Case Law Details
Smt. S.B.Patil Vs JCIT (ITAT Bangalore)
The appeals were filed by the assessee against the orders of the Commissioner of Income Tax (Appeals), Belgaum, challenging the levy of penalties under Sections 271D and 271E of the Income-tax Act, 1961. Along with the original grounds, the assessee also raised additional grounds contending that the initiation of penalty proceedings was legally invalid because no satisfaction had been recorded during the assessment proceedings.
The assessee submitted that the additional grounds involved a pure question of law requiring no fresh verification of facts. Relying on the Supreme Court’s decision in CIT v. Jai Laxmi Rice Mills, it was argued that recording satisfaction for initiating penalty proceedings under Sections 271D and 271E in the assessment order was mandatory. The Department opposed the admission of these additional grounds on the ground that they had not been raised before the lower authorities.
The Tribunal admitted the additional grounds, holding that they involved only legal issues and did not require any fresh examination of facts.
The Assessing Officer had originally levied a penalty of ₹57,77,213 under Section 271E, which the Commissioner (Appeals) reduced to ₹7,59,443. Similarly, the penalty under Section 271D of ₹41,35,000 was reduced by the Commissioner (Appeals) to ₹13,50,000. These penalties were imposed for alleged violations of Sections 269SS and 269T relating to acceptance of unsecured or hand loans in cash and repayment of such loans in cash.
The loans had been received by the assessee from her husband, Shri B.R. Patil, and the repayments were also made to him. The assessee was engaged in dairy farming, and her husband was assisting her in the business.
The Tribunal examined the assessment order dated 28 September 2009 and found that it contained no reference to acceptance of loans in cash, repayment of loans in cash, or any initiation of penalty proceedings under Sections 271D or 271E. There was no observation or satisfaction recorded by the Assessing Officer regarding any alleged violation of Sections 269SS or 269T.
The Tribunal relied on the Supreme Court’s judgment in CIT v. Jai Laxmi Rice Mills. In that case, the Supreme Court held that where an assessment order containing satisfaction for initiating penalty proceedings had been set aside and the fresh assessment order did not record any satisfaction for initiating penalty under Section 271E, the penalty could not survive. The Court held that penalty under Section 271E could not be levied in the absence of satisfaction recorded in the assessment order.
Applying the same principle, the Tribunal held that recording satisfaction in the assessment order was imperative for initiating penalty proceedings under Section 271E. It further held that proceedings under Section 271D stood on the same footing, and therefore similar satisfaction was equally necessary for initiation of penalty under that provision.
Since the assessment order in the present case did not record any satisfaction regarding initiation of penalty proceedings under either Section 271D or Section 271E, the Tribunal held that the penalties lacked the necessary legal foundation.
Following the Supreme Court’s decision in Jai Laxmi Rice Mills, the Tribunal concluded that the penalties imposed under Sections 271D and 271E could not survive. It accordingly set aside the penalty orders and allowed both appeals filed by the assessee.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
These are appeals filed by the assessee directed against the orders dated 01-04-2014 of CIT(A), Belgaum.
2. Through these appeals the assessee assails levy of penalty u/s 271E and 271D of the IT Act, 1961. In addition to the original grounds filed, the assessee has also filed a set of additional grounds.
3. The learned counsel for the assessee seeking admission of the additional grounds submitted that such additional grounds were pure question of law and did not need any fresh verification of records. According to him, it was mandatory that the penalty proceedings u/s 271D and 271E of the IT Act, 1961 are initiated during the course of assessment. In support of his contention, learned AR relied on the judgment of the Hon’ble Apex Court in the case of CIT Vs Jai Laxmi Rice Mills 379 ITR 521(SC). As per the learned AR failure to raise this ground originally was neither willful nor deliberate. All the material that were required for deciding the additional grounds were, as per the learned AR on record.
4. Per contra, learned DR submitted that such grounds were never raised by the assessee before any lower authorities.
5. We have heard the rival contentions.
6. The AO had levied penalty of Rs.57,77,213/- u/s 271E of the IT Act, 1961 on the assessee which was on appeal reduced by the learned CIT(A) to Rs.7,59,443/-. Similarly, the AO had levied penalty of Rs.41,35,000/- u/s 271D of the IT Act, 1961 which on appeal was reduced to Rs.13,50,000/- by the learned CIT(A). These penalties were levied for violation of Sec.269SS and 269T of the IT Act, viz. for accepting unsecured loans/hand loans in cash and repaying such loans in cash. The loans taken by the assessee were from her husband Shri B.R.Patil and the repayment were also to very same person. Assessee was engaged in dairy farming business and her husband was helping her in such business. Copy of the assessment for the impugned assessment year which is placed on record by the learned AR does not have even a whisper regarding the acceptance of loan in cash or re-payment of loans in cash. The assessment order dated 28-09-2009 for the impugned assessment year does not mention anything regarding any initiation of penalty proceedings for violation of sec.269SS and 269T of the IT Act, 1961. In the case of Jai Laxmi Rice Mills decided by the Hon’ble Apex Court the question was whether a satisfaction has to be recorded in the assessment order for initiation of penalty u/s 271E of the Act. In the said case, after the levy of penalty u/s 271E of the Act, the original assessment wherein satisfaction regarding initiation of penalty proceedings was expressed, was set aside on appeal filed by the assessee. In the fresh assessment order, there was no expression of any satisfaction regarding initiation of penalty proceedings u/s 271E of the IT Act. Their Lordship held at paras 3-5 as under;
“3. After remand, the AO passed a fresh assessment order. In this assessment order, however, no satisfaction regarding initiation of penalty proceedings u/s 271E of the Act was recorded. It so happened that on the basis of the original assessment order dated February 26, 1996, show cause notice was given to the assessee and it resulted in passing the penalty order dated September 23, 1996. Thus, this penalty order was passed before the appeal of the assessee against original assessment order as heard and allowed thereby setting aside the assessment order itself. It is in this backdrop, a question has arisen as to whether the penalty order, which was passed on the basis of the original assessment order and when that assessment order had been set aside, could still survive.
4. 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 proceedings u/s 271E would also not survive. This, according to us, is the correct propositions of law stated by the High Court in the impugned order.
5. As pointed out above, in sofaras, the fresh assessment order is concerned, there was no satisfaction recorded regarding the penalty proceedings u/s 271E of the Act though in that order the AO wanted penalty proceeding to be initiated u/s 271(1)( c) of the Act. Thus, in so far as penalty u/s 271E is concerned, it was without any satisfaction and therefore, no such penalty could be levied.
7. In our opinion, the legal issue raised by the assessee do not require any fresh assimilation of facts and can therefore, be admitted. A reading of the judgment of the Hon’ble Apex Court reproduced above does show that it is thus imperative for satisfaction to be recorded in the assessment order for initiation of penalty u/s 271E of the Act. Proceedings u/s 271D of the IT Act, also in our opinion will stand on the very same footing. If satisfaction has to be recorded with respect to proceedings u/s 271E of the IT Act, similar satisfaction has to be recorded for the proceedings u/s 271D of the IT Act, 1961 also. These have not been done in the case before us. Accordingly, by virtue of judgment of the Hon’ble Apex Court in the case of CIT Vs Jai Laxmi Rice Mills (Supra), we are of the opinion, that the levy of penalty u/s 271D & 271E of the IT Act, 1961 cannot survive. Such orders are set aside and the appeals of the assessee are allowed.
8. In the result, the appeals filed by the assessee are allowed.
Order pronounced in the open Court on the 10th February, 2016.
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