Penalty under 271D deleted in absence of satisfaction in Assessment Order

Sri Raja Reddy Nalla Vs Add. CIT (ITAT Hyderabad)

Assessee had received cash in connection with sale of immovable property . As the amount was more than the specified limit of Rs. 20,000/- , penalty proceedings u/s. 271D were initiated for violating Sec 269SS and penalty order u/s. 271D was passed levying a penalty of Rs. 40,00,000/-. Assesse pleaded, inter alia, ignorance of law before the CIT (A) who confirmed the penalty.

On further appeal, assessee raised various grounds. Subsequently the assessee raised an additional ground that the AO has not recorded his satisfaction about initiation of penalty proceedings u/s 271D. Since the additional ground raised was purely a legal ground that goes to the root of the matter and no new facts are required to be investigated, in view of the decision in the case of NTPC Ltd 229 ITR 383( SC) and Jute Corporation of India Ltd reported in 187 ITR 688(SC), the additional ground raised was admitted for adjudication by the Tribunal.

Tribunal noted that assessment order nowhere shows that the AO has recorded his satisfaction for initiating penalty proceedings u/s 271D. Tribunal in Srinivasa Reddy Reddeppagari vs. Jt. CIT[ WP.44285 of 2022 dated 26.12.2022], it was argued before the Telangana High Court that non-recording of satisfaction is fatal. The decision of the Hon’ble Supreme Court in the case of CIT vs. Jayalakshmi Rice Mills Ambalacity, reported in (2015) 64 Taxmann.com 75 (S.C), was relied upon. High Court held that provisions of section 271D and 271E are pari materia to each other and the recording of satisfaction is a must.

Tribunal deleted the penalty. It may be noted that the penalty u/s 271D or 271E is imposable only by the Joint Commissioner, who may not be the AO and the decisions would help the assessee where the AO had not recorded the satisfaction in the assessment order.

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