Premji Bhurlal Gala Vs ACIT (ITAT Mumbai)
Section 271D Penalty Cannot Survive After Reassessment Itself is Quashed- Mumbai ITAT Deletes ₹1.35 Crore Penalty Based on Alleged Cash Loans
The Mumbai ITAT deleted penalties levied u/s 271D aggregating to ₹1.35 crore, holding that once the very reassessment proceedings and consequential additions were quashed as void ab initio, the penalty proceedings initiated on the basis of those reassessment orders could not independently survive.
The Revenue alleged that the assessee had accepted cash loans from M/s Evergreen Enterprises based on seized coded diaries, loose papers and statements recorded during search proceedings on third parties. On that basis, reassessment proceedings were initiated and penalties u/s 271D were levied for alleged violation of Section 269SS in respect of cash loans of ₹66 lakh and ₹69.50 lakh for different years.
The assessee contended that the entire reassessment itself had already been quashed by the Coordinate Bench in earlier proceedings and therefore the very foundation for initiation of penalty ceased to exist. Reliance was also placed on earlier decisions in assessee’s own cases and on the Supreme Court ruling in CIT vs. Jaya Lakshmi Rice Mills, which held that when the original assessment order itself does not survive, the satisfaction recorded therein for penalty proceedings also collapses.
Rejecting the Revenue’s argument that penalty u/s 271D is an independent proceeding, the Tribunal clarified that while such penalties may be procedurally independent, they still require a surviving factual and legal foundation. Once the reassessment proceedings based on alleged cash loan transactions were quashed and the additions deleted, the very substratum for alleging violation of Section 269SS disappeared.
The ITAT further noted that except for third-party statements and alleged coded entries found during search on another entity, no independent incriminating material evidencing actual receipt of cash loan by the assessee was brought on record. Even the earlier Coordinate Bench had observed that the additions were based merely on statements of third parties without corroborative evidence.
Following its earlier decisions in the assessee’s own case and the Supreme Court judgment in Jaya Lakshmi Rice Mills, the Tribunal held that with the quashing of reassessment proceedings, the consequential penalties u/s 271D also became unsustainable and directed deletion of the entire penalties.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
The captioned appeals filed by the assessee are directed against the separate orders passed by the learned Commissioner of Income Tax (Appeals), NFAC/CIT(A)-51, Mumbai [hereinafter referred to as “CIT(A)”]under section 250 of the Income Tax Act, 1961[hereinafter referred to as “the Act”] for Assessment Years 2013-14 and 2017-18, arising from penalty orders passed under section 271D of the Act by the Joint Commissioner/Income Tax Officer. Since common facts, identical issues and interconnected grounds are involved in both the appeals, the same were heard together and are being disposed of by way of this consolidated order for the sake of convenience and brevity.
