DivyaLok Co-operative Group Housing Society Ltd. Vs ITO (ITAT Delhi)
Summary: ITAT Delhi allowed appeals of The DivyaLok Co-operative Group Housing Society Ltd. and quashed penalties imposed under Section 271D of the Income Tax Act, 1961. The assessee, a co-operative group housing society incorporated under the Haryana Co-operative Societies Act, 1984, had collected contributions from its members for purchase of a plot and construction of residential flats. During reassessment proceedings, the source of cash deposits was accepted on the basis of the list of members, cash book and affidavits, and no income addition was proposed. However, the Department considered the cash receipts to be in violation of Section 269SS and initiated penalty proceedings under Section 271D.
The assessee challenged the penalties principally on jurisdiction, contending that Section 271D required the penalty to be imposed by the Joint Commissioner and that the impugned orders had instead been passed by the Assessment Unit. The Revenue relied upon the Faceless Penalty Scheme, 2021, notified on 12.01.2021, and contended that the Assessment Unit was permitted to act as the Penalty Unit under the transitional arrangement. The assessee, in rejoinder, relied upon the SOP dated 06.09.2022 and argued that the SOP demonstrated that the Penalty Unit had already become operational well before the impugned penalty order dated 29.08.2024.
The Tribunal accepted the assessee’s jurisdictional objection. It observed that the SOP issued by NFAC on 06.09.2022 specifically dealt with operation of the Faceless Penalty Scheme, 2021 and assignment of penalties to the Penalty Unit. The SOP made it clear that the Penalty Unit for imposing penalties, including penalty under Section 271D, had come into operation on 06.09.2022. Consequently, the penalty order passed on 29.08.2024 was required to be passed by the Penalty Unit and not by the Assessment Unit. The Tribunal held that the Revenue’s reliance on the transitional provision in paragraph 4(4) of the Faceless Penalty Scheme was misplaced because that interim arrangement ceased to operate once the Penalty Unit became operational. The Section 271D penalty orders were therefore held to be without jurisdiction and quashed. Other grounds were rendered academic, and both appeals were allowed.
FULL TEXT OF THE ORDER OF ITAT DELHI
These appeals o f the assessee are directed against the orders dated 06.01.2025 and 09 .01.2025of ld . CIT(A)/NFAC , Delhipassed u/s 250 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) wherein the penalty imposed u/s 271D of the Act was upheld and the appeal o f the assesse was dismissed.
2. By this common order, we propose to decide the ITA Nos. 4794 & 4795/Del/2026 as the parties are same and fac tual matrix is also same and in order to avoid multiplicity o f decision, the same are being disposed of f accordingly. ITA No . 4795/Del/2026 is taken as lead case.
3. Facts in brief as called out from the authorities below are that assessee is a co-operative group housing society and incorporated under the Haryana Co-operative Societies Act, 1984 and it has no income and has only collected the contributions from members for the purpose of purchase of plot and construct flats thereon for the members of the society only and the land to be allotted on the basis of actual cost of plot and construction thereon. It is a non-profit organization based on concept of mutuality. The assessee filed return of income for A.Y. 2016-17 and on the basis of specific information as per risk management strategy, it was noticed that the assessee has carried out solitary transaction during the year under consideration wherein it has deposited a sum of Rs.67,51,000/-in the bank account maintained with IDBI bank. The assessee was given opportunity of being heard by serving notice u/s 148A(b)of the Act to show-cause why notice u/s 148 of the Act be not issued. The assessee has not filed return of income for the year under consideration and the source of cash deposited remain unexplained. Accordingly, order u/s 148A(d)of the Act was passed on 31.03.2023 and notice u/s 148 was issued on the same day. Thereafter, various opportunities were given to the assessee by issuing notices u/s 143(2) and 142(1) as mentioned in para 2 of the assessment order. In response to notice u/s 148 of the Act, the assessee filed return of income 06.10.2023 declaring total income of Rs.65,476/-. The assessee has also submitted the list of the members from whom cash has been received during the year under consideration amounting to Rs.67,51,000/- which was collected by the assessee as contribution from