2024 (10) TMI 600 - HC - Income Tax

Penalty u/s 271D - violation of the provisions of Sec. 269SS - non-recording any satisfaction in contemplating levy of penalty - HELD THAT - A presumption can be drawn, in the absence of a finding by the AO to the effect that the petitioner has violated the provisions of Sec. 269SS of the Act, that the department has accepted the explanation furnished by the petitioner denying allegation of loan in cash. Therefore, it can unhesitatingly be said that, having satisfied with the explanation of the assessee, the AO did not record any satisfaction in the assessment order to the effect that the provisions of Section 269SS of the Act, are violated and did not contemplate levy of penalty u/s 271D of the Act. In our view, the satisfaction of the AO is required to be recorded because the officer, who passed the assessment order would not be levying the penalty u/s 271D of the Act, unless it is recorded in the assessment order, he cannot refer the file to superior officer i.e., Joint Commissioner, for initiating levy of penalty. Unless the AO who is the primary authority, based on the material before it, during assessment proceedings, arrives at a finding that there has been a violation of the provisions, like in the present case, of Section 269SS, there will not be any occasion to the Joint Commissioner, who is not the AO to exercise his jurisdiction to levy Penalty u/s 271D. Following the decision of the Hon'ble Supreme Court in the case of Jai Laxmi Rice Mills 2015 (11) TMI 1453 - SUPREME COURT we set aside the order passed under Sec. 271D of the Act.

Summary

Issues:
1. Levy of penalty under Section 271D of the Income Tax Act without recording satisfaction.
2. Challenge to penalty proceedings initiated by the Joint Commissioner of Income-tax.

Analysis:
1. The petitioners contested the penalty imposed under Section 271D of the Income Tax Act, alleging that it was levied without the Assessing Officer recording any satisfaction regarding the penalty. The petitioner argued that no evidence existed to prove that cash loans were accepted, as all transactions were conducted through banking channels. The Assessing Officer's addition was primarily based on a letter dated 02-06-2014 from the petitioner acknowledging a loan, but no violation of Sec. 269SS was found. The court held that without a recorded finding of a violation, the penalty could not be justified. The absence of a finding implied acceptance of the petitioner's explanation, leading to the conclusion that the penalty was unjustified.

2. The court emphasized the necessity of the Assessing Officer recording satisfaction before initiating penalty proceedings under Section 271D. It was highlighted that without such satisfaction, the superior officer, like the Joint Commissioner, cannot levy the penalty. Referring to the decision in CIT Vs. Jai Laxmi Rice Mills, the court set aside the penalty order under Section 271D, emphasizing the importance of the Assessing Officer's role in determining violations before penalty imposition.

3. The respondents argued that the petitioner should have pursued alternative remedies like an appeal instead of filing a Writ Petition directly. Citing various legal precedents, the respondents contended that the Writ Petition was not maintainable without exhausting other available remedies. However, the court, after reviewing the material on record, upheld the petitioner's argument regarding the lack of satisfaction recorded by the Assessing Officer, leading to the allowance of the Writ Petition challenging the penalty.

4. Ultimately, the court allowed the Writ Petition, setting aside the penalty imposed under Section 271D of the Income Tax Act. No costs were awarded, and any pending interlocutory applications were closed as a result of the judgment.