ITAT Deletes Section 271D Penalty as AO Did Not Record Satisfaction

Bhowmick Raj Singh Vs JCIT (ITAT Raipur)

The appeal before the Income Tax Appellate Tribunal (ITAT), Raipur arose from the order of the Commissioner of Income Tax (Appeals), which had upheld a penalty of ₹27 lakh under Section 271D for the alleged violation of Section 269SS of the Income-tax Act for Assessment Year 2010-11. The assessee also raised additional grounds challenging the validity of the penalty on the basis that the Assessing Officer (AO) had not recorded satisfaction for initiating penalty proceedings under Section 271D in the assessment order and that the penalty was barred by limitation.

The assessee was engaged in the wholesale trading of gutka, pan masala and Reliance Telecom products. The return of income was filed declaring income of ₹21,08,410, and the assessment under Section 143(3) determined the total income at ₹34,73,630.

After completion of assessment, the Joint Commissioner observed that the assessee had received cash deposits aggregating to ₹27 lakh from five prospective buyers. According to the Revenue, these cash receipts exceeded ₹20,000 and were accepted in violation of Section 269SS. The assessee explained that the amounts were trade advances received against orders, deposited into the bank and utilised for purchasing goods from the principal supplier. Upon receipt of goods, supplies were made to the buyers and their accounts were settled. The assessee maintained that these receipts were trading advances and not loans or deposits.

The Joint Commissioner rejected the explanation and held that the claim of receiving trade advances did not match the assessee’s past business practice. It was also observed that there was a considerable gap between receipt of the cash advances and supply of goods. Accordingly, the Joint Commissioner held that the assessee had violated Section 269SS and imposed a penalty of ₹27 lakh under Section 271D.

The Commissioner (Appeals) confirmed the penalty. The appellate authority observed that the assessee had admitted receiving the cash deposits and had failed to establish any urgency or reasonable cause for accepting cash instead of payments through the prescribed banking channels. It further noted that no material evidence had been produced to justify the alleged necessity of receiving cash or to substantiate that the deposits were genuine trade advances linked to immediate supply of goods. The Commissioner (Appeals) therefore upheld the penalty after referring to various judicial decisions.

Before the Tribunal, the assessee primarily challenged the jurisdiction to levy penalty under Section 271D. It was argued that while completing the assessment under Section 143(3), the Assessing Officer had not recorded any satisfaction regarding initiation of penalty proceedings under Section 271D, nor was there any reference to such proceedings in the assessment order. Relying upon the judgment of the Supreme Court in CIT v. Jai Laxmi Rice Mills, along with several High Court and Tribunal decisions, the assessee contended that the absence of such satisfaction rendered the penalty invalid. Alternatively, it was argued that the penalty was barred by limitation under Section 275(1)(c).

The Revenue opposed the appeal, submitting that the Joint Commissioner was the competent authority to impose penalty under Section 271D and that the absence of any reference in the assessment order did not divest him of jurisdiction. It also disputed the limitation argument raised by the assessee.

The Tribunal identified the core issue as whether a penalty under Section 271D could be sustained when the Assessing Officer had not recorded satisfaction for initiating such penalty proceedings in the assessment order. After examining Sections 269SS and 271D, the Tribunal held that the issue was no longer res integra in view of the Supreme Court’s decision in CIT v. Jai Laxmi Rice Mills. The Tribunal noted that the Supreme Court had held that where the Assessing Officer failed to record satisfaction regarding initiation of penalty proceedings, the penalty could not be sustained. The Tribunal also referred to subsequent decisions of the Telangana High Court, Gujarat High Court and various benches of the Tribunal that had followed the same principle.

Applying the above legal position, the Tribunal held that the penalty imposed by the Joint Commissioner under Section 271D could not be sustained for want of valid assumption of jurisdiction, as the Assessing Officer had not recorded the necessary satisfaction in the assessment order. Consequently, the Tribunal quashed the penalty of ₹27 lakh. Having allowed the appeal on this ground, the Tribunal declined to examine the other contentions, including limitation, leaving those issues open. The appeal of the assessee was accordingly allowed.

