Ramoji Rao and another Vs Additional Commissioner of Income Tax (Telangana High Court)
Promotion Cannot Carry Old Jurisdiction in the Officer’s Briefcase: Additional Commissioner Cannot Impose Penalty u/s 271D Without Specific Authorisation
Summary: A higher rank in the departmental hierarchy does not automatically confer every statutory power vested in a lower authority. Where section 271D specifically authorises the Joint Commissioner to impose penalty for violation of section 269SS, an Additional Commissioner cannot exercise that power merely because he is superior in rank. He must possess a valid appointment, direction or specific authorisation under the Income-tax Act. Further, penalty u/s 271D cannot be imposed when the assessment order contains no satisfaction or finding that section 269SS was violated.
The Telangana High Court decided a batch of five writ petitions concerning Ramoji Rao HUF, covering AYs 2001-02 to 2005-06. The HUF carried on several businesses, including Margadarsi Financiers.
The Department alleged that the petitioners had accepted deposits exceeding ₹20,000 in cash, thereby violating section 269SS. The said provision prohibits acceptance of loans, deposits or specified sums of ₹20,000 or more otherwise than through the prescribed banking channels. A violation attracts penalty u/s 271D, equal to the amount of the loan or deposit accepted.
The petitioners categorically denied having accepted deposits exceeding ₹20,000 in cash. They explained that deposits were required to be made through cheques, demand drafts or pay orders. Since several customers came from rural backgrounds, agents connected with a sister concern merely facilitated the preparation of drafts and pay orders. Cash was accepted only in respect of smaller deposits falling below the statutory limit.
The first important challenge concerned the jurisdiction of the Additional Commissioner who passed the penalty orders. Section 271D(2) expressly provides that the penalty shall be imposed by the Joint Commissioner.
Interestingly, the concerned officer had initiated the penalty proceedings when he was functioning as Joint Commissioner. During the pendency of those proceedings, he was promoted as Additional Commissioner. He nevertheless retained the files and passed the final penalty orders after assuming the higher office.
The petitioners argued that once the officer was promoted, he ceased to hold the office of Joint Commissioner. He could not continue exercising powers statutorily vested in that authority unless the CBDT or another competent authority had issued a specific order empowering him to do so.
The Department relied upon section 2(28C), which defines “Joint Commissioner” as a person appointed to be a Joint Commissioner or an Additional Commissioner u/s 117(1). It contended that an Additional Commissioner was competent to exercise the power and, in any event, occupied a higher position in the hierarchy.
The High Court examined sections 2(28C), 116, 117, 120 & 121 of the Act. It observed that the statutory definition could include an Additional Commissioner where that officer had been appropriately appointed or authorised. However, the mere fact that an officer was higher in rank did not automatically enable him to exercise every power assigned by the statute to another authority.
Section 120 permits a higher-ranking authority to exercise the powers of a lower authority when there is an appropriate direction or authorisation from the Board. Therefore, an Additional Commissioner could exercise the Joint Commissioner’s powers, but only when the statutory requirement of appointment or authorisation was satisfied.
In the present case, the officer had initially acted as Joint Commissioner. Upon promotion as Additional Commissioner, he ceased to occupy his earlier office. There was no specific order produced before the Court authorising him, in his new capacity, to continue exercising the Joint Commissioner’s power u/s 271D.
The fact that he had initiated the proceedings earlier could not preserve his jurisdiction indefinitely. Jurisdiction attaches to the office, not personally to the individual holding it. Consequently, the penalty orders passed by him as Additional Commissioner were held to be without jurisdiction.
The Court then examined another fundamental defect—the absence of any satisfaction in the assessment orders regarding violation of section 269SS.
In the assessment orders relating to two years, there was merely a general statement that penalty proceedings u/s 271(1)(c) would be initiated separately. The remaining assessment orders were completely silent about penalty proceedings. None of the assessment orders recorded that the assessee had accepted cash loans or deposits in violation of section 269SS. There was also no direction for initiating penalty proceedings u/s 271D.
The Department argued that neither section 269SS nor section 271D expressly requires the AO to record satisfaction in the assessment order. According to it, proceedings u/s 271D are independent and could be initiated separately.
The High Court rejected this submission by relying principally upon the Supreme Court’s decision in CIT v. Jai Laxmi Rice Mills, Ambala City. The Supreme Court had held in the context of section 271E that where the assessment order contained no satisfaction for initiating the relevant penalty proceedings, the penalty could not survive.
