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.

FULL TEXT OF THE ORDER OF ITAT HYDERABAD

The above two appeals filed by the respective assessees are directed against the separate orders dated 11.08.2022 of the learned CIT (A)-11, Hyderabad, relating to A.Y.2019-20. Since identical grounds have been raised in these two appeals, therefore, for the sake of convenience, these appeals were heard together and are being disposed of by this common order.

2. Facts of the case, in brief, are that the assessee is an individual and derives income from business or profession and income from other sources. A search & seizure operation u/s 132 of the I.T. Act, 1961 was conducted along with the group cases of M/s. Moksha Infracon Pvt Ltd and M/s. Kaveri Infra Projects (P) Ltd on 9.8.2018. The assessee filed his return of income on for the A.Y under consideration on 14.02.2020 admitting total income of Rs.1,46,37,210/- and agriculture income of Rs.12,05,000/-. Statutory notices u/s 143(2) & 142(1) of the I.T. Act were issued and served on the assessee to which the AR of the assessee appeared before the Assessing Officer from time to time and furnished the requisite details.

2.1 The Assessing Officer observed that during the course of search operation in the residence of the appellant, certain loose sheets were found and seized. As per the page no., 4 of Annexure A/NRR/01, cash of Rs. 2,00,00,000/- was noted to have been received by Sri J. Sampath Rao on 25-07-2018 on behalf of 5 sellers of an immovable property located at Bondugula Village. The assessee is one of the 5 sellers mentioned therein. A Sworn statement of Sri J. Sampath Rao was recorded during the course of search and he had stated to have received cash of Rs. on 2,00,00,000/- on behalf of 5 sellers including the assessee. Subsequently, the assessee agreed to have received cash of Rs. 40,00,000/- as his share with respect to sale of immovable property. As the cash received in connection with sale of immovable property was more than the specified limit of Rs. 20,000/- as per the Section 269SS of the IT Act, penalty proceedings u/s. 271D were initiated for violating the provisions of Section 269SS and penalty order u/s. 271D of the Act was passed on 07.06.2022 levying a penalty of Rs. 40,00,000/-.

3. In appeal, the learned CIT (A) confirmed the penalty levied by the Assessing Officer u/s 271D of the I.T. Act by observing as under:

“6. Decision:

In the instant case, penalty order u/s. 271D of the IT Act was passed on 07.0o.2022 levying a penalty of Rs, 40,00,000/- in connection with acceptance of consideration in cash on sale of immovable property.

Going into facts of the case, the appellant individual was covered under search and seizure operation u/s. 132 of the Act conducted in the group cases of M/s. Moksha Infracon Pvt. Ltd. and M/ s. Kaveri Infra Projects Pyt. Ltd on 09.08.2018. During the course of search operation, certain loose sheets were found and seized. As per the page no. 4 of Annexure A/NRR/01, cash of Rs. 2,00,00,000/- was noted to have received by Sri J. Sampath Rao on 25-07-2018 on behalf of the appellant and 4 other sellers of an immovable property located at Bondugula Village. A sworn statement of Sri J. Sampath Rao was recorded during the course of search and he had stated to have received cash of Rs. 2,00,00,000/- on behalf of 5 sellers including the appellant. Subsequently, the appellant agreed to have received cash of Rs. 40,00,000/- as his share with respect to sale of immovable property and admitted in his return of income filed for AY 2019-20. As the cash received connection with sale of immovable property was more than the specified limit of Rs.20,000/- as per the Section 269SS of the IT Act, penally proceedings u/s 271 D of the Act were initiated for violating the provisions of Section 2699SS and penalty order u/s, 271D of the Ac was passed on 07.06.2022 by the Addl. CIT levying a penalty of Rs. 40,00,000/-.

The appellant had agreed that he had received Rs. 40,00,000/-in cash as his share of advance towards sale of a land properly that was sold jointly by the appellant along with four others. The appellant had not disputed the receipt of cash of Rs. 40,00,000/- or the purpose for which such cash was received for.