FULL TEXT OF THE ORDER OF ITAT RAIPUR

The present appeal filed by the assessee is directed against the order passed by the Commissioner of Income-Tax (Appeals)-II, Raipur, dated 26.02.2016, which in turn arises from the order passed by the A.O under Sec.271D of the Income-tax Act, 1961 (in short ‘the Act’) dated 31.10.2013 for the assessment year 2010-11. The assessee has assailed the impugned order on the following grounds of appeal before us:

“1. That on the facts and circumstances of the case the learned Assessing Officer has erred grossly and not justified in:-

A] Imposing penalty of Rs.27,00,000/- u/s. 271D of the IT Act 1961 for violating the provision of sec.269SS by accepting cash deposit for more than Rs.20,000/- from the parties.

B] “The order of the Ld. CIT(A) is erroneous in facts”.

C] “Any other Ground that may be abducted at the time of hearing”.

Also the assessee has assailed the impugned order on the following additional grounds of appeal before us:

“Additional Gr. No.1.

“1. On the facts and circumstances of the case and in law, penalty levied u/s. 271D of Rs.27,00,000 by ld. Jt.CIT dt.31-10-13 is invalid, as assessment order made u/s. 143(3) dt.25-3-13 by ld. AO (i.e. DCIT-1, Bhilai) wherein he has not recorded any satisfaction about violation/infraction of Sec. 269SS & thereby initiation of penalty u/s. 271D; there is no whisper about initiation of penalty u/s.271D in the assessment order; in absence of this. pre-requisite which sine qua non for levying penalty u/s. 271D; penalty levied u/s. 271D would be invalid and is liable to be quashed.”

Additional Gr.No.2:

“1. On the facts and circumstances of the case and in law, penalty levied u/s. 271D of Rs.27,00,000 by id Jt. CIT dt.31-10-13 is invalid as it is time barred by limitation provided u/s. 275(1)(c) as assessment order made u1s143(3) on 25-3-13 by ld. AO and penalty proceedings u/s. 271D is independent of the assessment proceedings; penalty levied u/s.271D is time barred by limitation provided u/s. 275(1)(c) and is liable to be quashed.”

2. Succinctly stated, the assessee who is engaged in the business of wholesale trading of gutka, pan masala, and sale of various products of Reliance Telecom under the name and style of M/s. Rajashree Traders, a proprietorship concern, had filed his return of income for A.Y.2010-11 on 30.09.2010 declaring an income of Rs.21,08,410/-. The assessment was, thereafter, framed by the A.O. vide his order passed u/s. 143(3) dated 25.03.2013 determining the total income of the assessee at Rs.34,73,630/-.

3. After the culmination of the assessment proceedings, the Jt. CIT, Range-Bhilai observed that the assessee had received cash deposits from prospective buyers, against which amounts sales were carried out to them over the year. The details of the aforesaid cash deposits received by the assessee during the year against which subsequent sales were carried out are culled out as under:

The Jt. CIT, taking cognizance of the fact that the assessee was in routine carrying out over-the-counter cash sales, thus, did not find favor with his claim of having received cash deposits over Rs.20,000/-from various buyers. The Jt. CIT holding a conviction that the assessee had received the aforesaid amount of Rs.27 lacs (supra) in violation of Section 269SS of the Act called upon him to put forth an explanation as regards the same. The assessee claimed that the aforesaid amount of Rs.27 lacs (supra) that he had received from the abovementioned five parties, viz. (i) M/s. Bansilal and Sons : Rs.5.00 lacs; (ii) M/s. Choudhary Enterprises: Rs.7.00 lacs; (iii) M/s. Dhapriya Trading: Rs.5.00 lacs; (iv) M/s. Hari Om Traders: Rs.5.00 lacs; and (v) M/s. H.P & Sons: Rs.5.00 lacs were deposited by him in his bank account and was utilized to purchase goods. Also, it was stated by the assessee that on receipt of the material from the principal, the same was supplied to the aforementioned parties and their accounts were settled. It was, thus, the claim of the assessee that the amount received from the parties was in the nature of trading receipts and not loans/advances. For the sake of clarity, the reply filed by the assessee before the Jt. CIT is culled out as under:

“That the assessee accepted advance against order from M/s. Bansilal and Sons : Rs.5.00 lacs; M/s. Choudhary Enterprises : Rs.7.00 lacs; M/s. Dhapriya Trading : Rs.5.00 lacs; M/s. Hari Om Traders : Rs.5.00 lacs; M/s. H.P & Sons : Rs.5.00 lacs {the parties} during the year which was deposited in bank and transferred to the principal for supplying material. This advance was received only once from these parties. On receipt of material from the principal it was sold to the parties thereby setting their account. Thus the amount received from the parties was not of the nature of loan rather it was advance against order.”