The Court observed that sections 271D & 271E are substantially similar. The principle laid down in Jai Laxmi Rice Mills was therefore equally applicable to penalty for violation of section 269SS. The Court also referred to decisions of the Telangana, Andhra Pradesh, Gujarat and Kerala High Courts applying the same requirement.
A penalty proceeding cannot arise from a factual vacuum. The AO completing the assessment must first discover the alleged contravention and record the requisite satisfaction regarding the need to initiate penalty proceedings. A routine observation concerning section 271(1)(c) cannot substitute for a specific finding concerning section 269SS and penalty u/s 271D.
Accordingly, the High Court quashed the impugned penalty orders and show-cause notices in all five writ petitions.
The judgment lays down two valuable safeguards. First, statutory jurisdiction cannot be presumed from official seniority; it must flow from the Act or a valid authorisation. Secondly, penalty u/s 271D requires a proper foundation in the assessment proceedings through a recorded finding or satisfaction regarding violation of section 269SS. A promotion may elevate the officer, but it cannot carry the jurisdiction of his former office in his personal briefcase.
Cases Discussed
- CIT v. Jai Laxmi Rice Mills, Ambala City — Supreme Court.
- Srinivasa Reddy Reddeppagari Vs Joint Commissioner of Income Tax — Telangana High Court.
- Principal Commissioner of Income Tax-1 Vs Parivar Television Pvt. Ltd. — Gujarat High Court.
- Parivar Television Pvt. Ltd. — Supreme Court.
- Grandhi Sri Venkata Amarendra Vs Joint Commissioner of Income Tax — Andhra Pradesh High Court.
- Grihalakshmi Vision Vs Additional Commissioner of Income Tax, Range I, Kozhikode — Kerala High Court.
FULL TEXT OF THE JUDGMENT/ORDER OF TELANGANA HIGH COURT
Since the question of law and the factual matrix of the case are all identical in nature in the present batch of writ petitions, they are therefore taken up for hearing and are being decided by this Common Order.
3. These are batch of writ petitions whereby challenge is primarily to the order of penalty that was passed under Section 271(D) of the Income Tax Act, 1961 by the respondents. For convenience, the facts in Writ Petition No.16011 of 2008 are discussed hereunder.
4. Writ Petition No.16011 of 2008 is filed by the petitioners under Article 226 of the Constitution of India seeking for issuance of a writ of mandamus or any other writ or order or direction by declaring that the proceedings and the show cause Notice bearing F.No.Addl.CIT/R16/MF/SC/200102, dated 14.07.2008, (for short, ‘the impugned show-cause notice) and all consequential proceedings on the file of first respondent as arbitrary, violative of principles of natural justice under Articles 14 and 19 of the Constitution of India and also the provisions of the Income Tax Act read with various circulars issued by respondent No.3; to consequently set aside the same; and to direct respondent Nos.1 and 4 to not initiate any further action and penalty under Section 269SS or 271D of the Income Tax Act 1961.
5. The facts in brief relevant for adjudication of present batch of writ petitions are that : the petitioner No.1–establishment is a Hindu Undivided Family (HUF) which has several business units in the erstwhile State of Andhra Pradesh, and now in the two States, i.e., the State of Telangana as also in the State of Andhra Pradesh, is one of the business unit under the Hindu Undivided Family (HUF), i.e., Margadarsi Financiers.
6. The petitioners have been prosecuted and penalized by the respondents by invoking Section 271D of the Income Tax Act, 1961 (for short, ‘the Act’).
7. Section 271D of the Act is applied upon violation of provisions of Section 269SS. Section 269SS is a provision which appears in business entity in receiving funds exceeding Rs.20,000/- by way of cash which, in other words, would mean that under Section 269SS any transaction exceeding Rs.20,000/- has to be by way of cheque, draft, pay orders and other on-line transaction other than cash transaction. Any business entity violating the statutory requirement under Section 269SS will stand penalized under Section 271D of the Act.