the members for the purpose of purchasing a plot bought from Haryana Urban Development Authority (HUDA). The assessee has also enclosed cash book alongwith affidavit of the members who have deposited cash with the assessee society for the purpose of allotment of residential flat. From the submission made by the assessee society, it was observed that the assessee society has not generated the cash on its own but has received from the members towards their contribution for the cost of residential flat. Considering the documentary evidence furnished by the assessee, therefore, no variation was proposed to be made in the income of the assessee on the issue. However, it was observed that the assessee has contravened the provisions of section 269SS of the Act and penalty proceedings were initiated u/s 271D of the Act. Notice for initiating penalty u/s 271D of the Act was issued on 13.02.2024 followed by a show-cause notice dated 24.05.2024 wherein reply was filed by the assessee stating that the receipt of contribution from its members towards the purchase of the plot and construction of the flats was not within the purview of section 269SS of the Act since the assessee has received the contribution, has not contravened the provision of section 269SS of the Act. However, the penalty to the tune of Rs.67,51,000/- was made by ‘the assessment unit’ of the Income Tax Department by passing order dated 30.08.2024 and order dated 29.08.2024 in ITA No. 4794/Del/2026 where penalty was levied of Rs.58,50,300/-.
4. Aggrieved by the penalty order, the assessee filed appeal be fore the ld. CIT(A) who has dismissed the appeal and con firmed the penalty order.
5. Aggrieved by the impugned order, the assessee is in appeal before us and has raised the following grounds of appeal:
“1. That in view of the facts and circumstances of the case and in law, the initiation and levy of a penalty Rs.67,51,000/- by the Assessment Unit under Section 271D of the Income Tax Act, 1961 (‘the Act’) vide penalty order dated 30.08.2024 and upheld by the National Faceless Appeal Centre (‘NFAC’) vide order dated 06.06.2025 is illegal, bad in law, without jurisdiction, time barred and against the provision of the Act and hence liable to be deleted.2. That in view of the facts and circumstances of the case and in law, the notice dated 13.02.2024 issued under Section 274 r.w.s. 271D of the Act for initiation penalty is illegal, bad in law, without jurisdiction and against the provision of the Act.
3. That in view of the facts and circumstances of the case and in law, the reference, if any, made by the Assessing Officer to JCIT/Addl. CIT for initiation of the penalty is illegal and bad in law.
4. That in view of the facts and circumstances of the case and in law, the assessment unit has no jurisdiction to pass the penalty order as the jurisdiction lies with Joint Commissioner to pass the penalty order. Hence, the penalty order deserved to be quashed.
5. That without prejudice, the return of income and assessed income is ‘NIL’ and there is no tax payable, and as such the penalty under Section 271D of the Act should not have levied merely because it is imposable. The AU/NFAC has failed to appreciate that the very purpose of these provisions is to curb cash transactions and it is not to penalize the genuine transactions.
6. That in view of the facts and circumstances of the case and in law, AU/NFAC has erred in levying and confirming the penalty under Section 271D of the Act on account of alleged violation of the provisions of Section 269SS of the Act. The said levy is illegal and is based on mere surmises and conjectures as there is no violation of Section 269SS of the Act in the instant case.
7. That in view of the facts and circumstances of the case and in law, AU/NFAC both have erred in not appreciating that fact that it is neither loan, deposit or specified sum. Hence, no penalty can be imposed.
8. Without prejudice, the Appellant was prevented by reasonable cause under the Act and as such penalty levied under Section 271D of the Act is unjust, illegal and bad in law and the same is liable to be deleted.
6. We have heard the ld . AR and the ld. DR. The ld . AR a t the very outset submitted that the legal ground No .1 is with respect to exercise of the jurisdiction wrongly by ‘the assessing unit’ whereas the penalty order was required to be passed by the Joint Commissioner of Income Tax as mandatorily required u/s 271D o f the Act. It is argued that since the impugned order has not been passed by the competent authority, hence the imposing of the penalty is bad and law and then the impugned order is liable to quashed.