4. However, the Jt. CIT did not find favor with the aforesaid explanation of the assessee. The Jt. CIT observed that the assessee’s claim of having received the aforementioned amount of Rs.27 lacs (supra) as trade advances from the parties did not conform with the nature of his past business record. Also, the Jt. CIT observed that there was a substantial time gap between the receipt of the aforesaid amounts of cash advances and the sale of goods to the aforementioned five parties. Accordingly, the Jt. CIT holding a conviction that the assessee had received the aforesaid amount of Rs.27 lacs (supra), i.e., over Rs.20,000/- from the aforementioned five parties in violation of Section 269SS of the Act thus, vide his order passed u/s. 271D of the Act dated 31.10.2013 imposed a penalty of Rs. 27 lacs upon him.

5. Aggrieved the assessee carried the matter in appeal before the CIT(Appeals) but without success. For the sake of clarity, the relevant observations of the CIT(Appeals) are culled out as under:

“1.6. I have considered the grounds of appeal, the written submissions of the appellant and have gone through the observations of the assessing officer in the penalty order. I observe that the deposits have been accepted by the appellant in cash amounting to Rs. 27,00,000. It was submitted that the deposits were taken on the directions of the principals who were in urgent need of funds and hence the deposits were accepted in cash towards making payments to them. The appellant has clearly admitted to have taken the deposits in cash and the facts of the case also reveal that there was no urgent necessity to accept the deposits in cash. The Act does not specify the purposes for which cash deposits can be taken and hence the plea of the appellant that the deposits were taken on the directions of the principals is not an acceptable argument which does not find support under the provisions of law. The appellant ought to have been aware that accepting deposits in contravention of the provisions of section 269SS will attract penalty u/s 271 D of the Act. No urgency have been explained by the Id. Counsel appearing on behalf of the appellant for accepting the impugned deposits in cash. I find that there are no reasons beyond the control of the appellant for not accepting the deposits through an account payee cheque. The appellant has himself tacitly admitted in his submission that the deposits were taken as per the directions of the principal which makes it clear that there was no immediate or urgent need for the appellant in accepting the cash for his day to day running of the business. I also observe that no material whatsoever has been brought on record regarding the necessity and establishing reasonable cause for accepting such cash deposits in contravention of the provision of section 269SS. No element of urgency, or exceptional circumstances beyond the control of the appellant have been explained for not accepting the deposits by account payee cheque. The AO has rightly observed that accepting cash deposits of Rs.27,00,000/- is an unusual feature which never occurred previously and to counter the observations of the AO the Id. Counsel has produced no material evidence to highlight and substantiate the necessity of accepting such cash deposits during the year. The explanation offered by the appellant is not supported by any material evidence, lacks justification and is against the provisions of law and hence I have no reason to interfere with the observations of the assessing officer on this point. Coming to the shortage or scarcity of such commodity I observe that the immediate requirement for accepting cash deposits from the parties had no direct correlation with the sale of material to them. This is clear from the fact that sale of material to the parties were made after a huge gap of more than a month and in some cases after more than two months which contradicts the claim of the appellant that the advances were received against orders for supply of material to the parties. Such receipt of advances and sale of material after a huge gap of more than two months is unusual. Although there is no time frame laid down but the surrounding circumstances and the facts of the case are clearly against the submissions offered by the appellant. Moreover neither during the assessment proceedings nor during the appellate proceedings the appellant has furnished copies of bills and vouchers evidencing item-wise details of material sold to the parties on different dates against the cash deposits received from them. The copies of accounts of parties furnished as proof of sales against cash is cryptic and does not contain basic information such as PAN, complete address, and details of sale of material. It is fruitful to peruse some of the important judicial pronouncements on this issue.

