Srinivasa Reddy Reddeppagari V. Joint Commissioner of Income Tax and another

WP/44285/2022

AI Insights

The case involves Srinivasa Reddy Reddeppagari, the petitioner, challenging a penalty order imposed by the Joint Commissioner of Income Tax under Section 271D of the Income Tax Act, 1961, for accepting cash transactions violating Section 269SS. The petitioner argued that the penalty was imposed without the necessary recorded satisfaction in the assessment order, referencing a Supreme Court decision in Jai Laxmi Rice Mills Ambala City, which supported the need for such satisfaction. The respondents contended that the violation was clear and the penalty was rightly imposed. The High Court found that the Joint Commissioner had overlooked the Supreme Court's decision and the legal requirement of recorded satisfaction in the assessment order for initiating penalty proceedings.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 753116 (HC-TELANGANA)
• Appeal Type: Others
• Pronouncement Date: 26-12-2022
• Assessment Year: misc
• Other Referred Cases: CIT v. Jaya Laxmi Rice Mills Ambala City, Grihalaxmi Vision v. Addl. Commissioner of Income Tax, CIT v. Mac Data Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: AJAY KULKARNI
• Assessee Lawyers: S RAVI
• Keywords: Assessment Year; Cash transaction; Income Tax; Legal provisions; Penalty order; Writ of Mandamus
• Section: 153A; 274; 271D; 156; 226; 26955