Further, It is also to noted that the said cash of Rs. 40,00,000/- was added to the returned income of the appellant as undisclosed money in the assessment order passed u/s. 143(3) dated 21.04.2021 and taxed as per the provisions of Section 115BBE of the IT Act. The appellant had preferred an appeal against the assessment order before the undersigned and the appellate order was passed on 04.05.2022 allowing the appeal of the appellant. In the appellate order, it was held that the said amount of Rs. 40,00,000/- was not undisclosed money and it was in fact the consideration received in connection with the sale of immovable property by the appellant. Therefore nexus has been clearly established between the cash received and the sale of immovable property. Thus the appellant had received Rs. 40.00.000/- in cash as part o! consideration towards sale of immovable property.

Hence, in view of the above discussion, the provisions of Section 2693S are attracted straight forward in the case of the appellant and therefore liable to penalty u/s. 271D of the Act. The relevant extract of section 269SS and 271D are reproduced below:

“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 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 (iv) 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:

Explanation.-For the purposes of this section,

(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. “

“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.”

In view of the above, the appellant has clearly violated the provisions of Section 2698S by accepting cash of more than Rs. 20,000/- i.e. cash of Rs. 40,00,000/- as advance towards sale of immovable property. Therefore it is a clear cut case for levy of penalty u/s. 271D of the IT Act for violating the provisions of Section 269SS of the Act and there are no exceptions to the said Section and the levy of penalty is mandatory.

During the appellate proceedings, the appellant filed submissions, wherein the appellant claimed ignorance about the amended provisions of Section 269SS of the Income Tax Act, 1961 and in support of the claim, quoted various case laws for treating ignorance of the appellant as bonafide. It is a basic assumption that every person will be abide by the Law of the land and the principle is embodied in the well-known maxim” Ignorantia juris neminem excusat”, means ignorance of law is no excuse for breaking it’. This is one of the essential principles of jurisprudence. The rationale behind this principle is that if ignorance was an excuse, every person who is charged for any offence or involved in a crime would merely claim that he was unaware of the law in question in order to avoid liability, even though he was well aware of the consequences of breaking the 1aw. The law enforcement machinery shall come to a grinding halt if ignorance is accepted as a defense. Also it can also lead to mishandling of law on the part of law breakers and this can never be the intention of the legislature to enrich the law breakers by providing a shield of ignorance. Hon’ble Allahabad High Court in the case of Commissioner of Sales Tax, U.P. v. Modi Food Products Ltd., held that every individual is deemed to know the law of the land. The courts merely interpret the law and do not make law. Ignorance of law is not an excuse for not taking appropriate steps within limitation. Therefore the argument that the appellant did not know the true legal position is not one that can be accepted in law. Hence, in view of the same, explanation of the appellant is not accepted.

It will also not be out of place to mention that this transaction was unearthed during the Course of Search proceedings and this transaction of cash portion would have been most likely not disclosed but for the Search proceedings at the premises of the appellant. The appellant and the transferee as a likely practice, have indulged in the lesser amount of registering as per the SRO value as has been observed in large number of cases. The appellant and the transferee have indulged in the same practice and the sum of Rs. 21,76,000/- was paid in cheque as per the sale deed dated 11.10.2018 and the Rs. 40,00,000/- which was paid in cash does not find mention in the sale deed dated 11. 10.2018. This is a very clear case wherein the consideration has been received in two parts, accounted cheque and unaccounted cash and the same has not been even recorded even after the Search was conducted on 09.08.2018. It is a very clear case that the appellant being the transferor thought he would get away with this and therefore the appellant to plead ignorance is completely futile argument, the intent of the appellant to come clean was not even there post the Search proceedings. Therefore this whole Plea ls rejected as a self-serving manufactured imaginary contention devoid of merits and considered as an attempt to find an escape route to the guilt. The whole story of consulting the tax expert is an afterthought and is to bypass its own guilt and responsibility. In view of the above, the action of the Addl. CIT in levying the penalty is hereby confirmed. Accordingly ground no. 1 and 2 are dismissed”.

4. Aggrieved with such order of the learned CIT (A) the assessee is in appeal before the Tribunal by raising the following grounds:

“1. The Commissioner of Income tax – Appeals -11, Hyderabad [ herein after denoted as Hon CIT -A] erred in confirming the penalty order of Additional Commissioner of Income Tax, Central Circle -1, Aayakar Bhavan Hyderabad [herein after termed as Ld. Add. CIT] of levy of penalty under section under section 271D of Income tax Act, 1961/ for short – the Act].