In the case of Hindalco Employees Cooperative Credit Society limited vs. Addl. CIT Range -4, Kochi reported in 49 taxman.com 309 the hon’ble Tribunal held that where reasonable cause for receiving deposits was not established by the assessee levy of penalty u/s. 271D is to be upheld. In the case of R.K. Singhal vs. CIT reported in 221 CTR 412(Raj), the hon’ble high Court of Rajasthan held that the appellant must establish the urgency of cash deposits and where such urgency is not brought on record the cash deposits attract the provisions of section 271D. In the decision of Nandi Dhall Mills vs. CIT reported in 61 Taxmann.com 97 the hon’ble Madras High Court held that there was nothing to show that there was urgency to avail cash in violation of section 269SS and accordingly the hon’ble court upheld the imposition of penalty u/s. 271D. An important observation made by the Hon’ble Indore Tribunal on the provisions of section 269SS is that the genuineness of loan has nothing to do with the provisions of section 269SS and 269T (Udaichand Santosh Kr. Jain vs ITO 1 SOT 531(Indore) ITAT). The hon’ble tribunal held that the assessee is to be presumed to be aware of the legal provisions wherein contraventions of section 269SS will attract penalty provisions u/s. 271D. The following judicial pronouncements are also squarely applicable to the facts and circumstances of the instant case: i) Auto Piston Mfg.Co (P) Ltd vs. CIT 38 Taxman.com 61(Punjab & Haryana). (ii) ITO 13(1) New Delhi vs Nandi promoters 13 Taxmann.com 213 ITAT(Delhi)(iii) ACIT vs Jabalpur Hospital & Research Centre (P) Ltd. 11 SOT 19 (Jab).”

6. The assessee, being aggrieved with the order of the CIT(Appeals) has carried the matter in appeal before us.

7. Shri Sunil Kumar Agrawal, Ld. Authorized Representative (for short ‘AR’) for the assessee at the threshold of hearing of the appeal assailed the validity of the jurisdiction assumed by the Jt. CIT for imposing penalty u/s. 271D of the Act. Elaborating on his aforesaid contention, it was submitted by the Ld. AR that as the A.O while framing the assessment vide his order u/s.143(3) dated 25.03.2013 had not recorded any satisfaction regarding penalty proceedings u/s. 271D of the Act; therefore, the Jt. CIT in the absence of the said statutory requirement could not have assumed jurisdiction and imposed penalty u/s.271D of the Act vide his order dated 31.10.2013. The Ld. AR, in support of his aforesaid contention, had relied on the judgment of the Hon’ble Supreme Court in the case of CIT Vs. Jai Laxmi Rice Mills, Ambala City (2015) 379 ITR 521 (SC). Also, the Ld. AR had placed reliance on the following judicial pronouncements /orders wherein the Hon’ble High Courts /Tribunals had followed the view taken by the Hon’ble Apex Court in the case of CIT Vs. Jai Laxmi Rice Mills, Ambala City (supra), and had concluded that the Jt. CIT in the absence of any mention in the assessment order regarding initiation of penalty proceedings u/s. 271D of the Act cannot assume jurisdiction and impose penalty u/s.271D of the Act:

(i) Pr. CIT Vs. Parivar Television P. Ltd., ITA No.674/2023 dated 09.10.2023

(ii) Srinivasa Reddy Reddeppagari Vs. JCIT (2023), WP No.44285 of 2022 dated 26.12.2022

(iii) ACIT Vs. Bapu Reddy Jala Nizamabad (2023) ITA No.606/Hyd/2022 dated 15.06.2023

(iv) Raja Reddy Nala Vs. Addl. CIT (2023) ITA No.520/Hyd/2022 dated 31.05.2023

(v) Parivar Television P. Ltd. Vs. DCIT (2023) ITA No.1738/Ahd/2016 dated 03.01.2023

(vi) Ram Lybhaya Jassal Vs. Addl. CIT (2021), ITA No.747/Asr/2017 dated 24.09.2021.

8. Alternatively, the Ld. AR submitted that the penalty imposed by the Jt. CIT u/s. 271D of the Act dated 31.10.2013 was even otherwise barred by limitation. Elaborating on his aforesaid contention, the Ld. AR submitted that as the A.O. could have imposed the impugned penalty within the stipulated time period contemplated in Section 275(1)(c) of the Act, which, in turn, was to be reckoned from the date on which the assessment u/s. 143(3) dated 25.03.2013 was framed by the A.O.; therefore, the penalty imposed by him was liable to be quashed on the said count itself. The Ld. AR in support of his aforesaid contention had relied on the following judicial pronouncements:

(i) Pr. CIT Vs. Govind Kripa Buildmart P. Ltd. (2017) 397 ITR 650 ( Raj)

(ii) CIT Vs. Hissaria Brothers (2016) 386 ITR 719 (SC)

(iii) CIT Vs. Narayani & Sons P Ltd. (2016) 289 CTR 301 (Cal. HC)

(iv) CIT Vs. Jitendra Singh Rathore (2013) 352 ITR 327 (Raj.)

