2025 (1) TMI 648 - AT - Income Tax

Penalty levied u/s. 271D - justification to invoke provisions of Sec.269SS - assessee company had carried out unaccounted scrap sales and this entry was booked in its book as credit in the advance from Director s account - HELD THAT -This Tribunal in several cases T Shiju v. JCIT 2019 (6) TMI 603 - ITAT CHENNAI has held that recording of satisfaction by the AO in the assessment order regarding the violation of the provisions of section 269SS is a mandatory requirement for valid initiation of penalty proceedings us 271D of the Act and no penalty could be levied if the AO failed to record such satisfaction in the assessment order. In the present case, on perusal of the assessment order u/s 143(3) it is seen that no such satisfaction has been recorded by the AO in the said assessment order. Hence, having regard to the failure of the AO to record his satisfaction in the assessment order with regard to the violation of the provisions of Sec. 269SS, it is held that the penalty proceedings u/s. 271D of the Act have not been validly initiated and consequently, the penalty order passed by the Addl. CIT is held to be bad in Law. Decided against revenue.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions addressed in the judgment are:

• Whether the penalty levied under Section 271D of the Income Tax Act, 1961, was validly initiated and imposed by the Additional Commissioner of Income Tax (Addl.CIT) without the Assessing Officer (AO) recording satisfaction of a violation of Section 269SS in the original assessment order.
• Whether the absence of recorded satisfaction in the assessment order regarding the violation of Section 269SS renders the penalty proceedings under Section 271D void ab initio.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of Penalty under Section 271D

• Relevant legal framework and precedents:
  • Section 269SS of the Income Tax Act prohibits the acceptance of loans or deposits in cash beyond a specified limit to curb tax evasion.
  • Section 271D imposes a penalty for contravention of Section 269SS.
  • Precedents: The Supreme Court in CIT v. Jai Laxmi Rice Mills and the Telangana High Court in Srinivasa Reddy Reddeppagari v. JCIT emphasized the necessity of recording satisfaction in the assessment order for initiating penalty proceedings under Section 271D.
• Court's interpretation and reasoning:
  • The Tribunal observed that the AO did not record any satisfaction regarding the violation of Section 269SS in the assessment order dated 27.12.2017.
  • The Tribunal relied on the Supreme Court's ruling in Jai Laxmi Rice Mills, which mandates that penalty proceedings under Section 271D require recorded satisfaction in the assessment order.
• Key evidence and findings:
  • The assessment order lacked any mention of satisfaction by the AO concerning a breach of Section 269SS.
  • The penalty proceedings were initiated without such recorded satisfaction, making them procedurally deficient.
• Application of law to facts:
  • The Tribunal applied the principle from Jai Laxmi Rice Mills that the absence of recorded satisfaction in the assessment order invalidates the penalty proceedings under Section 271D.
• Treatment of competing arguments:
  • The Revenue's argument for upholding the penalty was dismissed due to the procedural lapse in recording satisfaction by the AO.
  • The assessee's contention, supported by judicial precedents, was upheld, emphasizing the necessity of procedural compliance.
• Conclusions:
  • The Tribunal concluded that the penalty under Section 271D was not validly initiated due to the absence of recorded satisfaction in the assessment order.

3. SIGNIFICANT HOLDINGS

• Preserve verbatim quotes of crucial legal reasoning:
  • "No penalty u/s 271E could be levied in the absence of recording of satisfaction by the AO in the assessment order." - Supreme Court in Jai Laxmi Rice Mills.
• Core principles established:
  • The recording of satisfaction by the AO in the assessment order is a mandatory prerequisite for the initiation of penalty proceedings under Section 271D.
  • Failure to record such satisfaction renders the penalty proceedings void ab initio.
• Final determinations on each issue:
  • The Cross-Objection by the assessee was allowed, and the penalty levied under Section 271D was declared void due to the absence of recorded satisfaction by the AO.
  • The Revenue's appeal was dismissed as the penalty proceedings were procedurally flawed.