Section 271D Penalty Cannot Survive After Quantum Assessment Is Quashed: Delhi ITAT

By CA Vijayakumar Shetty Income Tax Judiciary August 6, 2026

TaxGuru Citation: 2026 taxguru.in 10272
Case Name: DCIT Vs Harish Kumar Agrawal (ITAT Delhi)
Appeal Number: Only available for paid members
Date of Judgement/Order: Only available for paid members
Related Assessment Year: 2020-21
Courts: All ITAT, ITAT Delhi

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DCIT Vs Harish Kumar Agrawal (ITAT Delhi)

Delhi ITAT: Section 271D Penalty Cannot Survive After Quantum Assessment is Quashed; Limitation Runs from AO’s Satisfaction

The Delhi ITAT dismissed the Revenue’s appeal and upheld the deletion of penalty under section 271D, holding that once the underlying assessment giving rise to the penalty is quashed, the very foundation for the penalty disappears. The Tribunal also reaffirmed that the limitation period under section 275(1)(c) is to be computed from the date on which the Assessing Officer records satisfaction for initiating penalty proceedings, and not from the date on which the Joint/Additional Commissioner issues the penalty notice.

The Assessing Officer had treated ₹86.50 lakh as undisclosed cash consideration received in connection with a property transaction, alleging violation of section 269SS, and imposed an equivalent penalty under section 271D. However, in the assessee’s own quantum appeal, the ITAT had already quashed the assessment on jurisdictional grounds. Relying on that order and the Supreme Court’s decision in CIT v. Jai Laxmi Rice Mills, the CIT(A) deleted the penalty.

The Revenue argued that penalty under section 271D is independent of the quantum proceedings and that the limitation period should be reckoned from the date on which the Additional/Joint Commissioner initiated penalty proceedings.

The Tribunal rejected both contentions. It held that the Supreme Court’s ruling in Jai Laxmi Rice Mills, though rendered in the context of section 271E, equally applies to section 271D, as both provisions are pari materia. Once the assessment order is quashed, the satisfaction recorded therein for initiating penalty proceedings also gets obliterated, leaving no basis for levy of penalty.

The Tribunal further upheld the CIT(A)’s finding on limitation by relying on the Delhi High Court decisions in Pr. CIT v. Rishikesh Buildcon (P.) Ltd. and Pr. CIT v. Thapar Homes Ltd., holding that the six-month limitation under section 275(1)(c) begins from the month in which the Assessing Officer records satisfaction in the assessment order, and not from the date on which the Joint/Additional Commissioner issues the penalty notice.

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