Somireddy Sudhakar Reddy Vs ITO (ITAT Hyderabad)
The Hyderabad Bench of the ITAT quashed a penalty of ₹43.50 lakh levied under Section 271D for alleged violation of Section 269SS, holding that the penalty proceedings were void ab initio. The Tribunal found that no assessment or other proceedings were pending, nor was any satisfaction recorded by the Assessing Officer before initiation of penalty, which is a mandatory pre-condition. Relying on the Telangana High Court ruling in Srinivas Reddy Reddappagari and the Supreme Court decision in Jai Laxmi Rice Mills, the Tribunal reiterated that penalty under Sections 271D/271E is not independent of assessment proceedings. The CBDT Circular No. 9/2016 was also relied upon to emphasize the requirement of AO’s reference and satisfaction. In the absence of any such foundational proceedings or record, the penalty order passed by the JCIT was held to be unsustainable in law and was accordingly set aside.
FULL TEXT OF THE ORDER OF ITAT HYDERABAD
This appeal by the assessee is directed against the Order dated 22.07.2025 of the learned CIT(A)-National Faceless Appeal Centre [in short “NFAC], Delhi, for the assessment year 2017-2018.
2. The assessee has raised the following grounds:
1. “The order of the learned Commissioner of Income Tax-(Appeals) is against the law, weight of evidence and probabilities of case.
2. The learned Commissioner ought to have appreciated that there is no satisfaction recorded by the AO in respect of violation of 269SS as envisaged in the case of Srinivas Reddy Reddeppagari Vs JCIT WP No.44285/2022, dt: 26.12.2022, by the Jurisdictional High Court of Telangana, therefore, erred in confirming the order of the JCIT levying penalty of Rs.43,50,000/- u/s 271D of the IT Act.
3. The learned Commissioner ought to have appreciated that it is a pre-requisite condition to levy penalty u/s 271D that there must be assessment proceedings in which the violation of 269SS is noticed, in the absence of any assessment proceedings the levy of penalty u/s 271D is bad in law, therefore, the learned CIT erred in confirming the order of the JCIT levying penalty of Rs.43,50,000/-u/s 271D of the IT Act.
4. The learned Commissioner ought to have appreciated that the time limits for levy of penalty starts from the date on which the AO referred the matter to the JCIT, for initiating proceedings u/s 274 r.w.s 271D and for levy of penalty, in the absence of such a reference no time limits can be determined, therefore, the levy of penalty u/s 271D is bad in law and therefore, the learned Commissioner erred in confirming the order of the JCIT, levying penalty of Rs.43,50,000/- u/s 271D of the IT Act.
5. The learned CIT ought to have appreciated that the seller of the property and the purchaser are agriculturists residing in rural areas, therefore, the provision of section 269SS are not attracted to the assessee, therefore, the learned Commissioner erred in confirming the order of the JCIT, levying penalty of Rs.43,50,000/-u/s 271D of the IT Act.
6. The learned Commissioner ought to have appreciated that the assessee did not received any notice OR show cause notice initiating the penalty proceedings u/s 271D of the IT Act, thereby the Department violated the principles of natural justice and therefore, learned Commissioner erred in confirming the order of the JCIT, levy penalty of Rs.43,50,000/- u/s 271D of the IT Act.
7. The appellant craves leave to add to, amend OR modify the above grounds of appeal either before OR at the time of hearing of the appeal, if it is considered necessary.
3. Ground no.2 raised by the assessee is legal in nature challenging the validity of the penalty levied u/sec.271D of the Act for want of satisfaction recorded by the Assessing Officer. The learned Authorised Representative of the Assessee has submitted that since there was no pendency of any proceedings except the penalty proceedings u/sec.271D, therefore, there was no scope for recording the reasons/ satisfaction by the Assessing Officer for initiation of penalty u/sec.271D of the Act. The learned Authorised Representative of the Assessee has further submitted that without recording the satisfaction by the Assessing Officer, the penalty u/sec.271D cannot be initiated /levied. In support of his contention, he has relied upon the CBDT Circular No.9/DV/2016 in File No.279/MISC/M-116/2012-ITJ dated 26.04.2016 and submitted that even before initiation of the penalty proceedings u/sec.271D/ 271E, the Assessing Officer below the Rank of JCIT is required to make a Reference to the Range Head regarding any violation of the provisions of sec.269SS and sec.269T of the Act, as the case may be, in the course of assessment proceedings or any proceedings under the Act. The learned Authorised Representative of the Assessee has thus submitted that there was no assessment proceedings or any other proceedings were pending under the Act, then the question of making a Reference by the Assessing Officer to the Range Head for levy of penalty u/sec.271D does not arise. He has relied upon the following decisions:
1. Judgment of Hon’ble Telangana High Court in the case of Srinivasa Reddy Reddeppagari vs. JCIT in WP.No.44285/2022 dated 26.12.2022.
2. Order of ITAT, Hyderabad SMC-Bench, Hyderabad in the case of Sultana Begum vs. Addl. CIT in ITA.No.514/Hyd./2023 dated 18.12.2023.
3. Order of ITAT, Hyderabad in the case of Ramkumar Reddy Satty vs. ACIT in ITA.No.488/Hyd./2024 dated 19.03.2024.
4. Order of ITAT, Indore in the case of Shri Umakant Sharma vs. JCIT, Ratlam in ITA.No.364 to 366/Ind./2022 dated 19.07.2023.
4. On the other hand, the learned DR has relied upon the Orders of the authorities below.
