Naeem Sirajuddin Tirmizi Vs PCIT (Central) (ITAT Ahmedabad)
AO Could Not Trigger the Penalty, Yet PCIT Faulted Him for Silence: Ahmedabad ITAT Quashes Revision u/s 263 in Seven Years
Summary: Seven Appeals, One Common Controversy
The assessee preferred seven appeals relating to AYs 2014-15 to 2019-20 & 2021-22 against separate revisionary orders passed by the PCIT u/s 263. Since the factual background & legal issue were identical, the Ahmedabad ITAT heard all the appeals together, treating the appeal for AY 2014-15 as the lead matter.
The controversy arose from a reassessment order dated 21.03.2024, passed u/s 147. The PCIT set aside this assessment on the ground that the AO had failed to record his satisfaction for initiating penalty proceedings u/s 271D for the alleged contravention of s.269SS.
Thus, the narrow question before the Tribunal was whether an assessment order could be regarded as erroneous & prejudicial to the interests of the Revenue merely because the AO had not recorded satisfaction or initiated penalty proceedings u/s 271D.
PCIT’s Case: Failure to Initiate Penalty Made Assessment Erroneous
According to the PCIT, material on record allegedly indicated that the assessee had accepted cash loans, deposits or specified sums in violation of s.269SS. The AO, however, neither recorded satisfaction nor initiated proceedings for imposition of penalty u/s 271D.
The PCIT regarded this omission as an error prejudicial to the Revenue & consequently invoked the revisionary jurisdiction u/s 263, setting aside the assessment order.
The assessee challenged the revision principally on the ground that, on the date of the assessment order, the AO himself had no jurisdiction to impose penalty u/s 271D. Penalty proceedings were separate from assessment proceedings & failure to initiate a collateral proceeding could not render the assessment itself erroneous.
Before 01.04.2025, the AO Was Not the Competent Authority
The assessee relied heavily upon the judgment of the Gujarat High Court in Dilip Patel v. PCIT (Central) [2026] 311 Taxman 250 (Guj.), CBDT Circular No. 09/DV/2016 dated 26.04.2016 & the Ahmedabad ITAT decision in Aamrakunj Realty Ltd. v. PCIT.
The Tribunal observed that the issue stood squarely covered by the Gujarat High Court decision in Dilip Patel. Under the law applicable before 01.04.2025, any penalty imposable u/s 271D could be imposed only by the Joint Commissioner. The AO was conferred jurisdiction to impose such penalty only with effect from 01.04.2025 through the proviso inserted in s.271D(2).
The assessment order in the present case was passed on 21.03.2024, much before the statutory change took effect. Therefore, the AO could neither impose penalty u/s 271D nor be faulted for failing to initiate proceedings which were outside his jurisdiction at the relevant time.
The PCIT had proceeded on an incorrect understanding of the statutory position. An assessment order could not be revised for failure to perform an act which the AO was not legally empowered to perform.
Section 271D Does Not Require Recording of Satisfaction
The Tribunal identified another fundamental defect in the PCIT’s reasoning. A plain reading of s.271D showed that it did not prescribe the recording of satisfaction by the AO as a condition for initiating penalty proceedings.
The Tribunal contrasted s.271D with s.271(1), which expressly referred to the satisfaction of the income-tax authority “in the course of any proceedings”. No comparable language appeared in s.271D.
Penalty u/s 271D is attracted by the contravention of s.269SS, namely, acceptance of a loan, deposit or specified sum otherwise than through the permitted modes. Such penalty proceedings are separate, independent & distinct from assessment proceedings. Consequently, the absence of any satisfaction in the assessment order did not constitute a legally recognised error.
The PCIT could not import into s.271D a requirement which the Legislature itself had not provided.
Revision u/s 263 Quashed & Assessments Reinstated
Following the binding judgment of the Gujarat High Court in Dilip Patel, the Tribunal held that the PCIT’s finding that the assessment order was erroneous & prejudicial to the Revenue was unsustainable.
The order u/s 263 for AY 2014-15 was accordingly quashed as being without jurisdiction, while the reassessment order dated 21.03.2024 stood reinstated.
