No penalty can be levied if AO failed to record such satisfaction in assessment order. Penalty proceedings would necessarily be initiated in the quantum assessment order itself.
In a recent judgment, ITAT has deleted income tax penalty u/s 271D and 271E holding that no penalty can be levied if AO failed to record such satisfaction in assessment order.
ABCAUS Case Law Citation:
ABCAUS 3888 (2024) (02) ITAT
Important Case Laws relied upon by parties:
CIT Vs Jai Laxmi Rice Mills (2015) 379 ITR 521(SC)
M/s. Diaster Jewellery Private Limited vs. Addl. CIT
M/s B. P. Patel and Co vs. ITO
Srinivasa Reddy Reddeppagiri vs. JCIT (332 CTR 0614)
T. Shiju vs. JCIT
Anglican India Consultancy Pvt. Ltd. vs. Addl. CIT
Binod Kumar Agarwal vs. JCIT
S.B. Patil vs JCIT
Catholic Syrian Bank vs. CIT (343 ITR 270)
In the instant case, the Income Tax Department had challenged the order passed by the CIT(A) in deleting penalty levied by the Assessing Officer (AO) u/s 271D / 271E of the Act for violation of provisions of Section 269SS and 269T of the Income Tax Act, 1961 (the Act).
The assessment was framed pursuant to search action by department u/s 132 in the case of A group wherein certain incriminating material was found. After recording requisite satisfaction u/s 153C, AO initiated proceedings u/s 153C and completed the assessment u/s 143(3) r.w.s. 153C of the Act accepting the returned income filed by the assessee.
Though no penalty proceedings, whatsoever, were initiated in the assessment order, the AO proceeded to levy impugned penalty u/s 271D on the assessee and made proposal to Addl. CIT for levy of penalty.
This reason for the penalty was that perusal of incriminating material as seized during search operations, showed that the assessee received cash loan in violation of the provisions of Section 269SS of the Act.
Against show cause, assessee made detailed submissions and inter-alia, submitted that no such loan was received or repaid during the year. However, the Addl. CIT imposed penalty u/s 271D which was subjected to assessee’s further appeal before first appellate authority.
Before CIT(A), the assessee raised a legal ground that penalty proceedings would necessarily be initiated in the quantum assessment order itself. In the present case, there was no such satisfaction of existence of cash receipts / payments recorded in the quantum assessment order. It was argued that the impugned penalty could not be sustained in the eyes of law.
To support the contention, the assessee placed reliance on CBDT Circular no. 09/DV/2016 dated 26.04.2016 advising Assessing Officer to make a reference to the Range Head regarding violation of provisions of Sec.269SS and 269T during the course of assessment proceedings itself and therefore the aforesaid action being in gross violation of the Departmental Circular, the impugned penalty was liable to be deleted.
In support of his contention, the assessee relied on the decision of Hon’ble Supreme Court which specified that no penalty could be levied u/s 271E without recording the satisfaction. The assessee also referred to the decision of Hon’ble High Court which followed the aforesaid decision of Hon’ble Apex Court and deleted penalty u/s 271D.
The CIT(A) concurred with assessee’s submissions and held that the ratio of the decisions relied upon by the assessee would apply to the fact of the case. The CIT(A) further noted that similar ratio was laid down by the Co-ordinate Benches
The CIT(A) held that recoding of satisfaction in the assessment order regarding the violation of provisions of Section 269SS was mandatory requirement for valid initiation of penalty proceedings u/s 271D of the Act. No such penalty could be levied if AO failed to record such satisfaction in the assessment order. Since no such satisfaction was recorded in the present case, the penalty was not validly initiated and therefore penalty orders passed were bad-in-law.
The Tribunal observed that the action of the AO was in not making a reference to the Range Head regarding violation of provisions of Section 269SS and 269T during the course of assessment proceedings was itself gross violation of departmental circular. Therefore, the finding of CIT(A) was right in that regard.
On legal ground, the Tribunal confirmed that the case of the assessee was covered by the decision of Hon’ble Apex Court which specifically provide that no penalty could be levied u/s 271E without recording the satisfaction.
The Tribunal observed that the other decisions of Tribunal as referred to by CIT(A) in the impugned order, also followed the decision of Hon’ble Apex Court and supports the case of the assessee warranting deletion of impugned penalty.
The Tribunal opined that, following the decisions it could be said that the recoding of satisfaction in the assessment order regarding the violation of provisions of Section 269SS was a mandatory requirement for valid initiation of penalty proceedings u/s 271D of the Act. No such penalty could be levied if AO failed to record such satisfaction in the assessment order. Therefore, CIT(A) had passed a well reasoned order deleting the impugned penalty.
Accordingly, the appeal of the Revenue was dismissed.
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