Income tax authority duty bound to comply with the decision of Supreme Court

It is the bounden duty of income tax authority to comply with the decision of the Supreme Court – High Court

In a recent judgment, Hon’ble High Court while deleting penalty u/s 271D held that it is the bounden duty of income tax authority to comply with the decision of the Supreme Court

ABCAUS Case Law Citation:
5137 (2026) (05) abacus.in HC

In the instant case, the Petitioner/assessee had challemged the order passed by the National Faceless Assessment Centre (NFAC) imposing a penalty under Section 271D read with Section 274 of the Income Tax Act, 1961 (the Act)

It was contended that the penalty was illegal, arbitrary, bad in law, void ab initio, violative of the principles of natural justice and being violative of Articles 14,19 and 265 of the Constitution of India, and consequently be set aside.

It was the case of the Petitioner that the penalty proceedings under Section 271D of the Act can be initiated on satisfaction being recorded by the Joint commissioner on perusal of the assessment records instead of the Assessing Officer as done in this case.

The case of the Petitioner had been reopened by issue of notice u/s 148 of the Act on account of cash deposited in bank accounts during the period of demonetization.

After completion of the reassessment, the Joint commissioner of Income Tax issued notice under section 274 read with section 271D of the Act on the basis of information available with the department that the assessee had accepted large amount of in cash from its customers on sale of plots/residential house as advance/initial payment. The details of cash received from various persons were in excess of Rs. 20,000/- each in violation of Section 269SS of the Act.

Accordingly, penalty u/s 271D was levied on the assessee. The petitioner challenged it in appeal before the CIT(Appeals). The said appeal was disposed of confirming the penalty.

Before the Hon’ble High Court, the petitioner assailed the levy of penalty on the ground that in its case, the penalty proceedings must have been processed through the Faceless Penalty Scheme. However, it was initiated by the Jurisdictional Joint commissioner of Income and concluded by the Faceless Penalty Unit.

The Petitioner relied upon the judgment of the Co-ordinate Bench of the High Court and submitted that the issue whether without satisfaction being recorded in the assessment order, penalty can be levied by the Joint Commissioner under Section 27lD of the Act was decided in favour of the assessee by the Court. The Petitioner further relied upon the decision of the Kerala High Court.

The Petitioner further took a plea that pursuant to the said judgmenr, CBDT Circular No.9/DV/2016, dated 26.04.2016 was issued to the effect that the assessing officers, below the rank of Joint Commissioner, may be advised to make a reference to the Range Head regarding any violation of the provisions of Section 26955 and Section 269T of the Act, as the case may be, in the course of the assessment proceedings. The petitioner submitted that in the reassessment order passed under Section 147 read with Section l44B of the Act in its case, there is no reference to penalty. There was no mention of reference made to the Joint Commissioner regarding the said penalty.

The Petitioner placed reliance on the judgment of the Hon’ble Supreme Court to argue that the assessing authority has to record the satisfaction regarding the initiation of penalty proceedings. The Petitioner referred to the judgment of Andhra Pradesh High Court that satisfaction of the assessing officer is required to be recorded because the officer, who passed the assessment order would not be levying the penalty under Section 27lD of the Act, unless it is recorded in the assessment order, he cannot refer the file to superior officer, i.e., the Joint Commissioner for initiating levy of penalty. Unless the assessing officer during assessment proceedings, arrives at a finding that there has been a violation of the provisions, like Section 26955 of the Act, the, Joint Commissioner cannot initiate the proceedings to levy penalty under Section 271D of the Act. Section 271D penalises taking or accepting any loan or deposit otherwise than by account payee cheque/draft/electronic clearance above Rs.20,000/-.

The Revenue on the other hand contended that the Faceless Penalty Scheme, 2021 provides for faceless conduct of penalty proceedings. However, it nowhere prohibits or invalidates the issuance of show cause notice or initiation of penalty proceedings by the jurisdictional authority where initiated in accordance with law.

The Revenue also placed reliance on the decision of the Kerala High court which held that in the said case, penalty was levied under Section 271(l)(c) of the Act. As is evident from the provision itself, the proceedings under that section are to be initiated on the basis of the satisfaction of the officers mentioned therein including the assessing officer. unlike the provisions of section 27\(l)(c), under the provisions section 271D and 271E of the Act, the exclusive authority is conferred on the Joint commissioner.

With respect to the judgment of the Hon’ble Supreme Court relied upon by the Petitioner, the Revenue referred to the judgment of the Mumbai ITAT which observed that limited question urged before the apex court was whether the penalty proceedings under Section 27lD of the Act is independent of assessment proceedings. The Tribunal held that the issue before the apex court was not related to recording of satisfaction, but whether the penalty proceedings under Section 27lD of the Act are independent of assessment proceedings. Since the original assessment order, in case of which the impugned penalty proceedings were initiated, had been set aside, the apex court upheld tht: view of the High Court that the penalty proceedings should not have beer, continued on the strength of the assessment order so set aside. Hence, all the observations made by the apex court were related to the question posed before it. It is submitted that the decision of the apex court has to be understood in that context.

The Hon’ble High Court noted that as per CBDT Circular which is issued adapting the view of the Kerlala High Court, the Joint Commissioner can initiate proceedings for levy of penalty. Such initiation of proceedings should not be done by the assessing officer. The statement in the assessment order that the proceedings under Sections 271D and 271E of the Act initiated were inconsequential. On the other hand, if the assessment order was taken as the initiation of penalty proceedings, such initiation was by an authority who was incompetent and the proceedings thereafter would be the proceedings without jurisdiction.

The Hon’ble High Court further observed that coordinate Bench of the Court had referred to the case of Hon’ble Supreme Court and categorically recorded that the Supreme court had concurred with the view taken by the Kerala High court holding that satisfaction must be recorded in the original assessment order for the purpose of initiation of penalty proceedings u/s 271E of the Act. Sections 271E and 271D of the Act are in Pari Materia.

The Hon’ble High Court stated that when there is a decision of the Hon’ble 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.

The Hon’ble High Court opined that the very issue involved in the present writ petition, whether without satisfaction being recorded in the assessment order, penalty can be levied by the Joint Commissioner under Section 271D of the Act was in question before the Co-ordinate Bench as such, therefore, no grounds were made out by the Revenue to take a different view in the instant case.

Accordingly, the impugned order imposing penalty by the NFAC under Section 271D read with Section 274 of the Act and the appellate order upholding the same were set aside.

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