Sunil Agrawal Vs ACIT (Rajasthan High Court)
Summary: The Rajasthan High Court, Jaipur Bench, in Sunil Agrawal Vs Assistant Commissioner of Income Tax and connected writ petitions, held that penalty proceedings under Sections 271D and 271E of the Income-tax Act, 1961, cannot be sustained where the Assessing Officer failed to record the requisite satisfaction during the assessment or reassessment proceedings. The Division Bench comprising Justice Avneesh Jhingan and Justice Shubha Mehta applied the Supreme Court’s decision in Commissioner of Income Tax Vs Jai Laxmi Rice Mills, (2015) 379 ITR 521 (SC), and quashed the impugned penalty notices and consequential proceedings. The Court considered the two penalty provisions together because their language was analogous and the issues involved in the connected petitions were substantially identical.
The lead writ petition concerned Assessment Year 2012-13. Following a search at the petitioner’s premises, reassessment proceedings under Section 148 culminated in an order dated 12 March 2024, making additions of ₹9,90,000 under Section 69A and ₹23,785 under Section 69C. Although the reassessment order had been passed after approval from the Additional Commissioner of Income Tax, it did not record satisfaction for initiating penalty proceedings under Section 271E. Subsequently, a penalty notice was issued on 1 October 2024. The petitioner objected on 16 October 2024, relying upon the Supreme Court judgment in Jai Laxmi Rice Mills. The objections were rejected and a further notice dated 3 January 2025 was issued, leading to the writ petition challenging the notices dated 1 October 2024, 3 January 2025 and 13 January 2025.
The Revenue defended the proceedings by referring to a communication dated 1 August 2024 through which the Deputy Commissioner of Income Tax referred the matter to the Additional Commissioner for imposing penalty under Section 271E. It was further submitted that the Additional Commissioner recorded satisfaction on 24 September 2024 and that the Assessing Officer was not required to record satisfaction under Section 271E. The High Court rejected this reasoning, holding that a reference made after the reassessment proceedings had concluded could not remedy the absence of satisfaction during those proceedings. Similarly, satisfaction recorded subsequently by the Additional Commissioner could not be equated with satisfaction required to be recorded by the concerned Assessing Officer in the reassessment proceedings.
The Court observed that the Supreme Court in Jai Laxmi Rice Mills had quashed penalty proceedings where the assessment order did not contain satisfaction for initiating penalty under Section 271E, even though the Assessing Officer had mentioned initiation of proceedings under Section 271(1)(c). In the present matter also, the Deputy Commissioner had recorded satisfaction only in relation to Section 271(1)(c), without recording satisfaction for proceedings under Section 271D or Section 271E, as applicable. Holding that the dispute was squarely covered by the Supreme Court ruling, the High Court quashed the notices issued under Section 271E and the proceedings arising from them, and allowed all the connected writ petitions. The judgment emphasises the importance of recording the relevant satisfaction during the assessment proceedings rather than attempting to cure the omission through subsequent administrative action.
List of Cases Discussed:
1. Commissioner of Income Tax Vs Jai Laxmi Rice Mills, (2015) 379 ITR 521 (SC): The Supreme Court decision was followed by the Rajasthan High Court. It was held applicable to the requirement of recording satisfaction during assessment proceedings for initiating penalty under Sections 271D/271E. The absence of such satisfaction could not be cured by a subsequent reference or by satisfaction recorded by another authority after completion of assessment proceedings.
FULL TEXT OF THE JUDGMENT/ORDER OF RAJASTHAN HIGH COURT
1. These writ petitions are being decided by this order as the facts and issues involved are same. Though in some of the cases penalty under Section 271D and in others under Section 271E of the Income Tax Act, 1961 (hereafter ‘the Act of 1961’) was imposed. The language of Section 271D and Section 271E are analogous. For the sake of convenience, the facts are being taken from D.B. Civil Writ Petition No.1102/2025.
2. This petition is filed seeking quashing of notices dated 01.10.2024, 03.01.2025, 13.01.2025 issued under Section 271E of the Act of 1961, for Assessment Year 2012-2013.
3. The brief facts are that search was conducted on the premises of the petitioner. The proceedings initiated under Section 148 of the Act of 1961 culminated in re-assessment order dated 12.03.2024 resulting in additions of Rs.9,90,000/- and Rs.23,785/- under Sections 69A and 69C of the Act of 1961 respectively. The order was passed after approval from the Additional Commissioner of the Income Tax (hereinafter ‘ACIT’). On 01.10.2024 notice was issued to the petitioner for imposition of penalty under Section 271E of the Act of 1961. In the response dated 16.10.2024 the petitioner relied upon the decision of the Supreme Court in Commissioner of Income Tax Vs. Jai Laxmi Rice Mills reported in [(2015) 379 ITR 521 (SC)] to contend that there was no satisfaction recorded in the reassessment order for initiating the penalty proceedings under section 271E of the Act of 1961. The objections filed were rejected and a notice dated 03.01.2025 was issued. Hence, the present writ petition.
4. Learned counsel for the petitioners submitted that the issue involved that penalty under section 271D cannot be imposed if there was intent of AO to do so, is covered by decision of the Supreme Court in Jai Laxmi Rice Mills (supra).
5. Learned counsel for the respondent submitted that reply filed in the present writ petition is adopted in all the connected matters. Reliance is placed upon the annexures filed with the reply to the submit that the Deputy Commissioner of Income Tax (hereafter ‘DCIT’) vide communication dated 01.08.2024 referred the matter to the ACIT for imposition of penalty under section 271E and the ACIT on 24.09.2024 recorded the satisfaction. It is argued that there is no requirement under section 271E for assessing officer (hereinafter ‘AO’) to record the satisfaction. The counsel is not able to distinguish the citation relied upon by counsel for the petitioner.
6. The reassessment order was passed on 12.03.2024 and no satisfaction was recorded for initiating the penalty proceedings under Section 271E.
7. The reliance on the reference made by the DCIT to ACIT on 01.08.2024 shall not enhance case of the department as the reference was after the conclusion of reassessment proceedings by the DCIT.
8. The satisfaction dated 24.09.2024 recorded by the ACIT cannot be equated with the satisfaction to be recorded in the reassessment proceedings by the concerned AO.
9. In Jai Laxmi Rice Mills (supra) the Supreme Court was dealing with the issue as to whether the penalty proceedings under section 271D are independent of the assessment proceedings. In that case, in the assessment order passed in pursuance to the remand no satisfaction was recorded for initiating the proceedings under section 271E. Though the AO stated for initiation of proceedings under section 271(1)(c). The penalty proceeding was quashed on the ground that in absence of satisfaction recorded by the AO the penalty can not be imposed.
11. In the case in hand the DCIT had only recorded satisfaction for proceedings under Section 271(1)(c) of the Act of 1961 and no satisfaction was recorded to initiate penalty proceedings under Section 271D.
12. The issue involved in the present writ petition is squarely covered by the decision of the Supreme Court in Jai Laxmi Rice Mills (supra). The notice issued under Section 271E and the proceedings in pursuance thereto are quashed.
13. The writ petitions are allowed.
