Valar and Co. Vs ITO (ITAT Chennai)
Penalty U/s 271DA & 271E Invalid When Original Assessment Set Aside – ITAT Deletes Penalties
The assessee, a civil contractor firm, filed its return for AY 2018-19 declaring income of ₹63.58 lakh. During scrutiny assessment u/s 143(3), the AO made additions and initiated penalty proceedings including u/s 271DA (violation of sec. 269ST for cash receipts) and u/s 271E (violation of sec. 269T). Consequently, penalties of ₹44.96 lakh u/s 271DA and ₹2 lakh u/s 271E were levied by NFAC and confirmed by the CIT(A).
Subsequently, the original assessment order dated 23.04.2021 was set aside by the PCIT u/s 264 with a direction to redo the assessment. A fresh assessment order u/s 143(3) r.w.s. 264 dated 29.05.2023 was passed, but no satisfaction was recorded for initiating penalty u/s 271DA or 271E, though satisfaction was recorded only for penalty u/s 270A.
Before the ITAT, the assessee argued that once the original assessment order is set aside, the satisfaction recorded in that order ceases to exist, and penalty cannot survive unless satisfaction is recorded in the fresh assessment order.
The Tribunal held that:
- When an assessment order is set aside, it becomes non-existent in the eyes of law and is replaced by the fresh order.
- Recording of satisfaction in the subsisting assessment order is a jurisdictional requirement for penalty.
- In the fresh assessment order, the AO recorded satisfaction only for penalty u/s 270A, not for 271DA or 271E.
- Therefore, the foundation for the penalty proceedings was missing.
Relying on the Supreme Court decision in CIT v. Jai Laxmi Rice Mills, the ITAT held that penalty cannot survive when satisfaction is absent in the operative assessment order. The principle applies equally to sections 271DA, 271D and 271E, which are pari materia provisions.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
These appeals by the assessee are filed against the separate orders of the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi,(in short “ld.CIT(A)) for the assessment year 2018-19, both dated 24.09.2025 against the penalty orders of the NaFAC, Delhi u/s.271DA and 271E of the Act dated 23.02.2022 and 10.01.2022 respectively. Both these appeals were heard together and disposed of by this consolidated order for the sake of convenience.
