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2023 (11) TMI 698 - AT - Income TaxPenalty u/s. 271D - mandation of recording satisfaction - as pr AO no reasonable cause for acceptance of cash by the assessee company from one of its Directors and considered that it is a fit case for levy of penalty - contravention of the provisions of section 269SS - HELD THAT - Admittedly, in the quantum proceedings both in the case of the assessee company and in the case of Sri Arunachalam Manickavel 2018 (11) TMI 1325 - ITAT VISAKHAPATNAM the Hon ble Tribunal has held in favour of the assessee. Further, the reliance placed by the Ld. AR on the judgment of the Hon ble Supreme Court in the case of CIT vs. Jai Laxmi Rice Mills Ambala City 2015 (11) TMI 1453 - SUPREME COURT wherein the Hon ble Supreme Court has held that the Ld. AO has to record his satisfaction for the purpose of initiating penalty proceedings under the Act. Also decided in Kanchumarthi Venkata Sita Ramachandra Rao 2022 (9) TMI 53 - ITAT VISAKHAPATNAM when there is no satisfaction report recorded by the Ld. AO in the assessment record, no penalty could be levied. As, in the instant case, the Hon ble jurisdictional Bench of the Tribunal has deleted the additions both under the protective basis and the substantive basis as the creditworthiness and genuineness of the source of the funds were proved beyond doubt. Considering all we are of the considered view that the penalty order u/s. 271D passed by the Ld. AO without recording proper satisfaction, deserves to be quashed - Decided in favour of assessee.
Issues involved:
The appeal filed by the Revenue against the penalty order passed under section 271D for the AY 2017-18. Facts of the case: The assessee, engaged in manufacturing detergent products, faced a search and seizure operation leading to the discovery of cash deposits during the demonetization period. The source of the cash deposits claimed to be a loan from one of the Directors was disputed by the Ld. AO. The Ld. CIT(A) later deleted the addition after the genuineness of the transactions was proven. Subsequently, a penalty u/s. 271D was proposed by the Ld. AO, which was upheld by the Ld. CIT(A) based on the violation of section 269SS. The Revenue appealed the decision before the ITAT, Visakhapatnam Bench. Decision on penalty under section 271D: The Ld. AO levied a penalty of Rs. 1.74 Crs u/s. 271D without recording proper satisfaction, leading to the quashing of the penalty order by the ITAT. The Tribunal held that since there was no satisfaction report recorded in the assessment record, the penalty could not be levied. The decision was supported by the principles of consistency and judicial pronouncements, as the creditworthiness and genuineness of the source of funds were proven beyond doubt. Consequently, the order of the Ld. CIT(A) was upheld, and no interference was required. Cross Objections by the assessee: The Cross Objection raised legal issues, asserting that the penalty order was invalid due to the absence of written satisfaction in the assessment order. The Ld. AR argued that since the quantum appeal favored the assessee, penalty u/s. 271D could not be imposed. Legal precedents were cited to support this argument. The Ld. DR contended that penalty proceedings and quantum proceedings are separate, emphasizing the contravention of section 269SS as the basis for penalty imposition. Conclusion: The legal issue raised by the assessee in the Cross Objection was allowed in favor of the assessee, leading to the dismissal of the Revenue's appeal and the allowance of the Cross Objection. The ITAT's decision highlighted the importance of recording proper satisfaction before imposing penalties under section 271D, ensuring consistency and adherence to judicial principles.
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