As the facts & legal position for the remaining six assessment years were identical, the Tribunal applied its conclusions mutatis mutandis to those appeals as well. All seven revisionary orders were quashed, the respective assessment orders were restored & all the appeals of the assessee were allowed.
Author’s Comments
The ruling draws an important boundary around the PCIT’s revisionary jurisdiction. Section 263 cannot be employed merely because the PCIT believes that some other proceeding ought to have followed the assessment. The alleged omission must first constitute an error in the assessment order itself.
More importantly, an AO cannot be condemned for failing to exercise a jurisdiction which the statute had not then conferred upon him. The amendment authorising the AO to impose penalty u/s 271D operates only from 01.04.2025; it cannot retrospectively validate revision of earlier assessment orders.
The decision also clarifies that recording of satisfaction is not a statutory prerequisite u/s 271D. Revision based solely upon the absence of such satisfaction is therefore jurisdictionally fragile. In short, s.263 cannot manufacture an error by imposing upon the AO a duty that neither the statute nor his jurisdiction recognised at the relevant time.
Cases Discussed
- Dilip Patel Vs. Principal Commission of Income Tax (Central): [2026] 311 Taxman 250 (Gujarat) — considered and followed on the jurisdiction of the Assessing Officer to impose penalty under Section 271D before 01.04.2025 and the consequent sustainability of revision under Section 263.
- Aamrakunj Realty Limited Vs. Principal Commissioner of Income Tax, Ahmedabad-1, ITA No.111/AHD/2026, Assessment Year 2021-2022, dated 18/08/2026 — cited by the assessee before the Tribunal in support of the contention concerning revision under Section 263.
FULL TEXT OF THE JUDGMENT/ORDER OF INCOME TAX APPELLATE TRIBUNAL, AHMEDABAD
1. These are batch of 7 appeals. Each of the appeals involving same issue, therefore, the appeals were heard together and are being disposed by way of a common order. With the consent of both the sides we have taken ITA No. 2108/AHD/2026 as the lead matter. During the course of hearing both the sides had agreed that our finding/adjudication in ITA No.2108/AHD/2026 pertaining to Assessment Year 2014-2015 shall apply mutatis mutandis to the other 6 appeals pertaining to Assessment Years 2015-2016 to 2019-2020 and 2021-2022.
ITA No.2108/AHD/2026 (Assessment Year 2014-2015)
2. This appeal has been preferred by the Assessee challenging the Order, dated 26/03/2026, passed the Learned Principal Commissioner of Income Tax (Central), Ahmedabad [hereinafter referred to as ‘the PCIT’] passed under Section 263 of the Income Tax Act, 1961 [hereinafter referred to as ‘the Act’] whereby the Assessment Order, dated 21/03/2024, for the Assessment Year 2014-2015 was set aside.
3. The Assessee has raised the following grounds of Appeal:
1. In law and in the facts and the circumstances of the case of the appellant, the order u/s 263 of the Act passed by the Ld. PCIT (Central), Ahmedabad is bad in law and is without jurisdiction and deserves to be quashed.
2. In law and in the facts and the circumstances of the case of the appellant, the Ld. PCIT has erred in holding that the Assessment Order passed u/s 147 of the Act dated 21.03.2024 is erroneous and prejudicial to the interest of the revenue, without appreciating that the twin conditions for invoking Section263 of the Act are absent in the present case.
3. In law and in the facts and the circumstances of the case of the appellant, the Ld. PCIT has erred in invoking Section263 of the Act solely on the alleged ground of non-recording of satisfaction by the Ld. Assessing Officer for initiation of penalty proceedings u/s 271D r.w.s. 269SS of the Act, without appreciating that penalty proceedings and assessment proceedings are separate, independent and distinct, and that non-initiation of a collateral penalty proceeding cannot render the Assessment Order erroneous or prejudicial to the interest of revenue particularly when even Assessing Officer himself had no jurisdiction to initiate such proceedings at relevant time.
4. In law and in the facts and the circumstances of the case of the appellant, the Ld. PCIT has erred in directing initiation of penalty proceedings u/s 271D of the Act on the basis of third-party seized material which were not recovered from the appellant’s possession, are dumb documents without evidentiary value and were never authenticated or signed by the appellant, and in respect of which no opportunity of cross-examination has been afforded and without there being any material whatsoever on record establishing the actual “receipt” by the appellant, which is the mandatory ingredient for attracting Section269SS of the Act.
