District vs. ITO, Ward-9(1), Hyderabad in ITA.No.1505 /Hyd./2025 and submitted that in absence of the satisfaction recorded by the Assessing Officer, the penalty levied u/sec.271D is not sustainable in law. The learned Authorised Representative of the Assessee has also relied upon the Order of ITAT, Indore Bench of the Tribunal dated 19.07.2023 in the case of Shri Umakant Sharma, Jhabua vs. JCIT, Ratlam in ITA.Nos.364 to 366/Ind/2022 and submitted that the Tribunal has held that initiation of penalty u/sec.271D of the Act without any assessment proceedings or proceedings arising from assessment order is 6 ITA.Nos.1617 & 1722/Hyd./2025 not valid. Thus, the learned Authorised Representative of the Assessee has submitted that the penalty levied by the JCIT and confirmed by the learned CIT(A) is unjustified and unsustainable in law and liable to be deleted.
5. On the other hand, the learned DR has submitted that the jurisdiction to levy penalty u/sec.271D of the Act lies with the JCIT and therefore, there is no requirement of the recording of satisfaction by the ITO/Assessing Officer. He has further submitted that the penalty proceedings are independent of the assessment as far as the time limit is concerned. Once the assessment is completed, it will act as a leash compelling the Tax Authorities to act within a reasonable period. In support of his contention, he has relied upon the Judgment of Hon’ble Kerala High Court dated 31.01.2025 in WP (C) No.37927 of 2024 in the case of M/s. Vee Ess Hardwares, Ambalapuzha vs. ACIT, Alappuzha & Another. He has also relied upon the orders of the authorities below.
We have considered the rival submissions as well as the relevant material on record. There is no dispute that 7 ITA.Nos.1617 & 1722/Hyd./2025 the alleged cash of Rs.7,82,500/- was received by the assessee as part of the sale consideration on transfer of the immovable property along with the co-owner. The JCIT has levied the penalty u/sec.271D of the Act vide Order dated 25.02.2020 due to violation of the provisions of sec.269SS of the Act. The assessee has challenged the levy of penalty inter alia, on the ground that the cash received as part of the sale consideration for transfer of the immovable property and duly mentioned in the registered sale deed as acknowledgement of the receipt of the cash before the Sub-Registrar does not fall in the ambit of sec.269SS of the Act. The learned Authorised Representative of the Assessee has relied upon the decision of Chennai Benches of the Tribunal in the case of ITO, Ward- 2, Kanchipuram vs. Shri R. Dhinagharan (HUF), Kanchipuram (supra), wherein the Tribunal has held in Para-12 as under:
12. We have heard the rival contentions, and gone through the facts and circumstances of the case. We find that the Revenue has challenged the correctness of the decision rendered by the CIT(A) vide order dated 30.09.2019 in deleting the penalty levied u/s 271D of the Act vide penalty order dated 12.06.2019. The CIT(A) had deleted the penalty on two counts namely on the 8 ITA.Nos.1617 & 1722/Hyd./2025 non-applicability of the provisions of Section 269SS of the Act to the facts of the present case and on the ground of reasonable cause within the scope of Section 273B of the Act. We noted that the provisions of Section 269SS of the Act was amended w.e.f. 01.06.2015 to include the 'specified sum' within its ambit and the said term was defined in Explanation to the said Section which is reproduced as under: o specified sum" means any sum of money receivable, whether as advance or otherwise, in relation to transfer of an immovable property, whether or not the transfer takes place.
The Budget Speech of the Hon'ble Finance Minister while placing the Finance Bill, 2015 highlighting the intention of the amendment relevant for decision making in the present appeal is captured below:
A. Measures to curb black money.
3.1. With a view to curbing the generation of black money in real estate, it is proposed to amend the provisions of section 269SS and 269T of the Income-tax Act so as to prohibit acceptance or re-payment of advance in cash of Rs. 20,000 or more for any transaction in immovable property. It is also proposed to provide a penalty of an equal amount in case of contravention of such provisions.
