Failure To Record Satisfaction Before Initiating Penalty U/s 271(1)(C) In Gross Violation Of CBDT Circular, Vitiates Penalty Order: Chennai ITAT
Pankaj Bajpai
3 May 2024 4:45 PM IST
The Chennai ITAT clarified that the Assessing Officer has to record his satisfaction before initiating penalty under section 271D of the Income tax Act in respect of violation of the provisions of section 269SS of the Act. As per the provision of Section 269SS, the assessee had to explain the bonafide or genuineness of the cash transaction towards payment of interest in cash, added...
The Chennai ITAT clarified that the Assessing Officer has to record his satisfaction before initiating penalty under section 271D of the Income tax Act in respect of violation of the provisions of section 269SS of the Act.
As per the provision of Section 269SS, the assessee had to explain the bonafide or genuineness of the cash transaction towards payment of interest in cash, added the ITAT Bench.
The Bench of V. Durga Rao (Judicial Member) and Manoj Kumar Aggarwal (Accountant Member) observed that “Once the Assessing Officer decided to initiate penalty under section 271(1)(c) of the Act, subsequently, reference was made to Addl. CIT to initiate penalty proceedings under section 271D of the Act, the Assessing Officer ought to have been recorded his satisfaction. However, AO has failed to do so. The same is in violation of CBDT Circular no. 09/DV/2016 dated 26.04.2016 advising Assessing Officer to make a reference to the Range Head regarding violation of provisions of Sec.269SS and 269T during the course of assessment proceedings itself. Thus, the action of AO was in gross violation of departmental circular”. (Para 11.6)
As per the brief facts of the case, the assessee was subjected to a search action, after which his case was selected for scrutiny and the assessment was completed after making addition towards unexplained interest paid/unexplained cash expenses. Against the same, the AO initiated penalty proceedings u/s 271(1)(c) of the Act. Subsequently, AO intimated to the appropriate authority that the assessee received a sum of Rs.17,00,00,000/- as loan on various dates from one Anbuchezhiyan. The receipts of loan by way of cash was in violation of section 269SS which call for penalty as per the provisions of section 271D.
In the assessment order, the AO noted from the seized material that the assessee has paid an amount of ₹.5,93,62,500/- as interest to Anbuchezhiyan towards unaccounted cash loans. Out of the total interest, an amount of ₹.90,75,000/- paid for the relevant period was added back to the total income treating it as unexplained interest/cash payments. Thereafter, since the payment of interest in cash was in violation of the provisions of section 269T of the Act, the Assessing Officer moved similar proposal for levy of penalty u/s 271E.
The Bench observed that once the Assessing Officer decided to initiate penalty under section 271(1)(c) of the Act, subsequently, reference was made to Addl. CIT to initiate penalty proceedings under section 271D of the Act, the Assessing Officer ought to have been recorded his satisfaction.
However, the AO has failed to do so and the same is in violation of CBDT Circular no. 09/DV/2016 dated 26.04.2016 advising Assessing Officer to make a reference to the Range Head regarding violation of provisions of Sec.269SS and 269T during the course of assessment proceedings itself, added the Bench.
Thus, the Bench stated that the action of AO was in gross violation of departmental circular.
The Bench also explained that provisions of Section 271E are in pari materia with the provisions of Section 271D of the Act, and no separate adjudication for levy of penalty under section 271E of the Act is warranted.
Hence, the ITAT dismissed the Revenue's appeal.
Counsel for Appellant/ Revenue: A. Sasi Kumar
Counsel for Respondent/ Assessee: T. Banusekar
Case Title: DCIT verses Shri Subramaniam Thanu
Case Number: I.T.A. Nos.785, 786, 787 & 788/Chny/2023
