2026 Supreme(Online)(ITAT) 10590

INCOME TAX APPELLATE TRIBUNAL (VISAKHAPATNAM BENCH)
LAKSHMANA SWAMY VEERANKI YALAMALKUDURU – Appellant
Versus
INCOME TAX OFFICER WARD-2(3) VIJAYAWADA – Respondent
ITA 597/VIZ/2025[2016-17]

Penalty under Section 271D of the Income-tax Act cannot be levied if the Assessing Officer fails to record satisfaction regarding the violation of Section 269SS in the assessment order, as the Joint Commissioner's jurisdiction depends on that recorded satisfaction.

Headnote:(A) Income-tax Act, 1961 - Sections 269SS, 271D, and 271E - Penalty for acceptance of loan/deposit/specified sum otherwise than by account payee cheque/draft - Necessity of recording satisfaction in assessment order - The recording of satisfaction by the Assessing Officer regarding the initiation of penalty proceedings under Section 271D is a condition precedent for the Joint Commissioner to assume jurisdiction to levy penalty. In the absence of such satisfaction recorded in the body of the assessment order, any penalty imposed under Section 271D is invalid and liable to be quashed. (Paras 8, 9, 10, 11, 12, 13)

(B) Precedent - Binding nature of Supreme Court and High Court decisions - The law declared by the Supreme Court under Article 141 of the Constitution is binding on all courts and authorities within the territory of India. All civil and judicial authorities are to act in aid of the Supreme Court. Non-compliance with a Supreme Court decision by an income tax authority is impermissible. (Para 11, quoting High Court of Telangana)

Facts of the case:
The assessee, an individual, filed a return of income which was processed under section 143(1). The case was selected for limited scrutiny, and the Assessing Officer passed an assessment order under section 143(3) on 06.09.2018. In this order, the only penalty proceedings initiated were under section 271(1)(c) for alleged concealment of income. No satisfaction was recorded for initiating penalty proceedings under section 271D. Later, the Joint Commissioner of Income Tax issued a notice under section 271D and imposed a penalty of Rs. 8,20,000/-. The assessee challenged the penalty before the CIT(A), who confirmed the penalty. The assessee appealed to the Tribunal.

Findings of Court:
The Tribunal, following its own coordinate bench decision in Kosanam Rama Rao v. ACIT, which itself relied on the Supreme Court judgment in CIT v. Jai Laxmi Rice Mills (2015) 379 ITR 521 (SC), the Andhra Pradesh High Court in Grandhi Sri Venkata Amrendra v. JCIT, and the Telangana High Court in Shrinivasa Reddy Reddeppagari v. JCIT, held that the initiation of penalty proceedings under section 271D in the absence of any recorded satisfaction in the original assessment order was bad in law. The Tribunal noted that the assessment order dated 06.09.2018 contained no satisfaction regarding section 271D violation. Therefore, the subsequent penalty order dated 22.02.2022 was invalid, and the order of the CIT(A) was set aside. (Paras 8, 13)

Issues: Whether the penalty imposed under Section 271D of the Act can be sustained when the Assessing Officer did not record any satisfaction regarding initiation of such penalty proceedings in the body of the assessment order.

Ratio Decidendi: The court reasoned that the satisfaction of the Assessing Officer regarding a violation of Section 269SS is a prerequisite for the Joint Commissioner to assume jurisdiction to levy penalty under Section 271D. The Assessing Officer is the primary authority who, based on material during assessment, must arrive at a finding of violation. Without this recorded satisfaction in the assessment order, the Joint Commissioner, who is not the Assessing Officer, cannot exercise the power to levy penalty under Section 271D. This principle, established by the Supreme Court in CIT v. Jai Laxmi Rice Mills, is binding and was followed by the High Courts of Andhra Pradesh and Telangana, and by the Tribunal. Result : Appeal of the assessee allowed.