The Memorandum forming part of Finance Bill, 201.5 highlighting the intention of the amendment is captured below:
9 ITA.Nos.1617 & 1722/Hyd./2025 B. MEASURES TO CURB BLACK MONEY
Mode of taking or accepting certain loans, deposits and specified sums and mode of repayment of loans or deposits and specified advances The existing provisions contained in section 269SS of the Income-tax Act provide that no person shall take from any person any loan or deposit otherwise than by an account payee cheque or account payee bank draft or online transfer through a bank account, if the amount of such loan or deposit is twenty thousand rupees or more. However, certain exceptions have been provided in the section. Similarly, the existing provisions contained in section 269T of the Income- tax Act provide that any loan or deposit shall not be repaid, otherwise than by an account payee cheque or account payee bank draft or online transfer through a bank account, by the persons specified in the section if the amount of loan or deposit is twenty thousand rupees or more.
In order to curb generation of black money by way of dealings in cash in immovable property transactions it is proposed to amend section 269SS. of the Income-tax Act so as to provide that no person shall accept from any person any loan or deposit or any sum of money, whether as advance or otherwise, in relation to transfer of an immovable property otherwise than by an account payee cheque or account payee bank draft or by electronic clearing system through a bank account, if the amount of such loan or deposit or such specified sum is twenty thousand rupees or more.
It is also proposed to amend section 269T of the Income-tax Act so as to provide that no person shall repay any loan or 10 ITA.Nos.1617 & 1722/Hyd./2025 deposit made with it or any specified advance received by it, otherwise than by an account payee cheque or account payee bank draft or by electronic clearing system through a bank account, if the amount or aggregate amount of loans or deposits or specified advances is twenty thousand rupees or more. The specified advance shall mean any sum of money in the nature of an advance, by whatever name called, in relation to transfer of an immovable property whether or not the transfer takes place.
It is further proposed to make consequential amendments in section 271D and section 271E to provide penalty for failure to comply with the amended provisions of section 269SS and 269T, respectively. These amendments will take effect from 1st day of June, 2015.
The Notes on Clauses forming part of Finance Bill, 2015 highlighting the intention of the amendment is captured below:
Clause 66 of the Bill seeks to substitute section 269SS of the Income-tax Act relating to mode of taking or accepting certain loans and deposits. The existing provision contained in section 269SS provides that no person shall take from any person any loan or deposit otherwise than by an account payee cheque or account payee bank draft or online transfer through a bank account if the amount of such loan or deposit is twenty thousand rupees or more.
It is proposed to substitute the said section so as to provide that no person shall take from any person, any loan or deposit or specified sum, otherwise than by an account payee cheque or account payee bank draft or online transfer
11 ITA.Nos.1617 & 1722/Hyd./2025 through a bank account if the amount of such loan or deposit or specified sum is twenty thousand rupees or more.
It is also proposed to define "specified sum" as any sum of money receivable, whether as advance or otherwise in relation to transfer of an immovable property whether or not the transfer materialises.
These amendments will take effect from 1st June, 2015.
12.1 In the present case, the sale consideration was received in cash at the time of execution of multiple sale deeds from different persons for the sale of plots and accepted as genuine in the assessment order completed on 23.05.2018 and admittedly there was no advance received by the seller. The amended provisions of Section 269SS of the Act was applied by the A.O to the facts of the present case only to the sale consideration received as 'specified sum' and on such presumption the JCIT levied penalty u/s 271D of the Act. The intention of the amendment is very clear right from the Budget speech of the Finance Minister that the said amendment is brought into the statute in Section 269SS of the Act would get attracted to sum received in cash as an advance in an immovable property transaction and not to the completed transaction namely cash received as a sale consideration at the time of execution of the registered sale deed. In fact, the statute brought in another amendment in Section 269ST of the Act from the assessment year 2017-18 with a view to cover all situations of cash transaction Rs. 2 Lakhs or over other than the situation captured in Section 269SS of the Act. This provision has been explained with more clarity by the CBDT Circular No.19 of 2015, dated 27.11.2015 and the relevant circular reads as under:-
12 ITA.Nos.1617 & 1722/Hyd./2025 Departmental Circular No. 19 of 2015, dated 27/11/2015:-
Mode of taking or accepting certain loans, deposits and specified sums and mode of repayment of loans or deposits and specified advances.
54.1. Provisions contained in section 269SS of the Income-tax Act, before amendment by the Act, provided that no person shall take from any person any loan or deposit otherwise than by an account payee cheque or account payee bank draft or online transfer through a bank account, if the amount of such loan or deposit is twenty thousand rupees or more. However, certain exceptions were provided in the section.