8. For ready reference, Section 269SS of the Act is reproduced hereunder, viz.,
“269SS.Mode of taking or accepting certain loans, deposits and specified sum.—No person shall take or accept from any other person (herein referred to as the depositor), any loan or deposit or any specified sum, otherwise than by an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account, if,—
(a) the amount of such loan or deposit or specified sum or the aggregate amount of such loan, deposit and specified sum; or
(b) on the date of taking or accepting such loan or deposit or specified sum, any loan or deposit or specified sum taken or accepted earlier by such person from the depositor is remaining unpaid (whether repayment has fallen due or not), the amount or the aggregate amount remaining unpaid; or
(c) the amount or the aggregate amount referred to in clause (a) together with the amount or the aggregate amount referred to in clause (b), is twenty thousand rupees or more:
Provided that the provisions of this section shall not apply to any loan or deposit or specified sum taken or accepted from, or any loan or deposit or specified sum taken or accepted by,—
(a) the Government;
(b) any banking company, post office savings bank or co-operative bank;
(c) any corporation established by a Central, State or Provincial Act;
(d) any Government company as defined in clause (45) of section 2 of the Companies Act, 2013 (18 of 2013);
(e) such other institution, association or body or class of institutions, associations or bodies which the Central Government may, for reasons to be recorded in writing, notify in this behalf in the Official Gazette:
Provided further that the provisions of this section shall not apply to any loan or deposit or specified sum, where the person from whom the loan or deposit or specified sum is taken or accepted and the person by whom the loan or deposit or specified sum is taken or accepted, are both having agricultural income and neither of them has any income chargeable to tax under this Act.”
9. Likewise, Section 271D of the Act is also reproduced hereunder for ready reference, viz.,
“271D. Penalty for failure to comply with the provisions of section 269SS.—7[(1)] If a person takes or accepts any loan or deposit [or specified sum] in contravention of the provisions of section 269SS, he shall be liable to pay, by way of penalty, a sum equal to the amount of the loan or deposit 8[or specified sum] so taken or accepted.
[(2) Any penalty imposable under sub-section (1) shall be imposed by the [Joint Commissioner]”
10. The provisions of Section 217D and Section 269SS are similar to the provisions of Section 271E and Section 279T of the Act.
11. The instant Writ Petition pertains to Assessment Year 2001-02 where the assessment order was passed on 28.12.2010 much after filing of the writ petition which was initially filed challenging the show-cause notices itself in all the present writ petitions. The order of penalty had been passed by the respondents subsequent to passing of assessment orders. For ready reference, the brief details of the Writ Petition number, Assessment Year and the date of Assessment Order are being tabulated herein, viz.,
| Sl.No. | Writ Petition No. | Assessment Year | Date of Assessment Order |
|---|---|---|---|
| 01. | W.P.No.15939 of 2008 | 2002-03 | 25.07.2003 |
| 02. | W.P.No.16011 of 2008 | 2001-02 | 28.12.2010 |
| 03. | W.P.No.16012 of 2008 | 2003-04 | 27.03.2006 |
| 04. | W.P.No.16032 of 2008 | 2004-05 | 29.12.2006 |
| 05. | W.P.No.16033 of 2008 | 2005-06 | 26.12.2007 |
12. The petitioner has challenged the proceedings initiated under Section 271D on various grounds including the preliminary objection of the impugned order of assessment having been passed by an officer who is otherwise not competent under the statute, i.e., the Income Tax Act, 1961, to pass the impugned order under Section 271D.
13. A plain reading of Section 271D (reproduced in the preceding paragraph) would go to establish that an order of penalty under Section 271D can be imposed only by an officer of the Rank of “Joint Commissioner”. In all the batch of writ petitions herein, the order of penalty had been imposed by the same authority who is not the Joint Commissioner but in the hierarchy of the officer higher than the Joint Commissioner. All the impugned orders in the instant batch of writ petitions have been passed by the Additional Commissioner. Thus, the preliminary objection raised by the petitioners is that the impugned orders have been passed by an officer who is incompetent under the Act, and therefore, the same amounts to an order being passed outside the jurisdiction of the Additional Commissioner.
14. The other grounds on which the impugned order was challenged is that proceedings under Section 271D stands vitiated for the simple reason that a satisfactory finding for initiating penalty proceedings under Section 271 is missing in the assessment order passed in all the writ petitions. According to the petitioners, in the absence of a satisfactory finding for initiation of penalty proceedings being reflected in the assessment orders, the very initiation of the proceedings and the impugned orders passed finally, stands vitiated in the absence of any discovery and the consequent finding given by the Assessing Officer insofar as the so-called violation of provision of Section 269SS. In addition, there was also categorical denial by the petitioners insofar as receiving of deposits of more than Rs.20,000/- by way of cash. It was the specific contention of the learned counsel for the petitioners that petitioners have been insisting upon receiving of deposits only by way of cheques, payment drafts or pay order drawn in the name of petitioners and since the depositors predominantly belong to the rural background, they approached the agents at the petitioners’ sister entity which worked as a facilitation center wherein they assisted the depositors in obtaining the payment drafts and pay orders. It is also the specific contention of the petitioners that they never accepted any deposit in cash exceeding Rs.20,000/- by way of cash, whereas small investments and small deposits of less than Rs.20,000/- were being permitted to be deposited by way of cash.
