Penalty under Section 271D quashed for cash acceptance as assessment order lacked satisfaction recording

The ITAT Visakhapatnam allowed the assessee's appeal against penalty u/s 271D imposed for accepting cash exceeding prescribed limits during immovable property sale. The tribunal found that while the AO had enquired about cash deposits and accepted the assessee's explanation, he failed to record satisfaction regarding penalty initiation while passing the assessment order u/s 143(3), which is a prerequisite for penalty u/s 271D. The tribunal held that issuing penalty notice u/s 274 r.w.s 271D was an afterthought, citing CIT vs Jai Laxmi Rice Mills, and quashed the penalty order.

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Issues involved:
The appeal filed by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals) regarding penalty under section 271D of the Income Tax Act, 1961 for the AY 2017-18.

Delay in filing appeal:
The assessee sought condonation of delay of 34 days due to the appellant's ill health, which was diagnosed as AFI with Thrombocytopenia with Jaundice, leading to complete bed rest as advised by the doctor. The Tribunal found the explanation to be a 'reasonable and sufficient cause' and condoned the delay to proceed with adjudicating the appeal on merits.

Background and Assessment:
The assessee, engaged in business activities, e-filed the return of income for AY 2017-18, which was processed under limited scrutiny. The assessee explained cash deposits during demonetization period were from the sale of inherited property, supported by evidence. The Ld. AO accepted the explanation and assessed the total income. Subsequently, a penalty under section 271D was imposed for accepting cash in violation of section 269SS, which the assessee contested before the Ld. CIT(A)-NFAC.

Grounds of appeal:
The assessee appealed against the sustained penalty, contending that the penalty was contrary to facts and law, not justified, and fell within the scope of reasonable cause under section 273B. Additional grounds raised included the limitation and validity of the penalty under section 271D.

Legal Arguments and Decision:
The Ld. AR argued that the penalty order was unsustainable as the Ld. AO did not record satisfaction for penalty proceedings during the assessment. Citing relevant case law, the Tribunal found that the penalty order lacked a prerequisite initiation and was an afterthought, thus quashing the penalty under section 271D. The decision was based on the Supreme Court's observation in a similar case. Consequently, the appeal was allowed in favor of the assessee, rendering other grounds of appeal academic and dismissed.

Conclusion:
The Tribunal allowed the appeal of the assessee, pronouncing the decision in open court on 29th November 2023.

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