54.2. Similarly, the provisions contained in section 269T of the Income-tax Act, before amendment by the Act, provided that any loan or deposit shall not be repaid, otherwise than by an account payee cheque or account payee bank draft or online transfer through a bank account, by the persons specified in the section if the amount of loan or deposit is twenty thousand rupees or more.
54.3. In order to curb generation of black money by way of dealings in cash in immovable property transactions, section 269SS of the Income-tax Act has been amended to provide that no person shall accept from any person any loan or deposit or any sum of money, whether as advance or otherwise, in relation to transfer of an immovable property(specified sum) otherwise than by an account payee cheque or account payee bank draft or by electronic clearing system through a bank account, if the amount of such loan
13 ITA.Nos.1617 & 1722/Hyd./2025 or deposit or such specified sum is twenty thousand rupees or more.
54.4. Section 269T of the Income-tax Act has also been amended to provide that no person shall repay any loan or deposit made with it or any specified advance received by it, otherwise than by an account payee cheque or account payee bank draft or by electronic clearing system through a bank account, if the amount or aggregate amount of loans or deposits or specified advances is twenty thousand rupees or more. The specified advance shall mean any sum of money in the nature of an advance, by whatever name called, in relation to transfer of an immovable property whether or not the transfer takes place.
54.5. Consequential amendments in section 271D and section 271E, to provide penalty for failure to comply with the amended provisions of section 269SS and 269T, respectively, have also been made.
54.6. Applicability: These amendments have taken effect from 1st day of June, 2015.
From the above provisions, Memorandum explaining the intention of amendment by Finance Bill, 2015 including the definition of 'sum specified brought in the Explanation to Section 269SS of the Act, it is clear that the intention for brining this provision was to curb the generation of black money in real estate prohibiting acceptance or repayment of advance in cash of Rs.20,000/- or more for any transaction in immovable property. This was explained by Hon'ble Finance Minister while placing the Finance Bill, 2015 in her budget speech highlighting the intention of the amendment that the amendment in Explanation to Section 269SS i.e., 'sum specified"
14 ITA.Nos.1617 & 1722/Hyd./2025 means only applicable for advance receivable, whether as advance or otherwise means advance can be in any manner. Hence, this provision will not apply to the transaction that happens at the time of final payment at the time of registration of sale deed and payment is made before sub-registrar at the time of registration of property. In the present case before us, it is an admitted fact that all sale deeds were registered and cash payment was made at one go before the sub-registrar at the time of registration of sale deeds of plots. Hence, in our view, there is no violation of provisions of section 269SS of the Act in the present case in the given facts and circumstances of the case and hence, penalty is not exigible in this case. Hence, we confirm the order of CIT(A) deleting the penalty but on entirely different ground i.e.. on jurisdictional issue only. Accordingly, the appeal of the Revenue is dismissed.”
7. Thus, the Tribunal has taken a view that the cash received as part of the sale consideration of immovable property duly mentioned in the registered sale deed is a transaction undertaken before the Sub-Registrar is not in violation of the provisions of sec.269SS of the Act.
8. The second objection of the assessee against the levy of the penalty is regarding non-recording of satisfaction by the Assessing Officer as there was no assessment proceedings nor any other proceedings arising from the assessment order wherein such satisfaction could have been recorded. The learned Authorised Representative of the 15 ITA.Nos.1617 & 1722/Hyd./2025 Assessee has also challenged the order on the ground of limitation. In support of his contention, he has relied upon the Order of this Tribunal in the case of Somireddy Sudhakar Reddy, Ibrahimpatnam, RR Dist. Vs. ITO, Ward- 9(1), Hyderabad (supra), wherein the Tribunal has held in Paras-5 to 8 as under:
“5. We have considered the rival submissions as well as relevant material on record. The JCIT, Range Head-9, Hyderabad has levied the penalty u/sec.271D vide order dated 10.12.2019 as under: “GOVERNMENT OF INDIA MINISTRY OF FINANCE INCOME TAX DEPARTMENT OFFICE OF THE JOINT COMMISSIONER OF INCOME TAX RANGE-9, HYDERABAD To Shri SAMREDDY SUDHAKAR REDDY, 4-34, Karnamguda, IBRAHIMPATNAM, Hyderabad. Telangana. India. Dated Letter No. ITBA/COM/F/17/2019-20/1022037588(1) 10/12/2019 Sir/Madam/M/satisfaction Subject : Penalty Order u/satisfaction271D of the Income Tax Act, 1961 – in the case of Shri SAMREDDY SUDHAKAR REDDY, 4-34, Karnamguda, IBRAHIMPATNAM, HYDERABAD – Asst. Year 2017-2018 – Passing of – Reg. ORDER U/S 271D OF THE INCOME TAX ACT, 1961 From the facts on records, it is noticed that Shri SAMREDDY SUDHAKAR REDDY, during the financial year 2016-17 relevant to Asst. Year 2017-18 has sold house bearing Municipal No.17-1-336/1/29, Plot No.29, situated at S.N. Reddy Nagar, Saidabad, Hyderabad for a total sole consideration of Rs.43,50,000/- vide Sale deed No 4535/2016, dated 12.09.2016. During this transaction, the vendor accepted Rs.43,50,000/- in cash in contravention to the provision of Section 269SS of the Income-tax Act, 1961 which attracts penalty u/s.271D.
