No penalty u/s 271E or 271D can be levied without satisfaction recorded in the assessment order for initiating the penalty proceedings – High Court
In a recent judgment, High Court of Rajasthan quashed notice issued under Section 271E and the proceedings thereto as no satisfaction was recorded by the AO in the reassessment order for initiating the penalty proceedings under section 271E of the Income Tax Act, 1961 (the Act).
ABCAUS Case Law Citation:
4646 (2025) (07) abcaus.in HC
Section 271E of the Act deals with the penalty for repayment of loans or deposits (or specified advances) in contravention of Section 269T which prohibits a person from repaying any loan, deposit, or specified advance of ₹ 20,000 or more otherwise than by account payee cheque, account payee bank draft, electronic clearing system (ECS), or other prescribed electronic modes.
In the instant case, a batch of writ petitions was decided. In some of the cases penalty under Section 271D and in others under Section 271E of the Income Tax Act, 1961 (the Act) was imposed. However, the language of Section 271D and Section 271E is analogous.
In the lead case, the petition was filed seeking quashing of notices issued under Section 271E of the Act.
A search was conducted on the premises of the petitioner. The proceedings initiated under Section 148 of the Act culminated in re-assessment order resulting in additions under Sections 69A and 69C of the Act respectively.
The order was passed after approval from the Additional Commissioner of the Income Tax (ACIT). A notice was issued to the petitioner for imposition of penalty under Section 271E of the Act.
In response the petitioner relied upon the decision of the Hon’ble Supreme Court to contend that there was no satisfaction recorded in the reassessment order for initiating the penalty proceedings under section 271E of the Act.
However, the objections filed were rejected and a show cause notice was issued which gave cause to instant writ petition.
The Department contended that there is no requirement under section 271E for assessing officer (AO) to record the satisfaction. It was also submitted that the AO vide communication referred the matter to the Additional Commissioner of Income Tax (ACIT) for imposition of penalty under section 271E and the ACIT recorded the satisfaction.
The Hon’ble High Court observed that the reassessment order was passed and no satisfaction was recorded for initiating the penalty proceedings under Section 271E. and the reference made by the AO to ACIT shall not enhance case of the department as the reference was after the conclusion of reassessment proceedings by the DCIT.
The Hon’ble High Court opined that the satisfaction recorded by the ACIT cannot be equated with the satisfaction to be recorded in the reassessment proceedings by the concerned AO.
The Hon’ble High Court further observed that Supreme Court was dealing with the issue as to whether the penalty proceedings under section 271D are independent of the assessment proceedings. In that case, in the assessment order passed in pursuance to the remand no satisfaction was recorded for initiating the proceedings under section 271E. Though the AO stated for initiation of proceedings under section 271(1)(c). The penalty proceeding was quashed on the ground that in absence of satisfaction recorded by the AO the penalty can not be imposed.
The Hon’ble High Court observed that in the instant case, the AO had only recorded satisfaction for proceedings under Section 271(1)(c) of the Act and no satisfaction was recorded to initiate penalty proceedings under Section 271E.
The Hon’ble High Court held that the issue was squarely covered by the decision of the Supreme Court and accordingly the notice issued under Section 271E and the proceedings in pursuance thereto were quashed.
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