2025 (1) TMI 648 - AT - Income Tax

Penalty under Section 271D invalid due to procedural defect in assessment order

The DCIT, Non Corporate Circle-2, Madurai Versus M/s. AKMG Alloys Pvt. Ltd.

ITAT Chennai held that penalty under Section 271D was invalid due to procedural defect. The assessee company had unaccounted scrap sales recorded as ... Penalty levied u/s. 271D - justification to invoke provisions of Sec.269SS - assessee company had carried out unaccounted scrap sales and this entry was booked in its book as “credit in the advance from Director’s account” - HELD THAT:-This Tribunal in several cases [T Shiju v. JCIT [2019 (6) TMI 603 - ITAT CHENNAI] has held that recording of satisfaction by the AO in the assessment order regarding the violation of the provisions of section 269SS is a mandatory requirement for valid initiation of penalty proceedings us 271D of the Act and no penalty could be levied if the AO failed to record such satisfaction in the assessment order. In the present case, on perusal of the assessment order u/s 143(3) it is seen that no such satisfaction has been recorded by the AO in the said assessment order. Hence, having regard to the failure of the AO to record his satisfaction in the assessment order with regard to the violation of the provisions of Sec. 269SS, it is held that the penalty proceedings u/s. 271D of the Act have not been validly initiated and consequently, the penalty order passed by the Addl. CIT is held to be bad in Law. Decided against revenue. ISSUES: Whether penalty under Section 271D of the Income Tax Act, 1961 can be validly levied without the Assessing Officer recording satisfaction regarding violation of Section 269SS of the Act at the time of framing the original assessment order. Whether the penalty order passed by the Additional Commissioner of Income Tax without such recorded satisfaction is void ab-initio. Whether the provisions of Sections 271D and 271E of the Income Tax Act are pari materia and the judicial precedents under Section 271E apply to Section 271D. Whether the Additional Commissioner of Income Tax had jurisdiction to levy penalty in the absence of satisfaction recorded by the Assessing Officer. RULINGS / HOLDINGS: The penalty under Section 271D of the Act cannot be levied in the absence of the Assessing Officer recording his satisfaction regarding the violation of Section 269SS of the Act in the original assessment order; such recorded satisfaction is a 'mandatory requirement' for valid initiation of penalty proceedings. The penalty order passed by the Additional Commissioner of Income Tax without the Assessing Officer's recorded satisfaction is 'bad in law' and 'void ab-initio' as per the binding precedent of the Hon'ble Supreme Court. The provisions of Sections 271D and 271E of the Act are 'pari materia' and the decision of the Hon'ble Supreme Court in CIT v. Jai Laxmi Rice Mills (relating to Section 271E) applies equally to penalty proceedings under Section 271D. In the absence of satisfaction recorded by the Assessing Officer in the assessment order, the Additional Commissioner of Income Tax lacks jurisdiction to validly levy penalty under Section 271D. RATIONALE: The Court applied the statutory framework under the Income Tax Act, 1961, specifically Sections 269SS and 271D, and relied on the binding precedent set by the Hon'ble Supreme Court in CIT v. Jai Laxmi Rice Mills, which held that penalty proceedings under Section 271E require recorded satisfaction by the Assessing Officer in the assessment order. The Court recognized that Sections 271D and 271E are 'pari materia,' thus extending the Supreme Court's interpretation under Section 271E to Section 271D. The Court referred to the decision of the Hon'ble Telangana High Court in Srinivasa Reddy Reddeppagari, which affirmed the necessity of recorded satisfaction for penalty proceedings under Section 271D. The Court emphasized the mandatory nature of the Assessing Officer's recorded satisfaction as a precondition to penalty levy, rejecting arguments that satisfaction need not be recorded in writing or in a particular manner. Consequently, the penalty proceedings initiated without such satisfaction were held invalid, leading to dismissal of the Revenue's appeal and allowance of the assessee's cross-objection.