Shaikh Sujayat Shaikh Islam Vs ITO (ITAT Nagpur)
A cash transaction may invite the attention of the Income-tax Department, but a penalty u/s 271D cannot be imposed merely because some information about the transaction has reached the AO. The mandatory jurisdictional foundation must first be laid through a valid satisfaction recorded by the AO during assessment proceedings. Where there were no assessment proceedings at all, the Nagpur Bench of the ITAT held that the penalty proceedings initiated u/s 271D were invalid from their inception.
The assessee, Shaikh Sujayat Shaikh Islam, was subjected to a penalty of ₹12,10,000 u/s 271D for the alleged violation of section 269SS for AY 2017-18. The allegation arose from a registered sale deed under which the assessee was stated to have received ₹12,10,000 in cash as part of the sale consideration.
The Addl./JCIT, Range-Amravati, passed the penalty order on 19 November 2019. The CIT(A)/NFAC confirmed the penalty, compelling the assessee to approach the Tribunal.
The assessee challenged the penalty primarily on a jurisdictional ground. It was submitted that no assessment proceedings had been initiated or were pending for AY 2017-18. Consequently, there was no occasion for the AO to examine the material during assessment, arrive at a finding that section 269SS had been violated & record the satisfaction necessary for initiating penalty proceedings u/s 271D.
Instead of discovering the alleged violation during assessment proceedings and recording a satisfaction based upon such examination, the Department had directly initiated the penalty proceedings merely on the strength of information available with it. According to the assessee, such direct initiation was contrary to the statutory scheme and the binding judicial precedents governing penalty u/s 271D.
The assessee also disputed the transaction on merits. It was argued that the registered sale deed did not specify the date on which the alleged cash amount had been received. Nevertheless, the AO presumed that the cash had been received during the relevant previous year. Thus, even the factual foundation of the penalty was said to rest upon presumption and conjecture rather than definite evidence.
Reliance was placed upon the Supreme Court’s decision in CIT v. Jai Laxmi Rice Mills Ambala City [2015] 379 ITR 521 (SC) and several other decisions, including Pawan Kumar v. JCIT, Lal Singh Chouhan v. JCIT & the Andhra Pradesh High Court’s judgment in Grandhi Sri Venkata Amarendra v. JCIT [2026] 183 taxmann.com 323.
The Revenue supported the order of the CIT(A) and contended that the penalty had been validly imposed for the violation of section 269SS.
The Tribunal observed that there was no evidence to show that the assessee’s case for AY 2017-18 had been selected for scrutiny assessment. Admittedly, no assessment proceedings had been initiated for the relevant year. In the absence of assessment proceedings, there was no occasion for the AO to examine the transaction and record the requisite satisfaction for initiating the penalty proceedings.
The crucial question before the Tribunal was whether the recording of satisfaction by the AO was a sine qua non, or an indispensable condition, for the valid initiation of penalty proceedings u/s 271D.
The Tribunal referred to the decision of the Andhra Pradesh High Court in Grandhi Sri Venkata Amarendra, wherein it was held that the AO must record proper satisfaction before penalty proceedings u/s 271D can be initiated. This requirement assumes additional significance because the officer completing the assessment is not necessarily the authority competent to levy the penalty u/s 271D.
The jurisdiction to impose the penalty is exercised by the Joint Commissioner. However, the Joint Commissioner’s jurisdiction cannot arise automatically merely upon receipt of some information. The AO, being the primary authority examining the assessee’s affairs during assessment proceedings, must first arrive at a finding, on the basis of the material before him, that there has been a violation of section 269SS. That finding or satisfaction provides the necessary jurisdictional trigger for the competent authority to initiate and levy the penalty u/s 271D.
Significantly, the Andhra Pradesh High Court’s decision in Grandhi Sri Venkata Amarendra had subsequently been affirmed by the Supreme Court through the dismissal of the Revenue’s SLP on 6 February 2026.
The Tribunal also relied upon the decision in Lal Singh Chouhan v. JCIT, where the Indore Bench, after considering Jai Laxmi Rice Mills and the Chandigarh Bench’s ruling in Baldev Singh v. ACIT [2018] 93 taxmann.com 212, held that the authority lacked jurisdiction to levy penalty when no assessment proceedings were pending and, consequently, no satisfaction had been recorded by the AO.
Applying these principles, the Tribunal held that the penalty proceedings in the present case had been initiated without any assessment proceedings and without the AO recording a valid prior satisfaction. The proceedings were therefore not valid in the eyes of law.
The order of the CIT(A) was reversed & the entire penalty of ₹12,10,000 levied u/s 271D was deleted. Since the penalty was quashed on the jurisdictional ground, it became unnecessary for the Tribunal to decide whether the alleged receipt of cash was factually established or whether there was a reasonable cause for the transaction.
Author’s Comments
This decision reinforces that penalty proceedings u/s 271D do not operate as an entirely independent machinery capable of being activated merely upon the receipt of third-party information. The statutory jurisdiction must be properly triggered.
The distinction is important. The authority competent to levy the penalty may be the Joint Commissioner, but the satisfaction regarding the apparent violation must ordinarily emerge from the AO’s examination during assessment proceedings. The subsequent penalty order cannot cure the complete absence of this foundational satisfaction.
