AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2026 (5) TMI 1556
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.... relevant particulars of the appeals are tabulated herein below: Assessment Year Penalty Order Date of Penalty Order Date of CIT(A) Order Penalty Amount 2013-14 u/s 271D 26.09.2022 20.11.2025 Rs.66,00,000/- 2017-18 u/s 271D 26.09.2022 20.11.2025 Rs.69,50,000/- 3. Briefly stated, the facts emerging from the record are that search and seizure action under section 132 of the Act was carried out in the case of M/s. Evergreen Enterprises and associated persons including Shri Nilesh Bharani. During the course of search proceedings, certain loose papers, coded diaries, telephone registers and digital data were allegedly found and seized. Statements under section 132(4) of the Act of Shri Nilesh Bharani and certain employees namely Shri Jagdish Ramani, Shri Ashwin Rathod, Ms. Vibha Sachin Rawate and Shri Shankar Jadhav were recorded by the Investigation Wing. According to the Revenue authorities, the seized materials and statements allegedly revealed that M/s. Evergreen Enterprises was engaged in cash loan lending and borrowing activities through coded entries. 4. Based upon the information received from the Investigation Wing, reassessmen....
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.... sections 269SS and 271D and held that the statements recorded during search proceedings of Shri Nilesh Bharani, Shri Ashwin Rathod and Ms. Vibha Sachin Rawate established that the assessee had accepted cash loan otherwise than by account payee cheque or bank draft. 8. The Assessing Officer also referred to the answers given during the statement of Shri Nilesh Bharani recorded under section 132(4) wherein the modus operandi of coding entries in diaries and telephone registers was allegedly explained. The Assessing Officer reproduced certain questions and answers including explanation regarding coding methodology, nature of business of Evergreen Enterprises, persons handling cash transactions and alleged genuineness of cash loan entries. Relying upon the said statements and seized material, the Assessing Officer concluded that the assessee had violated section 269SS of the Act and accordingly levied penalty equal to the amount of alleged cash loan under section 271D of the Act. 9. Before the Assessing Officer, the assessee primarily submitted that the reassessment proceedings initiated under section 147 of the Act themselves were invalid in law and that proceedings, if any, co....
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....sh any actual receipt of cash loan by the assessee. 13. The learned CIT(A), however, rejected the contentions of the assessee. The learned CIT(A) distinguished penalty proceedings under section 271D from penalty proceedings under section 271(1)(c) of the Act and observed that penalty under section 271D is transaction based and independent of the survival of quantum assessment proceedings. According to the learned CIT(A), once factual acceptance of cash loan in violation of section 269SS stood established, penalty under section 271D would survive irrespective of fate of reassessment proceedings. 14. The learned CIT(A) observed that unlike penalty under section 271(1)(c), penalty under section 271D does not depend upon determination of taxable income and instead depends solely upon factual finding regarding acceptance of cash loan exceeding prescribed limit otherwise than through banking channels. The learned CIT(A) referred to the provisions of sections 269SS, 271D and 273B and held that the only statutory escape available to the assessee was proving reasonable cause under section 273B, which according to the learned CIT(A), the assessee had failed to establish. 15. The lea....
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....the Act whereas the lawful valid reassessment proceedings could only be initiated u/s 153C of the Act. 3. On the facts and circumstances of the case and in law, the CIT(A) erred in sustaining the penalty u/s 271D of the Act of Rs. 66,00,000/- dismissing the appeal in an illegal ab-initio proceedings where the assessee was not at all legally bound to appear. Thus, the illegal penalty must be quashed. 4. On the facts and circumstances of the case and in law, the CIT(A) erred in confirming the levy of penalty of Rs. 66,00,000/- u/s 271D of the Act, without properly appreciating no such amount of cash loan was ever admitted nor was ever found credited in the books of account of the appellant for the relevant period. Hence the illegal levy of penalty u/s 271D of the Act is absolutely erroneous and bad in law requiring outright annulment. 5. On the facts and circumstances of the case and in law, the CIT(A) erred both in law and on facts in confirming the impugned penalty imposed alleging violation of the provisions of the section 269SS of the Act ignoring that the authority levying penalty has failed to establish the violation of the aforesaid section 269SS of ....
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....t order itself is annulled by a superior appellate authority. Therefore, according to the learned AR, the impugned penalty proceedings cannot independently survive. 22. In support of the aforesaid proposition, the learned AR placed heavy reliance upon the decision of the Coordinate Bench in the case of Ravi Nirman Nigam Ltd. vs. ACIT in ITA Nos.6428 & 6429/M/2019 dated 27.04.2022 wherein the Coordinate Bench held that once proceedings initiated under section 147 of the Act are held to be void ab initio, all consequential proceedings relating thereto also become invalid. Reliance was further placed upon another decision in the case of Ravi Nirman Nigam Ltd. vs. ACIT in ITA Nos.4140 & 4141/M/2023 dated 28.07.2024 wherein relying upon the decision of the Hon'ble Supreme Court in the case of Jayalakshmi Rice Mills and various Coordinate Bench decisions, it was held that with quashing/annulment of reassessment proceedings, penalty proceedings initiated under sections 271D/271E do not survive. 23. The learned AR further submitted that even the Department itself has accepted the aforesaid legal position in assessee's own case. In this regard, attention was invited to orders passed b....
