TaxTMI 
TaxTMI 
2026 (5) TMI 321
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.... that there are no violations to the provisions of section 269SS of the Act to attract penalty u/s. 271D of the Act. 4. The authorities below failed to appreciate the sale agreement and sale deeds filed in proper perspective and erred in observing that there is no reference to the date of receiving sale consideration in the deeds. (Tax Effect: Rs. 63,74,600). 5. Any other ground that may be urged at the time of hearing." 3. The assessee has challenged the validity of levy of penalty u/sec. 271D of the Act by raising the additional grounds by filing a petition under Rule-11 of ITAT Rules, 1963. The additional grounds raised by the assessee reads as under: 1. "The penalty order dated 17.03.2022 levying penalty of Rs. 63,74,600 under section 271D of the Act for the alleged violation of section 269SS of the Act, and the order of Id. CIT(A)/NFAC sustaining levy of penalty are illegal and bad in law. 2. Both the authorities below failed to appreciate that there is no finding in the assessment order nor there is any satisfaction recorded by the AO in the assessment order in respect of the alleged violation of provisions of section 269SS of the Act, a....
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....ction for initiation of the penalty u/sec. 271D of the Act. He has referred to the assessment order and submitted that once the Assessing Officer was not satisfied that it is a fit case for initiation of penalty u/sec. 271D of the Act, then, the subsequent initiation of the proceedings for levy of penalty u/sec. 271D as well as passing of the impugned order u/sec. 271D are not sustainable in law and liable to be set aside. In support of his contention, he has relied upon the following decisions: i. Judgement of Hon'ble ITAT, Bench-B, Hyderabad in the matter of Kesireddy Ravinder Reddy Vs ITO, ward-11(1), Hyderabad in ITA No. 1617 & 1722 of 2025 dated 11.02.2026. ii. Judgment of Hon'ble ITAT, Bench-B, Hyderabad in the matter of Venkata Ramana Murthy Bollapragada Vs ITO, ward-13(1), Hyderabad in ITA No.1961 of 2025 dated 26.02.2026. iii. Judgement of Hon'ble ITAT, Bench-A, Hyderabad in the matter of Somireddy Sudhakar Reddy Vs ITO, ward- 9(1), Hyderabad in ITA No. 1505 of 2025 dated 24.12.2025. iv. Judgement of Hon'ble High Court of Telangana in the matter of Srinivasa Reddy Reddeppagari Vs JCIT in Wp No. 44285 of 2022 dated 26.12.2....
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....lained the source that during the last 03 years he has sold some residential plots and admitted capital gains in his return of income filed for the assessment years 2015-2016 to 2017-2018 and therefore, the deposits were made from the cash available in his hand out of the sales of the plot of land. The Assessing Officer was satisfied with the explanation of the assessee which was also supported by the return of income filed by the assessee in the preceding two years as well as current year showing the capital gain from sale of the plot of lands. The Assessing Officer has not recorded any satisfaction for initiation of the penalty proceedings u/sec. 271D of the Act for violation of the provisions of sec.269SS of the Act. Thereafter, the JCIT initiated the penalty proceedings by issuing a show cause notice dated 18.02.2020 and levied the penalty u/sec. 271D of the Act vide Order dated 17.03.2022 by considering the entire cash deposits in the bank account as cash received by the assessee during the year under consideration against the sale of plot of lands. In the case in hand, the levy of penalty u/sec. 271D of the Act is based on presumption of the fact that the entire deposits in t....
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....loan or deposit or who had paid the specified advance or by use of electronic clearing system through a bank account or through such other electronic mode as may be prescribed, if such an amount is twenty thousand rupees or more. As in the case of s. 269SS, s. 269T of the Act also does not apply to the Government, banking company, post office savings bank etc. Sec. 271E of the Act reads as under: "271E. Penalty for failure to comply with the provisions of s. 269T.-(1) If a person repays any loan or deposit or specified advance referred to in s. 269T otherwise than in accordance with the provisions of that section, he shall be liable to pay, by way of penalty, a sum equal to the amount of the loan or deposit or specified advance so repaid. (2) Any penalty imposable under sub-s. (1) shall be imposed by the Jt. CIT." 21. Thus, sub-s. (1) of s. 271E of the Act provides that if a person repays any loan or deposit or specified advance referred to in s. 269T of the Act otherwise than in accordance with the provisions of that section, he shall be liable to pay by way of penalty a sum equal to the amount of the loan or deposit or specified advance so repaid. Sub-s....
