ITAT Delhi order on Penalty u/s 271DA – Requirement of Recording Satisfaction for Violation of Section 269ST – ITAT Delhi Dismisses Revenue’s Appeal
Summary: The Revenue appealed against the deletion of penalties imposed under Section 271DA for alleged violation of Section 269ST, but the ITAT upheld the CIT(A)’s decision quashing the penalties in ACIT v. Seven Seas Hospitality Pvt. Ltd.. The core issue was whether penalty under Section 271DA can survive when the Assessing Officer did not record any satisfaction in the assessment order regarding a violation of Section 269ST. The assessment orders, passed after a search on the group, contained no such satisfaction or reference, though substantial penalty was later imposed by the JCIT. The assessee argued that penalty provisions under Sections 271DA, 271D, and 271E are pari materia, making the Supreme Court ruling in Jai Laxmi Rice Mills applicable. The ITAT agreed, holding that absence of satisfaction in the assessment order renders the penalty void, and the JCIT cannot initiate penalty independently. The Tribunal dismissed the Revenue’s appeals, confirming that penalties without recorded satisfaction are unsustainable.
Brief facts:
The Revenue filed two appeals against the orders of CIT(A)-30, New Delhi deleting penalty imposed u/s 271DA for alleged violation of Section 269ST on the basis that the Assessing Officer had not recorded any satisfaction in the assessment order regarding such violation.
The core issue in both appeals was whether penalty u/s 271DA can be sustained if the AO has not recorded satisfaction in the assessment order regarding violation of Section 269ST.
The DR argued that Section 271DA does not require satisfaction to be recorded, and therefore, penalty initiated by the Joint Commissioner on reference from the AO was valid.
- A search was conducted on the Seven Seas Group on 03.05.2018.
- Alleged unaccounted sales were quantified by the AO.
- Assessment order u/s 153A was passed without any satisfaction or reference regarding violation of Section 269ST or initiation of penalty u/s 271DA.
- Penalty notices were later issued by the JCIT based on a report of DCIT, and penalty of ₹12.40 crore was imposed u/s 271DA.
The assessee argued that the penalty was void since:
- No satisfaction for violation of Section 269ST was ever recorded in the assessment order.
- Penalty u/s 271DA is pari materia to penalty u/s 271D/271E, and thus the Supreme Court judgment in CIT v. Jai Laxmi Rice Mills (379 ITR 521) applies.
CIT(A) accepted this contention and quashed the penalty.
Revenue appealed before ITAT.
Key issue:
Whether recording of satisfaction in the assessment order is a pre-condition for initiation of penalty u/s 271DA for violation of Section 269ST?
Key Legal Principles Applied
Pari materia – 271DA aligned with 271D / 271E
ITAT accepted CIT(A)’s finding that:
- Purpose of Sections 269ST and 269SS/269T is identical – restriction on cash transactions to curb black money.
- Therefore, penalty provisions u/s 271DA, 271D, 271E are pari materia.
Thus, jurisprudence on 271D/271E applies equally to 271DA.
Supreme Court in CIT v. Jai Laxmi Rice Mills (2015) 379 ITR 521 (SC)
ITAT relied heavily on this binding judgment:
Ratio:
- If assessment order does not contain satisfaction of AO for initiating penalty u/s 271D/271E, penalty is invalid.
- Even after a fresh assessment, fresh satisfaction is mandatory.
Held applicable to 271DA CIT(A) and ITAT held that Jai Laxmi Rice Mills applies equally to 271DA because:
- AO is the primary authority who examines facts.
- JCIT cannot independently initiate penalty without AO’s satisfaction.
- Absence of satisfaction → penalty void.
CBDT Circular No. 09/DV/2016 dated 26.04.2016 CIT(A) and ITAT both held:
- The Circular deals only with limitation u/s 275(1)(c).
- It does not override Supreme Court law on satisfaction requirement.
- Circular relied on Kerala HC decision in Grihalaxmi Visions, which predated the Supreme Court ruling in Jai Laxmi Rice Mills.
- Hence Circular is per incuriam to the extent inconsistent with Supreme Court ruling.
JCIT vs Smt. S.B. Patil ITA no. 200004/2016 by Hon’ble High court of Karnataka dated 26/03/2018
Grandhi Sri Venkata Amarendra ns JCIT 167 taxmann.com 352 by Hon’ble High court of Andhra Pradesh dated 03/10/2024
ACIT center circle 5 New Delhi vs M/s Narsi Iron & Steel pvt. ltd. ITA no. 2866/DEL/2013 ITAT Delhi dated 29/06/2018
ITO vs Smt. Lakshmi Vishwanath vs Additional CIT Range 64 New Delhi ITA no. 3115/DEL/2017 dated 06/11/2017
Shri Lal Singh Chouhan vs JCIT ITA no. 104/IND/2020 dated 27/07/2021 ITAT Indore bench
Prithvi Singh Poonia vs JCIT ITA no. 3109/AHD/2015 ITAT Ahmedabad dated 21/03/2017
Decision:-
ITAT Delhi dismissed Revenue’s appeals holding:
When the Assessing Officer does not record satisfaction in the assessment order regarding violation of Section 269ST, penalty u/s 271DA cannot be imposed. Following the decisions of the Hon’ble Supreme Court in the case of CIT vs. Jai Laxmi Rice Mills, Hon ‘ble High Court of Andhra Pradesh in the case of Grandhi Sri Venkata Amarendra v. JCIT, Hon’ble High Court of Karnataka in the case of JCIT v. Smt. S.B. Patil and the Hon’ble ITAT Delhi in the case of PCIT, CC-5, New Delhi v. M/s. Narsi Iron Steel Pvt. Ltd.. I conquer with the contention of the assessee that when no satisfaction has been recorded in the Assessment Order with regard to initiation of penalty proceeding Us, 27IDA in violation of the provisions of Sec.269ST, no such penalty can be levied.
Penalty order was correctly quashed by the CIT(A).
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