2022 (12) TMI 1446 - HC - Income Tax

Penalty u/s 271D - transaction otherwise than by an account payee cheque or use of electronic clearing system through a bank account etc. violated Section 269SS - whether without satisfaction being recorded in the assessment order penalty can be levied by the Joint Commissioner u/s 271D? - HELD THAT - We find that petitioner had submitted reply to the show cause notice on 02.06.2022. In his reply petitioner mentioned that no satisfaction was recorded by the assessing officer in the assessment order as to infraction of Section 269SS of the Act. Therefore no penalty could be levied u/s 271D of the Act without recorded satisfaction. In this connection reference was made to the decision of the Supreme Court in Jai Laxmi Rice Mills Ambala City 2015 (11) TMI 1453 - SUPREME COURT wherein it was clarified that provisions of Section 271E are in pari materia with the provisions of Section 271D. This aspect of the matter was not considered by respondent No.1 while passing the impugned order. Respondent No.1 relying upon the Kerala High Court decision in Grihalaxmi Vision 2015 (8) TMI 1214 - KERALA HIGH COURT noted that competent authority to levy penalty is the Joint Commissioner. He has also referred to an earlier decision of the Supreme Court in CIT V. Mac Data Ltd 2013 (1) TMI 574 - DELHI HIGH COURT wherein it was observed that assessing officer has to satisfy himself as to whether penalty proceedings should be initiated or not. Assessing officer is not required to record his satisfaction in a particular manner or reduce it into writing. Therefore respondent No.1 imposed the penalty under Section 271D of the Act. We are afraid respondent No.1 had completely overlooked the decision of the Supreme Court in Jai Laxmi Rice Mills Ambala City (1 supra). In the said decision as extracted above Supreme Court had concurred with the view taken by the High Court holding that satisfaction must be recorded in the original assessment order for the purpose of initiation of penalty proceedings under Section 271E of the Act. We have already discussed above that provisions of Section 271E and 271D of the Act are in pari materia. When there is a decision of the 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. Article 141 of the Constitution of India is clear that law declared by the Supreme Court shall be binding on all courts within the territory of India. This is further clarified in Article 144 which says that all authorities civil and judicial in the territory of India shall act in aid of the Supreme Court. We are therefore of the unhesitant view that respondent No. 1 overlooked the relevant considerations while passing the impugned order dated. 29.11.2022. Further issue in the present writ petition is not the competence of the Joint Commissioner in issuing the order of penalty. Therefore reference to Grihalaxmi Vision (2 supra) was wholly unnecessary. WP allowed.

Summary

Issues involved:
1. Whether the penalty under Section 271D of the Income Tax Act, 1961 can be imposed without recorded satisfaction in the assessment order.
2. Interpretation of Sections 269SS, 271D, and 271E of the Income Tax Act.
3. Compliance with Supreme Court's precedent in Jai Laxmi Rice Mills Ambala City.

Issue-wise Detailed Analysis:

1. Whether the penalty under Section 271D of the Income Tax Act, 1961 can be imposed without recorded satisfaction in the assessment order:
The petitioner challenged the penalty order dated 29.11.2022 under Section 271D of the Income Tax Act, 1961, which was imposed for accepting cash in violation of Section 269SS. The petitioner argued that the assessing officer did not record satisfaction in the assessment order regarding the violation of Section 269SS, which is a prerequisite for initiating penalty proceedings under Section 271D. The petitioner cited the Supreme Court's decision in CIT v. Jaya Laxmi Rice Mills Ambala City, which held that recording of satisfaction is mandatory for initiating penalty proceedings under Section 271E, a provision pari materia to Section 271D.

2. Interpretation of Sections 269SS, 271D, and 271E of the Income Tax Act:
Section 269SS prohibits accepting loans or deposits above a specified amount in cash, while Section 271D imposes a penalty for contravening Section 269SS. The petitioner admitted to receiving cash but argued that the penalty could not be imposed without the assessing officer's recorded satisfaction. Section 271E, which deals with penalties for repaying loans or deposits in cash, was also discussed as it is complementary to Section 271D. Both sections require the Joint Commissioner to impose penalties and are intended to ensure transactions are conducted through banking channels to prevent tax evasion.

3. Compliance with Supreme Court's precedent in Jai Laxmi Rice Mills Ambala City:
The petitioner emphasized that the Supreme Court's decision in Jai Laxmi Rice Mills Ambala City mandates recorded satisfaction for penalty proceedings under Section 271E, which should apply similarly to Section 271D. The respondent, however, relied on the Kerala High Court's decision in Grihalaxmi Vision and an earlier Supreme Court decision in CIT v. Mac Data Ltd., arguing that the assessing officer need not record satisfaction in a specific manner. The High Court found that the respondent overlooked the Supreme Court's binding decision in Jai Laxmi Rice Mills Ambala City, thus failing to comply with the legal requirement of recorded satisfaction.

Conclusion:
The High Court concluded that the impugned order dated 29.11.2022 was issued without considering the Supreme Court's binding precedent, which mandates recorded satisfaction for initiating penalty proceedings under Sections 271D and 271E. Therefore, the order was set aside, and the matter was remanded back to the respondent to pass a fresh order in accordance with law after giving a reasonable opportunity of hearing to the petitioner. The writ petition was allowed, and no costs were awarded.