(v) CIT Vs. Hissaria Bros (2007) 291 ITR 244 ( Raj)

(vi) Shanbhag Restaurent Vs. DCIT (2004) 266 ITR 393 ( Kar. HC)

(vii) Jagish Chandra Suwalka Vs. JCIT (2023) 225 TTJ 161 ( JP- Trib)

(viii) Lodha Builders (P) Ltd. Vs. ACIT (2014) 163 TTJ 778 (Mum-Trib)

9. Per contra, the Ld. Departmental Representative (for short, ‘DR’) relied on the orders of the lower authorities. The Ld. DR submitted that as the initiation of penalty u/s. 271D of the Act was done by the Jt. CIT/Addl. CIT, therefore, it was incorrect on the part of the A.O. to claim that in the absence of any mention of the same in the assessment order the Jt. CIT was divested of his jurisdiction to impose penalty u/s.271D of the Act. The Ld. DR in order to buttress his contention had drawn our attention to Section 269SS of the Act. As regards the claim of the assessee’s counsel that penalty imposed u/s. 271D of the Act was barred by limitation, the Ld. DR submitted that the said contention was based on misconstruing of the settled position of law. Elaborating on his aforesaid contention, the Ld. DR submitted that though the imposition of penalty u/s. 271D is regulated by the time frame contemplated in Section 275(1)(c) of the Act but there is nothing provided in the Act that the said period is to be reckoned from the date on which the A.O. passes the order of assessment. The Ld. DR submitted that now when penalty u/s. 271D of the Act is initiated by the Jt. CIT/Addl. CIT, it was, thus, incomprehensible how and on what basis the limitation for imposing the same was to be reckoned from the date of the framing of assessment as canvased by the Ld. AR.

10. We have heard the ld. Authorized Representatives of both the parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by the Ld. AR to drive home his contentions.

11. Before proceeding any further, it would be relevant to cull out the provisions of Section 269SS of the Act, i.e., the mandate of law which contemplates that no loan/deposit in excess of a specified amount is to be received by an assessee otherwise than as per the prescribed modes, which reads as under:

“269SS. No person shall take or accept from any other person (herein referred to as the depositor), any loan or deposit or any specified sum, otherwise than by an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account ¹¹[or through such other electronic mode as may be prescribed], if,—

(a) the amount of such loan or deposit or specified sum or the aggregate amount of such loan, deposit and specified sum; or

(b) on the date of taking or accepting such loan or deposit or specified sum, any loan or deposit or specified sum taken or accepted earlier by such person from the depositor is remaining unpaid (whether repayment has fallen due or not), the amount or the aggregate amount remaining unpaid; or

(c) the amount or the aggregate amount referred to in clause (a) together with the amount or the aggregate amount referred to in clause (b), is twenty thousand rupees or more:

Provided that the provisions of this section shall not apply to any loan or deposit or specified sum taken or accepted from, or any loan or deposit or specified sum taken or accepted by,—

(a) the Government;

(b) any banking company, post office savings bank or co-operative bank;

(c) any corporation established by a Central, State or Provincial Act;

(d) any Government company as defined in clause (45) of section 2 of the Companies Act, 2013 (18 of 2013);

(e) such other institution, association or body or class of institutions, associations or bodies which the Central Government may, for reasons to be recorded in writing, notify in this behalf in the Official Gazette:

Provided further that the provisions of this section shall not apply to any loan or deposit or specified sum, where the person from whom the loan or deposit or specified sum is taken or accepted and the person by whom the loan or deposit or specified sum is taken or accepted, are both having agricultural income and neither of them has any income chargeable to tax under this Act.

Explanation.—For the purposes of this section,—

(i) “banking company” means a company to which the provisions of the Banking Regulation Act, 1949 (10 of 1949) applies and includes any bank or banking institution referred to in section 51 of that Act;

(ii) “co-operative bank” shall have the same meaning as assigned to it in Part V of the Banking Regulation Act, 1949 (10 of 1949);

(iii) “loan or deposit” means loan or deposit of money;

(iv) “specified sum” means any sum of money receivable, whether as advance or otherwise, in relation to transfer of an immovable property, whether or not the transfer takes place.”

As the failure to comply with the provisions of Section 269SS of the Act results in saddling the assessee with penalty u/s. 271D of the Act; therefore, it would be relevant to cull out the same as under:

“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.”

