Case Law Details
Meghana Avenues Private Limited Vs CIT (Appeals) (Telangana High Court)
Summary
The Telangana High Court examined whether penalty proceedings under Section 271D of the Income Tax Act could be initiated by the Joint Commissioner of Income Tax without any satisfaction being recorded by the Assessing Officer in the assessment order regarding violation of Section 269SS of the Act. The writ petition challenged the appellate order dated 04.06.2025 passed by the National Faceless Appeal Centre (NFAC), which had upheld a penalty order dated 19.10.2022 imposing penalty of ₹40.50 lakh under Section 271D read with Section 274 of the Act.
The assessee had filed its return for AY 2017-18 declaring income of ₹8.60 lakh. During demonetization, cash deposits of ₹14.38 lakh in bank accounts led to reopening of assessment proceedings under Section 147. After examining the records and explanations furnished by the assessee, the reassessment order dated 15.03.2022 accepted the returned income and recorded that no adverse inference was drawn.
Subsequently, the Joint Commissioner issued notice under Section 274 read with Section 271D alleging violation of Section 269SS on the ground that the assessee had accepted cash amounts exceeding the prescribed limit from customers towards sale of plots and residential houses. Penalty proceedings culminated in levy of ₹40.50 lakh penalty, which was affirmed by the NFAC.
The assessee argued that the assessment order contained no satisfaction regarding initiation of penalty proceedings and no reference was made by the Assessing Officer to the Joint Commissioner for levy of penalty. Reliance was placed on decisions including Srinivasa Reddy Reddeppagari v. Joint Commissioner of Income Tax, Commissioner of Income Tax v. Jai Laxmi Rice Mills, and Grandhi Sri Venkata Amarendra v. Joint Commissioner of Income Tax. It was contended that penalty under Section 271D cannot be initiated unless the Assessing Officer records satisfaction during assessment proceedings.
The Revenue argued that the Joint Commissioner is the competent authority under Section 271D(2) and that the Faceless Penalty Scheme regulates only the procedural conduct of proceedings. Reliance was placed on the Kerala High Court judgment in Grihalakshmi Vision v. Additional Commissioner of Income Tax and CBDT Circular No.09/DV/2016 dated 26.04.2016, which treated the issuance of notice by the Joint Commissioner as the initiation of penalty proceedings.
The High Court noted that the reassessment proceedings had concluded without any addition to income and without any reference to penalty proceedings under Section 271D. The Court reproduced the reassessment order, which specifically recorded that no adverse inference was drawn after examination of the cash book and explanations submitted by the assessee.
The Court also examined CBDT Circular No.09/DV/2016 issued on the basis of the Kerala High Court ruling in Grihalakshmi Vision. It observed that the circular dealt primarily with limitation and competency for initiation of penalty proceedings, holding that the Joint Commissioner alone is empowered to levy penalty under Sections 271D and 271E.
However, the Court held that the issue before it stood covered by the coordinate Bench decision in Srinivasa Reddy Reddeppagari, which relied upon the Supreme Court judgment in Jai Laxmi Rice Mills. The Court observed that the Supreme Court had concurred with the view that satisfaction must be recorded in the original assessment order for initiation of penalty proceedings under Sections 271D and 271E. Since Sections 271D and 271E are pari materia, the same principle applied in the present case.
The High Court held that, in the absence of satisfaction recorded by the Assessing Officer in the reassessment order and without any reference for initiation of penalty proceedings, the Joint Commissioner could not independently initiate penalty proceedings under Section 271D. Accordingly, the penalty order dated 19.10.2022 and the appellate order dated 04.06.2025 were set aside. The writ petition was allowed without any order as to costs.
FULL TEXT OF THE JUDGMENT/ORDER OF TELANGANA HIGH COURT
Mr. B.Krishna Reddy, learned counsel for the petitioner.
Mr. K.Sudhakar Reddy, learned Senior Standing Counsel for the Income Tax Department for respondent Nos.1 to 4.
