No Valid Satisfaction by AO in Assessment Order resulted
M/s Gayatri Villa Vs JCIT Central Range, Meerut [ ITA No. 616/DEL/2024 [A.Y. 2017-18]
The assessee’s main grievance was the imposition of penalties u/s 271D of the Income-tax Act, 1961 amounting to Rs. 93,80,000/- in A.Y 2016-17 and Rs. 44,00,000/- in A.Y 2017-18. The assessee argued that these penalties were not authorized by law since there was no valid satisfaction recorded in the order passed under section 147/143(3) of the Act regarding the alleged violation under section 269SS of the Act.
A survey was conducted under section 133A of the Act at the business premises of the partners of the assessee firm on September 26, 2018. As part of the survey, the partners were requested to provide the books of accounts for the current and previous years, along with supporting documents, to verify the declared sale of flats/turnover and claimed expenses in the previous years.
The assessee failed to provide any financial records, resulting in the trading results for the A.Y 2015-16 being left unconfirmed.
As there were no available financial records, and the full extent of the investment could not be confirmed, scrutiny assessments from AY 2015-16 to 2017-18 were initiated u/s 147 of the Act. The purpose of these assessments were to validate the disclosed income, verify the investments made, and examine the expenses claimed in relation to the construction of flats.
The assessment u/s 147/143(3) of the Act was concluded at Rs.34,69,500/- for AY 2016-17 and at Rs.23,72,400 for AY 2017-18. Subsequently, a notice u/s 271D of the Act was issued to the assessee, requesting an explanation as to why a penalty order should not be imposed on him under section 271D of the Act.
The assessee’s response, however, was deemed unacceptable by the JCIT, leading to penalties of Rs.93,80,000/- for AY 2016-17 and Rs.44,00,000/- for AY 2017-18 u/s 271D of the Act.
Aggrieved by the penalty order, the assessee appealed to the CIT(A), who upheld the penalty imposed by the AO. Aggrieved further, the assessee appealed before the Tribunal.
The assessee’s authorised representative contended that there was no valid satisfaction recorded by the AO in the order u/s 143(3) to initiate a penalty u/s 271D of the Act. It was argued that unless the Assessing Officer commences proceedings and records satisfaction in the assessment order under section 143(3), no penalty under section 271D of the Act can be imposed.
The ld. Departmental representative admitted that there was no recorded satisfaction in the evaluation order regarding the penalty proceeding u/s 271D of the act, though in that order the AO wanted penalty proceeding to be initiated u/s 271(1)(c) of the Act.
The Hon’ble Tribunal held that the AO had to record his satisfaction in the assessment order u/s 143(3) of the Act for initiating penalty proceedings u/s 271D of the Act for violation of provisions of section 269SS of the Act. However, in this case, assessment order u/s 143(3) r.w.s 147 of the Act was passed on 27.12.2019 for A.Y 2016-17 and on 18.12.2019 for A.Y 2017-18. The JCIT issued notice u/s 271D of the Act on 30.03.2022 for both the A.Ys and levied penalty u/s 271D of the Act on 31.03.2022.
The Assessing Officer, in his order u/s 143(3)/147 of the Act for both the A.Ys has recorded penalty proceedings u/s 271(1)(c) of the Act to be initiated separately. The Assessing Officer, however, has not recorded any satisfaction to initiate penalty u/s 271D of the Act for either of the A.Ys and thereby failed to adhere to the mandate of law as laid down by the Hon’ble Supreme Court in the case of Jai Laxmi Rice Mills.
After considering the evidence presented by the appellant, the Tribunal granted both the appeals in favour of the appellant and deleted the penalty-imposed u/s 271D of the Act.
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