15. In support of their contentions, learned counsel for the petitioners relied on the following decisions, viz., (i) Commissioner of Income Tax, Panchkula vs. Jai Laxmi Rice Mills, Ambala City1; Srinivasa Reddy Reddeppagari vs. Commissioner of Income Tax2; Grandhi Sri Venkata Amarendra vs. Commissioner of Income Tax3; Principal Commissioner of Income Tax vs. Parivar Television Pvt. Ltd.4; Siemens Ltd. vs. State of Maharashtra and others5; and ORYX Fisheries Private Limited vs. Union of India6.
16. Per contra, learned Senior Standing Counsel for the Income Tax Department, appearing for the respondents, contended that none of the grounds raised by the petitioners are strong enough for allowing the writ petition by interdicting the impugned order. According to him, so far as competence and lack of jurisdiction of the Additional Commissioner is concerned, the same is unsustainable for the reason that a plain reading of the provision of Section 2(28C) specifically holds that a “Joint Commissioner” means a person appointed to be a “Joint Commissioner” and can also be an “Additional Commissioner”. Thus, the proceedings under Section 271D could have been issued either by a Joint Commissioner or by an Additional Commissioner both of whom are almost of the same Rank officers. Likewise, it was also the contention of the learned counsel for the respondents that as regards the ground of absence of satisfaction in the assessment order so far as violation of Section 269SS is concerned, that again is not something which is mandatorily required. It was also the contention of the learned counsel for the respondents that neither Section 269SS nor Section 271D refers to requirement of a satisfactory finding for initiating proceedings under Section 269SS or under Section 271D. Therefore, that which is not provided under the statute cannot be said to be a mandatory requirement.
17. In support of his contentions, learned counsel for the respondents relied on the following decisions, viz., (i) Dharam Pal Singh Rao vs. Income Tax Officer7, (ii) Arun Kumar Maheshwari vs. Income Tax Officer8, (iii) Smt.Maya Rastogi vs. Commissioner of Income Tax9, (iv) Grihalakshmi vision vs. Additional Commissioner of Income-Tax10, and (v) Diastar Jewelry Private Limited vs. Additional Commissioner of Income Tax, Range B(1)11.
18. Having heard the contentions put forth on either side, we proceed to decide the preliminary objection first and thereafter we would go on to decide the other grounds.
19. The preliminary objection raised by the petitioners pertains to the competence of the Additional Commissioner, whether he is competent to pass an order of penalty under Section 271D of the Act. To put it differently, the question of law is whether the Additional Commissioner lacks jurisdiction for passing an order of penalty under Section 271D of the Act.
20. In the initial paragraphs, Section 271D has been extracted for ready reference. Sub-Section (2) of Section 271D specifically envisages that the order of penalty has to be passed only by the “Joint Commissioner”. This in other words would mean that framers of the law, when the law was enacted, had taken a very categorical stand that in a proceeding under Section 271D, an order of penalty, if at all it has to be imposed, has to be passed by the Joint Commissioner.
21. Under the Income Tax Act, Section 2 provides for definition and Sub-Section 2 of Section 28C which stood inserted under the Income Tax Act in the 1998 defines the words “Joint Commissioner”. For ready reference, the definition of “Joint Commissioner” as defined in Sub-Section 2 of Section 28C of the Act, is extracted hereunder, viz.,
[( 28C) “Joint Commissioner” means a person appointed to be a Joint Commissioner of Income-tax or an Additional Commissioner of Income-tax under sub-section (1) of section 117]
22. The hierarchy of the Income Tax Authorities is that which is prescribed under Section 116 of the Act. Likewise, the appointment of Income Tax Authorities is done under Section 117 of the Act. Sub-Section 1 of Section 117 of the Act prescribes that the Central Government may, as it thinks fit, appoint such persons as Income Tax Authorities. For ready reference, Sub-Section1 of Section 117 of the Act is reproduced hereunder, viz.,
Appointment of income-tax authorities.
117. (1) The Central Government may appoint such persons as it thinks fit to be income-tax authorities.
23. Section 120 of the Act provides for the jurisdiction of the Income Tax Authorities. Sub-Section (1) and the explanation to Sub-Section (1) of Section 120 of the Act envisages that the authorities under the Income Tax Act shall exercise all or any of the powers, as the case may be, assigned to such authorities under the Act. For ready reference, Sub-Section (1) and its explanation to Section 120 of the Act are again reproduced hereunder, viz.,
Jurisdiction of income-tax authorities.
