Recorded satisfaction in assessment proceedings is mandatory for valid penalty initiation under section 271D.

Penalty under section 271D was found unsustainable because the assessment order did not record satisfaction for the alleged contravention of section 269SS, and such recorded satisfaction in the assessment proceedings was treated as a mandatory condition for valid initiation. The Tribunal admitted the additional ground as a pure question of law because it went to the root of the matter and required no fresh factual inquiry. Relying on binding jurisdictional and Supreme Court authority, it also treated sections 271D and 271E as pari materia and followed the view that absence of recorded satisfaction in the original assessment order was fatal to the penalty proceedings.

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Issues: Whether penalty under section 271D of the Income-tax Act, 1961 could be sustained when the Assessing Officer had not recorded satisfaction in the assessment order or any other assessment proceeding for the alleged contravention of section 269SS.

Analysis: The Tribunal treated the additional ground as purely legal and admissible because it went to the root of the matter and required no fresh factual inquiry. On merits, it noted that the assessment order under section 143(3) did not record any satisfaction for initiation of penalty proceedings. The penalty was initiated by the Joint Commissioner after the assessment, but the Tribunal held that, for penalty under section 271D, the absence of recorded satisfaction in the assessment proceedings was fatal. Relying on binding jurisdictional and Supreme Court authority, the Tribunal followed the view that sections 271D and 271E are pari materia and that recorded satisfaction in the original assessment order is a mandatory condition for valid initiation of such penalty proceedings.

Conclusion: Penalty under section 271D was not sustainable in the absence of recorded satisfaction in the assessment order, and the assessee succeeded on the issue.

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