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....the assessment order as to infraction of s. 269SS of the Act. Therefore, no penalty. could be levied under s. 271D of the Act without recorded satisfaction. In this connection, reference was made to the decision of the Supreme Court in Jai Laxmi Rice Mills Ambala City (supra) wherein it was clarified that provisions of s. 271E are in pari materia with the provisions of s. 271D of the Act. However, this aspect of the matter was not considered by respondent No. 1 while passing the impugned order. respondent No. 1 relying upon the Kerala High Court decision in Grihalaxmi Vision (supra) noted that competent authority to levy penalty is the Jt. CIT. He has also referred to an earlier decision of the Supreme Court in CIT vs. Mak Data Ltd. (2013) 263 CTR (Del) 6: (2013) 87 DTR (Del) 172: (2013) 352 ITR 1 (Del) wherein it was observed that AO has to satisfy himself as to whether penalty proceedings should be initiated or not. AO is not required to record his satisfaction in a particular manner or reduce it into writing. Therefore, respondent No. 1 imposed the penalty under s. 271D of the Act. 25. We are afraid respondent No. 1 had completely overlooked the decision of the Supreme ....
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....ctronic clearing system through a bank account or any other electronic mode in respect of a single transaction. Therefore, the question of applying Section 269SS and levying the penalty under Section 271D of the Act does not arise. The amounts have been treated as cash receipts and deposited in bank. He made a request to drop the penalty proceedings as it is within the purview of Section 269ST of the Act. 13. In the light of these facts, it is relevant to refer to the CBDT Circular No.09/DV/2016 (departmental view), dated 26.04.2016 on the subject of limitation for penalty proceedings under Section 271D and 271E of the Act. The circular made reference to the decision in the case of Grihalakshmi Vision (supra) rendered by the Kerala High Court. The observations made therein have been treated as 'the departmental view and are extracted hereunder: "3. The Hon'ble Kerala High Court in the case of Grihalaxmi Vision v. Addi. Commissioner of Income Tax, Range 1, Kozhikode (Available in NJRS 2015-LL-0807-4) vide its order dated 8.7.15 in ITA Nos.83 & 6 of 2014, observed that "Question to be considered is whether proceedings for levy of penalty, are initiated with ....
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.... the assessee to which he has filed his reply. This observation of the Kerala High Court in the case of Grihalakshmi Vision (supra), has been adopted as 'the departmental view. 15. From the discussion made hereinabove, it is apparent that the CBDT Circular, dated 26.04.2016 issued on the basis of the observations in Grihalakshmi Vision (supra) by the Kerala High Court is on the subject of limitation for initiation of penalty proceedings under Section 271D and 271E of the Act, wherein it has been held that the competent authority to levy penalty is Joint Commissioner and not the assessing officer. On the other hand, in the case of Srinivasa Reddy Reddeppagari (supra), a coordinate Bench of this Court has referred to the case of Jaya Laxmi Rice Mills (supra) and categorically recorded that the Supreme Court had concurred with the view taken by the High Court holding that satisfaction must be recorded in the original assessment order for the purpose of initiation of penalty proceedings under Section 271E of the Act. Sections 271E and 271D of the Act are in pari materia. When there is a decision of the Supreme Court, it is the bounden duty of an adjudicating authority, be ....
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..../1/29, Plot No.29, situated at S.N. Reddy Nagar, Saidabad, Hyderabad for a total sole consideration of Rs. 43,50,000/- vide Sale deed No 4535/2016, dated 12.09.2016. During this transaction, the vendor accepted Rs. 43,50,000/- in cash in contravention to the provision of Section 269SS of the Income-tax Act, 1961 which attracts penalty u/s. 271D. Section 269SS prohibits taking or accepting loan or deposit or any specified sum in excess of Rs. 20,000/- otherwise than by an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account. In the above section, the words "Specified sum" was introduced w.e.f., 1-6-2015 by the Finance Act of 2015. "Specified sum" has been defined in explanation (iv) under section 26955 as under: "Specified sum" means any sum of money receivable, whether as advance or otherwise in relation to transfer of an immovable property, whether or not the transfer takes place. Section 271D prescribes penalty for taking or accepting any loan or deposit or specified sum. The penalty shall be equal to the amount so taken. In this matter, as acceptance of cash during the above tran....
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....1) No order imposing a penalty under this Chapter shall be passed- (a) in a case where the relevant assessment or other order is the subject-matter of an appeal to the Deputy Commissioner (Appeals) or the Commissioner (Appeals) under section 246 or an appeal to the Appellate Tribunal under section 253, after the expiry of the financial year in which the proceedings, in the course of which action for the imposition of penalty has been initiated, are completed, or six months from the end of the month in which the order of 4 the Deputy Commissioner (Appeals) or] the Commissioner (Appeals) or, as the case may be, the Appellate Tribunal is received by the Chief Commissioner or Commissioner, whichever period expires later; [Provided that in a case where the relevant assessment or other order is the subject-matter of an appeal to the Commissioner (Appeals) under section 246 or section 246A, and the Commissioner (Appeals) passes the order on or after the 1st day of June, 2003 disposing of such appeal, an order imposing penalty shall be passed before the expiry of the financial year in which the proceedings, in the course of which action for imposition of penalty has been ....