7. The ld. DR , on the other hand, in tha t regard with respect to the jurisdictional ground raised as ground No . 1 would submit that the impugned order has been passed as per the ‘face less penalty scheme 2021’ no tified on 12 .01.2021 . It is argued that sub-section (4) of section 4 of the penalty scheme has provided the authorities competent to impose penalty which includes Joint Commissioner o f income tax also. It is further argued that as per section 4(4) of ‘the penalty scheme’, the penalty unit was also been allowed by the CBDT to act as assessment unit and as such the name of the penalties authority is not mentioned because o f the faceless scheme . Hence, it is argued tha t the penalty has been imposed by the competent authority provided in the penalty scheme and the legal ground is liable to be dismissed. The ld. DR has also filed written submissions in support of his above arguments while annexing the penalty scheme 2021 with it and submitted that the penalty order passed by the Faceless Assessment Unit was very much within the statutory provisions and related notifications, guidelines and SOPs in place at tha t time . In support o f his arguments, the DR placed reliance on the following:
1 . Faceless penalty scheme 2021 , introduced vide Notification da ted 12 .01 .2021
2 . Directions issued by CBDT on Faceless Penalty Scheme 2021 vide Notification dated 12 .10 .2021
3 . SOP issued by the National Faceless Assessment Centre (NFAC) for penalty unit, vide letter dated 06 .09 .2022 .
8. The ld. DR has also filed additional written submissions extracted below as under:
“The above penalty case listed today for clarification issue on the written submission dated21.01.2021 given by the Ld. DR. During the course of hearing, Hon’ble Bench directed the DR to file additional written submissions on the issues raised by the Ld. AR.
In this regard, in continuation of oral arguments placed by the undersigned during the course of hearing, it is further submitted that penalty u/s 271D has been imposed by the Faceless penalty Unit which is headed by Additional Commissioner or Joint Commissioner of the Income Tax as the case may be. The Faceless Penalty Unit has been constituted by CBDT vide notification dated 12.01.2021 under Faceless Penalty Scheme 2021. Copy of above notification and directions of CBDT dated 12.01.2021as well as SOP dated 06.09.2022 issued by National Faceless Assessment Centre Delhi already submitted vide earlier written submission as mention above.
In this regard for further clarification on the issues on the objections raised by the Ld. AR, please refer to the para 4(3)(a) of notification dated 12.01.2021 wherein it is clearly mentioned that penalty Unit and Penalty Review shall be headed by Joint Commission or Additional Commissioner. Further as per para4 of above notification, the Board for the purpose of penalty Scheme shall, until the date on which National Faceless Penalty Centre or Regional Faceless Penalty Centres, Penalty Units or Penalty Review are setup, direct the National Faceless Assessment Centre, Regional Faceless Assessment Centre, assessment unit and review unit to also act as the National Faceless Penalty Centre, Regional Faceless Penalty Centre, the penalty unit and the penalty review unit respectively. In other words vide above scheme, National Faceless Assessment Centre, Regional Faceless Centre, Assessment Unit and Review Unit will act as the National Faceless Penalty Centre, Regional Faceless Penalty Centre, Penalty Unit respectively and the Officers and staff posted in Faceless Assessment Unit will also work as Faceless Penalty Unit respectively. Accordingly, since the date of notification of Faceless Penalty Scheme 2021, Faceless Assessment Unit are working as Faceless Penalty Unit and each and every order (Assessment Order or Penalty Order) is being passed with the approval of the Range Head of the respective Unit as per SOP. In the Penalty order u/s 271D it is nowhere mentioned that Penalty order has not been passed by the Additional CIT/JCIT. Rather, order has been passed by Faceless Assessment Unit working as Faceless Penalty Unit because of non-disclosing of identity of the officer passing the order due to Faceless Scheme of Penalty. Hence the objection raised by Ld.AR that penalty under section 271D has not been imposed by the Additional CIT/JCIT is factually incorrect and totally unwarranted and liable to be rejected.”