Judgement Text

"[329s ] HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAD (Special Original Jurisdiction) IVIONDAY, THE TWENTY SIXTH DAY OF DECEMBER TWO THOUSAND AND TWENTYTWO PRESENT THE HONOURABLE THE CHIEF JUSTICE UJJAL BHUYAN AND THE HONOURABLE SRI JUSTICE C.V. BHASKAR REDDY WRIT PETITION NO: 44285 OF 2022 Between: Srinivasa Reddy Reddeppagari, S/o. R. Rajagopal Reddy aged 9p9qt- 94 years, Fyo. D.N6.1/712, Dwaraka Nagar, Kadapa, Andhra Pradest --516-001 . ...PETITIONER AND '1 . Joint Commissioner of lncome Tax, Central Circle, Central Range - 2, Aayakar Bhawan, Opposite LB Stadium, Basheer Bagh, Hyderabad, Telangana - 500004. 2. Assisilnt Commissionerof lncome Tax, Central Circle, Central Circle - 2 (4), . Aayakar Bhawan, Opposite LB Stadium, Basheer Bagh, Hyderabad, Telangana - 500004 ...RE''.NDENTS Petition under Article 226 of the Constitution of lndia praying that in the circumstances stated in the affidavit filed therewith, the High Court may be pleased to issue a writ, direction or order more particularly in the nature of a writ of mandamus declaring the impugned penalty order bearing DIN No. lTBAtPNLlFl27lDl2022-2311047703496(1) dated 29-11-2022 passed under Section 271D of the lncome Tax Act, 1961 for the Assessment Year 2016-17 by Respondent No.1 as being void, illegal, arbitrary, without jurisdiction and contrary to law arid violative of provisions of the lncome Tax Act, 1961 and consequently set aside the same. A NO: 1 OF 2022 Petition under Section '1 51 CPC praying that in the circumstances stated in the affidavit filed in support of the petition, the High Court may be pleased to stay all further proceedings with respect to the penalty order bearing DIN No. ITBA/PNL/F/271D12O22-2311O47703496(1) dated 29-11-2022 passed under Section 271D of the lncome Tax Act, 1961 for the Assessment Year 2016-17 by Respondent No.1 including stay of demand notice bearing DIN No. ITBtuCOM/F/1 7 12022- 2311047732455(1) dated 30-1 1 -2022 issued u/s. 1 56 of the Act. Counsel for the Petitioner: SRI S.RAVI FOR SRI R.S.ASSOCIATES Counsel for the Respondents: SRI AJAY KUMAR KULKARNI FOR SRI B.NARASIMHA SARMA The Court made the following: ORDER T E I AND RI B Y Fleard lvlr. S.Ravi, learned counsel for the petitioner and Mr. Ajay Kumar Kulkarni, leamed counsel rePresenting ItAr. B.Narsimha Sarma, leamed Sunding Counsel' Income Tax Depanment for the respondents' 2. By filing this petition under Article 226 of rhe Constitution of India, Petitioner seels quashing of the order dated 29.11.2022 passed by respondent No'1 under Section 27lD of the Income Tax Act, 1961 (briefly'the Act' hereinafter) imposing penalty of Rs'87,80,000'00 under Section 27lD of the Act on the petitioner' 3. Petitioner is an assessee under the Act having the status of an individual. For the assessment yeat 2Ol6-L7' petitioner was assessed by respondent No2 being the assessing officer uitle the assessment order dated 24'03'2022 under ( W.P.No'44285 of 2022 ORDER, per * e Hon'bh the Chief lutte Ujjal Bbryan) l! I 4. Flowever, respondent No.L issued show cause nodce to the peririoner on 1,3.05.2022 under Section 274 r/w Section 271D of the Act. It was mentioned therein that petitioner had sold immovable properries for an amount of Rs.92,13,000.00, the details of r4rich were menrioned in the show cause norice. Afrer noting that petitioner had admitted long term capital gains in the retum of income, it was menrioned that petitioner had accepted cash to the tune of Rs.82,80,000.00. It was alleged that such a rrarsacdon otherwise than by an account pape cheque or use of electronic clearing s)6tem through a bank account etc., violated Section 26955 of the Act which attracted levyof penaltyunder Section 271D of the Act. Accordingly, an opponuniry was granted to the petitioner to show cause as well as to avail opportuniry of personal hearing. ., ..'!.. Section 153A of the Act. Total income retumed by the peririoner i.e., Rs.80,84,180.00 was accepted as the assessed income of the petitioner uide the aforesaid assessment order. I ., 5. Petitioner submitted reply dated 02.06'2022 to the above show cause notice. Amongst other things, it was mentioned that for the Pu{pose of imposing penalty, satisfaction should be recorded bythe assessing officer in the assessment order as to imposition of penalry Non-recording of sadsfaction is fatal. In this connection, reference was made to a decision of the Supreme C-ourt in CIT v' Jaya Laxmi Rice Mills Ambata City1. It was further pointed out that in the aforesaid decision delivered by the Supreme C-ourt in the context of initiation of penaltyproceeding under Section 271E of the Act, it was held that recording of satisfaction is mandatory for initiation of penalry proceedings under Section 27lE o{ the Act. Section 27tE of the Act is pai mateiato Section 27lD of the Act. Therefore, pru)€r was made to drop the proposal to impose penalry under Section 27lD of the Act. I t (2015) 64 Taxmann.com 75 (SC) 4 6. Flowever, respondent No.1 passed the impugned order darcd 29.11.2022 rqectng the reply of the petitioner and imposing the penalry. Aggrieved, the present writ petition has been filed. On 09.12.2A22, this C-ourt had passed the following order: Challenge made in this writ petition is to the order dated 29.11.2022 passed by the assessing officer under Section 27LD of the Income Tax Act., 1961 (briefly referred to hereina.fter as the 'A.t). Xlhen the amenrion of leamed Senior Counsel was drawn to tle fact that impugned order is an appealable one and why petitioner has not filed appeal, he submia that issue involved in the matter is squarely covered by a decision of the Supreme C-oun reponed in Commissioner of Income-tax, panchkula v. Jai Laxmi Rice Mills Ambala City [(2015) 64 taxmann.com 75 (SC)]. This aspect was specifically brought to the norice of the fint respondent by making wrinen submission i i I J I ,-I ! 