2016 (8) TMI 1558 - AT - Income Tax

Levy of penalty u/s 271E and 271D - violation of the provisions of section 269SS and 269T for accepting and repaying loan in cash from Shri Abhijit A Sheth Director of the company - whether no satisfaction has been recorded by the AO? - HELD THAT - Hon ble Apex Court in the case of CIT vs. Jai Laxmi Rice Mills 2015 (11) TMI 1453 - SUPREME COURT dealing with the levy of penalty under section 271D of the Act has held that if there is no satisfaction recorded in the order of assessment regarding initiation of penalty proceedings under section 271D of the Act then no penalty thereunder could be levied. Admittedly by both AO in the penalty orders and learned CIT(A) in the impugned orders no satisfaction for initiation of penalty proceedings under sections 271D and 271E of the Act has been recorded in the orders of assessment. In this factual matrix of the case and respectfully following the decision in the case of Jai Laxmi Rice Mills (supra) we hold that since admittedly no satisfaction has been recorded for initiating penalty proceedings under sections 271D and 271E of the Act in the case on hand in the order of assessment for A.Y. 2000-01 therefore no penalty thereunder could be levied. In this view of the matter we cancel the penalty levied under sections 271D and 271E of the Act for A.Y. 2000-01 - Decided in favour of assessee.

Summary

Issues:
Levy of penalty under sections 271D and 271E of the Income Tax Act, 1961 for A.Y. 2000-01.

Analysis:
The case involved appeals by the assessee against the CIT(A) orders confirming the penalty of &8377; 1,45,000/- each under sections 271D and 271E of the Income Tax Act, 1961 for A.Y. 2000-01. The AO initiated penalty proceedings for violation of sections 269SS and 269T by accepting and repaying a cash loan of &8377; 1,45,000/-. The AO rejected the assessee's argument that penalty proceedings should have been initiated in the assessment order and that the penalty was time-barred. The CIT(A) upheld the penalty orders. The assessee raised grounds challenging the penalty levy, emphasizing the absence of satisfaction recorded by the AO for initiating penalty proceedings in the assessment orders. The assessee cited a Supreme Court judgment stating that without such satisfaction, no penalty could be levied. The ITAT, Mumbai, after considering the arguments and legal precedents, held that since no satisfaction was recorded for initiating penalty proceedings in the assessment orders, the penalties under sections 271D and 271E could not be upheld. Consequently, the penalties were canceled, and the additional grounds raised by the assessee were allowed. As a result, the appeals by the assessee for A.Y. 2000-01 were allowed, and no further adjudication on other grounds was deemed necessary.

This judgment highlights the importance of recording satisfaction for initiating penalty proceedings in assessment orders under the Income Tax Act. The decision of the Hon'ble Apex Court in CIT vs. Jai Laxmi Rice Mills was crucial in determining the validity of the penalties imposed. The ITAT's ruling was based on the absence of recorded satisfaction by the AO, aligning with the legal principle that penalties cannot be levied without such satisfaction. The cancellation of penalties under sections 271D and 271E for A.Y. 2000-01 was a direct result of this legal requirement, emphasizing the necessity for proper procedural adherence in penalty imposition. The ITAT's decision serves as a reminder of the procedural safeguards and the need for clear documentation in penalty proceedings under the Income Tax Act to ensure fairness and compliance with legal standards.