5. The appellant craves leave to add, alter, amend and/or withdraw any ground or grounds of appeal either before or during the course of hearing of appeal.
4. We have heard both the sides and have perused the material on record.
5. The solitary issue that arises for consideration is whether in the facts and circumstances of the present case the Learned PCIT had jurisdiction to exercise powers of revision under Section 263 of the Act.
6. It is admitted position that the Learned PCIT had exercised power of revision under Section 263 of the Act on account of the reason that the Assessing Officer had failed to record in the Assessment Order the satisfaction for initiating penalty proceedings under Section 271D read with Section 269SS of the Act. According to the Learned PCIT, the aforesaid failure on the part of the Assessing Officer made the Assessment Order erroneous in so far as prejudicial to the interest of Revenue.
7. When the appeal was taken up for hearing the Learned Authorised Representative for the Assessee placed on record the following judicial precedents (a) Judgment of the Hon’ble Gujarat High Court in the case of Dilip Patel Vs. Principal Commission of Income Tax (Central): 311 Taxman 250, (a) (Gujarat); Circular No.09/DV/2016 dated 26/04/2016 issued by the Central Board of Direct Taxes (CBDT) and the decision of the Ahmedabad Bench of the Tribunal in the case of Aamrakunj Realty Limited Vs. Principal Commissioner of Income Tax, Ahmedabad -1 [ITA No.111/AHD/2026, Assessment Year:2021-2022, Dated 18/08/2026. It was submitted by the Learned Authorized Representative for the Assessee that in identical facts and circumstances, the Hon’ble Gujarat High Court had quashed the order of revision passed under Section 263 of the Act.
8. Per Contra, Learned Departmental Representative placed reliance upon the order passed by the Learned PCIT.
9. We have given thoughtful consideration to the rival submissions.
10. On perusal of the judgment of the Hon’ble Gujarat High Court in the case of Dilip Patel Vs. Principal Commission of Income Tax (Central): [2026] 311 Taxman 250 (Gujarat) [01/05/2026], it emerges that Learned PCIT has issued show-cause notice under Section 263 of the Act seeking to set-aside the Assessment Order passed in that case, inter alia, on account of failure of the Assessing Officer to record satisfaction and/or to initiate penalty proceedings under Section 271D for alleged violation of the provisions of Section 269SS (accepting cash loans/payments) of the Act. The stand taken by the Revenue was that the failure to initiate penalty proceeding under Section 271D of the Act had rendered the assessment order erroneous in so far as prejudicial to the interest of the Revenue. On the other hand, it was contended on behalf of the Assessee that the Assessing Officer had no jurisdiction under the provisions of Section 271D of the Act to initiate proceedings since the assessment order was passed before 01/04/2025. Accepting the contention of the Assessee, the Hon’ble Gujarat High Court held that the Assessing Officer had jurisdiction to impose the penalty with effect from 01/04/2025. Prior to this, the penalty under Section 271D of the Act could have been levied by the Joint/Additional Commissioner of Income Tax only. The relevant extract of the decision of the Hon’ble Gujarat High Court reads as under:
“5.5 With regard to the observations recorded by the Commissioner in the impugned notice regarding failure of the Assessing Officer to initiate proceedings in the Assessment Order in view of the violation of provision of Section 269SS of the Act is concerned, we find that the Assessing Officer had no jurisdiction to initiate the proceedings against the petitioner in view of the provision of Section 271D of the Act, which mentions about the imposition of penalty for failure to comply with the provision of Section 269SS of the Act. The same reads as under:
“Penalty for failure to comply with the provisions of Section 269SS:
271D. [(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 [or specified sum] so taken or accepted.
(2) Any penalty imposable under sub-section (1) shall be imposed by the Joint Commissioner “
Provided that any penalty under sub-section(1), on or after 1 day of April, 2025, shall be imposed by the Assessing Officer.”
