Revenue's appeals dismissed after penalties under sections 271D and 271E deleted for procedural violations and time limit breach

ITAT Chennai dismissed revenue's appeals challenging deletion of penalties under sections 271D and 271E. The assessee faced penalties for alleged cash loan receipts and interest payments violating sections 269SS and 269T. The AO failed to record satisfaction before initiating penalty proceedings under section 271D, violating CBDT Circular 09/DV/2016. Additionally, there was a three-year gap between assessment completion and penalty initiation, exceeding statutory time limits. CIT(A) correctly deleted penalties for both assessment years 2015-16 and 2016-17, following precedents including Jai Laxmi Rice Mills. Since sections 271D and 271E are in pari materia, separate adjudication for section 271E was unnecessary.

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Issues Involved:
1. Validity of Penalty u/s 271D for Violation of Section 269SS.
2. Validity of Penalty u/s 271E for Violation of Section 269T.
3. Limitation Period for Passing Penalty Orders.

Summary:

1. Validity of Penalty u/s 271D for Violation of Section 269SS:
The primary issue was whether the penalty u/s 271D was valid when the Assessing Officer (AO) did not record satisfaction in the assessment order regarding the violation of Section 269SS. The Tribunal referred to the Supreme Court's decision in CIT Vs. Jai Laxmi Rice Mills, which held that no penalty u/s 271E could be levied without recording satisfaction in the assessment order. The Tribunal also cited the Telangana High Court's decision in Srinivasa Reddy Reddeppagari Vs JCIT, which reiterated that Sections 271D and 271E are pari materia and require satisfaction to be recorded in the assessment order. The Tribunal concluded that the AO failed to record such satisfaction, rendering the penalty invalid.

2. Validity of Penalty u/s 271E for Violation of Section 269T:
The Tribunal noted that the AO moved for a penalty u/s 271E for cash payments in violation of Section 269T. Similar to the penalty u/s 271D, the Tribunal found that the AO did not record satisfaction in the assessment order. The Tribunal followed the Supreme Court's decision in Jai Laxmi Rice Mills and other relevant case laws, concluding that the penalty u/s 271E was also invalid due to the absence of recorded satisfaction.

3. Limitation Period for Passing Penalty Orders:
The Tribunal addressed whether the penalty order was time-barred. The assessee argued that the penalty order was not passed within six months from the end of the month in which the AO made the reference to the Additional Commissioner of Income Tax (Addl. CIT). The Tribunal referred to the Delhi High Court's decision in Principal CIT Vs Mahesh Wood Products P Ltd, which held that the limitation period starts from the date the AO makes the reference. In this case, the AO made the reference on 15.03.2021, and the penalty order was passed on 30.05.2022, exceeding the statutory time limit. Therefore, the Tribunal held that the penalty order was time-barred and legally unsustainable.

Conclusion:
The Tribunal upheld the CIT(A)'s decision to delete the penalties u/s 271D and 271E for both assessment years 2015-16 and 2016-17, finding the penalties invalid due to the lack of recorded satisfaction by the AO and the orders being time-barred. Consequently, all appeals filed by the Revenue were dismissed, and the Cross Objections filed by the assessee were deemed infructuous.

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