2. Whether penalty proceedings under Section 271D of the Income Tax Act, 1961 can be initiated on satisfaction being recorded by the Joint Commissioner on perusal of the assessment records instead of the assessing officer is the question involved in the present writ petition?
3. The order passed by the first respondent/National Faceless Appeal Centre (NFAC) dated 04.06.2025 for the assessment year 2017-18 upholding the order passed by the second respondent/National Faceless Assessment Centre dated 19.10.2022, whereby penalty of Rs.40,50,000/-was imposed upon the petitioner under Section 271D read with Section 274 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) is under challenge in the present writ petition.
4. The facts relevant for consideration of this issue are briefly stated as under:
(i) The petitioner/assessee had filed its return of income for the assessment year 2017-18 on 04.11.2017 declaring total income of Rs.8,60,800/-. The assessee had deposited Rs.14,38,000/- in his bank accounts during the period of demonetization. Accordingly, proceedings under Section 147 of the Act were initiated. Notice under Section 148 of the Act was issued on 31.03.2021 after approval of the competent authority. The assessment was completed on 15.03.2022.
(ii) The third respondent/Joint Commissioner of Income Tax issued notice under Section 274 read with Section 271D of the Act on 28.04.2022 on the basis of information available with the department that transactions carried out by the assessee were in contravention of provisions of Section 269SS of the Act. Accordingly, penalty of Rs.40,50,00,000/- was levied on the assessee. The petitioner challenged it in appeal before the first respondent. The said appeal was disposed of on 04.06.2025 confirming the penalty under Section 271D of the Act. The petitioner has assailed it on the ground that the penalty proceedings must be processed through the Faceless Penalty Scheme with effect from 12.01.2021. However, it was initiated by the Joint Commissioner of Income Tax, Range-5, Hyderabad on 28.04.2022 and concluded by the Faceless Penalty Unit on 19.10.2022. Learned counsel for the petitioner has relied upon the case of Srinivasa Reddy Reddeppagari vs. Joint Commissioner of Income Tax, Central Circle, Central Range-2 (W.P.No.44285 of 2022, dated 26.12.2022)’ and submitted that the issue whether without satisfaction being recorded in the assessment order, penalty can be levied by the Joint Commissioner under Section 271D of the Act was decided in favour of the assessee by this Court. The petitioner has also relied upon the judgment of the Kerala High Court in Grihalakshmi Vision vs. Additional Commissioner of Income Tax, Range I, Kozhikode2. The petitioner took a plea that pursuant to the said judgment, CBDT Circular No.9/DV/2016, dated 26.04.2016 was issued to the effect that the assessing officers, below the rank of Joint Commissioner, may be advised to make a reference to the Range Head regarding any violation of the provisions of Section 269SS and Section 269T of the Act, as the case may be, in the course of the assessment proceedings. The petitioner submitted that in the reassessment order passed under Section 147 read with Section 144B of the Act on 15.03.202.2, there is no reference to penalty. There is no mention of reference made to the Joint Commissioner regarding the said penalty. The petitioner has also relied upon the case of Commissioner of Income Tax vs. Jai Laxmi Rice Mills3. According to the petitioner, the assessing authority has to record the satisfaction regarding the initiation of penalty proceedings. The High Court of Andhra Pradesh has also in the case of Grandhi Sri Venkata Amarendra vs. Joint Commissioner of Income Tax4 held that satisfaction of the assessing officer is required to be recorded because the officer, who passed the assessment order would not be levying the penalty under Section 271D of the Act, unless it is recorded in the assessment order, he cannot refer the file to superior officer, i.e., the Joint Commissioner for initiating levy of penalty. Unless the assessing officer during assessment proceedings, arrives at a finding that there has been a violation of the provisions, like Section 269SS of the Act, the Joint Commissioner cannot initiate the proceedings to levy penalty under Section 271D of the Act. Section 271D penalise taking or accepting any loan or deposit otherwise than by account payee cheque/draft/electronic clearance above Rs.20,000/-. However, it is subject to exception of reasonable cause under Section 273B of the Act. Learned counsel for the petitioner has further argued that the appellate authority chose not to appreciate the detailed written contentions submitted in the Grounds of Appeal and proceeded to finalise the appeal stating that the authorised representative of the appellant had not filed any written submissions or appeared before him. This is against the principles of natural justice. The petitioner also relied upon the decision in respect of discharge of burden under Section 105 of the Evidence Act, 1872, such as in the case of State of Uttar Pradesh vs. Ram Swarups.
