2025 (6) TMI 1231 - HC - Income Tax

Penalty proceeding u/s 271D 271DA and 271E - AO mandation to record satisfaction in the assessment order as regards the contravention of the provisions of Section 269SS 269ST or 269T - petitioner s case that the department without adhering to the petitioner s request to disclose the satisfaction note had proceeded to pass the order - HELD THAT - In absence of the assessment orders recording the satisfaction of contravention of provisions of Section 269SS 269ST and 269T of the said Act consequential penalty proceedings may be a nonstarter and could not have been proceeded with. However since the respondents insist on producing the records the respondents shall be at liberty to produce the records. Alternatively the respondents are also at liberty to file affidavit-in-opposition to the aforesaid writ petitions so to disclose any additional material regarding satisfaction of the assessing officer within a period of two weeks. Reply thereto if any be filed on or before the matter is taken up next.

Summary

The writ petitions challenge the show-cause notices and consequential penalty orders issued under Sections 271D, 271DA, and 271E of the Income Tax Act, 1961, which pertain to penalties for contraventions of Sections 269SS, 269ST, and 269T respectively. The core legal questions revolve around whether the Assessing Officer is required to record satisfaction regarding such contraventions in the assessment order before initiating penalty proceedings under the said sections, and whether the writ petitions are maintainable despite the availability of alternative statutory remedies.

Issues Presented and Considered:

1. Whether the Assessing Officer must record satisfaction in the assessment order regarding contravention of Sections 269SS, 269ST, or 269T of the Income Tax Act before initiating penalty proceedings under Sections 271D, 271DA, and 271E.

2. Whether the absence of such recorded satisfaction invalidates the penalty proceedings and consequent penalty orders.

3. Whether the writ petitions challenging the penalty orders are maintainable in view of the existence of alternative statutory remedies, such as appeals under Section 246A of the Act.

4. The extent of the Court's jurisdiction to entertain writ petitions on jurisdictional issues and purely legal questions, especially where no disputed questions of fact or evidence are involved.

Issue-wise Detailed Analysis:

Issue 1 and 2: Requirement of Recording Satisfaction by the Assessing Officer

The legal framework involves Sections 269SS, 269ST, and 269T of the Income Tax Act, which prohibit certain cash transactions, and Sections 271D, 271DA, and 271E, which impose penalties for contraventions of these provisions. The penalty proceedings are initiated by issuing show-cause notices under Section 274 read with the relevant penalty provisions.

The petitioners contended that the Assessing Officer must record satisfaction regarding the contravention of the aforesaid provisions in the assessment order itself before initiating penalty proceedings. They relied on CBDT Circular No.09/DV/2016 dated 26th April 2016, which clarifies the procedure to be followed by Assessing Officers below the rank of Joint Commissioner, including the necessity of recording satisfaction and referring the matter to the Range Head for penalty initiation.

Supporting this contention, the petitioners placed reliance on the Supreme Court judgment in the case of Jai Laxmi Rice Mills, which held that penalty proceedings under Section 271E cannot be initiated without recorded satisfaction in the assessment order regarding the contravention. The Court emphasized that if the assessment order recording the satisfaction is set aside or if no such satisfaction is recorded, the penalty order based on it cannot survive.

Further, the Andhra Pradesh High Court in Grandhi Sri Venkata Amarendra reiterated the necessity of recording satisfaction by the Assessing Officer, noting that without such satisfaction, penalty proceedings under Section 271D cannot be validly initiated. The Court observed that the primary authority (Assessing Officer) must arrive at a finding of contravention based on material before referring the matter to the Joint Commissioner for penalty imposition.

The respondents argued that the penalty proceedings are independent of the assessment proceedings and that recording satisfaction is not a mandatory prerequisite for initiating penalty under Sections 271D, 271DA, and 271E. They relied on the CBDT circular to assert that satisfaction can be subjective and implicit and that the Court can scrutinize records to ascertain the basis for penalty initiation. They also contended that the assessment order and penalty proceedings are distinct, and the absence of explicit satisfaction in the assessment order does not invalidate penalty proceedings.

The Court found that the issue is purely legal and does not require detailed factual inquiry. The absence of any recorded satisfaction in the assessment orders for the relevant assessment years was undisputed on record. Given the binding precedent of the Supreme Court in Jai Laxmi Rice Mills and the Andhra Pradesh High Court's decision, the Court held that penalty proceedings without recorded satisfaction are invalid and non-est in law.

Issue 3: Maintainability of Writ Petitions Despite Alternative Statutory Remedies

The respondents contended that the petitioners have efficacious alternative remedies in the form of statutory appeals under Section 246A of the Income Tax Act, and therefore, the writ petitions should not be entertained under Article 226 of the Constitution. They relied on precedents such as Thansingh Nathmal and Chhabil Dass Agarwal, which uphold the principle that where alternative remedies exist, writ jurisdiction should not be invoked except in exceptional circumstances.

The petitioners countered by relying on the Supreme Court's decision in Whirlpool Corporation, which clarified that writ jurisdiction may be exercised notwithstanding alternative remedies in cases involving fundamental rights, violation of natural justice, or proceedings wholly without jurisdiction. They also cited the recent Supreme Court judgment in Godrej Sara Lee Ltd., which held that where the controversy is purely legal and does not involve disputed facts, the High Court may entertain writ petitions without requiring exhaustion of alternative remedies.

The Court analyzed these precedents and concluded that the present challenge raises a jurisdictional and purely legal question regarding the necessity of recorded satisfaction for penalty initiation. There was no dispute of fact nor requirement for detailed evidence examination. The Court held that such a jurisdictional issue falls within the exceptions permitting writ jurisdiction despite the availability of alternative remedies.

Issue 4: Jurisdiction of the Court in the Present Case

The Court emphasized that the writ petitions do not seek to reopen factual findings or assessment orders but challenge the legal competence of the department to initiate penalty proceedings without recorded satisfaction. The Court found that the issue is a question of law and jurisdiction, and therefore, the writ petitions are maintainable.

The Court rejected the respondents' contention that the petitions should be dismissed for lack of cooperation by the petitioners or absence of explanation on merits, as these considerations do not affect the legal question of jurisdiction.

Significant Holdings:

"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."

"Without the satisfaction of the Assessing Officer being recorded regarding the contravention of Sections 269SS, 269ST and 269T of the said Act, no penalty proceeding can be initiated."

"The satisfaction of the Assessing Officer is required to be recorded because the officer, who passed the assessment order would not be levying the penalty under Sec.271D of the Act, unless it is recorded in the assessment order."

"Where the controversy is a purely legal one and it does not involve disputed question of fact but only questions of law then it should be decided by the High Court instead of dismissing the writ petition on the ground of an alternative remedy being available."

The Court concluded that the penalty proceedings initiated without recording the Assessing Officer's satisfaction regarding contravention of Sections 269SS, 269ST, and 269T are not sustainable in law. However, the respondents were granted liberty to produce records or file affidavits disclosing any material regarding such satisfaction within two weeks. Pending further hearing, the impugned penalty orders were stayed until the end of August 2025 or until further orders.