Shaikh Sujayat Shaikh Islam Vs ITO (ITAT Nagpur)
Penalty u/s 271D Cannot Be Born Without AO’s Satisfaction: Mere Information About Cash Receipt Is Not Enough
Penalty u/s 271D may be equal to the amount allegedly received in violation of section 269SS. Considering its serious civil consequences, the prescribed jurisdictional procedure cannot be bypassed. The Nagpur Bench of the ITAT has held that where no assessment proceedings were initiated and the AO recorded no satisfaction regarding violation of section 269SS, the penalty proceedings initiated directly on the basis of information were invalid in law.
The assessee, Shaikh Sujayat Shaikh Islam, filed his return of income for AY 2018-19 on 23 March 2019. The return was apparently not selected for scrutiny, and no assessment proceedings were initiated for the relevant assessment year.
The Department, however, received information that the assessee had accepted ₹5,05,000 in cash towards the sale consideration mentioned in a registered sale deed. On the basis of such information, penalty proceedings u/s 271D were directly initiated through a notice dated 1 August 2019 for the alleged violation of section 269SS.
The Addl./JCIT, Range-Amravati, subsequently passed the penalty order on 23 January 2020, imposing a penalty of ₹5,05,000, being an amount equivalent to the alleged cash receipt. The CIT(A)/NFAC confirmed the penalty. The assessee therefore carried the matter before the Tribunal.
The assessee raised a fundamental objection to the jurisdiction assumed by the Department. It was submitted that the AO had not initiated any assessment proceedings for AY 2018-19. Since there were no assessment proceedings, there was no occasion for the AO to examine the transaction, reach a conclusion that section 269SS had been violated or record satisfaction for initiating penalty proceedings u/s 271D.
According to the assessee, the penalty authority could not acquire jurisdiction merely because certain information concerning a registered sale deed was available with the Department. A valid satisfaction recorded by the AO was a sine qua non for initiating penalty proceedings u/s 271D.
The assessee also challenged the factual basis of the penalty. It was pointed out that the registered sale deed did not specify the precise date on which the alleged cash consideration of ₹5,05,000 was received. Nevertheless, the Department presumed that the amount had been received during the relevant previous year. The conclusion was therefore alleged to be founded upon presumptions and conjectures, rather than conclusive evidence establishing both the cash receipt and the year in which it occurred.
In support of the jurisdictional objection, the assessee relied upon CIT v. Jai Laxmi Rice Mills Ambala City [2015] 379 ITR 521 (SC), Pawan Kumar v. JCIT, Lal Singh Chouhan v. JCIT & the Andhra Pradesh High Court’s decision in Grandhi Sri Venkata Amarendra v. JCIT [2026] 183 taxmann.com 323.
The Revenue, on the other hand, supported the order of the CIT(A) and sought confirmation of the penalty.
The Tribunal noted that although the assessee had filed his return on 23 March 2019, there was no evidence that the return had been selected for scrutiny. It was undisputed that no assessment proceedings had been initiated for AY 2018-19.
In such circumstances, the AO had no occasion during an assessment to examine the alleged cash transaction or record satisfaction that the assessee had violated section 269SS. Instead, the AO had proceeded directly on the basis of the information and issued the penalty notice dated 1 August 2019.
The Tribunal therefore examined whether a valid satisfaction recorded by the AO constituted an indispensable requirement for initiating proceedings u/s 271D.
Reliance was placed upon the Andhra Pradesh High Court’s decision in Grandhi Sri Venkata Amarendra. The High Court had explained that satisfaction must be recorded by the AO because the officer making the assessment and the authority empowered to levy penalty u/s 271D are different. The penalty is imposed by the Joint Commissioner, but the jurisdiction of the Joint Commissioner must be triggered by a finding of the AO that the material examined during assessment indicates a violation of section 269SS.
Unless the AO, acting as the primary authority, examines the material and arrives at such a finding, there would be no occasion for the Joint Commissioner to assume jurisdiction and impose the penalty. The Tribunal also noted that the Supreme Court had affirmed the Andhra Pradesh High Court’s decision by dismissing the Revenue’s SLP on 6 February 2026.
The Tribunal further referred to Lal Singh Chouhan v. JCIT, where the coordinate Bench, after considering Jai Laxmi Rice Mills and Baldev Singh v. ACIT [2018] 93 taxmann.com 212, held that the penalty authority lacked jurisdiction where no assessment proceedings were pending and no satisfaction had been recorded by the AO.
Applying these principles, the Tribunal held that the penalty proceedings against the assessee were initiated without any assessment proceedings and without the AO recording the mandatory satisfaction. Consequently, the proceedings were not valid in the eyes of law.
The order of the CIT(A) was reversed & the entire penalty of ₹5,05,000 levied u/s 271D was deleted.
Author’s Comments
The decision underlines the distinction between possession of information and lawful assumption of jurisdiction. Information regarding a possible cash receipt may justify enquiry, but it cannot automatically empower the penalty authority to impose penalty u/s 271D.
The AO’s satisfaction is not a cosmetic formality. It is the jurisdictional bridge between the material suggesting violation of section 269SS and the Joint Commissioner’s authority to levy penalty u/s 271D. Where that bridge is altogether absent, the penalty proceedings cannot survive.
The ruling is also significant because the Tribunal quashed the penalty without entering into the factual controversy regarding the date of cash receipt. Once the initiation itself was invalid, the merits of the alleged violation became secondary.
A penalty equal to the entire transaction cannot rest upon an administrative shortcut. Where the law requires the AO’s satisfaction, mere departmental information cannot be allowed to take its place.
