AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2025 (11) TMI 1059
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.... appeal filed by the Revenue is taken up for hearing on merits. 3. Briefly stated, the facts relating to the present appeal are that, a search action u/s 132 of the Act was conducted on Jayapriya group on 1612-2021. In the course of search, it was inter alia unearthed that, the assessee was using a remote (cloud) server. It was revealed that, the server contained a folder titled 'DATA' which inter alia included data pertaining to Jayapriya Company under the head 'Investments'. According to the AO, the data also contained entries indicating receipt of 'FD' (fixed deposits) of Rs. 43,20,84,277/- from 153 persons. It was brought to our notice that, the Investigating authorities had randomly examined some of these persons, all of whom had denied placing any deposit or FDs with the assessee. Thereafter, the case of the assessee for the relevant year was taken up for scrutiny. The AO while completing the assessment, is observed to have recorded his satisfaction at Para 11 [Page 66] of the assessment order that, the assessee had accepted fixed deposits in cash to the tune of Rs. 43,20,84,227/- during the FY 2020-21 in violation of provisions of section 269SS and which consequently attr....
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....the remaining 111 persons [15342], the Addl. CIT levied penalty of Rs. 28,94,71,555/- (Rs. 43.21 cr minus 14.26 cr) @ 100% of the alleged cash deposits u/s 271D vide penalty order dated 31.08.2023. 5. Aggrieved by the action of the Addl.CIT, the assessee preferred an appeal before the Ld. CIT(A). In the appellate proceedings, the assessee furnished confirmations from the remaining 111 persons as well. Since these were in the nature of additional evidence, the Ld. CIT(A) sought for a remand report from the AO, who in his report dated 24-03-2025 is found to have acknowledged that he had examined/verified each of the letters of the alleged depositors, documents and proof of their address, wherein the said persons have denied having made any cash deposits with the assessee company and expressed his view that the confirmation letters [i.e. the remaining 111 parties] were found to be acceptable. Taking this remand report into consideration, the Ld. CIT(A) accordingly held that there was no evidence that the assessee had received any cash FDs from these 111 persons and therefore deleted the penalty of Rs. 28,94,71,555/- vide his appellate order dated 07.04.2025. 6. Being aggrieved b....
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.... 5. The grounds raised by the Id. AO before the Hon'ble ITAT travelled much beyond the scope of satisfaction recorded for initiation of penalty, the notice proposing levy of penalty, order levying penalty and order passed by ld. CIT(A) and hence are invalid and deserve to be dismissed. 6. As the Appellant was never charged with the alleged violation of specific limb of section 269SS of the Act, as raised in the present grounds of appeal, since the very inception of penalty proceedings, the AO could not be permitted to raise it in appeal before the Hon'ble ITAT for the first time. 7. Since satisfaction of existence of violation of specific limb of section 269SS of the Act was sine qua non for initiation of penalty, the proceedings should be confined all through only to such specific violation stated in the notice and change of the satisfaction or the grounds or specific violation or the limb of section 269SS of the Act could not be allowed at any stage of the proceedings. 8. The subject matter of penalty should be in conformity with the findings of fact and charge as recorded in the satisfaction recorded in the assessment order justifying initi....
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....he language of provisions governing penalties, from analogous provisions and reported judicial decisions. In the opinion of the Ld. AR, the date on which 'action for imposition of penalty is considered as initiated' is to be reckoned is with reference to the date on which the AO recorded his satisfaction in the assessment order for initiation of penalty u/s 271D of the Act i.e. 30-12-2022. He submitted that, in order to levy penalty, the Courts have consistently held that, there has to be a satisfaction recorded by the AO in the assessment order for the Jt/Addl. CIT to levy penalty u/s 271D of the Act and in absence of the same, any show cause issued or order passed by the Jt/addl CIT is null and void in the eyes of law. According to him, the date on which the penalty is initiated is the date on which the AO records his satisfaction in the assessment order. In support of his contention, the Ld. AR is found to have relied on a series of decisions in his written submissions, which are noted as under:- - CIT v. Jai Laxmi Rice Mills Ambala City [2015] 64 taxmann.com 75 (SC) - Grandhi Sri Venkata Amarendra v. JCIT [2024] 167 taxmann.com 352 (Andhra Pradesh) - ....