16 ITA.Nos.1617 & 1722/Hyd./2025 Section 269SS prohibits taking or accepting loan or deposit or any specified sum in excess of Rs.20,000/- otherwise than by an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account. In the above section, the words "Specified sum" was introduced w.e.f., 1-6-2015 by the Finance Act of 2015. "Specified sum" has been defined in explanation (iv) under section 26955 as under:
"Specified sum" means any sum of money receivable, whether as advance or otherwise in relation to transfer of an immovable property, whether or not the transfer takes place. Section 271D prescribes penalty for taking or accepting any loan or deposit or specified sum. The penalty shall be equal to the amount so taken.
In this matter, as acceptance of cash during the above transaction fits into the definition of "Specified sum", a show cause letter was issued to the assessee vide letter in F. No. Addl. CIT/R-9/Penalty/89/2018-19 dated 13-06- 2019. As there was no response, another notice was issued to the assessee vide notice dated 09-11-2019 granting time till 26-11-2019. There has been no compliance for the said notices till date. In this case, the assessee sold the immovable property for a total consideration of Rs 43,50,000/-. The assessee accepted the entire amount of Rs.43,50,000/- in cash in contravention to the provision of Section 269SS of the Income tax Act, 1961 which attracts penalty u/s 271D.
Despite being given sufficient opportunity, there was no response from the assessee to justify receipt of cash.
Keeping in view the totality of the facts and circumstances of the case, I hereby levy a penalty of Rs.43,50,000/- u/s 271D of the I.T. Act for the A. Yr.2017-18 for violating the provisions of section 269SS of the I.T. Act i.e., accepting cash of Rs.43,50,000/- for sale of immovable property. This should be paid as per demand notice u/s. 156 enclosed Sd/-MOHAN KUMAR R RANGE-9, HYDERABAD Addl. Commr. of Income Tax, Range-9, Hyderabad.”
17 ITA.Nos.1617 & 1722/Hyd./2025 6. Thus, it is clear from the impugned order u/sec.271D that there was no Reference by the Assessing Officer and also there were no assessment proceedings or any other proceedings in the case of the assessee prior to issuing the show cause notice u/sec.271D r.w.s.274 of the Act. An identical issue has been considered by the Indore Bench of the Tribunal and one of us is the Judicial Member/Vice President is party to the Order in the case of Shri Umakant Sharma vs. JCIT, Ratlam in ITA.No.364 to 366/Ind./2022 dated 19.07.2023 wherein the Tribunal has held in Para Nos.8 to 11 as under:
“8. We have considered rival submissions and carefully perused the relevant material on record. There is no dispute that the assessee has not filed any return of income for the assessment year under consideration. The penalty u/s 271D of the Act has been levied on 23.01.2017 which is after 8 years from the end of the assessment year under consideration. The limitation for the penalty levied under chapter XXI has been provided in section 275 of the Act which reads as under: “275. Bar of limitation for imposing penalties (1) No order imposing a penalty under this Chapter shall be passed- (a) in a case where the relevant assessment or other order is the subject- matter of an appeal to the Deputy Commissioner (Appeals) or the Commissioner (Appeals) under section 246 or an appeal to the Appellate Tribunal under section 253, after the expiry of the financial year in which the proceedings, in the course of which action for the imposition of penalty has been initiated, are completed, or six months from the end of the month in which the order of 4 the Deputy Commissioner (Appeals) or] the Commissioner (Appeals) or, as the case may be, the Appellate Tribunal is received by the Chief Commissioner or Commissioner, whichever period expires later;
18 ITA.Nos.1617 & 1722/Hyd./2025
[Provided that in a case where the relevant assessment or other order is the subject-matter of an appeal to the Commissioner (Appeals) under section 246 or section 246A, and the Commissioner (Appeals) passes the order on or after the 1st day of June, 2003 disposing of such appeal, an order imposing penalty shall be passed before the expiry of the financial year in which the proceedings, in the course of which action for imposition of penalty has been initiated, are completed, or within one year from the end of the financial year in which the order of the Commissioner (Appeals) is received by the "[Principal Chief Commissioner or] Chief Commissioner or "[Principal Commissioner or] Commissioner, whichever is later.