Cases Discussed
- CIT v. Jai Laxmi Rice Mills Ambala City [2015] 379 ITR 521 (SC)
- Pawan Kumar v. JCIT in ITA No.797/DEL/2023, dt. 04.12.2023 (Delhi – Trib.)
- Lal Singh Chouhan v. JCIT in ITA No.104/IND/2020, dt. 27.07.2021 (Indore – Trib.)
- Grandhi Sri Venkata Amarendra v. JCIT [2026] 183 taxmann.com 323 (AP – HC)
- Baldev Singh v. ACIT (2018) 93 taxmann.com 212
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT, NAGPUR SMC BENCH
This appeal by the assessee is directed against the order of Ld. Commissioner of Income Tax (Appeals)/NFAC, Delhi (for short, “CIT(A)”) dated 26.02.2026 passed u/sec. 250 of the Income Tax Act, 1961 (for short, “Act”) which is arising out of penalty order dated 23.01.2020 passed u/sec. 271D of the Act by the Addl./JCIT, Range-Amravati for the Assessment Year (A.Y.) 2018-19.
2. Sole grievance of the assessee revolves around to the penalty order passed u/sec. 271D of the Act at Rs. 5,05,000/-
3(a). At the outset, learned counsel for the assessee, referring to plethora of decisions, has submitted that the impugned penalty deserves to be deleted as there is no valid satisfaction for initiation of penalty proceedings recorded during the course of assessment proceedings. He submitted that return of income has been filed on 23.03.2019 pertaining to A.Y. 2018-19 and without initiating any assessment proceedings for A.Y. 2018-19, penalty proceedings u/sec. 271D of the Act have been initiated on 01.08.2019. Reliance placed on the following case-laws:-
(i) CIT vs. M/s. Jai Laxmi Rice Mills Ambala City (2015) 379 ITR 521 (SC)
(ii) Pawan Kumar vs. JCIT in ITA No.797/DEL/2023, dt. 04.12.2023 (Delhi – Trib.)
(iii) Lal Singh Chouhan vs. JCIT in ITA No.104/IND/2020, dt. 27.07.2021 (Indore – Trib.)
(iv) Grandhi Sri Venkata Amarendra vs. JCIT [2026] 183 taxmann.com 323 (AP – HC)
3(b). He is also claiming that, in the registered sale deed, there is no specific date of receipt of cash, and the Ld. Assessing Officer (AO) has proceeded merely on the basis of presumptions and conjectures observing that assessee has received cash of Rs.5,05,000/- against the sale consideration during the previous year.
4. On the other hand, Ld.DR supported the order of Ld.CIT(A).
5. I have heard the rival submissions and perused the material placed before me. I observe that Ld. AO has levied penalty u/sec. 271D of the Act at Rs. 5,05,000/- for violating the provisions of section 269SS. There is no dispute to the fact that assessee has filed return of income on 23.03.2019, and there is no evidence to show that case of the assessee has been selected for scrutiny proceedings. Admittedly, without initiating assessment proceedings, there is no occasion for the Ld. AO to record any satisfaction for initiating penalty proceedings u/sec. 271D of the Act. In the instant case, Ld. AO based on the information, directly initiated penalty proceedings vide notice dated 01.08.2019. Now, whether recording of valid satisfaction by the Ld. AO to initiation of penalty proceedings u/sec. 271D of the Act is a sine qua non for valid initiation of penalty proceedings needs to be examined.
6. In the light of the judicial precedents relied on by the learned counsel for the assessee, I observe that Hon’ble Andhra Pradesh High Court in the case of Grandhi Sri Venkata Amarendra (supra) has observed that Ld. AO failed to record proper satisfaction before levying penalty proceedings u/sec. 271D of the Act and also observed that satisfaction of the Ld. AO is required to be recorded because the same officer, who passed the assessment order would not be levying the penalty u/sec. 271D of the Act. Unless the Ld. AO, who is the primary authority, based on the material before it during the assessment proceedings, arrives at a finding that there has been a violation of the provisions, like in the present case, of section 269SS, there will not be any occasion to the Joint Commissioner, who is not the AO to exercise his jurisdiction to levy penalty u/sec. 271D of the Act. This judgment of Hon’ble Andhra Pradesh High Court has subsequently been affirmed by Hon’ble Apex Court dismissing the SLP filed by the Revenue vide order dated 06.02.2026.
7. I also take note of the decision in the case of Lal Singh Chouhan (supra) where the coordinate Bench referring to the judgment of Hon’ble Apex Court in the case of M/s.Jai Laxmi Rice Mills Ambala City (supra) as well as that of Coordinate Bench Chandigarh in the case of Baldev Singh vs. ACIT (2018) 93 taxmann.com 212 held that “Ld. AO did not have any jurisdiction to levy penalty as no assessment proceedings were pending in the case of assessee and thus no satisfaction was recorded by the Ld. AO to initiate the penalty”.
7. Respectfully following the above referred judicial precedents and considering the fact that in the present case also, no assessment proceedings have been initiated in the case of assessee and no valid satisfaction has been recorded by the Ld. AO prior to initiation of penalty proceedings u/sec. 271D, such proceedings are not valid in the eyes of law and deserves to be quashed. Accordingly, findings of Ld.CIT(A) is reversed, alleged penalty levied u/sec.271D of the Act is deleted. Effective grounds of appeal raised by the assessee are allowed.
8. In the result, appeal of the assessee is allowed.
Order pronounced on 10th September, 2026 under Rule 34(5) of the Income Tax (Appellate Tribunal) Rules, 1963