12. Controversy involved in the present appeal lies in a narrow compass, i.e., as to whether or not penalty imposed by the JCIT u/s. 271D of the Act de-hors recording of satisfaction by the A.O for initiating the said penalty proceedings in the body of the assessment order passed u/s. 143(3) dated 25.03.2013 is sustainable in the eyes of law? As is discernible from the assessment order, the A.O in the body of the said order had only initiated penalty u/s. 271(1)(c) of the Act. The issue involved in the present appeal, i.e., sustainability of the penalty imposed u/s. 271D of the Act in absence of any satisfaction for initiating the said penalty proceedings by the A.O in the body of the assessment order is no more res-integra pursuant to the judgment of the Hon’ble Supreme Court in the case of CIT Vs. Jai Laxmi Rice Mills Ambala City, (2015) 379 ITR 521 (SC). The A.O in the case before the Hon’ble Apex Court had framed the original assessment vide an ex-parte order dated 26.02.1996, determining the income of the assessee at Rs.18.34 lacs (approx.). The A.O while framing the assessment had in the body of the assessment order taken cognizance of the fact that the assessee had contravened the provisions of Section 269SS of the Act and recorded his satisfaction for initiating penalty proceedings u/s. 271D of the Act. On appeal, the CIT(Appeals) set-aside the assessment order with a direction to frame the assessment de-novo after affording an adequate opportunity to the assessee. After remand, the A.O passed a fresh assessment order but failed to record his satisfaction regarding initiation of penalty proceedings u/s. 271D of the Act. During the pendency of the assessee’s quantum appeal, which had yet not come up before the CIT(Appeals), the Jt.CIT based on the original assessment order dated 26.02.1996, issued show cause notice to the assessee and imposed penalty u/s. 271D of the Act dated 23.09.1996. It was, thus, in the backdrop of the aforesaid facts that the sustainability of the penalty imposed u/s. 271D of the Act based on the original assessment order which did no more survive therein surfaced. On being tested on the touchstone of the fact that the original assessment order wherein, satisfaction for initiating proceedings u/s. 271D of the Act was recorded, having been set-aside, thus, did no more survive, the Tribunal and the High Court concluded that the penalty imposed u/s. 271D of the Act could not be sustained.

13. On further appeal, the Hon’ble Apex Court concluded that as the A.O in the fresh assessment order had not recorded his satisfaction regarding penalty u/s. 271D of the Act, therefore, de-hors recording of requisite satisfaction the penalty imposed u/s. 271D of the Act could not be sustained and was liable to be quashed. For the sake of clarity, the relevant observation of the Hon’ble Apex Court is culled out as under:

“6. As pointed out above, insofar as, fresh assessment order is concerned, there was no satisfaction recorded regarding penalty proceeding under Section 271E of the Act, though in that order the Assessing Officer wanted penalty proceeding to be initiated under Section 271(1)(c) of the Act. Thus, insofar as penalty under Section 271E is concerned, it was without any satisfaction and, therefore, no such penalty could be levied.”

We find that the aforesaid view taken by the Hon’ble Supreme Court, had, thereafter, been followed by the Hon’ble High Court of Telangana in the case of Shrinivasa Reddy Reddeppagari Vs. JCIT, WP No.44285 of 2022 dated 26.12.2022 wherein the question, for which, indulgence of the Hon’ble High Court was sought, read as under:

14. Issue raised in the writ petition is whether without satisfaction being recorded in the assessment order, penalty can be levied by the Jt. CIT under S. 271D of the Act?”

Answering the aforesaid question, the Hon’ble High Court after drawing support from the judgment of the Hon’ble Apex Court in the case of CIT Vs. Jai Laxmi Rice Mills Ambala City (supra), had held as under:

15. Insofar the present case is concerned, we find that in the assessment order dated 24.03.2022 passed under Section 153A of the Act, return of income filed by the petitioner was accepted by the assessing officer and accordingly, the total income was assessed. In the return of income, petitioner had admitted receiving total income of Rs.80,84,180.00 which was also accepted by the assessing officer.

16. Subsequently, respondent No.1 took the view that petitioner had sold immovable properties for a total sale consideration of Rs.92,13,000.00 out of which he had accepted cash to the tune of Rs.87,80,000.00 which was in violation of Section 269SS of the Act, attracting penalty under Section 271D of the Act.

