Penalty under sections 271D/271E dismissed due to improper presumption application and procedural violations

The ITAT Chennai dismissed penalty proceedings under sections 271D/271E for alleged violations of sections 269SS and 269T. The tribunal held that presumption under section 132(4A) regarding seized materials cannot be applied against third parties, only against persons in whose possession documents are found. The assessee successfully rebutted allegations of cash transactions through confirmatory letters, with no corroborative inquiry by the AO. Additionally, the penalty proposal was moved eight months after assessment completion, violating CBDT circular requirements. The AO also failed to record mandatory satisfaction regarding section 269SS violations in the assessment order, as required by Supreme Court precedent in Jai Laxmi Rice Mills case.

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Issues Involved:
1. Validity of penalty proceedings under Section 271D.
2. Applicability of Supreme Court decision in CIT vs. Jai Laxmi Rice Mills.
3. Compliance with CBDT Circular No. 09/DV/2016.

Summary:

Validity of Penalty Proceedings under Section 271D:
The Revenue appealed against the deletion of a penalty levied under Section 271D for violating Section 269SS. The CIT(A) deleted the penalty on the grounds that the penalty proceedings were not validly initiated, as the assessing officer did not record satisfaction in the assessment order regarding the violation of Section 269SS. The CIT(A) relied on the Supreme Court decision in CIT vs. Jai Laxmi Rice Mills, which mandates recording satisfaction for initiating penalty proceedings.

Applicability of Supreme Court Decision in CIT vs. Jai Laxmi Rice Mills:
The CIT(A) held that the ratio of the Supreme Court decision in CIT vs. Jai Laxmi Rice Mills applied to the present case. This decision specifies that no penalty under Section 271E can be levied without recording satisfaction. The CIT(A) also noted similar decisions from various High Courts and Tribunals, which followed the Supreme Court's ruling, thereby supporting the deletion of the penalty.

Compliance with CBDT Circular No. 09/DV/2016:
The CIT(A) observed that the reference to the Additional Commissioner for initiating penalty proceedings was made nearly eight months after the conclusion of the assessment proceedings, violating the CBDT Circular No. 09/DV/2016. This circular advises that the penalty proceedings should be initiated during the course of assessment proceedings. The CIT(A) concluded that the delayed reference rendered the penalty proceedings invalid.

Our Findings and Adjudication:
The Tribunal found that the assessment was completed without initiating any penalty proceedings. The penalty was proposed based on incriminating material found during a search, which suggested that the assessee received a cash loan in violation of Section 269SS. However, the assessee denied receiving any such loan and provided a confirmatory letter from the other party. The Tribunal noted that the presumption under Section 132(4A) could not be applied against the assessee, as the material was found in a third party's possession.

The Tribunal concurred with the CIT(A) that the penalty proceedings were not validly initiated, as no satisfaction was recorded in the assessment order. The Tribunal also confirmed that the delayed reference to the Additional Commissioner violated the CBDT Circular, supporting the deletion of the penalty.

Conclusion:
The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decision to delete the penalty under Section 271D. The Tribunal's adjudication applies to all the other appeals, and the order was pronounced on 20th February 2024.

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