ITAT quashes section 271D penalty for cash deposits exceeding Rs. 20,000 due to lack of recorded satisfaction

The ITAT Raipur quashed a penalty imposed under section 271D for accepting cash deposits exceeding Rs. 20,000 in violation of section 269SS. The tribunal held that the Assessing Officer failed to record satisfaction for initiating penalty proceedings in the assessment order passed under section 143(3), which is a mandatory requirement. Following the SC precedent in Jai Laxmi Rice Mills and Gujarat HC decision in Parivar Television, the tribunal ruled that without proper recording of satisfaction, the penalty could not be sustained and was liable to be quashed for want of valid assumption of jurisdiction. The assessee's appeal was allowed.

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Issues Involved:
1. Imposition of penalty under Section 271D for violating Section 269SS by accepting cash deposits exceeding Rs. 20,000.
2. Validity of penalty proceedings under Section 271D without recording satisfaction in the assessment order.
3. Penalty proceedings being time-barred under Section 275(1)(c).

Summary of Judgment:

Issue 1: Imposition of Penalty under Section 271D
The assessee, engaged in wholesale trading, was penalized Rs. 27,00,000 under Section 271D for accepting cash deposits exceeding Rs. 20,000 from five parties, which was found to be in violation of Section 269SS. The assessee contended that these were trade advances, not loans or deposits, and were used to purchase goods. However, the Jt. CIT and CIT(A) did not accept this explanation, citing inconsistencies with the assessee's business practices and the substantial time gap between receiving the cash and making sales.

Issue 2: Validity of Penalty Proceedings without Recording Satisfaction
The assessee argued that the penalty under Section 271D was invalid as the AO did not record any satisfaction regarding the violation of Section 269SS in the assessment order. The Tribunal referred to the Supreme Court's judgment in CIT Vs. Jai Laxmi Rice Mills, which mandates that the AO must record satisfaction in the assessment order for initiating penalty proceedings under Section 271D. The Tribunal found that the AO had only initiated penalty under Section 271(1)(c) and not under Section 271D, thus invalidating the penalty imposed by the Jt. CIT.

Issue 3: Penalty Proceedings Being Time-Barred
The assessee also contended that the penalty proceedings were time-barred under Section 275(1)(c). The Tribunal did not address this issue in detail as the penalty was already quashed on the grounds of invalid jurisdiction due to the lack of recorded satisfaction by the AO.

Conclusion:
The Tribunal quashed the penalty imposed by the Jt. CIT under Section 271D for want of valid assumption of jurisdiction, as the AO had not recorded the necessary satisfaction in the assessment order. Other contentions regarding the validity of the penalty order were left open and not addressed. The appeal of the assessee was allowed.

Order Pronounced:
The order was pronounced in open court on January 2, 2024.

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