Penalty under section 271D for alleged breach of section 269SS requires the assessing officer's recorded satisfaction before levy

Penalty under section 271D premised on an alleged contravention of section 269SS cannot be sustained absent a recorded finding by the Assessing Officer that cash loans were accepted. The High Court held that the AO did not record satisfaction of a statutory breach and apparently accepted the assessee's explanation; therefore a superior officer (Joint Commissioner) could not independently levy the penalty. The consequence is that a penalty order imposed without the AO's recorded satisfaction is invalid and was set aside; the writ petition was allowed.

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Issues: Whether penalty under Section 271D of the Income-tax Act, 1961 can be validly levied when the assessing officer during assessment proceedings has not recorded any satisfaction or finding that the assessee violated Section 269SS.

Analysis: The issue was examined by reference to the assessment record and the material relied upon by the revenue. The assessing officer made additions based on a letter and seized material but did not record any finding or satisfaction that the alleged cash loans attracted penal consequences under Section 269SS. In the absence of such a recorded satisfaction by the assessing officer during assessment proceedings, the exercise of jurisdiction by a higher officer to impose penalty under Section 271D was considered without the requisite foundational finding. The procedural and substantive link between an assessing officer's finding on violation of Section 269SS and the consequent levy of penalty under Section 271D was applied to conclude that penalty proceedings could not be sustained where no such satisfaction was recorded.

Conclusion: Penalty under Section 271D cannot be sustained and is set aside where the assessing officer did not record a satisfaction or finding of violation of Section 269SS during assessment proceedings; the writ petition is allowed in favour of the assessee.

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