Penalty under section 271D deleted for cash acceptance violating section 269SS without recorded satisfaction

ITAT Hyderabad deleted penalty u/s 271D for cash acceptance violating section 269SS. Following jurisdictional HC precedent in Srinivasa Reddy Reddeppagari and SC decision in Jai Laxmi Rice Mills, the tribunal held that satisfaction must be recorded in the original assessment order before initiating penalty proceedings under section 271D, similar to section 271E requirements. Since no such satisfaction was recorded in the assessment order, the penalty was deemed invalid and deleted in favor of the assessee.

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Issues Involved:
1. Whether the penalty under section 271D of the Income Tax Act, 1961 can be levied without satisfaction being recorded in the assessment order.
2. The applicability of section 273B of the Act in providing relief from penalty under section 271D.

Summary:

Issue 1: Penalty under Section 271D without Recorded Satisfaction

The primary issue in this case was whether the penalty under section 271D of the Income Tax Act, 1961 can be levied without satisfaction being recorded in the assessment order. The assessee sold a house and accepted the sale consideration in cash, which led to the Assessing Officer levying a penalty under section 271D for contravening section 269SS of the Act. The CIT(A) confirmed the penalty, stating that the only provision that could help the assessee was section 273B, which the assessee failed to satisfy by not providing a reasonable cause for accepting the cash amount. The assessee contended that the penalty was levied without satisfaction being recorded in the assessment order, relying on the Supreme Court's decision in CIT vs. Jai Laxmi Rice Mills and the jurisdictional High Court's decision in Srinivasa Reddy Reddeppagari vs. JCIT.

The Tribunal examined the decisions cited and noted that the jurisdictional High Court had held that satisfaction must be recorded in the original assessment order for the initiation of penalty proceedings under section 271D. The Tribunal emphasized that the Supreme Court's decision in Jai Laxmi Rice Mills, which stated that the satisfaction recorded in the original assessment order is necessary for penalty proceedings, is binding on all authorities. Therefore, the Tribunal concluded that the penalty order was bad in law as it was not based on recorded satisfaction in the assessment order.

Issue 2: Applicability of Section 273B

The CIT(A) had observed that section 273B provides that no penalty shall be imposable if the assessee proves that there was a reasonable cause for the failure. However, the assessee failed to provide any reasonable cause for accepting the cash amount, leading to the confirmation of the penalty. The Tribunal, while addressing the primary issue, did not find it necessary to delve further into the applicability of section 273B, as the penalty itself was quashed on the grounds of non-recorded satisfaction in the assessment order.

Conclusion

The Tribunal allowed the appeal of the assessee, holding that the impugned orders were bad in law and quashed the penalty under section 271D. The decision was pronounced in the open court on November 29, 2023.

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