2026 (1) TMI 887 - AT - Income Tax

Assessment additions deleted removing recorded satisfaction for ss.269SS/269T contraventions; s.271D/E penalties unsustainable, deleted; revenue appeals dismissed

Dominant issue: Whether penalties under s.271D and s.271E can stand where the additions forming the basis of penalty proceedings have been deleted. ... Penalties imposed u/s. 271E and 271D - quantum additions had already been deleted - HELD THAT:- Since the additions forming the very basis of the penalty proceedings are deleted, the very foundation of the penalties collapse. The penalties cannot thus be sustained independently. The law mandates that the Assessing Officer must record satisfaction regarding the alleged violation of sections 269SS and 269T of the Act in the assessment order itself for valid initiation of penalty proceedings under sections 271D and 271E of the Act. When such an assessment order is annulled or set aside by a higher authority, the satisfaction recorded therein also ceases to exist, rendering the penalty proceedings invalid. In view of the above, we find no infirmity in the orders passed by the learned CIT(Appeals) deleting the impugned penalties. Accordingly, both the appeals filed by the Revenue are dismissed. Issues: Whether deletion of the assessment additions by the first appellate authority (and confirmation thereof) eliminates the foundation for penalties imposed under sections 271D and 271E of the Income-tax Act, 1961, and whether the learned CIT(Appeals) erred in deleting those penalties.Analysis: The penalties under sections 271D and 271E were levied solely on the basis of additions treated as unexplained money under section 69A. The additions which formed the basis for initiation and imposition of the penalties were deleted by the first appellate authority and that deletion was subsequently confirmed. Under the applicable legal framework, a penalty imposed as consequential to assessment additions lacks a sustaining foundation once those additions are set aside. The requirement that the Assessing Officer record satisfaction regarding contraventions of sections 269SS and 269T in the assessment order is central to validly initiating penalty proceedings under sections 271D and 271E; annulment or reversal of the assessment order removes that recorded satisfaction and consequently undermines the penalty proceedings. Established precedent supports that deletion of the underlying additions removes the basis for sustaining consequential penalties.Conclusion: The deletion of the underlying assessment additions removes the basis for penalties under sections 271D and 271E; the learned appellate authority did not err in deleting the impugned penalties. The appeals filed by the Revenue are dismissed.