17. Before we advert to the reply submitted by the petitioner, we may mention that under Section 269SS of the Act, no person shall take or accept from any other person (referred to as a depositor) any loan or deposit or any specified sum otherwise than by an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account or through such other electronic mode as may be prescribed, if the amount of such loan or deposit or specified sum is twenty thousand rupees or more. However, as per the first proviso, the rigor of Section 269SS is not applicable to the Government, banking company, post office savings bank or cooperative bank etc. As per the second proviso, this provision would also not be applicable where both the depositor and the receiver are having agricultural income and neither of them has any income chargeable to tax under the Act.

18. Section 271D of the Act deals with penalty for failure to comply with the provisions of Section 269SS of the Act. Section 271D of the Act being relevant is extracted hereunder:

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.]

19. Thus, what sub-section (1) of Section 271D provides for is that if a person takes or accepts any loan or deposit or specified amount 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. Sub-section (2) clarifies that any penalty imposable under sub-section (1) shall be imposed by the Joint Commissioner.

20. It would be useful to refer to Section 271E of the Act also at this stage which deals with penalty for failure to comply with the provisions of Section 269T of the Act. Be it stated that Section 269T of the Act provides that no branch of a banking company or a cooperative bank and no other company or cooperative society and no firm or other person shall repay any loan or deposit made with it or any specified advance received by it otherwise than by an account payee cheque or account payee bank draft drawn in the name of the person who had made the loan or deposit or who had paid the specified advance or by use of electronic clearing system through a bank account or through such other electronic mode as may be prescribed, if such an amount is twenty thousand rupees or more. As in the case of Section 269SS, Section 269T of the Act also does not apply to the Government, banking company, post office savings bank etc. Section 271E of the Act reads as under:

Penalty for failure to comply with the provisions of section 269T.

271E. [(1)] If a person repays any [loan or] deposit [or specified advance] referred to in section 269T otherwise than in accordance with the provisions of that section, he shall be liable to pay, by way of penalty, a sum equal to the amount of the [loan or] deposit [or specified advance] so repaid.] [(2) Any penalty imposable under sub-section (1) shall be imposed by the [Joint] Commissioner.]

21. Thus, sub-section (1) of Section 271E of the Act provides that if a person repays any loan or deposit or specified advance referred to in Section 269T of the Act otherwise than in accordance with the provisions of that section, he shall be liable to pay by way of penalty a sum equal to the amount of the loan or deposit or specified advance so repaid.

(2) any penalty imposable under sub-section (1) shall be imposed by the Joint Commissioner.

22. From an analysis of Sections 271D and 271E of the Act, it is seen that both the provisions are pari materia to each other. While Section 271D of the Act would be attracted on a person accepting loan or deposit or specified sum in contravention of Section 269SS of the Act, penalty under Section 271E of the Act would be imposable on a person who makes or repays the loan or deposit or specified advance in contravention of Section 269T. Therefore, in a way, the two provisions are complimentary to each other.

23. In Jai Laxmi Rice Mills Ambala City (supra), Supreme Court considered the question as to whether penalty proceedings under Section 271D of the Act is independent of the assessment proceeding ? In the facts of that case, it was found that the penalty order was issued following the assessment order.

However in appeal, Commissioner of Income Tax (Appeals) had set aside the original assessment order with a direction to frame assessment de novo. In the fresh assessment order, no satisfaction was recorded by the assessing officer regarding initiation of penalty proceedings under Section 271E of the Act. It was noticed that the penalty order was passed before the appeal of the assessee was allowed by the Commissioner of Income Tax (Appeals). It was in that context that Supreme Court held as follows:

The Tribunal as well as the High Court has held that it could not be so for the simple reason that when the original assessment order itself was set aside, the satisfaction recorded therein for the purpose of initiation of the penalty proceeding under Section 271E would also not survive. This according to us is the correct proposition of law stated by the High Court in the impugned order.

As pointed out above, insofar as, fresh assessment order is concerned, there was no satisfaction recorded regarding penalty proceeding under Section 271E of the Act, though in that order the Assessing Officer wanted penalty proceeding to be initiated under Section 271(1)(c) of the Act. Thus, insofar as penalty under Section 271E is concerned, it was without any satisfaction and, therefore, no such penalty could be levied. These appeals are, accordingly, dismissed.