5. The respondent Department has filed a counter affidavit. Learned counsel for the Revenue has opposed the writ petition on the ground that the petitioner has an efficacious alternative remedy by way of appeal before the learned Income Tax Appellate Tribunal (ITAT) against the order passed by the Commissioner of Income Tax (Appeal), National Faceless Appeal Centre confirming the imposition of penalty under Section 271D of the Act. It has also taken a plea that the Faceless Penalty Scheme, 2021 provides for faceless conduct of penalty proceedings.
However, it nowhere prohibits or invalidates the issuance of show cause notice or initiation of penalty proceedings by the jurisdictional authority where initiated in accordance with law. The initiation of proceedings under Section 274 read with Section 271D of the Act by the Joint Commissioner, who is the prescribed authority under Section 271D(2) is therefore valid and within jurisdiction. It is fully in accordance with the statutory mandate. The Faceless Penalty Scheme is meant to regulate procedural aspects of conducting penalty proceedings in a faceless manner, but they did not override or curtail the statutory jurisdiction of the Joint Commissioner as conferred by the Act.
6. Learned counsel for Revenue has also placed reliance on the decision of the Kerala High Court in the case of Grihalakshmi Vision (supra). It is submitted that the Kerala High Court took note of the decision in D.M.Manasvi vs. Commissioner of Income Tax, Gurajat 116 and held that in the said case, penalty was levied under Section 271(1)(c) of the Act. As is evident from the provision itself, the proceedings under that Section are to be initiated on the basis of the satisfaction of the officers mentioned therein including the assessing officer. Unlike the provisions of Section 271(1)(c), under the provisions Section 271D and 271E of the Act, the exclusive authority is conferred on the Joint Commissioner. Therefore, the principles laid down in the case of D.M.Manasvi (supra) cannot be called in aid to impugn the concurrent findings of the lower authorities. Learned counsel for the Revenue has also referred to order of the learned ITAT, Mumbai in I.T.A.No.139/Mum/2012. It is submitted that the learned ITAT has examined the issue in detail by also referring to the judgment of the Jai Laxmi Rice Mills (supra) and observed that in the said case, the penalty proceedings were initiated by the assessing officer during the course of assessment proceedings and the assessment order was passed to the best of his judgment under Section 144 of the Act. The said ex parte order was set aside by the learned CIT (Appeals) and the assessing officer was directed to frame the assessment de novo. However, the assessing officer passed penalty order under Section 271D of the Act on the basis of the observations made in the original assessment order. The High Court took the view that the proceedings under Section 271D of the Act are not independent proceedings and the penalty order would practically submerge in view of the order passed by the Commissioner of Income Tax (Appeals). The original assessment order was set aside and the case was remanded for de novo assessment. Since the assessing officer did not refer to the violation of provisions of Section 269SS and 269T of the Act in the said proceedings, the Tribunal deleted the penalty. The High Court did not admit the appeal on the ground that no substantial questions of law arose. Hence, the limited question urged before the apex court was whether the penalty proceedings under Section 271D of the Act is independent of assessment proceedings. This question arose for consideration in respect of assessment years 1991-92 and 1992-93. The Tribunal held that the issue before the apex court was not related to recording of satisfaction, but whether the penalty proceedings under Section 271D of the Act are independent of assessment proceedings. Since the original assessment order, in case of which the impugned penalty proceedings were initiated, had been set aside, the apex court upheld the view of the High Court that the penalty proceedings should not have beer continued on the strength of the assessment order so set aside. Hence, all the observations made by the apex court were related to the question posed before it. It is submitted that the decision of the apex court in Jai La xmi Rice Mills (supra) has to be understood in that context. It is further submitted that in the present case, original assessment proceedings have not been set aside. The penalty proceedings have been initiated by the competent authority under Section 271D of the Act on the basis of the facts narrated by the assessing officer in the said proceedings. Therefore, the impugned proceedings are not susceptible to challenge on the point of jurisdiction of the Joint Commissioner of Income Tax.