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.... within the period of limitation. She contended that, the AO was not the competent authority to levy penalty and therefore the satisfaction recorded by him in his assessment order cannot be regarded as a valid satisfaction and hence the date of assessment order cannot be taken as the date of initiation of penalty proceedings. Opposing the Ld. AR's submission that the assessment order containing the aforesaid satisfaction was passed after obtaining approval from Addl. CIT, the Ld. CIT, DR submitted that, such approval was only directory and administrative in nature and not binding to the AO in their quasi-judicial functions. The Ld. CIT, DR Shri Bipin C.N has filed written submissions on 03.09.2025, wherein he is noted to have inter alia raised the following contentions: a. Directions of supervisory authorities bind the officers only in their administrative capacity but do not bind them in their quasi-judicial functions. (Para 4) b. Authority which is vested with the power to impose penalty shall be the authority to initiate penalty under the Income Tax Act. (Para 4.2) c. No judicial or quasi-judicial function of any authority can be initiated by one autho....
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.... (SC) - PCIT v. Thapar Homes Ltd [2024] 159 taxmann.com 450 (Delhi) - CIT v. Jitendra Singh Rathore [2013] 31 taxmann.com 52 (Rajasthan) - PCIT v. Rishikesh Buildcon (P) Ltd [2023] 147 taxmann.com 220 (Delhi) - PCIT v. JKD Capital &Finlease Ltd [2017] 81 taxmann.com 80 (Delhi) - Shanbhag Restaurant v. DCIT [2004] 134 TAXMAN 495 (Karnataka) 15. The Ld. AR further submitted that, the Revenue's contention that, the date of initiation of penalty cannot be reckoned from the date on which the AO records his satisfaction, because the AO is not the competent authority to levy penalty, has been examined and answered in the negative by the Hon'ble Calcutta High Court in the case of CIT v. Narayani & Sons (P) Ltd [2016] 73 taxmann.com 21. In the decided case, it was held that, AO is permitted to initiate penalty proceedings by not only recording satisfaction/finding of fact but he is also competent to issue notice and that the Joint Commissioner is the competent authority only to impose the penalty. 16. It was further submitted by the Ld.AR that the proposition raised by the Ld. CIT(DR) that, the approval accorded by the Addl. CIT to the AO f....
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....l out the legal provisions and relevant jurisprudence governing the law of limitation in the cases of penalty u/s 271D / 271E of the Act. It is observed that, the time limit for levying penalty u/s 271D/271E is governed by section 275 of the Act which provides the period by which the order imposing the penalty is required to be passed. Clause (a) of sub-section (1) deals with limitation in case of penalties initiated in the assessment or other orders based on quantum of additions made in such orders. Clause (b) covers penalties initiated in the assessment or other orders which are the subject matter of revision u/s 263 or 264. Clause (c) covers other cases viz., penalty proceedings in other cases. It is seen that, the CBDT in their Circular No. 10/2016 (supra) has clarified that, the time limits laid down in Section 275(1)(c) would apply for levying penalty under section 271D / 271E of the Act. The relevant portion of the Circular (supra) is reproduced as under: "The issue whether the limitation for imposition of penalty under sections 271D and 271E of the Income-tax Act, 1961, (hereinafter referred to as the Act) is determined under section 275(1)(a) or section 275(1)(c) ....
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....e, the crucial aspect which is to be examined is which date is to be considered as the date on which 'action for imposition of penalty is considered as initiated'. According to the Ld. AR, it is the date on which the satisfaction was recorded by the AO in the assessment order dated 30-12-2022 passed with the approval of Addl. CIT. Whereas, the Ld. CIT, DR is of the view that, the date on which the Jt.CIT issued the first notice i.e. 10.02.2023 is to be taken as the date of initiation of penalty proceedings u/s 271D of the Act. It is observed that, the 'action for imposition of penalty' under Section 271D of the Act, is not a one stroke process. Instead it takes place in a series of different steps viz., recording of satisfaction / finding of fact by the AO regarding violation of provisions of section 269SS consequently attracting penalty u/s 271D, intimation regarding satisfaction / finding of fact by AO to the competent authority, issue of show cause notice by the competent authority to the assessee, passing of penalty order by the competent authority etc. In this series of steps, it is seen that, the most decisive and crucial step is the recording of satisfaction/finding of fact ....
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....the original assessment order was heard and allowed thereby setting aside the assessment order itself. It is in this backdrop, a question has arisen as to whether the penalty order, which was passed on the basis of original assessment order and when that assessment order had been set aside, could still survive. 4. The Tribunal as well as the High Court has held that it could not be so for the simple reason that when the original assessment order itself was set aside, the satisfaction recorded therein for the purpose of initiation of the penalty proceeding under Section 271E would also not survive. This according to us is the correct proposition of law stated by the High Court in the impugned order. 5. As pointed out above, insofar as, fresh assessment order is concerned, there was no satisfaction recorded regarding penalty proceeding under Section 271E of the Act, though in that order the Assessing Officer wanted penalty proceeding to be initiated under Section 271(1)(c) of the Act. Thus, insofar as penalty under Section 271E is concerned, it was without any satisfaction and, therefore, no such penalty could be levied. These appeals are, accordingly, dismissed." ....