5.6 A perusal of the provision of Section 271D of the Act reveals that the Assessing Officer is authorized or has the jurisdiction to impose the penalty only on or after 1st Day of April, 2025 and hence, when the Assessment Order was passed on 19.06.2023, the Assessing Officer could not have passed any order or to even initiate proceedings against the assessee for violation of provision of Section 269SS of the Act and thereby imposing the penalty under Section 271D of the Act. Thus, the respondent has manifestly erred in not examining the provision of Section 269SS read with Section 271D of the Act and, hence, the issuance of the notice for alleged inaction of the Assessing Officer to initiate and impose the penalty under Section 271D of the Act is erroneous and illegal. Hence, the revision proceedings under Section 263 of the Act become vulnerable.”
11. In the present case also it is admitted position that the Assessment Order has been passed prior to 01/04/2025. Therefore, the Learned PCIT proceeded on incorrect understanding of legal position. Accordingly, we hold that the finding returned by the Learned PCIT that the Assessing Officer had erred in not recording requisite satisfaction for initiating penalty proceedings under Section 271D of the Act cannot be sustained.
12. Further, even bare perusal of Section 271D of the Act would show that the said section does not provide for recording of satisfaction by the Assessing Officer. The penalty under Section 271D of the Act is not connected to the assessment proceedings and is to be levied for violation of the provisions of Section 269SS (prohibiting accepting cash loans/payments beyond specified limits) of the Act. Section 271(1) of the Act makes the following reference to satisfaction of the income tax authority initiating penalty proceeding:
“Section 271(1) : If the Income-tax Officer or the Appellate Assistant Commissioner in the course of any proceedings under this Act, is satisfied that any person…” (Emphasis Supplied)
Whereas Section 271D of the Act does not make any reference to such ‘satisfaction’ of the income tax authority initiating penalty proceeding under Section 271D of the Act. Therefore, it cannot be said that there was failure on part of the Assessing Officer in recording satisfaction.
13. In view of the above and respectfully following the above judgment of the Hon’ble Gujarat High Court in the case of Dilip Patel (supra), we hold that the finding of the Learned PCIT that the Assessment Order for the Assessment Year 2014-2015 was erroneous in so far as prejudicial to the interest of Revenue cannot be sustained and therefore, the impugned Order passed by the Learned PCIT under Section 263 of the Act is quashed as being without jurisdiction. Consequently, the Assessment Order, dated 21/03/2024, passed for the Assessment Year 2014-2015 under Section 147 of the Act stands reinstated. In terms of the aforesaid, all the grounds raised by the Assessee are allowed.
14. In result, the present appeal preferred by the Assessee is allowed.
ITA No.2109/AHD/2026 (Assessment Year 2015-2016)
ITA No.2110/AHD/2026 (Assessment Year 2016-2017)
ITA No.2111/AHD/2026 (Assessment Year 2017-2018)
ITA No.2112/AHD/2026 (Assessment Year 2018-2019)
ITA No.2113/AHD/2026 (Assessment Year 2019-2020)
ITA No.2114/AHD/2026 (Assessment Year 2021-2022)
15. During the course of hearing both the sides had agreed that our finding/adjudication in ITA No.2108/AHD/2026 pertaining to the Assessment Year 2014-2015 shall apply mutatis mutandis to the present appeal for the Assessment Year 2015-2016 to 2019-2020 & 2021-2022.
16. Admittedly, there is no change in the factual or legal position. The Learned PCIT had passed Order under Section 263 of the Act for the aforesaid assessment years for reasons identical to Assessment Year 2014-2015. We have, hereinabove, quashed the Order passed by the Learned PCIT under Section 263 of the Act for the Assessment Year 2014-2015. Accordingly, adopting the reasoning given while adjudicating appeal for the Assessment Year 2014-2015 in Paragraph 9 to 14 above, we quash the order(s) passed by the Learned PCIT Section 263 of the Act for the relevant assessment year(s). Consequently, the respective assessment order(s) stand reinstated. In terms of the aforesaid, we allow all the grounds raised by the Assessee in each of the 6 appeals under consideration.
17. In result, the 6 appeals preferred by the Assessee are allowed.
18. In conclusion, the 7 appeals preferred by the Assessee are allowed.
Order pronounced on 31.08.2026