2. The Hon.CIT-A had erred in summarily rejecting the judicial views submitted by the appellant.

3. The Hon. CIT -A had erred in opining that that the appellant had not disclosed the cash portion of the consideration. The learned CIT-A failed to appreciate the fact that the appellant had already disclosed Rs.40.00 lakhs with the Department – which disclosure date was much before the date of registration of property.

4. The Ld.CIT-A had erred in forming an opinion that the tax payer ought to have full and complete knowledge of all provisions tax laws, which is contrary to the popular judicial views. The leaned CIT-A failed to appreciate basic practical premise that income tax law is a highly dynamic and ever-changing law and that there is high probability for knowing a provision fully well by an average tax payer till a transaction or two covered by a section are undertaken.

5. For the grounds pleaded above or for such other additional grounds that may be pleaded at the time hearing the appellant prays for the deletion of the said penalty amount levied under section 271D or to grant such other relied as the Hon’ble Bench may deem fit and proper under the facts and circumstances of the case. “

5. The assessee has also raised an additional ground which reads as under:

“1. The levy of penalty u/s 271D of the I.T. Act, 1961 at Rs.40,00,000 is wholly unsustainable based on the facts and in law as the Assessing Officer has not recorded his satisfaction about initiation of penalty proceedings u/s 271D of the said Act.”

6. The learned Counsel for the assessee submitted that the additional ground raised by the assessee is purely a legal ground and goes to the root of the matter. Further all material facts are already available on record and no new facts are required to be investigated. Therefore, in view of the decision of the Hon’ble Supreme Court in the case of NTPC Ltd reported in 229 ITR 383 and Jute Corporation of India Ltd reported in 187 ITR 688, he submitted that the additional ground raised by the assessee should be admitted for adjudication.

7. The learned DR, on the other hand, strongly opposed the admission of the additional ground and submitted that the assessee at this juncture should not be allowed to raise the additional ground. Alternatively, he submitted that he may be granted time to go through the same and obtain a report from the Assessing Officer.

8. After hearing both the sides and considering the fact that the additional ground raised by the assessee is purely legal in nature and all material facts are already available on record and no new facts are required to be investigated, the additional ground raised by the assessee is admitted for adjudication.

9. The learned Counsel for the assessee argued both on merit as well as on the additional ground which is legal in nature and filed the following written submissions:

appellant and other four co-owners have broadly permitted Sri J Sampath Rao to identify and negotiate a prospective vendee. The identification of a vendee , the crystalizing of the deal and the receipt of advance – all the three aspects have happened in such a quick succession that the appellant could not keep pace with these developments. The appellant was left with no time or opportunity to carry the matter of land sale deal to his tax consultant and to ascertain the income tax related nuances involved in a property sale. The receipt of Rs.2,00,00,000 and its distribution (of a proportionate share) to appellant , seizer of a portion of the said cash advance in a search action conducted under section 132 of Income tax Act, 1961] for short – the Act] on 08-08-2018 – all happened in a lightning speed and, as already submitted, the things did not leave room to discuss with the tax consultant to understand the income tax ramifications of sale of an immovable property.

It humbly submitted that the appellant, in the immediate past (at least from April , 2015 onwards ) did not sell any immovable property ( except the sale in the year 2017-18 of a small property whose sale consideration was Rs.6,10,000). The appellant further submits that since, in the past, immovable properties were rarely sold by him, he had hardly got an opportunity to learn about some changes that had taken place in some of the sections of Income Tax that deal with the real estate transactions. However, it may be mentioned here that though the amount was received in cash, the same was duly disclosed in his income tax return and offered to tax under the head capital gains. The assessee is existing taxpayer on the rolls of the Department and details of the income assessed for past 10 assessment years is as follows:

3. The provision , as was learnt, was introduced basically to address the tax evasion or circulation of black money. In this case , the appellant is on the rolls of the Department for past many decades, and he has already disclosed the said sale advance amount as a part of sale consideration while computing the amount of capital gains. Therefore, in this transaction of receipt of cash , there was no effort to dodge the tax liability nor was there any effort to create black money.

4. Further, it may kindly be noted that the due date for filing the return had not expired for the impugned assessment year when the said amount was received. Even in the assessment proceedings , at the stage when the original assessment proceedings was conducted , though this amount was treated as unexplained income and taxed under section 69, yet the Hon. CIT-A , on filing an appeal, had held that the said amount of Rs.40,00,000 is part of sale consideration and negated the observation of the learned AO that it was an unexplained amount. Thus, the said amount of Rs.40,00,000 was duly offered to tax though received in cash.