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....action dated 24.09.2024 recorded by the ACIT cannot be equated with the satisfaction to be recorded in the reassessment proceedings by the concerned AO. 9. In Jai Laxmi Rice Mills Ambala City (supra) the Supreme Court was dealing with the issue as to whether the penalty proceedings under section 271D are independent of the assessment proceedings. In that case, in the assessment order passed in pursuance to the remand no satisfaction was recorded for initiating the proceedings under section 271E. Though the AO stated for initiation of proceedings under section 271(1)(c). The penalty proceeding was quashed on the ground that in absence of satisfaction recorded by the AO the penalty cannot be imposed. 10. In the case in hand the DCIT had only recorded satisfaction for proceedings under Section 271(1)(c) of the Act of 1961 and no satisfaction was recorded to initiate penalty proceedings under Section 271D. 11. The issue involved in the present writ petition is squarely covered by the decision of the Supreme Court in Jai Laxmi Rice Mills Ambala City (supra). The notice issued under Section 271E and the proceedings in pursuance thereto are quashed." ii....
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....isfaction by the AO, in our considered view, is to be taken as the date on which 'action for imposition of penalty is considered as initiated'. 21. This may yet be viewed from another angle. Going by the proposition propounded by the Revenue, if the date of recording of satisfaction by the AO [mandatory pre-requisite, as held above] is to be discarded and the date on which the Jt./Addl CIT first issues notice is to be considered, then it would lead to an anomalous situation, where the Jt./Addl CIT gets a free hand to extend the period of limitation to suit his own sweet will, as the limitation would only start when he first issues the notice, which may also be several years subsequent to the discovery and recording of satisfaction by the AO. In our considered view, such an interpretation is incongruous. In support, we gainfully refer to the decision of the Hon'ble Delhi High Court in the case of PCIT v. Thapar Homes Ltd (supra), wherein it was held that that once revenue decided to trigger penalty proceedings against assessee by recording satisfaction/finding of fact regarding violation of section 269SS, it is incumbent upon it to keep an eye on limitation period prescribed unde....
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....y, the satisfaction recorded by him cannot be regarded as the date of initiation of penalty and that only when the Addl.CIT/Jt. CIT takes any action i.e. issues notice, is when the proceedings can be said to be initiated. We however are unable to countenance with this view of the Revenue for multiple reasons. Firstly, in the given facts of the present case, it is observed that, the assessment order dated 30-12-2022 inter-alia containing his satisfaction / finding of fact concerning violation of provisions of Section 269SS and consequent attraction of penal consequence u/s 271D of the Act, was passed by the AO after obtaining approval of the Addl. CIT u/s 148B of the Act, which read as under:- "No order of assessment or reassessment or recomputation under this Act shall be passed by an Assessing Officer below the rank of Joint Commissioner, in respect of an assessment year to which clause (i) or clause (ii) or clause (iii) or clause (iv) of Explanation 2 to section 148 apply except with the prior approval of the Additional Commissioner or Additional Director or Joint Commissioner or Joint Director." 23. There is merit in the Ld. AR's submission that, the AO had forwarded....
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....Since the Act has not provided the methodology to be followed to initiate penalty proceedings u/s 271D of the Act, we are of the view that, this aspect has to be interpreted from the language of provisions governing penalties, from analogous provisions and reported judicial decisions. The Ld. AR has rightly pointed out that, any purported violation of section 269SS/269T usually comes only to the notice of the AO who is in-charge of assessing the income of any assessee, as he is having direct control and possession of assessment record, seized material etc., and therefore he is the competent person to record satisfaction/finding of fact regarding the purported violation u/s 269SS, and thereafter the Joint/Addit Commissioner is competent to impose penalty after giving an opportunity of being heard to the assessee, in terms of Section 271D of the Act. According to us therefore, the AO is not precluded from initiating proceedings by issuing a notice u/s 271D of the Act. Our view is squarely supported by the decision of Hon'ble Calcutta High Court in the case of CIT v. Narayani & Sons (P) Ltd (supra) wherein also the Hon'ble High Court had held that, though Section 271D vests the jurisd....
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....pees on thousand in a case falling under clause (c) of subsection (1) of section 271 would not show that the proceedings in such a case cannot be initiated by the Income-tax Officer. The Income-tax Officer in such an event can refer the case to the Inspecting Assistant Commissioner after initiating the proceedings. It would, indeed, be the satisfaction of the Income-tax Officer in the course of the assessment proceedings regarding the concealment of income which would constitute the basis and foundation of the proceedings for levy of penalty." "14. Applying the views expressed by the Apex Court it can be said that in a case falling under Section 271D the Assessing Officer is not precluded from initiating the proceedings by issuing a notice." (emphasis supplied) 26. The last alternate contention of the Revenue was that, the communication by AO to the competent authority should otherwise be taken as the date on which 'action for imposition of penalty is considered as initiated' as that is the date when the Jt./Addl. CIT becomes aware about the violation of Section 269SS/269T by the assessee. According to us, there is no statutory provision or rule or regulation governi....