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....gs. According to the learned DR, the contravention contemplated under section 269SS has no direct nexus with computation of taxable income or assessment of income and therefore penalty proceedings under section 271D survive independently irrespective of the outcome of reassessment proceedings. 28. In support of the aforesaid proposition, the learned DR placed reliance upon the judgment of the Hon'ble Delhi High Court in the case of CIT vs. Worldwide Township Projects Ltd. in ITA No.232 of 2014 dated 21.05.2014. Particular reliance was placed upon the observations of the Hon'ble High Court wherein it was held that penalty under section 271D is independent of assessment proceedings and that infringement of section 269SS is not related to income which may ultimately be assessed or finally adjudicated. The learned DR also relied upon the judgment of the Hon'ble Rajasthan High Court in the case of CIT vs. Hissaria Bros. reported in 291 ITR 244 wherein it was held that penalty proceedings for violation of sections 269SS and 269T are independent of assessment proceedings and completion of appellate proceedings arising from assessment proceedings has no bearing on sustaining or otherwis....
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....nducted in the case of M/s Evergreen Enterprises and statements recorded from Shri Nilesh Bharani and other persons alleging that the assessee had accepted cash loans. Based on such allegations, additions under sections 68/69A of the Act were made and simultaneously penalty proceedings under section 271D were initiated alleging violation of section 269SS. 34. It is also an admitted position that the Coordinate Bench in assessee's own case vide order dated 12.06.2024 in ITA Nos.440/Mum/2024, 442/Mum/2024 and 443/Mum/2024 quashed the reassessment proceedings themselves and deleted the consequential additions made under sections 68/69A of the Act by holding that the very assumption of jurisdiction under section 147 was unsustainable in law. 35. The learned DR has relied upon the judgments in the cases of Hissaria Bros. and Worldwide Township Projects Ltd. to contend that penalty proceedings under section 271D are independent proceedings. There can be no dispute with the legal proposition that proceedings under section 271D are independent proceedings for the purpose of limitation and are not strictly dependent upon completion of assessment proceedings. However, the issue involve....
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.... to frame a fresh assessment. While in the present case before us, the assessment order passed has been held to be invalid, the proposition laid by the Hon'ble Apex Court still applies since the ultimate effect of the facts in both the cases still results in the original assessment order not surviving, as also the satisfaction recorded therein for the purpose of initiation of penalty proceedings under section 271E/271D of the Act."(para 9 of Karan Empire Pvt. Ltd.) 40. Thus, the very distinction sought to be drawn by the learned CIT(A) already stands considered and rejected by the Coordinate Benches while interpreting the judgment of the Hon'ble Supreme Court in Jaya Lakshmi Rice Mills. Once the reassessment orders themselves have been quashed as void ab initio, the satisfaction recorded therein for initiation of penalty proceedings cannot survive independently. 41. We further find that the learned CIT(A) proceeded on the footing that the factual findings regarding alleged cash loan transactions remained undisturbed despite quashing of reassessment proceedings. However, as already noted hereinabove, the Coordinate Bench in assessee's own quantum proceedings specifically obser....
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.... of Rs. 64,25,000/-, as alleged, with M/s. Evergreen Enterprises and the Hon'ble Coordinate Bench of the Tribunal vide order dated 12.06.2024 in the quantum appeal, by observing that entire assessment addition is based on the statements of the partners of M/s. Evergreen Enterprises. No other evidence is brought on record by the AO and the observation in the "reason recorded" is itself erroneous and while relying on the decision of the Hon'ble Coordinate Bench of the Tribunal, in the Assessee's own case for the AY 2012-13, ultimately quashed the addition made under Section 68 of the Act." 46. The Coordinate Bench thereafter, after considering the judgment of the Hon'ble Supreme Court in the case of CIT vs. Jaya Lakshmi Rice Mills reported in 379 ITR 521 (SC), observed as under: "20. We further observe that in the assessment order dated 22.03.2022 under Section 147 read with Section 144 (B) of the Act, the AO has not recorded clear cut satisfaction with regard to the initiation of the penalty proceedings under Section 271 (D) of the Act and thus, attracts the judgment of the Hon'ble Apex Court in the case of CIT vs. M/s. Jaya Laxmi Rice Mills (2015) 379 ITR 521 (SC)..." ....