No Section 271D Penalty if No Assessment Was Made & No Satisfaction Was Recorded: ITAT Delhi

Ishwar Singh Dabas Vs ITO (ITAT Delhi)

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) allowed the assessee’s appeal and deleted a penalty of ₹65,00,000 imposed under Section 271D of the Income Tax Act for alleged violation of Section 269SS on account of cash received from the sale of immovable property.

The assessee challenged the order of the Commissioner of Income Tax (Appeals), which had upheld the penalty. Before the Tribunal, the assessee contended that no assessment had been made for Assessment Year 2016-17 and that no satisfaction had been recorded by the Assessing Officer for initiating penalty proceedings under Section 271D. It was argued that penalty proceedings could not be sustained in the absence of a concluded assessment and recorded satisfaction. The assessee relied on the ITAT Agra decision in ACIT, Central Circle, Agra vs. Saurabh Gupta.

The Revenue argued that penalty proceedings under Section 271D are independent proceedings and therefore do not require an assessment.

After considering the submissions, the Tribunal noted that it was an admitted fact that no assessment had been made in the assessee’s case for AY 2016-17 and, consequently, no satisfaction had been recorded by the Assessing Officer for initiating penalty proceedings under Section 271D. The Tribunal found the decision in Saurabh Gupta applicable. That decision held that the Assessing Officer must record satisfaction regarding the alleged violation of Sections 269SS and 269T in the assessment order itself for valid initiation of penalty proceedings under Sections 271D and 271E. It further held that when the basis of penalty proceedings ceases to exist, the penalty cannot survive independently.