7. We have considered the submissions of the learned counsel for the parties and perused the records.
8. The facts taken note above discloses that, the reassessment proceedings were closed without any addition to the income of the assessee. It also discloses that there was no reference to the Joint Commissioner of Income Tax to initiate penalty proceedings under Section 271D of the Act in the order of assessment. The Joint Commissioner of Income Tax, thereafter issued notice dated 28.04.2022 requiring the petitioner to explain as to why penalty under Section 271D of the Act should not be levied for violation of the provisions of Section 269SS of the Act. The appellant submitted explanation before the Joint Commissioner of Income Tax. It is submitted that lands sold at Nakrekal, Nalgonda District and Mahaboobabad District were purchased by persons who were non-tax assessees. The amounts received by the farmers were accepted by the assessing officer as genuine. The assessing officer did not dispute the genuineness of the transactions. The assessing officer did not initiate proceedings under Section 271D of the Act or any other penalty proceedings. The amounts were received against the sale of property and were part of amounts recorded in the registered documents. The income from the said transactions was also disclosed in the returns of income and was accepted by the assessing officer. The Joint Commissioner of Income Tax did not accept the explanation and levied penalty of Rs.40,50,000/-under Section 27ID of the Act. The order of the Joint Commissioner was upheld by the National Faceless Appeal Centre, Delhi observing that the appellant despite several opportunities had failed to make any submissions in support of the appeal. Therefore, it was not interested in prosecuting the appeal. The appellate authority quoted number of judgments on the point that if an assessee fails to participate in the proceedings and it has not adduced in evidence, the appeal is liable to be dismissed. The appeal was accordingly dismissed upholding the order of the Joint Commissioner.
9. As referred to in the opening paragraph of this judgment, the question posed to be answered is whether in the absence of any satisfaction recorded by the assessing officer for initiation of penalty or referring the matter for initiation of penalty proceedings, the Joint Commissioner for Income Tax could in exercise of the power under Section 2711)(2) of the Act initiate the proceedings on its own on the ground of violation of Section 269SS of the Act.
10. Sections 269SS and 271D of the Act are extracted hereunder for appreciation of the issue involved in this case.
“Section 269-SS of the Act:
269-SS. Mode of taking or accepting certain loans, deposits and specified sum:- 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 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:
Provided that the provisions of this section shall not apply to any loan or deposit or specified sum taken or accepted from, or any loan or deposit or specified sum taken or accepted by,—
a. the Government;
b. any banking company, post office savings bank or cooperative bank;
c. any corporation established by a Central, State or Provincial Act;
d. any Government company as defined in clause (45) of Section 2 of the Companies Act, 2013 (18 of 2013);
e. such other institution, association or body or class of institutions, associations or bodies which the Central Government may, for reasons to be recorded in writing, notify in this behalf in the Official Gazette:
Provided further that the provisions of this section shall not apply to any loan or deposit or specified sum, where the person from whom the loan or deposit or specified sum is taken or accepted and the person by whom the loan or deposit or specified sum is taken or accepted, are both having agricultural income and neither of them has any income chargeable to tax under this Act.
Provided also that the provisions of this section shall have effect, as if for the words “twenty thousand rupees”, the words “two lakh rupees” had been substituted in the case of any deposit or loan where,
a. such deposit is accepted by a primary agricultural credit society or a primary co-operative agricultural and rural development bank from its member; or
b. such loan is taken from a primary agricultural credit society or a primary co-operative agricultural and rural development bank by its member.
