In the absence of satisfaction recorded in the assessment order regarding penalty proceedings under Section 271D, no penalty could be levied
In a recent judgment, Hon’ble Supreme Court declined to interfere with Gujarat High Court judgment holding that in the absence of any satisfaction recorded regarding penalty proceedings under Section 271D, in the assessment order, no penalty could be levied.
ABCAUS Case Law Citation:
4796 (2025) (10) abcaus.in SC
The assessment in the instant case was completed under Section 158BC r.w.s. 158BG/144 of the Act in making additions. The Assessing Officer at the time of passing the assessment order had not initiated any kind of penalty.
However, subsequent of passing the assessment order, a reference was made by the Assessing Officer for initiation of penalty proceedings for initiation of penalty under Section 271D for violation of Section 269SS in respect of various deposits/ loan received by the assessee in cash in excess of Rs. 20,000/-, during the relevant financial year. The Additional Commissioner of Income Tax levied penalty under Section 271D of the Act.
On further appeal before the CIT(A), the order of penalty under section 271D was upheld. However, the Tribunal restored back the matter to CIT(A) to examine certain evidence and to decide the issues afresh.
The CIT(A) in his fresh order granted partial relief to the assessee. Further aggrieved, the assessee filed appeal before the Tribunal and raised an additional ground that the Assessing Officer while passing the original assessment order had not recorded any satisfaction about initiation of penalty under Section 271D of the Act. There was no whisper about the initiation of penalty under Section 271D or any whisper for making any reference for initiation of penalty under Section 271D of the Act.
The assessee also relied upon the judgment of the Hon’ble Supreme Court wherein it was held that where no satisfaction was recorded for initiating penalty proceedings under Section 271E, the impugned penalty order deserved to be set aside.
It was submitted that Section 271E and 271D are having similar criteria, one penalty relates to making payment and the other relates to taking or accepting loan in cash in excess of Rs. 20,000/- in cash in contravention of Section 269SS.
On the other hand, the Revenue submitted that language of Section 271D or 274 nowhere prescribed for recording satisfaction for initiation of proceedings. Rather Section 274 speaks about providing reasonable opportunity before levying penalty. The assessee was given full opportunity before levying such penalty under section 271D. The assessee failed to demonstrate the prejudice caused to the assessee in not recording about initiation of penalty at the time of passing the assessment. Not making or recording satisfaction about the initiation of penalty under section 271D is merely a curable defect. The assessee had nowhere raised such objection either at the time of penalty proceedings of at first appellate stage.
The Tribunal observed that the Hon’ble Apex Court while considering the similar questions of law held that when no satisfaction recording regarding penalty proceedings under Section 271E, in the assessment order was recorded while passing the assessment order, no penalty could be levied.
The Tribunal further observed that following the law laid down by Hon’ble Supreme Court, the Co-ordinate Bench of ITAT Surat also held that when no satisfaction has been recorded by the Assessing Officer before initiating penalty, no penalty under Section 271D could be levied.
As a result, the Tribunal following the law as above, set aside and quashed the penalty order under section 27D of the Act.
Not satisfied, the Revenue challenged the order of the Tribunal before the Gujarat High Court. However, the High Court in view of the judgment of the Hon’ble Supreme Court dismissed the appeal of the Revenue observing that no substantial question of law was involved.
The Revenue challenged the order of the High Court before the Apex Court by way of filing a Special Leave Petition (SLP).
The Hon’ble Supreme Court observed that the High Court had relied upon the decision of the Supreme Court in M/s. Jai Laxmi Rice Mills which squarely covered the issue raised by the Revenue in the SLP. Their Lordships dismissed the Petition observing that they did not find any merit in the special leave petition.
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