5. It is further submitted that the practice of receiving cash on sale of immovable properties was prevalent in this country for centuries. This age-old practice of acceptance of cash when coupled with the fact that a normal person i.e., other than persons who deal in real estate more regularly], very rarely sells his immovable property in his lifetime, had hardly provided any opportunity to learn about latest changes like changes that were made in section 289SS etc., that have a tremendous bearing on dealing in real estate transactions. Moreover, as can be seen from the date of amendment these changes were made in the Act a very few years ago.

6. In this country we have a maze of complex and complicated laws and regulations. Further most of the laws are dynamic and ever changing, thereby day by day make these laws appear as labyrinths where the point of entry and exit are difficult to understand. This dizzy position remains same in case of most of the persons including as highly qualified person such as a CA, CWA, CS or a lawyer ( assuming that they are not practicing in field of direct tax laws) , IITan or Post Graduate in Management form IIM. Therefore, looking at the myriad of laws , Hon. Courts of this country, in a catena of case laws held that if taxpayer is genuinely not aware of provision of law , then in such case no penalty must be levied. Though knowing the law of land is an imperative for every citizen but at the same time it would amount to asking too much if a citizen is asked to know about a law or laws that is / are too dynamic/ every changing, awfully inextricable and are extremely difficult to comprehend by a person of average intelligence.

• In the case of Chirag Family Trust’ 1996,58 ITD 382 Ahd,it was held that a bona fide ignorance of newly inserted provisions of law, would not lead to levy of penalty.
• In the case of Sunilchandra Vohra’ s case [20091 32 SOT 365 (MUM.), it was held that bona fide ignorance of the law regarding applicability of provisions of the Act is a valid ground for not imposing penalty for concealment.
• In the case of DCIT v Ajay Kumarlal 2011 12 taxmann .com 491(Ahd), it was held that ignorance of law of a newly introduced provision is a bonafide cause for non levy of penalty.
• In the case of Hon’ble Supreme Court in the case of Motilal Padampat Sugar Mills Co. Ltd. v. State of Uttar Pradesh [1979] 118 ITR 326 held that there is no presumption that every person knows the law.In this regard reference may be made to the case of T Ashok Pai v.CIT [2007] 161 Taxman 340 ( SC)
• In the case of P V Devassy V CIT 1972 84 FIR Ker, the appellant was under bonafide belief that he is required to file the return after registration to the firm is granted. In this case the Hon’ble Court has discussed about the concept of ignorance of law and the same was taken as a reasonable cause for not filing the return. ITAT’s order deleting the penalty was upheld.
• In the case of Sunil Chandra Vohra v ACIT 2009 32SOT 365 (Mum), it was observed that “the tax laws in this country are so complex and complicated that even a person specialized in this field, including tax administrators, may not understand the law in the correct perspective or a particular provision may go unnoticed because of the number of amendments made to the tax enactments from year-to-year. Under these circumstances, it would be a travesty of truth and justice to hold that the assessee ought to have known the correct law and comply therewith, even though he was not aware of the “

Assessee’s explanation about ignorance of law was accepted as a bonafide and reasonable cause.

7. It is further submitted that on the basis of facts and position of law as enumerated above, in the humble opinion of the appellant, there existed a reasonable cause in inadvertently missing to comply with the provisions of section 269SS. But for the unawareness of recently introduced law there was no other motive. In Azadi Bachao Andolan vs. Union of India [2001] 116

TAXMAN 249 (DELHI)

…… The word ‘reasonable’ has in law the prima facie meaning of reasonable with regard to those circumstances of which the actor, called on to act reasonably, knows or ought to know. The reasonable cause can be reasonably said to be a cause which prevents a man of average intelligence and ordinary prudence, acting under normal circumstances, without negligence or inaction or want of bona fides.

8. It is further humbly submitted that for the purpose of imposing penalty satisfaction should be recorded by AO in the assessment order regarding infraction of law although penalty is imposable by JT/ Asst.Commissioner. Non recording of satisfaction was held fatal to the proceeding under section 271E. This was so held in the case of CIT v/s jaya Laxmi Rice Mills Ambala City [ 2015] 64 taxmann.com 75 (SC).

