Punishment under Section 271D administered without any form of satisfaction is unjustifiable

Fact and issue of the case

This appeal has been filed against the order of CIT(A)-34, New Delhi dated 27.06.2019 for AY 2012-13.

The grounds of appeal raised by the revenue are as follows:-

Whether on the facts and in the circumstances of the case, the Ld. CIT(4) has erred in deleting the penalty us 271D of the Act relying on the order of the Hon‘ble ITAT wherein it was held that the payment of Rs.2,38,00,000/- made by M/s Spaze Towers Put. Ltd. to the assessee was not a loan transaction made in contravention of the provisions of section 269SS of the Income Tax Act.

Whether on the facts and in the circumstances of the case, the Id. CIT(A)has erred in deleting the penalty us 271D of the Act despite the fact that from the funds flow submitted by Ms Spaze Tower Put. Ltd. before the Hon’ble Settlement Commission it is evident that Ms Spaze Tower Put. Ltd. had discharged the liabilities of the assessee by making payments in cash which is violation of the provisions of section 269SS of the

Whether on the facts and in the circumstances of the case, the Id. CIT(A)has erred in deleting the penalty relying on the order of the Hon’ble ITAT wherein it was held that since Ms Spaze Towers Pvt. Ltd. incurred expenditure towards the personal needs of the directors/promoters, the same was acknowledged as liability by them but the same cannot be construed as loan or deposit despite admission of the assessee before the CIT(A) in quantum appellate proceedings that these cash transactions were made between two separate entities on returnable basis as loan deposits in violation of the provisions of section 269SS of the Act.

Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the penalty relying on the order of the Hon’ble ITAT wherein it was held that penalty us 271D is without any satisfaction and therefore, no such penalty can be levied.

Supporting the penalty order the ld. CIT(DR) submitted that the Ld. CIT(4) has erred in deleting the penalty us 271D of the Act relying on the order of the Hon‘ble ITAT wherein it was held that the payment of Rs.2,38,00,000/- made by M/s Spaze Towers Put. Ltd. to the assessee was not a loan transaction made in contravention of the provisions of section 269SS of the Income Tax Act. He further submitted that the CIT(A)has erred in deleting the penalty us 271D of the Act despite the fact that from the funds flow submitted by Ms Spaze Tower Pvt. Ltd. before the Hon’ble Settlement Commission it is evident that Ms Spaze Tower Put. Ltd. had discharged the liabilities of the assessee by making payments in cash which is violation of the provisions of section 269SS of the Act. It has also been contended that the Id. CIT(A)has erred in deleting the penalty relying on the order of the Hon’ble ITAT wherein it was held that since Ms Spaze Towers Pvt. Ltd. incurred expenditure towards the personal needs of the directors/promoters, the same was acknowledged as liability by them but the same cannot be construed as loan or deposit despite admission of the assessee before the CIT(A) in quantum appellate proceedings that these cash transactions were made between two separate entities on returnable basis as loan deposits in violation of the provisions of section 269SS of the Act. The ld. CIT(DR) also pointed out that the Ld. CIT(A) has erred in deleting the penalty relying on the order of the Hon’ble ITAT wherein it was held that penalty us 271D is without any satisfaction and therefore, no such penalty can be levied. The ld. CIT(DR) finally submitted that the first appellate authority has deleted penalty without any justified reason therefore the same may kindly be set aside by restoring that of the Assessing Officer.

Replying to the above, the ld. assessee’s authorized representative (AR), supporting the first appellate order, submitted that the penalty was imposed by ignoring the fund flow statement submitted before income tax settlement commission by the M/s. Spaze Towers Pvt. Ltd., which has provided cash fund to the assessee and the ld. CIT(A) considered the same on the right prospective and by considering the order of ITAT Delhi Bench in the case of M/s. K S Chawla & Sons in ITA No. 5614/Del/2019 dated 28.08.2019 and therefore the same may kindly be upheld.