120. (1) Income-tax authorities shall exercise all or any of the powers and perform all or any of the functions conferred on, or, as the case may be, assigned to such authorities by or under this Act in accordance with such directions as the Board may issue for the exercise of the powers and performance of the functions by all or any of those authorities.
(2) The directions of the Board under sub-section (1) may authorise any other income-tax authority to issue orders in writing for the exercise of the powers and performance of the functions by all or any of the other income-tax authorities who are subordinate to it.
[Explanation—For the removal of doubts, it is hereby declared that any income-tax authority, being an authority higher in rank, may, if so directed by the Board, exercise the powers and perform the functions of the income-tax authority lower in rank and any such direction issued by the Board shall be deemed to be a direction issued under sub-section (1).]
24. A plain reading of Section 120(1) and its Sub-Section along with Section 117(1) of the Act makes it evidently clear that for any authorized officer under the Act, in order to exercise the power conferred under a particular provision of the Income Tax Act in addition to the fact that the prescribed officer, there needs to be a specific authorization or an order specifically to that effect. It is here that Section 28C of the Act makes thinks explicit. Section 28C of the Act defines “Joint Commissioner” and it also indicates that in a given case it can also be the “Additional Commissioner” of Income Tax, provided he is appointed under Sub-Section (1) of Section 117 of the Act for exercising the powers which he otherwise intends to; but for which the statute has prescribed “Joint Commissioner” to be the competent officer.
25. In the instant case, though the stand of the learned Senior Standing Counsel for the Income Tax Department, appearing for the respondents, is that “Joint Commissioner” and “Additional Commissioner” are same level officers and that whenever a Joint Commissioner completes four years of service as Joint Commissioner, he becomes entitled to be an Additional Commissioner and he is also entitled to discharge the duties of Additional Commissioner. However, the said contention of the learned Senior Standing Counsel, appearing for the respondents, may not be sustainable when we read Sub-Section 2(28C) along with Section 117(1) read with Section 121 and the explanation thereto. In the instant case, it is also not the case where the Additional Commissioner who had passed the impugned penalty order was an officer who had completed four years as “Joint Commissioner”. It is a case where the same Additional Commissioner when he was a Joint Commissioner, had initiated proceedings under Section 271D of the Act. Thereafter, the said person got promoted as Additional Commissioner and assumed duties of the post of Additional Commissioner. But he retained the files in respect of petitioners those which he was dealing in the capacity of Joint Commissioner, and proceeded further and passed the impugned order. Undoubtedly, once when the officer gets promoted as Additional Commissioner he ceases to be a Joint Commissioner any further. He also ceases to have the powers which would otherwise be exercised only by a Joint Commissioner.
26. Another ground raised by the petitioner was in respect of the assessment order for all the assessment years not having a satisfaction note of the Assessing Officer insofar as violation of Section 269SS and the necessity for initiation of penalty proceedings. The Assessment Order for the Assessment Year 2001-02 as also the Assessment Order for the period 2005-06 carried a one-liner on the part of the Assessing Officer stating that penalty proceedings under Section 271(1)(c) of the Act are to be initiated separately. The other assessment orders are totally silent in respect of initiation of any penal proceedings. One thing is clear that in none of the assessment orders there is a finding of blatant violation of Section 269SS of the Act. Likewise, in none of the Assessment Orders is there any satisfactory note in respect of the said violation under Section 269SS and in none of the Assessment orders the Assessing Officer had made a reference of requirement of initiation of initiation of proceedings for violation of Section 269SS and penal proceedings under Section 271D.
27. In this way, it would be relevant at this juncture to take note of decision of the Hon’ble Supreme Court in the case of Commissioner of Income Tax, Panchkula vs. Jai Laxmi Rice Mills, Ambala City12, wherein the learned Division Bench of the Hon’ble Supreme Court held, in a proceedings under Section 271-E of the Act, at paragraphs Nos.4 to 6 as under, viz.,
“4. After remand, the assessing officer passed fresh assessment order. In this assessment order, however, no satisfaction regarding initiation of penalty proceedings under Section 271-E of the Act was recorded. It so happened that on the basis of the original assessment order dated 26-2-1996, show-cause notice was given to the assessee and it resulted in passing the penalty order dated 23-9-1996. Thus, this penalty order was passed before the appeal of the assessee against the original assessment order was heard and allowed thereby setting aside the assessment order itself. It is in this backdrop, a question has arisen as to whether the penalty order, which was passed on the basis of original assessment order and when that assessment order had been set aside, could still survive.