(b) n a case where the relevant assessment or other order is the subject- matter of revision under section 263, after the expiry of six months from the end of the month in which such order of revision is passed; (c) in any other case, after the expiry of the financial year in which the proceedings, in the course of which action for the imposition of penalty has been initiated are completed, or six months from the end of the month in which action for imposition of penalty is initiated, whichever period expires later.] (IA) In a case where the relevant assessment or other order is the subject- matter of an appeal to the Commissioner (Appeals) under section 246 or section 246A or an appeal to the Appellate Tribunal under section 253 or an appeal to the High Court under section 260A or an appeal to the Supreme Court under section 261 or revision under section 263 or section 264 and an order imposing or enhancing or reducing or cancelling penalty or dropping the proceedings for the imposition of penalty is passed before the order of the Commissioner (Appeals) or the Appellate Tribunal or the High Court or the Supreme Court is received by the "Principal Chief Commissioner
19 ITA.Nos.1617 & 1722/Hyd./2025 or] Chief Commissioner or the "[Principal Commissioner or] Commissioner or the order of revision under section 263 or section 264 is passed, an order imposing or enhancing or reducing or cancelling penalty or dropping the proceedings for the imposition of penalty may be passed on the basis of assessment as revised by giving effect to such order of the Commissioner (Appeals) or, the Appellate Tribunal or the High Court, or the Supreme Court or order of revision under section 263 or section 264: Provided that no order of imposing or enhancing or reducing or cancelling penalty or dropping the proceedings for the imposition of penalty shall be passed- (a) unless the assessee has been heard, or has been given a reasonable opportunity of being heard; (b) after the expiry of six months from the end of the month in which the order of the Commissioner (Appeals) or the Appellate Tribunal or the High Court or the Supreme Court is received by the "[Principal Chief Commissioner or] Chief Commissioner or the "[Principal Commissioner or] Commissioner or the order of revision under section 263 or section 264 is passed; Provided further that the provisions of sub-section (2) of section 274 shall apply in respect of the order imposing or enhancing or reducing penalty under this sub-section] 2. The provisions of this section as they stood immediately before their amendment by the Direct Tax Laws (Amendment) Act, 1987 (4 of 1988), shall apply to and in relation to any action initiated for the imposition of penalty on or before the 31st day of March,1989.] Explanation. - In computing the period of limitation for the purposes of this section, - (i) the time taken in giving an opportunity to the assessee to be reheard under the proviso to section 129.
(ii) any period during which the immunity granted under section 245H remained in force; and 20 ITA.Nos.1617 & 1722/Hyd./2025 (iii) any period during which a proceeding under this Chapter for the levy of penalty is stayed by an order or injunction of any court, shall be excluded.
The limitation for passing the order imposing penalty under chapter-XXI has been provided by considering all possible situation where the assessment order or other order is subject matter of appeal of the order is revised under section 263 or assessment order or other orders are subject matter of appeal before the Hon’ble High Court or Hon’ble Supreme Court. Thus, it is clear that section 275, presupposes the existence of assessment proceedings/revision proceedings or appeal proceedings arising from the assessment order or revision order and the limitation is provided as per outcome of these proceedings. In absence of assessment in the case of the assessee the initiation of penalty is not valid and further when the satisfaction for initiation of the penalty on the part of the AO is absent in the case of the assessee then the penalty levied u/s 271D is not valid. The Hon’ble Supreme Court in case of CIT vs. Jain Laxmi Rice Mills (supra) has held as under:
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 Sec. 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, In so far as penalty under Section 271E is concerned, it was without any satisfaction and, therefore, no such penalty could be levied.