24. Reverting back to the facts of the present case, we find that petitioner had submitted reply to the show cause notice on 02.06.2022. In his reply, petitioner mentioned that no satisfaction was recorded by the assessing officer in the assessment order as to infraction of Section 269SS of the Act. Therefore, no penalty could be levied under Section 271D of the Act without recorded satisfaction. In this connection, reference was made to the decision of the Supreme Court in Jai Laxmi Rice Mills Ambala City (1 supra) wherein it was clarified that provisions of Section 271E are in pari materia with the provisions of Section 271D of the Act. However, this aspect of the matter was not considered by respondent No.1 while passing the impugned order. Respondent No.1 relying upon the Kerala High Court decision in Grihalaxmi Vision (2 supra) noted that competent authority to levy penalty is the Joint Commissioner. He has also referred to an earlier decision of the Supreme Court in CIT V. Mac Data Ltd.3 wherein it was observed that assessing officer has to satisfy himself as to whether penalty proceedings should be initiated or not. Assessing officer is not required to record his satisfaction in a particular manner or reduce it into writing. Therefore, respondent No.1 imposed the penalty under Section 271D of the Act.

25. We are afraid respondent No.1 had completely overlooked the decision of the Supreme Court in Jai Laxmi Rice Mills Ambala City (1 supra). In the said decision as extracted above, Supreme Court had concurred with the view taken by the High Court holding that satisfaction must be recorded in the original assessment order for the purpose of initiation of penalty proceedings under Section 271E of the Act. We have already discussed above that provisions of Section 271E and 271D of the Act are in pari materia. When there is a decision of the Supreme Court, it is the bounden duty of an adjudicating authority, be it an income tax authority or any other civil authority or for that matter any court in the country, to comply with the decision of the Supreme Court.

26. Article 141 of the Constitution of India is clear that law declared by the Supreme Court shall be binding on all courts within the territory of India. This is further clarified in Article 144, which says that all authorities, civil and judicial, in the territory of India shall act in aid of the Supreme Court. We are therefore, of the unhesitant view that respondent No.1 overlooked the relevant considerations while passing the impugned order dated.29.11.2022.

27. Further, issue in the present writ petition is not the competence of the Joint Commissioner in issuing the order of penalty. Therefore, reference to Grihalaxmi Vision (2 supra) was wholly unnecessary.

28. Consequently, we set aside the impugned order dated 29.11.2022 and remand the matter back to the file of respondent No.1 to pass a fresh order in accordance with law after giving a reasonable opportunity of hearing to the petitioner.

29. Writ Petition is accordingly allowed. No costs.”

14. Also, a similar view had been taken by the Hon’ble High Court of Gujarat in the case of CIT Vs. Parivar Television, Tax Appeal No.674/2023 dated 09.10.2023, wherein the Hon’ble High Court had approved the view taken by the Tribunal and observed that as no satisfaction regarding initiation of penalty proceedings u/s. 271E of the Act was recorded in the assessment order, therefore, no penalty under the said statutory provision could be levied. Apart from that, we find that similar view had been taken by the ITAT, Hyderabad in the case of ACIT Vs. Bapu Reddy Jala Nizamabad, ITA No.606/Hyd/2022 dated 15.06.2023 and Raja Reddy Nalla Vs. Addl. CIT, ITA No.520/Hyd/2022 dated 31.05.2023 and also by the ITAT, Surat in the case of Parivar Television P. Ltd. Vs. DCIT, ITA No.1738/Ahd/2016 dated 03.01.2023 and by the ITAT, Amritsar in the case of Ram Lubhaya Jassal Vs. Addl. CIT, ITA No.747/Asr/2017 dated 24.09.2021.

15. Considering the fact that the issue before us is no more resintegra in light of the judgment of the Hon’ble Supreme Court in the case of CIT Vs. Jai Laxmi Rice Mills Ambala City (supra), therefore, in the backdrop of our aforesaid deliberations, the penalty imposed by the Jt.CIT u/s. 271D of the Act cannot be sustained and is liable to be struck down for want of valid assumption of jurisdiction.

16. As we have quashed the penalty imposed by the Jt.CIT u/s. 271D of the Act in terms of our aforesaid observations; therefore, we refrain from adverting to and dealing with the other contentions advanced by the Ld. AR as regards the validity of the penalty order, which, thus, are left open.

17. In the result, appeal of the assessee is allowed in terms of our aforesaid observations.

Order pronounced in open court on 02nd day of January, 2024.