5. The Tribunal as well as the High Court has held that it could not be so for the simple reason that when the original assessment order itself was set aside, the satisfaction recorded therein for the purpose of initiation of the penalty proceeding under Section 271-E would also not survive. This according to us is the correct proposition of law stated by the High Court in the impugned order.
6. As pointed out above, insofar as, fresh assessment order is concerned, there was no satisfaction recorded regarding penalty proceeding under Section 271-E of the Act, though in that order the assessing officer wanted penalty proceeding to be initiated under Section 271(1)(c) of the Act. Thus, insofar as penalty under Section 271-E is concerned, it was without any satisfaction and, therefore, no such penalty could be levied.”
28. The aforesaid decision of the Hon’ble Supreme Court has further been relied upon by a learned Division Bench of this Court in Srinivasa Reddy Reddeppagari vs. Joint Commissioner of Income Tax13, wherein it was held at paragraph Nos.13, 21, 22, 23, 24, 26 and 27 as under, viz.,
“13. Issue raised in the writ petition is whether without satisfaction being recorded in the assessment order, penalty can be levied by the Jt. CIT under s. 27ID of the Act?
… … …
21. From an analysis of ss. 27ID and 27IE of the Act, it is seen that both the provisions are pari materia to each other. While s. 27ID of the Act would be attracted on a person accepting loan or deposit or specified sum in contravention of s. 269SS of the Act, penalty under s. 27IE of the Act would be imposable on a person who makes or repays the loan or deposit or specified advance in contravention of s. 269T. Therefore, in a way, the two provisions are complimentary to each other.
22. In Jai Laxmi Rice Mills Arnbala City (supra), the Hon’ble Supreme Court considered the question as to whether penalty proceedings under s. 27ID of the Act is independent of the assessment proceeding? In the facts of that case, it was found that the penalty order was issued following the assessment order. However in appeal, CIT(A) had set aside the original assessment order with a direction to frame assessment de novo. In the fresh assessment order, no satisfaction was recorded by the AO regarding initiation of penalty proceedings under s. 271E of the Act. It was noticed that the penalty order was passed before the appeal of the assessee was allowed by the CIT(A). It was in that context that Supreme Court held as follows:
The Tribunal as well as the High Court has held that it could not be so for the simple reason that when the original assessment order itself was set aside, the satisfaction recorded therein for the purpose of initiation of the penalty proceeding under s. 27IE would also not survive. This according to us is the correct proposition of law stated by the High Court in the impugned order.
As pointed out above, insofar as, fresh assessment order is concerned, there was no satisfaction recorded regarding penalty proceeding under s. 27IE of the Act, though in that order the AO wanted penalty proceeding to be initiated under s. 271(1)(c) of the Act. Thus, insofar as penalty under s. 27IE is concerned, it was without any satisfaction and, therefore, no such penalty could be levied. These appeals are, accordingly, dismissed.”
23. Reverting back to the facts of the present case, we find that petitioner had submitted reply to the show-cause notice on 2nd June, 2022. In his reply, petitioner mentioned that no satisfaction was recorded by the AO in the assessment order as to infraction of s. 269SS of the Act. Therefore, no penalty could be levied under s. 27ID of the Act without recorded satisfaction. In this connection, reference was made to the decision of the Supreme Court in Jai Laxmi Rice Mills Ambala City (supra) wherein it was clarified that provisions of s. 27IE are in pari materia with the provisions of s. 27ID of the Ace. However, this aspect of the matter was not considered by respondent No. 1 while passing the impugned order, respondent No. 1 relying upon the Kerala High Court decision in Grihalaxmi Vision vs. Additional Commissioner of Income Tax14 noted that competent authority to levy penalty is the Jt. CIT. He has also referred to an earlier decision of the Supreme Court in CIT v. Mak Data Ltd., (2013) 263 CTR (Del) 6. (2013) 87 DTR (Del) 172 : (2013) 352 ITR 1 (Del) wherein it was observed that AO has to satisfy himself as to whether penalty proceedings should be initiated or not. AO is not required to record his satisfaction in a particular manner or reduce it into writing. Therefore, respondent No. 1 imposed the penalty under s. 27ID of the Act.
