Penalty u/s 271D without recording satisfaction in assessment order is illegal

Penalty proceedings u/s 271D without recording satisfaction in the assessment order held to be illegal following Supreme Court judgment

ABCAUS Case Law Citation:
ABCAUS 2710 (2019) (01) ITAT

Important Case Laws Cited/relied upon:
CIT Vs. Saini Medical Store, 277 ITR 420 (P&H)
CIT Vs. Sunil Kumar Goes, 315 ITR 163 (P&H)
CIT Vs. Jai Laxmi Rice Mills, 379 ITR 521 (SC)
Mohinder Pal Singh, Ramneek Sehgal & Paramjeet Kaur Vs. The Addl. CIT
Binod Kumar Agarwal Vs. JCIT
Smt. S.B. Patil Vs. JCIT

The appeal was filed by the assessee against the order of the Commissioner of Income Tax (Appeals) in sustaining the imposition of penalty under section 271D of the Income Tax Act, 1961 (the Act) upholding that the Assessing Officer (AO) is not required to record satisfaction during the course of assessment proceedings.

The assessee filed return of income which was processed u/s 143(1) of the Act. Later on, the case was selected for scrutiny.

The Assessing officer framed the assessment by making an addition. The AO also initiated penalty proceedings u/s 271(1)(c) of the Act in the assessment order.

However, thereafter, the AO separately initiated penalty proceedings u/s 271D of the Act.

The Assessing officer asked the assessee to show cause and explain as to why penalty for violating the provisions of section 269SS of the Act may not be imposed upon the assessee for accepting the loan / deposits exceeding the prescribed monetary limit otherwise by the account payee cheques or account payee drafts.

Not finding merit in the explanation of the assessee, the AO levied the impugned penalty.

Being aggrieved, the assessee carried the matter to the CIT(A) and submitted that the penalty cannot be levied because the Assessing officer had not initiated penalty proceedings while completing assessment proceedings u/s 143(3) of the Act.

The CIT(A), however, did not find merit in the said submissions and sustained the penalty levied by the Assessing officer.

Before the Tribunal, the assessee submitted that AO had not recorded any satisfaction in the assessment order regarding initiation of the penalty proceedings u/s 271D of the Act, therefore, the penalty levied by the Assessing officer and sustained by the CIT(A) u/s 271D of the Act was not justified.

The assessee placed reliance on several judgments.

The Tribunal observed that the Assessing Officer (AO), in the assessment order passed u/s 143(3) of the Act, nowhere initiated penalty proceedings u/s 271D of the Act although penalty proceedings u/s 271(1)(c) of the Act were initiated.

The Tribunal noted that on a similar issue, the Hon’ble Supreme Court had held that the penalty under seciton271D levied without any satisfaction recorded in the assessment order, could not be levied.

Keeping in view the ratio laid down by the Hon’ble Supreme Court, the Tribunal deleted the impugned penalty levied by the Assessing officer and sustained by the CIT(A).

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