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....rom the end of the month in which penalty was initiated through assessment order and passed penalty order within 6 months from date of such notice. Having regard to the provisions of sections 271D and 271E, the order was held to be barred by limitation and penalty imposed was quashed by the Hon'ble Rajasthan High Court. The Hon'ble Supreme Court upheld the order of the High Court by holding as under:- "1. On perusing the judgment of the High Court, it is found that penalty imposed on the respondent herein was also set aside on the ground that the provisions of Section 271-D and 271-E of the Income Tax Act were invoked after six months of limitation and, therefore, such penalty could not have been imposed. Since the outcome of the judgment of the High Court can be sustained on this aspect alone, it is not even necessary to go into other aspects. Leaving the other questions of law open, the appeal is dismissed. There shall be no order as to costs." 28. We find that identical view has been expressed by the Hon'ble Delhi High Court, whose relevant findings, taken note of by us, is as follows:- i) PCIT v. Rishikesh Buildcon (P) Ltd (supra) "12. Where the AO....
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....y the coordinate Bench of this Tribunal at Jaipur in the case of Jagdish Chandra Suwalka v. JCIT [2023] 154 taxmann.com 504 involving identical factual matrix as that of the present case. In the instant case, the action for imposition of penalty u/s 271D was taken on 28-12-2017 by the AO, when the assessment was completed and six months from end of that month expired on 30-6-2018. The Joint Commissioner issued show cause notice on 06.11.2018 and imposed penalty vide order dated 28.05.2019. It was contended by the Revenue that the period of 6 months has to be reckoned from the date of issue of show cause notice by the JCIT, who was the competent Authority to impose penalty u/s 271D and since he had issued notice on 6-11-2018 and imposed penalty on 28-5-2019, within the period of 6 months from the month in which action for imposition of penalty was taken i.e., from the date of notice, the order was well within the period of limitation. The Tribunal however held that, the period of limitation for the purpose of penalty proceedings u/s 271D was not to be reckoned from the date of issue of show cause by the Jt. CIT, but from the date on which action for imposing penalty was initiated on....
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....ly covered by the decision of Hon'ble Jurisdictional High Court in the case of Hissaria Bros. (supra).The same has been affirmed by the Hon'ble Apex Court in the case of Hissaria Brothers [2016] 74 taxmann.com 22/243 Taxman 174/386 ITR 719 holding as under. "Penalty under ss. 271D and 271E-Limitation under s. 275- Computation Penalty orders under ss. 271D and 271E passed beyond six months from the end of the month in which the assessments were completed were barred by limitation-CIT v. Hissaria Bros. (2007) 211 CTR (Raj) 156 affirmed." Similar view was taken again by the Hon'ble Rajasthan High Court in the CIT v. Jitendra Singh Rathore [2013] 31 taxmann.com 52/352 ITR 327 wherein it was held under: "Penalty under s. 271D-Limitation under s. 275-Applicability of cl (a) or cl. (c) of s. 275(1)-Show-cause notice was served on the assessee by AO on 27th March, 2003-Thereafter, the matter was referred to the Jt. CIT on 22nd March, 2004-Penalty levied by Jt. CIT by order dt. 28th May, 2004 was clearly barred by limitation- Sec. 275(1)(c) was applicable to the case-Even when the authority competent to impose penalty under s. 271D was the Jt. CIT, the....
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....ttracting penalty u/s.271D of the Act. Though having passed the assessment order on 30-12-2022, it is noticed that, the AO sent a communication to the Addl. CIT only on 08-02-2023 [the Addl. CIT having approved the order was already aware of it] and the latter issued his notice on 10-02-2023. According to us, the inordinate delay on the part of the AO to delay in communicating to the Addl. CIT on 08.02.2023 (as per penalty order) i.e. about 40 days after issuing the assessment order, according to us, cannot come to the aid of the Revenue for determining the limitation period as prescribed u/s.275(1) of the Act, as it would then give unbridled discretion to the AO as to when he should communicate the violation of Section 269SS of the Act to the Addl. Commissioner. Such unbridled discretion would fall foul of Article 14 of the Constitution and Rule of Law, which is the basic feature of Constitution of India. From the scheme of the Act, and from the ratio decidendi cited supra, it cannot be countenanced that AO yields unbridled powers to communicate to the Addl. Commissioner [about violation of Section 269SS of the Act] at his sweet will, which will tantamount to conferring whimsical ....