2024 (3) TMI 879 - AT - Income Tax

Penalty levied u/s 271D as well as section 271E - mandation to record satisfaction before initiating penalty under section 271D - case of the assessee was selected for scrutiny and the assessment was completed after making addition towards unexplained interest paid/unexplained cash expenses for which AO initiated penalty proceedings u/s 271(1) - allegation of receipts of loan by way of cash and payment of interest in cash - violation of section 269SS and section 269T - As per AO assessee had not explained the bonafide or genuineness of the cash transactions HELD THAT - In this case, the assessment order was passed on 30.12.2017 and reference was made by the Assessing Officer to the Addl. CIT on 14.03.2021 to initiate penalty proceedings. There is a time gap of more than three years In the assessment order dated 30.12.2017, the Assessing Officer has noted that penalty proceedings u/s 271(1)(c) of the Act has to be initiated separately. However, the AO has made a reference to the Addl. CIT to initiate the proceedings u/s 271D of the Act for violation of section 269SS of the Act. Once the AO decided to initiate penalty u/s 271(1)(c) of the Act, subsequently, reference was made to Addl. CIT to initiate penalty proceedings u/s 271D of the Act, the AO ought to have been recorded his satisfaction. However, Ld. AO has failed to do so. 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. Thus as following case of CIT v. Jai Laxmi Rice Mills 2015 (11) TMI 1453 - SUPREME COURT , Srinivasa Reddy Reddeppagari 2022 (12) TMI 1446 - TELANGANA HIGH COURT , T. Shiju v. JCIT ( 2019 (6) TMI 603 - ITAT CHENNAI , Smt. S.B. Patil 2016 (2) TMI 1206 - ITAT BANGALORE and Anglican India Consultancy Pvt. Ltd. 2017 (12) TMI 1518 - ITAT DELHI the ground raised by the Department is liable to be dismissed. Period of limitation - Penalty order has not been passed within the statutory time limit - CIT(A) has followed the judgement of Mahesh Wood Products P Ltd. 2017 (5) TMI 433 - DELHI HIGH COURT and decided the additional legal ground in favour of the assessee. CIT(A) has correctly deleted the penalty levied under section 271D of the Act for both the assessment years 2015-16 and 2016-17. Since the Hon ble Supreme Court in the case of Jai Laxmi Rice Mills Ambala City (supra) wherein it was clarified that provisions of Section 271E are in pari materia with the provisions of Section 271D of the Act, no separate adjudication for levy of penalty under section 271E of the Act is warranted. Accordingly, all the appeals filed by the Revenue are dismissed.

Summary

Issues Involved:
1. Validity of Penalty u/s 271D for Violation of Section 269SS.
2. Validity of Penalty u/s 271E for Violation of Section 269T.
3. Limitation Period for Passing Penalty Orders.

Summary:

1. Validity of Penalty u/s 271D for Violation of Section 269SS:
The primary issue was whether the penalty u/s 271D was valid when the Assessing Officer (AO) did not record satisfaction in the assessment order regarding the violation of Section 269SS. The Tribunal referred to the Supreme Court's decision in CIT Vs. Jai Laxmi Rice Mills, which held that no penalty u/s 271E could be levied without recording satisfaction in the assessment order. The Tribunal also cited the Telangana High Court's decision in Srinivasa Reddy Reddeppagari Vs JCIT, which reiterated that Sections 271D and 271E are pari materia and require satisfaction to be recorded in the assessment order. The Tribunal concluded that the AO failed to record such satisfaction, rendering the penalty invalid.

2. Validity of Penalty u/s 271E for Violation of Section 269T:
The Tribunal noted that the AO moved for a penalty u/s 271E for cash payments in violation of Section 269T. Similar to the penalty u/s 271D, the Tribunal found that the AO did not record satisfaction in the assessment order. The Tribunal followed the Supreme Court's decision in Jai Laxmi Rice Mills and other relevant case laws, concluding that the penalty u/s 271E was also invalid due to the absence of recorded satisfaction.

3. Limitation Period for Passing Penalty Orders:
The Tribunal addressed whether the penalty order was time-barred. The assessee argued that the penalty order was not passed within six months from the end of the month in which the AO made the reference to the Additional Commissioner of Income Tax (Addl. CIT). The Tribunal referred to the Delhi High Court's decision in Principal CIT Vs Mahesh Wood Products P Ltd, which held that the limitation period starts from the date the AO makes the reference. In this case, the AO made the reference on 15.03.2021, and the penalty order was passed on 30.05.2022, exceeding the statutory time limit. Therefore, the Tribunal held that the penalty order was time-barred and legally unsustainable.

Conclusion:
The Tribunal upheld the CIT(A)'s decision to delete the penalties u/s 271D and 271E for both assessment years 2015-16 and 2016-17, finding the penalties invalid due to the lack of recorded satisfaction by the AO and the orders being time-barred. Consequently, all appeals filed by the Revenue were dismissed, and the Cross Objections filed by the assessee were deemed infructuous.