Explanation.— For the purposes of this section,—
i. “banking company” means a company to which the provisions of the Banking Regulation Act, 1949 (10 of 1949) applies and includes any bank or banking institution referred to in Section 51 of that Act;
ii. “co-operative bank”, “primary agricultural credit society” and “primary co-operative agricultural and rural development bank” shall have the meanings respectively assigned to them in the Explanation to sub-section (4) of Section 80-P;
iii. “loan or deposit” means loan or deposit of money;
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.
Section 271D of the Act:
271-D. Penalty for failure to comply with the provisions of Section 269-SS:- (I) [f a person takes or accepts any loan or deposit or specified sum in contravention of the provisions of Section 269-SS, he shall be liable to pay, by way of penalty, a sum equal to the amount of the loan or deposit so taken or accepted.
(2) Any penalty imposable under sub-section (1) shall be imposed by the Joint Commissioner:
Provided that any penalty under sub-section (1), on or after the 1st clay of April, 2025, shall be imposed by the Assessing Officer.”
11. The reassessment order under Section 147 read with Section 144B of the Act, dated 15.03.2022 relatable to the assessment year 2017-18 reads as under:
“In this case, the assessee company filed its Income Tax Return on 4.11.2017 for the Assessment Year 2017-18 declaring income at Rs.8,60,800/- and the same was processed u/s 143 (1) of the Income Tax Act, 1961. As per information available in the department, the assessee has deposited cash of Rs.14,38,000/- in his bank accounts during the period of demonetization. During enquiry proceedings, the assessee failed to file specifically the source of each of the cash deposit and has not furnished the details of advances received. As such, the amount of ‘Rs.14,38,000/- remained unexplained and proceedings u/s 147 of the Income Tax Act, 1961 were intimated to assess the cash deposits of Rs.14,38,000/-, which was deposited during the period of demonetization. Notice u/s 148 of the Income Tax Act, 1961 was issued on 31.03.2021 after obtaining approval of the competent authority.
2. In response to the notice issued u/s 148 of the Income Tax Act, 1961, the assessee filed its Income Tax Return on 5.5.2021 declaring income at Rs.8,60,800/-. Notice u/s 143 (2) of the Income Tax Act, 1961 was issued to the assessee on 28.12.2021 and in response to the notice, the assessee filed the requisite information. The assessee is engaged to operate construction activities. During the FY 2016-17, source of income of the assessee was residential villas. The information, including the three sheets of cash book for the period 1.9.2016 to 31.2.2016, filed by the assessee was examined with reference to the reason re-opening the case and no adverse inference is drawn. Hence, returned income of the assessee is accepted.”
12. The proceedings under Section 271D of the Act were initiated by the Joint Commissioner on the ground that during the assessment year, the assessee had accepted an amount of Rs.40,00,000/- in cash from its customers on sale of plots/residential house as advance/initial payment. The details of cash received were enumerated in the form of a chart, which showed that such amounts were received from various persons exceeding Rs.20,000/- during the assessment year in violation of Section 269SS of the Act. The assessee took the plea that the assessee had sold its land to various persons who are farmers. They were unable to make the payment in cheque and gave the money in cash. The accountant unknowingly collected cash and deposited in the bank. The amount collected from its customers was below Rs.2 laths from every individual. The deposited amount is in the form of cash receipt for sale of individual plots. According to the assessee, under Section 269ST of the Act, a person should not receive an amount of Rs.2 lakhs or more except by way of an account payee cheque, bank draft or electronic clearing system through a bank account or any other electronic mode in respect of a single transaction. Therefore, the question of applying Section 269SS and levying the penalty under Section 271D of the Act does not arise. The amounts have been treated as cash receipts and deposited in bank. He made a request to drop the penalty proceedings as it is within the purview of Section 269ST of the Act.