9. In response to the additional written submissions filed by the ld . DR, the ld. AR has also filed the written brie f submissions as a rejoinder, extracted below as under:
“A. The impugned penalty order is in contravention of the Face less Pena lty Scheme , 2021
1 . It is humbly submit ted that the impugned penalty order dated 29 .08 .2024 passed under Section 271D o f the Income Tax Ac t, 1961 (“Act”) is wholly without jurisdiction and , consequently , liable to be quashed , having been passed in contravention of the Faceless Penalty Scheme, 2021 (“Penalty Scheme”) notified vide Notification No . 03/2021 da ted 12 .01 .2021
2. It is submitted that Paragraph 4 of the Penalty Scheme unequivocally provides that a penalty order shall be passed by the ‘Penalty Unit’. Further, the Central Board of Direct Taxes (“CBDT”), vide its Standard Operating Procedure (“SOP”) dated06.09.2022, prescribed the operational framework governing the functioning of the Penalty Unit, thereby demonstrating that the faceless penalty mechanism had already been institutionalised. The Revenue itself contends that the levy of penalty was governed by the Penalty Scheme introduced on 12.01.2021. Admittedly, however, in the case of the assessee, the impugned penalty order has been passed by the Assessment Unit, which itself is without jurisdiction, as the Revenue itself proceeds on the basis that the levy of penalty was governed by the Penalty Scheme introduced on 12.01.2021. Consequently, the exercise of jurisdiction by the Assessment Unit is illegal and bad in law, rendering the impugned penalty order wholly without jurisdiction and liable to be quashed.
B. The Impugned Order cannot be saved by virtue of Parasraph 4(4) of the Face less Penalty Scheme , 2021
3 . In response to the a foresaid , it has been contended tha t the impugned order is nevertheless protected by Paragraph4(4 ) of the Penalty Scheme, which permits the Assessment Uni t to function as the Penalty Unit until such time as the latter is constituted. It is humbly submitted that the said contention is wholly misconceived .
4 . The issuance of the SOP dated 06 .09 .2022 , laying down the functioning o f the Penal ty Uni t , is a clear indication that the faceless penalty regime had been operationalised long be fore the impugned order came to be passed on29 .08 .2024 .In these circumstances, the Revenue cannot mechanically invoke the transitional provision contained in Paragraph 4(4) o f the Penalty Scheme , without firs t establishing , by placing cogent material on record, that the Penalty Unit had not been constituted . The Revenue has not brought anything on record to establish that the Penalty Unit is not operational till the date o f passing the penalty order in the present case, i .e. , 29 .08 .2024 . This fact itself shows tha t the order passed under Section 271D o f the Ac t by the Assessment Uni t is illegal , bad in law and without jurisdiction.
C. Without prejudice , the Revenue has fa i led to establish that the impugned penalty order has been passed by the competent authority i.e . the Joint Commissioner of Income Tax
5 . It is humbly submitted that Section 271D o f the Ac t expressly and exclusively vests the jurisdiction to impose a penalty under the said provision in the Joint Commissioner of Income Tax . The mere fact tha t the impugned order has been issued by an Assessment Unit does not establish compliance with this mandatory jurisdictional requirement . There is no thing on record to demonstrate that the officer constituting , supervising or authorising the Assessment Unit in the present case was the Joint Commissioner or was otherwise competent to exercise the statutory jurisdiction under Section 271D of the Ac t. In the absence o f such foundational material , the mandatory jurisdictional requirement under Section 271D of the Ac t remains unful filled , rendering the impugned penalty order wholly without jurisdiction and liable to be quashed .
6 . In view of the a foresaid, it is respectfully submitted tha t the impugned penalty order da ted 29 .08 .2024 is vitiated by a patent jurisdictional defect , having been passed in contravention of the mandatory framework prescribed under the Faceless Penalty Scheme , 2021. The impugned order was not passed by the Joint Commissioner o f Income Tax, as mandatorily required under Section 271D of the Ac t. Furthermore, it is also important to note tha t an amendment was brought in Section 271D o f the Act by way o f a proviso to sub-section 2 with effect from 01 .04 .2025 and by way of this amendment , the assessing officer was also given the power to levy a penalty under Section 271D o f the Ac t. Admittedly, on 29 .08 .2024 , the assessing officer had no power/jurisdiction to impose a penalty under Section 271D o f the Act . Accordingly , the impugned penalty order , being wholly without the authority o f law , deserves to be quashed.”