10. Thus, the Hon’ble Supreme Court has affirmed the view of the Hon’ble High Court that in absence of satisfaction recorded regarding the penalty proceedings u/s 271E of the Act the order of levy of penalty is not valid. The Ahmedabad Bench of the Tribunal in case of 21 ITA.Nos.1617 & 1722/Hyd./2025 Vijayaben G. Zalavadia vs. JCIT (supra) has considered an identical issue as under:
“6. We have heard the respective parties and also perused the relevant materials available on record.
7. We find that on the identical set of facts the Punjab and Haryana High Court was pleased observe the following while upholding quashing of penalty by the Tribunal:
“3. We have heard learned counsel for the appellant.
The only point for consideration in this appeal is whether the assessee had contravened the provisions of Section 269T of the Act by making repayment of loan/deposits of Smt. Kusum Lata Thakral, through account payee cheque or account payee drafts to M/s. Babyloan Builders Pvt. Ltd., Gurgaon and, therefore, penalty under Section 271E was leviable.
The Assessing Officer had levied the penalty amounting to Rs. 11,02,6107- which has been deleted by the Tribunal. The Tribunal while deleting the penalty recorded that the return of the assessee was processed as on 31.12.2003 and the notice u/s. 274 read with section 271E of the Act was issued on 12.06.2007. Such notice was issued when there was no proceedings pending before the Assessing Officer. Relying upon Delhi High Court judgment in CIT v. Standard Brands Ltd. [20061 285 ITR 295/155 Taxman 383, the Tribunal further observed that action for penalty may be permissible only after regular assessment has been framed and since no regular assessment order had been passed in this case, the recourse to penalty proceedings under Section 27IE were not justified. The findings recorded by the Tribunal read thus:-
22 ITA.Nos.1617 & 1722/Hyd./2025
"Having heard the parties and having perused the material on record, we find the grievance of the assessee to be correct. In this case, the return of the assessee was processed u/s. 143(l)(a) of the Income-tax Act, on 31.12.2003. Notice u/s. 274 read with 271E of the Act was issued to the assessee on 12.06,2007. It being a case of processing the return of income, there is no finding in the AO's order with regard to the applicability or otherwise of section 269T of the IT Act to the assessee's case. It was within the purview of the AO to bring the assessee's case to scrutiny and to make regular assessment u/s. 143(3) of the Act. It was also within the power of the AO at the appropriate stage to initiate proceedings u/s. 147 of the Act against the assessee. No such action was taken. Rather, the penalty was imposed on the basis of the finding in the case of assessee's wife."
6. No error or perversity could be shown in the aforesaid findings recorded by the Tribunal. Moreover, the assessee had taken a plea before the Assessing Officer that there was a reasonable cause for the assessee to have made direct payment of Rs. 14,02,600/- to M/s. Babyloan Builders Private Ltd., Gurgaon. It was pleaded that some of the repayments made by the assessee were intercompany transfer for group housing and purchase of flat and at times payments were made after closure of banking hours. It was further submitted that the payments made were genuine and no tax evasion was involved and the default, if any, was of technical nature. The explanation being plausible one, it cannot be said that there was no reasonable cause within the meaning of Section 273B of the Act. No substantial question of law arises in this appeal.
23 ITA.Nos.1617 & 1722/Hyd./2025
We find substances in the submissions made by the Ld. A.R. particularly after considering the order passed by the Hon’ble Punjab and Haryana High Court as cited hereinabove. In fact, on the identical set of facts the penalty under Section 271E was deleted by the Tribunal and further upheld by the Hon’ble High Court.
9. Having regard to the facts and circumstances of the case and the ratio laid down in the order passed by the Punjab and Haryana High Court, we do not hesitate to hold that the impugned penalty under Section 271E is not permissible in the absence of regular assessment framed against the assessee by the Revenue. Hence, the same is not found to be sustainable in the eye of law and, thus, quashed. The appeal preferred by the assessee is, therefore, allowed.”
11. Therefore, it is pre-requisite condition that the initiation of penalty 271D/271E of the Act, there must be assessment proceedings or proceeding arising from assessment order are pending in the case of the assessee. Accordingly in the facts and circumstances of the case and following the judgment of Hon’ble Supreme Court as well as Coordinate Bench of the Tribunal in case of Vijayaben G. Zalavadia vs. JCIT (supra), we hold that the penalty levied u/s 271D of the Act without any assessment proceedings in the case of the assessee is not valid and liable to be quashed. We order accordingly.”
