2026 Supreme(Online)(ITAT) 11352

INCOME TAX APPELLATE TRIBUNAL (HYDERABAD BENCH)
Vijay Pal Rao, Vice-President, Madhusudan Sawdia, Accountant Member
Balaji Kannan – Appellant
Versus
Income Tax Officer – Respondent
ITA No. 1850 & 1851/Hyd/2025

Penalty proceedings under Sections 271D/271E of the Income-tax Act require pending proceedings in the assessee's case and mandatory recording of satisfaction by the Assessing Officer; without these, the penalty is invalid.

Headnote:(A) Income-tax Act, 1961 - Sections 271E and 271D read with Section 269T - Penalty for repayment of loan in cash - Requirement of recording satisfaction - In the absence of any pending assessment or other proceedings in the case of the assessee, and without the Assessing Officer recording any satisfaction regarding the contravention of Section 269T, the initiation and levy of penalty under Section 271E is not sustainable in law.

(B) Penalty - Initiation of proceedings - Pre-requisite condition - For initiation of penalty under Sections 271D/271E of the Act, there must be an assessment proceeding or proceedings arising from an assessment order or any other proceedings under the Act pending in the case of the assessee. (Para 11)

(C) Penalty - Recording of satisfaction - Mandatory condition - Recording of satisfaction by the Assessing Officer in the original assessment order for the purpose of initiation of penalty proceedings under Sections 271D/271E is a mandatory condition. This principle is established by the Hon'ble Supreme Court and is binding on all adjudicating authorities. (Paras 10, 11, 12)

(D) Penalty - Limitation - Bar of limitation under Section 275 - The provisions of Section 275 pre-suppose the existence of assessment proceedings/revision proceedings or appeal proceedings. In the absence of assessment in the case of the assessee, the initiation of penalty is not valid. (Para 10)

Facts of the case:
These appeals were filed by the assessee against separate orders of the Commissioner of Income Tax (Appeals) confirming the levy of penalty under Section 271E of the Act for assessment years 2015-16 and 2016-17. The penalty was levied on the assessee for repaying a loan in cash, violating Section 269T of the Act. The penalty proceedings were initiated based on information received from the assessment proceedings of another person, and no assessment or other proceedings were pending in the case of the assessee at the time of initiation. The Assessing Officer also did not record any satisfaction regarding the contravention in any order in the assessee's case.

Findings of Court:
The Tribunal found that no assessment or other proceedings were pending in the case of the assessee for the relevant assessment years at the time of initiation of penalty proceedings. The Departmental Representative did not dispute this fact. Following the decision of the Hon'ble Telangana High Court and its own earlier order, the Tribunal held that recording of satisfaction in the assessment order or in the course of proceedings is a sine qua non for initiation of penalty proceedings under Sections 271D/271E of the Act. Since no such satisfaction was recorded, the very initiation of penalty was vitiated.

Issues: The main issues were whether penalty under Section 271E of the Act could be validly levied when no assessment or other proceedings were pending in the case of the assessee, and whether recording of satisfaction by the Assessing Officer was a mandatory pre-condition for such initiation.

Ratio Decidendi: The court ruled that for initiation of penalty under Sections 271D/271E of the Act, it is a pre-requisite condition that there must be an assessment proceeding or proceedings arising from an assessment order or any other proceedings under the Act pending in the case of the assessee. Recording of satisfaction by the Assessing Officer in the original assessment order for the purpose of initiating such penalty proceedings is a mandatory condition. In the absence of these, the penalty is not sustainable in law. Result : Both appeals of the assessee were allowed and the penalties levied were deleted.