Mandatory satisfaction before penalty initiation defeats section 271E penalty where no cash loan transaction was proved.

Penalty under section 271E was found unsustainable where the assessee denied any cash loan transaction, the alleged basis was seized material from another person, and no assessment proceedings were shown to be pending in the assessee's case for the relevant year. The Tribunal treated the recording of proper satisfaction in the assessment order as mandatory before initiating penalty proceedings. In the absence of both pending assessment proceedings and recorded satisfaction, the jurisdictional foundation for the penalty failed, and the penalty was deleted.

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Issues: Whether penalty under section 271E of the Income-tax Act, 1961 was sustainable where the assessee denied having received or repaid any cash loan, the assessment proceedings for the assessee were not pending, and no satisfaction for initiation of penalty was recorded in the assessment order.

Analysis: The penalty was founded on seized material recovered in the case of another person, but the assessee consistently denied any loan transaction and the record did not show that any assessment proceedings were carried out in the assessee's case for the relevant year. The requirement that the Assessing Officer must record a proper satisfaction in the assessment order before initiating penalty proceedings was treated as mandatory. In the absence of pending assessment proceedings and in the absence of recorded satisfaction, the jurisdictional basis for penalty was held to be lacking. The Tribunal also noted that the assessee had already succeeded on similar penalty issues on the factual premise that no cash loan transaction was proved.

Conclusion: The penalty under section 271E was not sustainable and was deleted; the issue was decided in favour of the assessee.

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