Thus, it is a pre-requisite condition for initiation of the penalty u/sec.271D/271E of the Act that there must be an assessment proceeding or proceedings arising from assessment order or any other proceedings under the Act. This aspect is also clarified by the CBDT vide Circular No.9/2016 dated 26.04.2016. We further note that recording of satisfaction by the Assessing Officer in the original assessment order for the purpose of initiation of proceedings u/sec.271D/271E is a mandatory condition as held by the Hon’ble Jurisdictional High Court in the case of Srinivas
24 ITA.Nos.1617 & 1722/Hyd./2025 Reddy Reddappagari vs. JCIT (supra) in Para Nos.21 to 28 as under:
“21. Thus, sub-section (1) of Section 271E of the Act provides that if a person repays any loan or deposit or specified advance referred to in Section 269T of the Act otherwise than in accordance with the provisions of that section, he shall be liable to pay by way of penalty a sum equal to the amount of the loan or deposit or specified advance so repaid. Sub-section (2) clarifies that any penalty imposable under sub-section (1) shall be imposed by the Joint Commissioner.
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 271E 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 novo. In the fresh assessment order, no satisfaction was recorded by the assessing officer regarding initiation of penalty proceedings under Section 271E 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 25 ITA.Nos.1617 & 1722/Hyd./2025 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 (1 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.1 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.1 had completely overlooked the decision of the Supreme Court in Jai Laxmi Rice Mills Ambala City (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 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.
Article 141 of the Constitution of India is clear that law declared by the Supreme Court shall be binding on all courts within the territory of India. This is further clarified in Article 144, which says that all authorities, civil and judicial, in the territory of India shall act in aid of the Supreme Court.
26 ITA.Nos.1617 & 1722/Hyd./2025 We are therefore, of the unhesitant view that respondent No.1 overlooked the relevant considerations while passing the impugned order dated.29.11.2022. 27. Further, issue in the present writ petition is not the competence of the Joint Commissioner in issuing the order of penalty. Therefore, reference to Grihalaxmi Vision (supra) was wholly unnecessary.
Consequently, we set aside the impugned order dated 29.11.2022 and remand the matter back to the file of respondent No.1 to pass a fresh order in accordance with law after giving a reasonable opportunity of hearing to the petitioner.” 8. We have specifically given an opportunity to the learned DR to produce relevant record if any, to show that some proceedings were initiated in the case of assessee and satisfaction was recorded by the Assessing Officer. However, the learned DR has submitted that no record was made available by the Assessing Officer. Accordingly, in the facts and circumstances of the case and in the interest of justice and by following the decision of Hon’ble Jurisdictional High Court as well as the decisions of various Coordinate Benches of the Tribunal including the decision of ITAT, Indore Bench in the case of Shri Umakant Sharma vs., JCIT, Ratlam (supra), we hold that the penalty levied by JCIT u/sec.271D without recording the satisfaction in assessment proceedings or any other proceedings under the Act, is not valid and liable to be quashed. We Order accordingly.”
9. Thus, the Tribunal by following the Judgment of Hon’ble Jurisdictional High Court in the case of Srinivas Reddy Reddappagari vs. JCIT (supra) has deleted the penalty levied u/sec.271D of the Act for want of satisfaction in the assessment proceedings by the Assessing Officer
27 ITA.Nos.1617 & 1722/Hyd./2025 whereas the learned DR has relied upon the Judgment of Hon’ble Kerala High Court in the case of M/s. Vee Ess Hardwares, Ambalapuzha vs. ACIT, Alappuzha (supra), wherein the Hon’ble High Court has observed in Paras-13 to 18 as under:
“13. However, it is significant to note that even within the two timelines given, the proceeding for imposition of penalty ought to be completed within a reasonable time. The latter part of section 275(1)(c) of the Act, providing for a period of six months, is clearly indicative that the Income Tax Officers cannot be given a long handle to initiate proceedings at any point of time, according to their caprice. The possibility of initiating proceedings against an assessee cannot be kept pending over his head like a Damocle's sword, indefinitely. Indisputably, the return filed by an assessee is verified at the time of assessment. Though penalty proceeding under section 271B of the Act is independent of the assessment, as far as the time limit is concerned, it cannot be wholly extricated from the assessment order. Once an assessment is completed, it will act as a leash, compelling the Officers to act within a reasonable time from its completion, for the purpose of imposing a penalty.