Penalty imposable under section 271E is in parimateria with penalty under section 271D in this respect. Hence the principle enunciated by the Apex Court is applicable. In the case of appellant as well , in the assessment order, the learned AO did not record the satisfaction calling for the levy of the penalty under section 271D. That being the case, it would not be as per the said Judgment of Supreme Court to levy penalty under section 271D. It may further kindly be noted an additional ground is raised before Hon’ble ITAT bench vide covering letter dt 20.04.2023 citing that the learned AO did not record the reasons for initiating penalty in the assessment order.

9. The above factual position and judicial precedents are summarised hereunder for the kind convenience of the Hon. Bench:

9.1 The appellant , a regular assessee on the records of Department for more than a decade, had inadvertently and honestly without the knowledge of some recent changes made in Section 269SS , had accepted the cash ( actually, the cash was accepted by one middle person ). As the appellant rarely transacts in immovable properties, he had hardly any opportunity or occasion to learn about the said recent developments in the Act. Moreover, in this country, receipt of cash as consideration while selling immovable properties, was an age old practice , practiced for decades and decades. Courts in the country have held that it is not necessary to expect that all citizens must be aware of the law – more particularly so in the case of more complex and more dynamic laws like income tax act .

9.2 Now knowing the law itself could be a reasonable cause for a non­compliance of the mandate of particular section as held by the Delhi High Court in the case of Azadi Bachaov Andolan’s case (supra).

9.3 The assessing officer did not record the reasons for initiation of penalty under section 271D in his assessment order which, according to Hon. Apex Court as well as Jurisdictional High Court is mandatory to do so – lest the penalty cannot be levied.

9.4 Finally, when a receipt culminates into income that is taxable/ taxed as per the provisions of the Act in the hands of the assessee, on the very same receipt, no penalty can be levied under section 271D.

10. For the above reasons the penalty levied under section 271D may kindly be deleted.

11. Already in the course of search action, substantial amounts were offered to tax to buy peace and to avoid litigation and taxes were paid by standing on the word that was given at the time of search action. For past three financial years no contract works were received by the flag ship

10. Referring to the copy of the assessment order, he submitted that there is no satisfaction recorded by the Assessing Officer for initiation of penalty proceedings u/s 271D of the I.T. Act. Referring to the decision of the Hon’ble jurisdictional High Court in the case of Srinivasa Reddy Reddeppagari vs. Jt. CIT vide writ petition No.44285 of 2022 dated 26.12.2022, he submitted that the Hon’ble jurisdictional High Court relying on various decisions including the decision of the Hon’ble Supreme Court in the case of CIT vs. Jayalakshmi Rice Mills reported in (2015) 64 Taxmann.com 75 (S.C), has held that the provisions of section 271D and 271E are pari meteria and the satisfaction must be recorded in the original assessment order for the purpose of initiation of penalty proceedings u/s 271D of the I.T. Act. Therefore, in view of the binding decision of the Hon’ble jurisdictional High Court, the penalty levied by the Assessing Officer u/s 271D and sustained by the learned CIT (A) is not sustainable in law since there is no satisfaction recorded by the Assessing Officer in the original assessment order.

11. The learned DR, on the other hand, heavily relied on the order of the learned CIT (A). He submitted that the decision of the Hon’ble Supreme Court is not penalty on u/s 271D but was on penalty u/s 271E. Therefore, the argument of the learned Counsel for the assessee cannot be accepted. So far as the merit of the case is concerned, he submitted that the learned CIT (A) has given exhaustive reasons while sustaining the penalty. Therefore, the same should be upheld and the ground raised by the assessee should be dismissed.

12. We have heard the rival arguments made by both the sides, perused the orders of the AO and the learned CIT (A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us by both sides. We find the AO in the instant case levied penalty of Rs.40.00 lakhs u/s 271D of the I.T. Act on the ground that the assessee has violated the provisions of section 269SS by accepting cash of Rs.40.00 lakhs being his share for sale of the immovable property. We find the learned CIT (A) confirmed the penalty levied by the Assessing Officer, the reasons of which have already been reproduced in the preceding paragraph. Before deciding the issue on merit as per grounds of appeal, we would first like to adjudicate the additional ground raised by the assessee challenging the validity of the levy of penalty u/s 271D in absence of recording of satisfaction in the body of the assessment order.