The ruling does not mean that every suspected cash transaction escapes scrutiny when no regular assessment has been made. It means that the Department must follow the procedure recognised by law before imposing a serious civil penalty equal to the amount of the transaction.
Penalty provisions are stringent, but procedural safeguards are equally stringent. When the law demands satisfaction before punishment, information cannot be treated as satisfaction & suspicion cannot be treated as jurisdiction.
FULL TEXT OF THE ORDER OF ITAT NAGPUR
This appeal by the assessee is directed against the order of Ld. Commissioner of Income Tax (Appeals)/NFAC, Delhi (for short, “CIT(A)”) dated 26.02.2026 passed u/sec. 250 of the Income Tax Act, 1961 (for short, “Act”) which is arising out of penalty order dated 19.11.2019 passed u/sec. 271D of the Act passed by the Addl./JCIT, Range-Amravati, for the Assessment Year (A.Y.) 2017-18.
2. Sole grievance of the assessee revolves around to the penalty order passed u/sec. 271D of the Act at Rs. 12,10,000/-
3(a) At the outset, learned counsel for the assessee, referring to plethora of decisions, has submitted that the impugned penalty deserves to be deleted as there is no valid satisfaction for initiation of penalty proceedings recorded during the course of assessment proceedings. He submitted that in absence of initiating any assessment proceedings for A.Y. 2017-18, penalty proceedings u/sec. 271D of the Act initiated on 19.12.2019 are illegal and bad in law. Reliance placed on the following case- laws:-
(i) CIT vs. M/s. Jai Laxmi Rice Mills Ambala City (2015) 379 ITR 521 (SC)
(ii) Pawan Kumar vs. JCIT in ITA No.797/DEL/2023, dt. 04.12.2023 (Delhi – Trib.)
(iii) Lal Singh Chouhan vs. JCIT in ITA No.104/IND/2020, dt. 27.07.2021 (Indore – Trib.)
(iv) Grandhi Sri Venkata Amarendra vs. JCIT [2026] 183 taxmann.com 323 (AP – HC)
3(b). He is also claiming that in the registered sale deed, there is no specific date of receipt of cash, and the Ld. Assessing Officer (AO) has proceeded merely on the basis of presumptions and conjectures observing that assessee has received cash of Rs.12,10,000/- against the sale consideration during the previous year.
4. On the other hand, Ld.DR supported the order of Ld.CIT(A).
5. I have heard the rival submissions and perused the material placed before me. I observe that Ld. AO has levied penalty u/sec. 271D of the Act at Rs. 12,10,000/- for violating the provisions of section 269SS. There is no evidence to show that assessment year under consideration has been selected for scrutiny proceedings. Admittedly, without initiating assessment proceedings, there is no occasion for the Ld. AO to record any satisfaction for initiating penalty proceedings u/sec. 271D of the Act. In the instant case, Ld. AO based on the information, directly initiated penalty proceedings vide notice dated 19.08.2019. Now, whether recording of valid satisfaction by the Ld. AO for initiation of penalty proceedings u/sec. 271D of the Act is a sine qua non for valid initiation of penalty proceedings needs to be examined.
6. In the light of the judicial precedents relied on by the learned counsel for the assessee, I observe that Hon’ble Andhra Pradesh High Court in the case of Grandhi Sri Venkata Amarendra (supra) has observed that Ld. AO failed to record proper satisfaction before levying penalty proceedings u/sec. 271D of the Act and also observed that satisfaction of the Ld. AO is required to be recorded because the same officer, who passed the assessment order would not be levying the penalty u/sec. 271D of the Act. Unless the Ld. AO, who is the primary authority, based on the material before it during the 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 AO to exercise his jurisdiction to levy penalty u/sec. 271D of the Act. This judgment of Hon’ble Andhra Pradesh High Court has subsequently been affirmed by Hon’ble Apex Court dismissing the SLP filed by the Revenue vide order dated 06.02.2026.
7. I also take note of the decision in the case of Lal Singh Chouhan (supra) where the coordinate Bench referring to the judgment of Hon’ble Apex Court in the case of M/s.Jai Laxmi Rice Mills Ambala City (supra) as well as that of Coordinate Bench Chandigarh in the case of Baldev Singh vs. ACIT (2018) 93 taxmann.com 212 held that “Ld. AO did not have any jurisdiction to levy penalty as no assessment proceedings were pending in the case of assessee and thus no satisfaction was recorded by the Ld. AO to initiate the penalty”.
8. Respectfully following the above referred judicial precedents and considering the fact that in the present case also, no assessment proceedings have been initiated in the case of assessee and no valid satisfaction has been recorded by the Ld. AO prior to initiation of penalty proceedings u/sec. 271D, such proceedings are not valid in the eyes of law and deserves to be quashed. Accordingly, findings of Ld.CIT(A) is reversed, alleged penalty levied u/sec.271D of the Act at Rs. 12,10,000/- is deleted. Effective grounds of appeal raised by the assessee are allowed.
9. In the result, appeal of the assessee is allowed.
Order pronounced on 11th September, 2026 under Rule 34(5) of the Income Tax (Appellate Tribunal) Rules, 1963
