2024 (2) TMI 1107 - AT - Income Tax

Assessment u/s 153C - Penalty u/s 271D / 271E - violation of provisions of Sec.269SS and 269T - basis of presumption u/s 132(4A) - Period of limitation - assessee is a third party - assessee reiterated that it had no connection with the cash payments and receipts as mentioned in the seized material of M/s Vels group and these entries were merely one-sided entries only - HELD THAT - In the seized material which is found from third party premises, it was alleged that the assessee received cash loan in violation of provisions of Sec.269SS - This allegation was on the basis of presumption u/s 132(4A) which provide that where any books of account, other documents, money, bullion, jewellery or other valuable article or thing are or is found in the possession or control of any person in the course of a search, it may be presumed that such books of account, other documents, money, bullion, jewellery or other valuable article or thing belong or belongs to such person and the contents of such books of account and other documents are true.This presumption is rebuttable one and operates only against the person in whose possession the books of account, other documents, money, bullion, jewellery or other valuable article or thing is found. The assessee is a third party and therefore, this presumption could not be raised against the assessee. Connection with the cash payments and receipts - So far as the assessee is concerned, he has denied having received any such loan. To support the same, the assessee also filed confirmatory letter from the other party that no such cash transactions have taken place between the assessee and the other group. No further enquiry has been made by Ld. AO to corroborate the receipt of loan by the assessee. The allegation is merely on the basis of one-sided entries found in the premises of a third party. Therefore, the impugned penalty could not be sustained considering this point. As undisputed AO has moved a proposal to appropriate authority for initiation for proceedings u/s 271D on 26.05.2022 whereas the assessment order was passed on 28.09.2021. The proposal has been moved nearly 8 months after completion of assessment proceedings. The same is in violation of CBDT Circular no. 09/DV/2016 dated 26.04.2016 advising Assessing Officer to make a reference to the Range Head regarding violation of provisions of Sec.269SS and 269T during the course of assessment proceedings itself. Thus, the action of Ld. AO was in gross violation of departmental circular. Therefore, we confirm the findings of Ld. CIT(A) in that regard. Mandation of recording the satisfaction - Case of the assessee is covered by the decision of Jai Laxmi Rice Mills ( 2015 (11) TMI 1453 - SUPREME COURT which specifically provide that no penalty could be levied u/s 271E without recording the satisfaction. recoding of satisfaction in the assessment order regarding the violation of provisions of Sec.269SS was a mandatory requirement for valid initiation of penalty proceedings u/s 271D of the Act. No such penalty could be levied if AO failed to record such satisfaction in the assessment order. Therefore, in our considered opinion, Ld. CIT(A) has passed a well reasoned order deleting the impugned penalty. Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of penalty proceedings under Section 271D.
2. Applicability of Supreme Court decision in CIT vs. Jai Laxmi Rice Mills.
3. Compliance with CBDT Circular No. 09/DV/2016.

Summary:

Validity of Penalty Proceedings under Section 271D:
The Revenue appealed against the deletion of a penalty levied under Section 271D for violating Section 269SS. The CIT(A) deleted the penalty on the grounds that the penalty proceedings were not validly initiated, as the assessing officer did not record satisfaction in the assessment order regarding the violation of Section 269SS. The CIT(A) relied on the Supreme Court decision in CIT vs. Jai Laxmi Rice Mills, which mandates recording satisfaction for initiating penalty proceedings.

Applicability of Supreme Court Decision in CIT vs. Jai Laxmi Rice Mills:
The CIT(A) held that the ratio of the Supreme Court decision in CIT vs. Jai Laxmi Rice Mills applied to the present case. This decision specifies that no penalty under Section 271E can be levied without recording satisfaction. The CIT(A) also noted similar decisions from various High Courts and Tribunals, which followed the Supreme Court's ruling, thereby supporting the deletion of the penalty.

Compliance with CBDT Circular No. 09/DV/2016:
The CIT(A) observed that the reference to the Additional Commissioner for initiating penalty proceedings was made nearly eight months after the conclusion of the assessment proceedings, violating the CBDT Circular No. 09/DV/2016. This circular advises that the penalty proceedings should be initiated during the course of assessment proceedings. The CIT(A) concluded that the delayed reference rendered the penalty proceedings invalid.

Our Findings and Adjudication:
The Tribunal found that the assessment was completed without initiating any penalty proceedings. The penalty was proposed based on incriminating material found during a search, which suggested that the assessee received a cash loan in violation of Section 269SS. However, the assessee denied receiving any such loan and provided a confirmatory letter from the other party. The Tribunal noted that the presumption under Section 132(4A) could not be applied against the assessee, as the material was found in a third party's possession.

The Tribunal concurred with the CIT(A) that the penalty proceedings were not validly initiated, as no satisfaction was recorded in the assessment order. The Tribunal also confirmed that the delayed reference to the Additional Commissioner violated the CBDT Circular, supporting the deletion of the penalty.

Conclusion:
The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decision to delete the penalty under Section 271D. The Tribunal's adjudication applies to all the other appeals, and the order was pronounced on 20th February 2024.