13. In the light of these facts, it is relevant to refer to the CBDT Circular No.09/DV/2016 (departmental view), dated 26.04.2016 on the subject of limitation for penalty proceedings under Section 271D and 271E of the Act. The circular made reference to the decision in the case of Grihalakshmi Vision (supra) rendered by the Kerala High Court. The observations made therein have been treated as ‘the departmental view’ and are extracted hereunder:
“3. The Hon’ble Kerala High Court in the case of Grihalaxmi Vision v. Addl. Commissioner of Income Tax, Range 1, Kozhikode (Available in NJRS 2015-LL-0807-4) vide its order dated 8.7.15 in ITA Nos.83 & *6 of 2014, observed that “Question to be considered is whether proceedings for levy of penalty, are initiated with the passing of the order of assessment by the Assessing Officer or whether such proceedings hae commenced with the instance of the notice issued by the Joint Commissioner. From statutory provision, it is clear that the competent authority to.- levy penalty being the Joint Commissioner. Therefore, only the Joint Commissioner can initiate proceedings for levy of penalty. Such initiation of proceedings could not have been done by the Assessing Officer. The statement in the assessment order that the proceedings under Section 271D and E are initiated is inconsequential. On the other hand, if the assessment order is taken as the initiation of penalty proceedings, such initiation is by an authority who is incompetent’s and the proceedings thereafter would be proceedings without authority who is incompetent and the proceedings thereafter would be proceedings without jurisdiction. If that be so, the initiation of the penalty proceedings is only with the issuance of the notice issued by the Joint Commissioner to the assessee to which he has filed his reply.”
4. The above judgment reflects the “Departmental View”. Accordingly, the Assessing Officers (below the rank of Joint Commissioner of Income Tax) may be advised to make a reference to the Range Head, regarding any violation of the provisions of Section 269SS and Section 269T of the Act, as the case may be, in the course of the assessment proceedings (or any other proceedings under the Act). The Assessing Officer, (below the rank of Joint Commissioner of Income Tax) shall not issue the notice in this regard. The Range Head will issue the penalty notice and shall dispose/complete the proceedings within the limitation prescribed u/s 275(I)(c) of the Act.”
14. A perusal thereof would show that the Joint Commissioner can initiate proceedings for levy of penalty. Such initiation of proceedings should not be done by the assessing officer. The statement in the assessment order that the proceedings under Sections 271D and 271E of the Act initiated are inconsequential. On the other hand, if the assessment order is taken as the initiation of penalty proceedings, such initiation is by an authority who is incompetent and the proceedings thereafter would be the proceedings without jurisdiction. If that be so, the initiation of the penalty proceedings is only with the issuance of the notice by the Joint Commissioner to the assessee to which he has filed his reply. This observation of the Kerala High Court in the case of Grihalakshmi Vision (supra), has been adopted as ‘the departmental view’.
15. From the discussion made hereinabove, it is apparent that the CBDT Circular, dated 26.04.2016 issued on the basis of the observations in Grihalakshmi Vision (supra) by the Kerala High Court is on the subject of limitation for initiation of penalty proceedings under Section 271D arid 271E of the Act, wherein it has been held that the competent authority to levy penalty is Joint Commissioner and not the assessing Officer. On the other hand, in the case of Srinivasa Reddy Reddeppagari (supra), a coordinate Bench of this Court has referred to the case of Jaya Laxmi Rice Mills (supra) and categorically recorded that the 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. Sections 271E and 271D of the Act are in pari materia. When there is a decision of the Supreme Court, it is the bounden 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. The very issue involved in the present writ petition, whether without satisfaction being recorded in the assessment order, penalty can be levied by the Joint Commissioner under Section 271D of the Act was in question in the case of Srinivasa Reddy Reddeppagari (supra). As such, we do not find any grounds made out by the Revenue to take a different view in the instant case.
16. Accordingly, the order, dated 19.10.2022, imposing penalty by the second respondent under Section 271D read with Section 274 of the Act and the appellate order dated 04.06.2025 upholding the same by the first respondent are set aside.
17. The writ petition is accordingly allowed. There shall be no order as to costs.
Miscellaneous applications pending, if any, shall stand closed.
Notes:
1 Mann/TL/2245/2022
2 [2015] 63 taxmann.com 196 (Kerala)
3 (2015) 379 1TR 521 (SC)
4 (2024) 3z 1 CTR (AP) 947
5 AIR 1974 SC 15706 [1972] 86 1TR 557
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