Supreme Court dismisses appeals on Income Tax Act penalty, sets precedent on penalty imposition for money transfers

The Supreme Court disposed of identical civil appeals concerning the penalty under Section 271D of the Income Tax Act. The Appeals were deemed infructuous due to subsequent events, with the Assessing Officer reversing the penalty imposition on remand. The Revenue's challenge was not pursued, leading to the finality of the order. Despite acknowledging the live issue of penalty imposition for money transfers via journal entries, the Court closed the proceedings without costs, keeping the legal question open for future adjudication.

---

---

Issues involved: Identical civil appeals, imposition of penalty under Section 271D of the Income Tax Act, 1961.

Judgment Summary:

The civil appeals were heard together as the issues involved were identical. The lead appeal arose from a judgment of the High Court related to an order by the Income Tax Appellate Tribunal for the assessment year 2007-2008. The High Court, based on a previous decision, dismissed the appeal which was then challenged before the Supreme Court through a special leave petition.

During the hearing, the respondent's senior counsel raised a preliminary objection stating that the appeals had become infructuous due to subsequent events. The issue pertained to the imposition of penalty under Section 271D of the Income Tax Act. Following a remand by the Commissioner of Income Tax (Appeals), the Assessing Officer reversed the penalty imposition, concluding that the entries made by the assessee were only journal entries and did not warrant a penalty. This order on remand was not challenged by the Revenue and thus became final.

The Revenue's counsel acknowledged the reversal of penalty imposition by the Assessing Officer but argued that the question of whether a penalty is leviable under Section 271D when money transfer occurs through journal entries remains a live issue requiring adjudication.

After hearing the arguments, the Supreme Court found that the issues raised in the appeals had become infructuous due to subsequent developments and had turned academic. Therefore, while keeping the legal question open, the Court decided to close the proceedings and disposed of the civil appeals without any costs.

---