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....h Court or the Supreme Court is received by the "[Principal Chief Commissioner or] Chief Commissioner or the "[Principal Commissioner or] Commissioner or the order of revision under section 263 or section 264 is passed; Provided further that the provisions of sub-section (2) of section 274 shall apply in respect of the order imposing or enhancing or reducing penalty under this sub-section] 2. The provisions of this section as they stood immediately before their amendment by the Direct Tax Laws (Amendment) Act, 1987 (4 of 1988), shall apply to and in relation to any action initiated for the imposition of penalty on or before the 31st day of March,1989.] Explanation. - In computing the period of limitation for the purposes of this section, - (i) the time taken in giving an opportunity to the assessee to be reheard under the proviso to section 129. (ii) any period during which the immunity granted under section 245H remained in force; and (iii) any period during which a proceeding under this Chapter for the levy of penalty is stayed by an order or injunction of any court, shall be excluded. 9. The limitation for passing the order imposing p....
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.... "3. We have heard learned counsel for the appellant. 4. The only point for consideration in this appeal is whether the assessee had contravened the provisions of Section 269T of the Act by making repayment of loan/deposits of Smt. Kusum Lata Thakral, through account payee cheque or account payee drafts to M/s. Babyloan Builders Pvt. Ltd., Gurgaon and, therefore, penalty under Section 271E was leviable. 5. The Assessing Officer had levied the penalty amounting to Rs. 11,02,6107- which has been deleted by the Tribunal. The Tribunal while deleting the penalty recorded that the return of the assessee was processed as on 31.12.2003 and the notice u/s. 274 read with section 271E of the Act was issued on 12.06.2007. Such notice was issued when there was no proceedings pending before the Assessing Officer. Relying upon Delhi High Court judgment in CIT v. Standard Brands Ltd. [20061 285 ITR 295/155 Taxman 383, the Tribunal further observed that action for penalty may be permissible only after regular assessment has been framed and since no regular assessment order had been passed in this case, the recourse to penalty proceedings under Section 27IE were not justif....
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.... regular assessment framed against the assessee by the Revenue. Hence, the same is not found to be sustainable in the eye of law and, thus, quashed. The appeal preferred by the assessee is, therefore, allowed." 11. Therefore, it is pre-requisite condition that the initiation of penalty 271D/271E of the Act, there must be assessment proceedings or proceeding arising from assessment order are pending in the case of the assessee. Accordingly in the facts and circumstances of the case and following the judgment of Hon'ble Supreme Court as well as Coordinate Bench of the Tribunal in case of Vijayaben G. Zalavadia vs. JCIT (supra), we hold that the penalty levied u/s. 271D of the Act without any assessment proceedings in the case of the assessee is not valid and liable to be quashed. We order accordingly." 7. Thus, it is a pre-requisite condition for initiation of the penalty u/sec. 271D/271E of the Act that there must be an assessment proceeding or proceedings arising from assessment order or any other proceedings under the Act. This aspect is also clarified by the CBDT vide Circular No.9/2016 dated 26.04.2016. We further note that recording of satisfaction by the Asse....
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....his according to us is the correct proposition of law stated by the High Court in the impugned order. 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. 24. Reverting back to the facts of the present case, we find that petitioner had submitted reply to the show cause notice on 02.06.2022. In his reply, petitioner mentioned that no satisfaction was recorded by the assessing officer in the assessment order as to infraction of Section 269SS of the Act. Therefore, no penalty could be levied under Section 271D of the Act without recorded satisfaction. In this connection, reference was made to the decision of the Supreme Court in Jai Laxmi Rice Mills Ambala City (1 supra) wherein it was clarified that provisions of Section 271E are in pari materia with the pro....
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....hearing to the petitioner." 8. We have specifically given an opportunity to the learned DR to produce relevant record if any, to show that some proceedings were initiated in the case of assessee and satisfaction was recorded by the Assessing Officer. However, the learned DR has submitted that no record was made available by the Assessing Officer. Accordingly, in the facts and circumstances of the case and in the interest of justice and by following the decision of Hon'ble Jurisdictional High Court as well as the decisions of various Coordinate Benches of the Tribunal including the decision of ITAT, Indore Bench in the case of Shri Umakant Sharma vs., JCIT, Ratlam (supra), we hold that the penalty levied by JCIT u/sec. 271D without recording the satisfaction in assessment proceedings or any other proceedings under the Act, is not valid and liable to be quashed. We Order accordingly." 9.4. Accordingly, by following the binding precedents as well as earlier decisions of this Tribunal, we hold that the penalty levied u/sec. 271D without satisfaction recorded by the Assessing Officer in the assessment order is invalid and the same is set aside. The decisions relied upon by t....