24. We are afraid respondent No..1 had completely overlooked the decision of the Supreme Court in Jai Laxmi Rice Mills Ambala City (supra). In the said decision as extracted above, Supreme Court had concurred with the view taken by the High Court holding that satisfaction must be recorded in the original assessment order for the purpose of initiation of penalty proceedings under s. 27IE of the Act. We have already discussed above that provisions of s. 27IE and 27ID of the Act are in pari materia. When there is a decision of the Supreme Court, it is the bounden duty of an adjudicating authority, be it an IT authority or any other civil authority or for that matter any Court in the country, to comply with the decision of the Supreme Court.
26. Further, issue in the present writ petition is not the competence of the Jt. CIT in issuing the order of penalty. Therefore, reference to Grihalaxmi Vision (supra) was wholly unnecessary.
27. Consequently, we set aside the impugned order dt. 29th Nov., 2022 and remand the matter back to the file of respondent No. 1 to pass a fresh order in accordance with law after giving a reasonable opportunity of hearing to the petitioner. Writ petition is accordingly allowed. No costs.”
29. An identical issue came up for consideration before the Gujarat High Court, at Ahmedabad, in the case of Principal Commissioner of Income Tax-1 vs. Parivar Television Pvt. Ltd.15, wherein the substantial question of law considered by the learned Division Bench at paragraph No.2 is reproduced hereunder, viz.,
“2. The following substantial questions of law are raised for consideration of this court:
“(i) Whether on the facts and in the circumstances of the case and in law, the learned Tribunal was justified in deleting the penalty levied under section 271D of the Act totalling to Rs. 2,79,47,692 relying upon the decision in the case of CIT v. Jai Laxmi Rice Mills, Ambala City [(2015) 379 ITR 521 (SC); (2016) 16 SCC 673; 2015 SCC OnLine SC 1391; (2015) 64 taxmann.com 75 (SC).] and without appreciating that the facts of the instant case are not identical ?
(ii) Whether on the facts and in the circumstances of the case and in law, the learned Tribunal was justified in not upholding the findings of the Commissioner of Income-tax (Appeals) where a clear finding was given with respect to levy of penalty under section 271D of the Act ?
(iii) Whether on the facts and in the circumstances of the case and in law, the learned Tribunal was justified in deciding the issue simply basing on that no satisfaction was recorded in the assessment order and not deciding the issue on the merits ?”
30. Relying on the decision of Jai Laxmi Rice Mills (supra) , the Division Bench of the High Court of Gujarat in the above case reached to the conclusion that there were no merits in the contentions put forth by the Income Tax Department, and therefore dismissed the appeal. The relevant portion is extracted as under, viz.,
“7. In light of this, no substantial question of law, much less, any substantial question of law is involved. The appeal is dismissed, accordingly.”
31. The said judgment of the High Court of Gujarat in the case of Principal Commissioner of Income Tax-1 (supra), was subjected to challenge before the Hon’ble Supreme Court in the case of Parivar Television Pvt. Ltd. (supra), wherein the Hon’ble Supreme Court had approved the decision in the case of Jai Laxmi Rice Mills (supra). The relevant paragraphs are extracted hereunder, viz.,
“2. The High Court [Pr. CIT v. Parivar Television Pvt. Ltd.(2025) 483 ITR 391 (Guj); 2023 SCC OnLine Guj 5117.] has relied upon the decision of this court in the case of CIT v. Jai Laxmi Rice Mills [(2015) 379 ITR 521 (SC); (2016) 16 SCC 673; 2015 SCC OnLine SC 1391.] , Civil Appeal No. 1457 of 2008, which squarely covers the issue raised in this petition.
3. In such circumstances, we do not find any merit in the special leave petition, the same stands dismissed.”
32. Another matter of identical nature came up for consideration before the High Court of Andhra Pradesh at Amaravati in the case of Grandhi Sri Venkata Amarendra vs. Joint Commissioner of Income Tax16 wherein the learned Division Bench had allowed the case by following the dictum of the Hon’ble Supreme Court in the case of Jai Laxmi Rice Mills (supra), and held at paragraph Nos.6, 8 and 9 as under, viz.,
“6. The main contention of the petitioner is that no satisfaction was recorded in the assessment order with regard to levy of penalty under Section 271D of the Act. The petitioner relying on the decision of the Apex Court in the case of CIT v. Jai Laxmi Rice Mills, Ambala City, contends that there was no evidence before the Assessing Officer to show that the petitioner has accepted the loans in cash. As noted from the assessment proceedings, the assessee was put on notice as regards the loans received in cash. The petitioner has stated that he has not received any cash loans and he has denied to have received any cash loans, what all taken as loans were through banking channels alone. There was never any element any element of cash involved in the transaction.