13. A perusal of the assessment order nowhere shows that the Assessing Officer has recorded his satisfaction for initiating penalty proceedings u/s 271D of the I.T. Act. We find an identical issue had come up before the Hon’ble jurisdictional High Court in the case of Srinivasa Reddy Reddeppagari vs. Jt. CIT vide writ petition No.44285 of 2022 dated 26.12.2022. In that case penalty proceedings were initiated by issue of a show-cause notice u/s 274 r.w.s. 271D on the ground that the assessee has violated the provisions of section 269SS of the I.T. Act which attracts levy of penalty u/s 271D of the I.T. Act. Before the Hon’ble High Court, the assessee, through the writ petition challenged the penalty levied u/s 271D on the ground that no satisfaction was recorded by the Assessing Officer in the assessment order as to imposition of penalty. It was argued 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. Accordingly, the Hon’ble jurisdictional High Court held that provisions of section 271D and 271E are pari materia to each other and the recording of satisfaction is a must. The relevant observation of the Hon’ble High Court reads as under:

“13. We have considered the rival submissions made at the bar.

14. Issue raised in the writ petition is whether without satisfaction being recorded in the assessment order, penalty Order dated 08.07.2015 passed by the Kerala High Court in ITA.Nos.83 & 86 of 2014 ::9::

can be levied by the Joint Commissioner under Section 271D of the Act ?

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. Sub-section (2) clarifies that any penalty imposable under sub­section (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 (2013) 352 ITR 1.

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. Since admittedly there is no recording of satisfaction by the Assessing Officer in the body of the assessment order for initiating penalty proceedings u/s 271D of the I.T.Act, therefore, respectfully following the decision of the Hon’ble jurisdictional High Court in the case of Srinivas Reddy Reddeppagari vs. Jt. CIT (Supra) the penalty levied by the Assessing Officer and sustained by the CIT (A) is liable to be quashed. We hold accordingly and direct the Assessing Officer to cancel the penalty levied u/s 271D of the I.T. Act, 1961. Since the assessee succeeds on this legal ground, the grounds challenging the levy of penalty of Rs.40.00 lakhs u/s 271D on merit become academic in nature and therefore, not adjudicated.

15. In the result, appeal filed by the assessee is allowed.

ITA No.522/Hyd.2022 – Sri Venkateshwar Reddy Pacchica (A.Y 2019-20)

16. The ground raised by the assessee are as under:

“1. The Commissioner of Income tax – Appeals -11, Hyderabad [ herein after denoted as Hon CIT -A] erred in confirming the penalty order of Additional Commissioner of Income Tax, Central Circle -1, Aayakar Bhavan Hyderabad [herein after termed as Ld. Add. CIT] of levy of penalty under section under section 271D of Income tax Act, 1961/ for short – the Act].

2. The Hon.CIT-A had erred in summarily rejecting the judicial views submitted by the appellant.

3. The Hon. CIT -A had erred in opining that that the appellant had not disclosed the cash portion of the consideration. The learned CIT-A failed to appreciate the fact that the appellant had already disclosed Rs.40.00 lakhs with the Department – which disclosure date was much before the date of registration of property.

4. The Ld.CIT-A had erred in forming an opinion that the taxpayer ought to have full and complete knowledge of all provisions tax laws, which is contrary to the popular judicial views. The leaned CIT-A failed to appreciate basic practical premise that income tax law is a highly dynamic and ever-changing law and that there is high probability for knowing a provision fully well by an average taxpayer till a transaction or two covered by a section are undertaken.

5. For the grounds pleaded above or for such other additional grounds that may be pleaded at the time hearing the appellant prays for the deletion of the said penalty amount levied under section 271D or to grant such other relied as the Hon’ble Bench may deem fit and proper under the facts and circumstances of the case. “

17. The assessee has also raised an additional ground which reads as under:

“1. The levy of penalty u/s 271D of the I.T. Act, 1961 at Rs.40,00,000 is wholly unsustainable based on the facts and in law as the Assessing Officer has not recorded his satisfaction about initiation of penalty proceedings u/s 271D of the said Act.”

18. After hearing both the sides, we find the grounds raised by the assessee are identical to the grounds raised in ITA No.520/Hyd/2022 including the additional ground. We have already decided the issue and the appeal filed by the assessee has been allowed. Following similar reasoning, the appeal filed by the assessee is allowed.

19. In the result, both the appeals filed by the assessee are allowed.

Order pronounced in the Open Court on 31st May, 2023.