10. We have noticed that in the re joinder submissions , ld. AR has categorically submitted that issuance o f SOP dated 06.09 .2022, laying down the functioning o f the penalty unit, is a clear indication tha t the faceless penalty regime had been operationalized long before the impugned order came to be passed on 29 .08 .2024. It is there fore argued that the Revenue cannot mechanically invoke the transitional provision contained in Para 4.4 o f the penalty scheme , without first establishing by placing cogent material on record , that the penalty unit had not been constituted on the date of penalty order. It is further argued that Revenue has not brought anything on record to establish that the ‘penalty un it ’ was not operational till the date of the passing of the penalty order in the present case i.e. 29.08 .2024. Hence, it is argued that the order passed u/s 271D of the Act by ‘the Assessment Unit’ is illegal, bad in law and without jurisdiction.
11. We have considered the rival submissions including the written submissions reproduced above. The SOP issued by NFAC vide letter dated 06.09.2022 referred (supra) categorically provides with respect to the operation of the Faceless Penalty Scheme 2021 and with respect to operational penalty unit under the faceless penalty scheme 2021 and the relevant extract as contained in CBDT Notification 06.09.2022, is extracted below as under:
“A . Assignment of penalties to PU
A.1 All penalties under Chapter XXI o f Income Tax Ac t shall be assigned to PU, except penalties in respect of:
A.1 .1 Cases assigned to Central Charges;
A.1 .2 cases assigned to International Taxation charges;
A.1 .3 proceedings arising in TDS charges;
A.1 .4 Cases where pendency could not be created on ITBA because o f technical reasons or in no PAN cases;
A.1 .5Penalty proceedings arising/pending in the Investigation Wing, Directorate of I&CI, erstwhile DG (Risk Assessment) or before any prescribed authority for the purpose of specified penalties;
A.1 .6 Cases where penalty is imposable by of facer above the rank o f Addl ./Jt . CIT .”
12. The above extract o f the SOP dated 06.09.2022 makes it categorically clear that the penalty unit for imposing penalty including the penalty u/s 271D o f the Act came into operation on 06 .09 .2022. The impugned order has been passed on 29.08 .2024, was thus required to be passed by the Penalty Unit and no t by the Assessment Unit. In view o f these facts and the SOP dated 06.09 .2022 referred (supra) , the arguments o f the ld . DR and the reliance of the ld. DR on sub-section (4) of sec tion 4 o f the Faceless Penalty Scheme 2021 is misplaced. Since, the Penalty Unit came into existence by issue o f SOP dated 06.09 .2022, therefore , the interim procedure provided in sub-section (4) of section 4 of the Penalty Unit has ceased to be in operation, meaning thereby the assessing unit could not have imposed the penalty on the date of the penalty order and for these reasons the penalty imposed u/s 271D by the assessment is bad in law and the said order having been passed by an authority having non- jurisdiction to do so, is liable to be quashed and we order accordingly. The legal ground raised by the assessee in that regard is accordingly allowed.
13. In view of our decision on the legal ground, the other grounds raised in the appeal are rendered academic. The appeal of the assessee is accordingly allowed . Consequently , the penalty so imposed is directed to be quashed.
14. Since the facts and circumstances of the present appeal and the decision o f the ld . CIT(A) are identical to those involved in ITA No . 4795/Del/2025 , the findings recorded by the Tribunal in the said appeal shall apply mutatis mutandis to the present appeal, being ITA No . 4794/Del/2025, for A.Y . 2015-16.
15. In the result, the appeals o f the assessee are accordingly allowed in above terms.
Order Pronounced in the Open Court on 09/09/2026.