Observation of the court

The Hon’ble Supreme Court in the case of Jai Laxmi Rice Mills Ambala City [supra] has held that penalty us 271D is without any satisfaction and, therefore, no such penalty can be levied. The relevant findings of the Hon‘ble Supreme Court read as under:

In these appeals, we are concerned with the question as to whether penalty proceeding under Section 271D of the Income Tax Act (hereinafter referred to as “the Act”) is independent of the assessment proceeding and this question arises for consideration in respect of Assessment Years 1991-1992 and 1992-1993 under the following circumstances: In respect of Assessment Year 1992-1993, assessment order was passed on 26.02.1996 on the basis of CIB information informing the Department that the assessee is engaged in large scale purchase and sale of wheat, but it is not filling income tax return. Ex-parte proceedings were initiated, which resulted in the aforesaid order, as per which net taxable income of the assessee was assessed at Rs. 18,34,584/-. While framing the assessment, the Assessing Officer also observed that the assessee had contravened the provisions of Section 2695S of the Act and because of this the Assessing Officer was satisfied that penalty proceedings under Section 271E of the Act were to be initiated.

The assessee carried out this order in appeal. The Commissioner of Income Tax (Appeals) allowed the appeal and set aside the assessment order with a direction to frame the assessment de novo after affording adequate opportunity to the assessee.

After remand, the Assessing Officer passed fresh assessment order. In thi assessment order, however, no satisfaction regarding initiation of penalty proceedings under Section 271E of the Act was recorded. It so happened that on the basis of the original assessment order dated 26.02.1996, show cause notice was given to the assessee and it resulted in passing the penalty order dated 23.09.1996. Thus, this penalty order was passed before the appeal of the assessee against the original assessment order was heard and allowed thereby setting aside the assessment order 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.

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.

As pointed out above, insofar as, fresh assessment order is concerned, there was no satisfaction recorded regarding penalty proceeding under Section 271 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.

The Id. DR had relied upon the decision of the Hon’ble Supreme Court in the case of Adinath Builders Put Ltd [supra]. We are of the considered opinion that the Hon’ble Supreme Court has dismissed the SLPs filed by the revenue and the Id. DR has relied upon the head notes, which cannot be considered as judgment of the Hon‘ble Supreme Court as the Hon’ble Supreme Court has simply dismissed the SLPs without assigning any reason.

Considering the facts of the cases in hand from all possible angles, we do not find them to be fit cases for levy of penalty us 271D of the Act. We, accordingly, direct the Assessing Officer to delete the penalty levied in respect of the captioned appellants for all the assessment years under consideration. By this consolidated order, all the appeals are allowed and disposed off accordingly.

In the result, all the above captioned appeals are allowed.

In view of the judgment of Hon’ble ITAT in other group cases of the appellant on similar facts as reproduced above, respectfully following the said order, penalty imposed by the AO cannot be sustained in the cases under consideration and hence deleted.

Hence on similar grounds, penalty u/s. 271D of the Act imposed in the following cases in this consolidated order are deleted.

ShriAman Sharma 2016-17 16,66,833/-

Shri Bharat Bhushan Kumar 2016-17 1,85,00,000/-

Shri Deepak Kumar 2016-17 2,38,00,000/-

As a result, the appeal of the appellant(s) in all the cases under consideration are allowed.

The ld. CIT(A) has considered various aspects including order of ITAT Delhi Bench in the case of M/s. K S Chawal & Sons (supra). The ld. CIT(A) has categorically held that the order of Tribunal in other group cases on similar facts persuaded him to delete the penalty. The ld. CIT(A) at page 13 & 14 underlined seven observations for deleting the penalty. He observed therein that the ld. CIT(A) has deleted the addition made by Assessing Officer in the hands of appellant in view of order of ITSC in the case M/s. Spaze Towers Pvt. Ltd. and therefore he concluded that the penalty imposed on assessee and two other persons by JCIT Central Range Gurgaon after said assessment order is not sustainable in view of order of co-ordinate bench of Tribunal in the case of M/s. K S Chawla & Sons (supra). The ld. CIT(DR) has not shown any contrary order or judgment by co-ordinate bench of Tribunal or Hon’ble High which may lead us to take a different view to support the penalty order. Hence we are inclined to hold that there is no ambiguity perversity or any valid reason to interfere with the findings arrived by the ld. CIT(A) and, thus, we uphold the same. Accordingly, grounds of revenue are dismissed.

In the result, the appeal of the revenue is dismissed.

Order pronounced in the open court on 13.06.2023.