… ……
8. We have gone through the material placed on record. The Assessing Officer, except to base his addition on the letter of the assessee dated 02-06-2014, did not record any finding that there has been any violation of the provisions of Sec. 269SS of the Act by the assessee, nor was any satisfaction recorded to the effect that the alleged transaction of acceptance of loan would attract penal consequences. In the absence of any finding to the said effect, in our considered view, the penalty cannot be levied. A presumption can be drawn, in the absence of a finding by the Assessing Officer to the effect that the petitioner has violated the provisions of Sec. 269SS of the Act, that the department has accepted the explanation furnished by the petitioner denying allegation of loan in cash. Therefore, it can unhesitatingly be said that, having satisfied with the explanation of the assessee, the Assessing Officer did not record any satisfaction in the assessment order to the effect that the provisions of Section 269SS of the Act, are violated and did not contemplate levy of penalty under Sec. 271D of the Act.
9. In our view, the satisfaction of the Assessing Officer is required to be recorded because the officer, who passed the assessment order would not be levying the penalty under Sec. 271D of the Act, unless it is recorded in the assessment order, he cannot refer the file to superior officer i.e., Joint Commissioner, for initiating levy of penalty. Unless the Assessing Officer, who is the primary authority, based on the material before it, during assessment proceedings, arrives at a finding that there has been a violation of the provisions, like in the present case, of Section 269SS, there will not be any occasion to the Joint Commissioner, who is not the Assessing Officer, to exercise his jurisdiction to levy Penalty under Section 271D of the Act. Following the decision of the Hon’ble Supreme Court in the case of Jai Laxmi Rice Mills referred supra, we set aside the order passed under Sec. 271D of the Act.
33. As regards the judgment of the High Court of Kerala in the case of Grihalakshmi Vision vs. Additional Commissioner of Income Tax, Range I, Kozhikode17, which is relied upon by the learned Senior Standing Counsel for the Income Tax Department, for the respondents, this Bench is of the view that the said decision cannot be applied in a straight-jacket formula to the facts of the instant case particularly taking into consideration the fact that the decision in Jai Laxmi Rice Mills (supra) was in fact was one of the judgment which came up from the High Court of Kerala and where the Hon’ble Supreme Court, after considering the entire factual matrix of the case, had affirmed the said judgment of the High Court of Kerala in the case of Jai Laxmi Rice Mills (supra) and dismissed the case of the Income Tax Department before the Hon’ble Supreme Court.
34. Further, coupled with the fact that the decision in the case of Jai Laxmi Rice Mills (supra) has since been followed by various High Courts including the jurisdictional High Court of Telangana as also the High Court of Gujarat and also the High Court of Andhra Pradesh, etc., for the aforesaid reasons, learned counsel for the petitioners has made out a strong case by contending that the impugned order is unsustainable on the ground that the Assessment Order was not provided with finding of satisfaction by the Assessing Officer entailing initiation of penalty proceedings under Section 271D of the Act. In view of the same, the impugned penalty order passed by the respondents under Section 271D of the Act stands vitiated on this ground also. As a consequence, the impugned order of assessment and the impugned show-cause notice under challenge in the instant writ petition deserves to be and are accordingly set aside / quashed. The Writ Petition No.16011 of 2008 stands allowed.
35. Consequently, the respective impugned orders and the impugned show-cause notices in Writ Petition Nos.15939, 16012, 16032 and 16033 of 2008 are also set aside / quashed. The Writ Petition Nos.15939, 16012, 16032 and 16033 of 2008 stand allowed on similar lines. No costs.
36. As a sequel, miscellaneous petitions pending if any, shall stand closed.
Notes:
1 (2016) 16 S.C.C. 675
2 2022 SCC Online TS 3568
3 2024 SCC Online AP 5814
4 2025 SCC Online SC 2562
5 (2006) 12 SCC 33
6 (2010) 13 SCC 427
7 (2004) 271 ITR 223
8 (2006) 285 ITR 179
9 (2011) 331 ITR 116
10 (2015) 379 ITR 100
11 I.T.A.No.139/Mum/2012, dated 03.08.2016, Income Tax Appellate Tribunal, “D” Bench, at Mumbai
12 (2016) 16 SCC 673
13 (2023) 332 CTR 614
14 (2016) 286 CTR (Ker) 9-Ed.
14 (2016) 286 CTR (Ker) 9-Ed.
15 R/Tax Appeal No.574 of 2023, dated 09.20.2023, High Court of Gujarat, at Ahmedabad
16 2024 SCC OnLine AP 5814
17 [2015] 379 ITR 100 (Kerala)