It needs no elaborate discussion that if no period of time is prescribed by a statute, it must be exercised within a reasonable period which would depend upon the nature of the statute, rights and liabilities thereunder and other relevant factors. The reasonable period, must, no doubt, be found out from the scheme of the statute and in particular the tenor of the provision under 28 ITA.Nos.1617 & 1722/Hyd./2025 consideration. Reference to the decision in State of Punjab and Others v. Bhatinda District Cooperative Milk Producers Union Ltd [(2007) 11 SCC 363] is relevant in this context.
The penalty under section 271B is imposed for failure to attach an audit report. The absence of an audit report along with the return will become evident during the assessment proceedings. Bearing in mind the nature of violation for which penalty is imposed under section 271B of the Act, proceedings for imposing penalty cannot be too distant from the assessment order. Thus, if the case falls under the latter part of section 275(1)(c) of the Act, in respect of penalty proceedings under section 271B of the Act, the show cause notice must be issued within a reasonable time of the completion of the assessment proceedings and be completed within six months thereafter. What is a reasonable period will depend upon the facts of each case.
Viewed in the above perspective, this Court holds that if a case falls under the latter part of section 275(1)(c) of the Act, proceedings for imposition of penalty under section 271B of the Act must be initiated and completed within a reasonable time of the assessment order.
Since the assessment order in the instant case does not refer to any proceeding for imposition of penalty under section 271B, the time limit cannot be said to have emanated from the assessment order. However, as the assessment proceedings itself would have revealed the absence of an audit report, as contemplated under sections 44A and 44B, the show cause notice should have been issued within a reasonable time of the assessment order. By applying the provisions of the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020, the end date for passing orders was extended till 29 ITA.Nos.1617 & 1722/Hyd./2025 31.03.2022, and the respondents were entitled to issue a notice within a reasonable time of the expiry of the said period. Taking into reckoning the aforesaid statute, the respondents ought to have issued a show cause notice at least in the year 2022. Instead of initiating any proceedings either in 2022 or 2023, they have proceeded to issue the show cause notice only on 21.03.2024. Such a period is beyond the statutory contemplation. The show cause notice in the instant case is hence time-barred under section 275(1)(c) of the Act.
Accordingly, I find that the impugned order imposing penalty under section 271B of the Act is invalid. Hence, Exhibit P2 order is set aside.”
Thus, it is clear that the Hon’ble Kerala High Court has dealt with the issue of limitation of initiation of proceedings u/sec.271B and held that there should be a reasonable time within which the Officer must act for levy of the penalty. The Hon’ble High Court has specifically mentioned that the initiation of penalty must be within six months from the end of the assessment proceedings or proceedings under the Act. In the said case, the Hon’ble Kerala High Court has taken note of the fact that the time period even extended by Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act [in short ‘TOLA”],
30 ITA.Nos.1617 & 1722/Hyd./2025 2020 up-to 31.03.2022 is taken into consideration the reasonable time period for issuing the show cause notice must be in the year 2022 and therefore, the show cause notice issued on 21.03.2024 was held to be barred by limitation. In the case in hand, the return of income was filed by the assessee on 27.07.2017 and there is no scrutiny assessment and therefore, even if the processing u/sec.143(1) is taken as the proceedings under the Act, the initiation of penalty proceedings u/sec.271D should have been before the end of 2018 whereas, the Assessing Officer- JCIT has stated in the impugned order that show cause notice was issued on 27.08.2019 which is also beyond the period of limitation as held by the Hon’ble Kerala High Court (supra). Thus, the Judgment of Hon’ble Kerala High Court does not support the case of the Revenue rather it favours the assessee. Accordingly, in the facts and circumstances as discussed above and following the decisions cited (supra), we hold that the penalty levied by the Assessing Officer-JCIT u/sec.271D of the Act is not sustainable and the same is deleted.
31 ITA.Nos.1617 & 1722/Hyd./2025 ITA.No.1727/Hyd./2022 - A.Y. 2017-2018:
The facts are identical to the facts and circumstances of the appeal decided by us in the foregoing paras in ITA.No.1617/Hyd./2025 for the assessment year 2017-2018. We, therefore, following the same mutatis mutandis to delete the penalty levied by the Assessing Officer- JCIT u/sec.271D of the Act in the case of the assessee viz., Yata Ramchander for the assessment year 2017-2018.
In the result, appeals of the Assessees are allowed. A copy of this common order be placed in the respective case files.
Order pronounced in the open Court on 11.02.2026.