Assesssing Officer can’t refer decision to initiate levy of Penalty u/s 271D to Superior Officer unless he himself arrives at a finding of a violation
In a recent judgment Hon’ble Supreme Court has dismissed SLP of the Revenue against the High Court judgment holding that Assesssing Officer can’t refer decision to initiate levy of Penalty u/s 271D to Superior Officer unless AO based on the material before it, during assessment proceedings, arrives at a finding that there has been violation of a provisions
ABCAUS Case Law Citation:
5050 (2026) (02) abcaus.in SC
In the instant case, the Petitioner /assessee had approached High Court contending that penalty under Section 271D of the Income Tax Act, 1961 (the Act), was levied by the Joint Commissioner was without recording any satisfaction as contemplated for levy of penalty u/s 271D of the Act.
On the basis of incriminating documents found as a result of a search operation on a business group, the Petitioner was asked to explain the cash transaction with the group.
The petitioner submitted that he did not take any loans in cash as alleged that said transactions were received through Banking channels. The Petitioner had categorically stated that no cash loans were either obtained or no cash repayment made by him.
However, the Assessing Officer made addition under Section 69A of the Act, which according to the Assessing Officer was in excess payment over and above the loans accepted. After passing of the assessment order the Assessing Officer, has referred the file to the Joint Commissioner of Income-tax, intimating the violations said to have been committed by the petitioner and for appropriate action. The Joint Commissioner of Income-tax, initiated the penalty proceedings under Section 271D of the Income Tax Act, and finally levied the impugned penalty.
Before the Hon’ble High Court the main contention of the petitioner was that no satisfaction was recorded in the assessment order with regard to levy of penalty under Section 271D of the Act.
The petitioner relying on the decision of the Apex Court contended that there was no evidence before the Assessing Officer to show that the petitioner had accepted the loans in cash.
The Hon’ble High Court noted that the AO did not record any finding that there had been any violation of the provisions of Section 269SS of the Act by the assessee, nor was any satisfaction recorded to the effect that the alleged transaction of acceptance of loan would attract penal consequences.
The Hon’ble High Court opined that in the absence of any finding to the said effect, the penalty cannot be levied. A presumption can not be drawn, in the absence of a finding by the Assessing Officer to the effect that the petitioner had violated the provisions of Sec. 269SS of the Act.
The Hon’ble High Court held that the satisfaction of the Assessing Officer is required to be recorded. The AO cannot refer the file to superior officer i.e., Joint Commissioner, for initiating levy of penalty. Unless the Assessing Officer, who is the primary authority, based on the material before it, during assessment proceedings, arrives at a finding that there has been a violation of the provisions, like in the present case, of Section 269SS, there will not be any occasion to the Joint Commissioner, who was not the Assessing Officer, to exercise his jurisdiction to levy Penalty under Section 271D.
Accordingly, the High Court set aside the penalty order passed under Section 271D of the Act.
Not satisfied with the judgment of the High Court, the Department challenged it before the Hon’ble Supreme Court by way of filing a Special Leave Petition. However, the Apex Court dismissed the SLP with the following observations,
“There is a gross delay of 350 days in filing the Special Leave Petition which has not been satisfactorily explained by the petitioners….. Even otherwise, we find no good reason to interfere with the impugned order passed by the High Court…..The Special Leave Petition is, therefore, dismissed on the ground of delay as well as merits.”
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