7. on 02.06.2022. Flowever, ignoring the above, impugned order came to be passed. Issue shon notice to the respondents. Mr. B.Narasimha Samm\", Ieamed Standing Counsel. Income Tax Depanment waives notice for both the respondents. List this rutter on 23.12.2022 for admission hearing high on boarC when an endeavour may be made to hear the mamer. 8. On 23.12.2022, learned counsel for the respondents sought for time to obtain instructions. This is how, the matter is listed todav. 9. Learned Senior Counsel for the petitioner has drawn the attention of the Cout to the provisions of Section 271D as well as Section2718 of the Act. He submits that not onlythe two provisions are ln para mateia, rather Section 27LE cart be said to be complimentaryto Section 27lD of the Act. X&ile penalry under Section 271D of the Act is imposable ona / person accepting loan or deposit in contravention of the provisions of Section 26955 of the Act, Secrion 27lE of ::5:: 6 the Act would be attracted or applicable on a person maki.g 10. Referring to the decision of the Supreme C-ourt in Jai Laxmi Rice Mills Ambala Ciry (1 supra), leamed Senior Counsel for the petitioner submits that in the facs of that case, order of penalty was passed under Section 27lE based the original assessment ordeq however, the original on assessment order was set aside in appeal; therefore, the satisfaction recorded in the original assessment order no longer survived; h the absence of such satisfaction, penalry proceedings under Section 27lE of the Act would also not survive; the view taken by the F[gh Coun was accordingly upheld whereafter, it was clarified that penaity under Section 27lE of the Act without any recorded satisfaction cannot be levied. 1,1. Referring to the impugned order, leamed Senior Counsel for the petitioner submits that respondent No.1 I the loan or deposit. 7 evaded the point raised by the petitioner that no penalty could be levied under Section 271D of the Act without any recorded satisfaction basing on the decision of the Supreme Instead, respondent No.1 referred to earlier decision of the Kerala FIgh Court in Grihalaxmi Vision v. Addl. Commissioner of lncome T axz in support of his decision. 12. On the other hand, learned counsel for the respondents submits that evidentlythere was violation of Section 26955 of the Act, which attracted penalry under Section 27lD of the Act respondent No.1 had rightly imposed the penalry no case for interference is made out. 13. (/e have considered the rival submissions made at the bar 1.4. Issue raised in the writ petition is whether without satisfaction being recorded in the assessment order, penalty 2 Order dated 08,07.2015 passed by the Kerala High Court in ITA.Nos.S3 & 86 of 2014 C-ourt in Jai Laxmi Rice Mills Ambala City (1 supra). 8 can be levied by the Joint Commissioner under Section 271D of the Act ? 15. Insofar the present case is concemed, we find that in the assessment order dated 24.A3.2022 passed under Section 153A of the Act, retum of income filed by the petitioner was accepted by the assessing officer and accordingly, the total income was assessed. In the retum of income, petitioner had admitted receivhg total income of Rs.80,84,180.00 which was also accepted bythe assessing officer. 16. Subsequendy respondent No.1 took the view that consideration of Rs.92,13,000.00 out of which he had accepted cash to the tune of Rs.82,80,000.00 v4rich was in violation of Section 26955 of the Act, attracting penalty under Section 271D of the Act. 17. Before we advert to the reply submitted by the 'I t petitioner, we may mention that under Section 26955 of the I I petitioner had sold immovable properties for a total sale i I l a 9 Act, no person shail take or accept from any other person (referred to as a depositor) any loan or deposit or any specified sum otherwise than by an account payee cheque or account payee bank draft or use of electronic clearing s)6tem through a bank account or through such other eiectronic mode as may be prescribed, if the amount of such loan or deposit or specified sum is twenty thouand nrpees or more. However, as per the first proviso, the rigor of Section 26955 is not applicable to the Govemment, banking company, post office savings bank or cooperative bank etc. As per the second proviso, this provision would also not be applicable where both the depositor and the receiver are having agricultural income and neither of them has any income Ehargeable to tax under the Act. 18. Section 27lD of the Act deals wih penalryfor failure to I comply with the provisions of Section 26955 of the Act. Section 271D of the Act being relevant is extracted hereunder: I t Penalty for failure to comply urith the provisions of section 26955. 271D. (l) If a person takes or accepts any loan or deposit [or specified sum] in contravention of the provisions of section 26955, he shall be Iiable to pay, by way of penalry a sum equal to the amount of tle loan or deposit [or specified sum] so talen or accepted.] t@) a\"y penaby imposable under sub- section (1) shall be imposed by the [Joint] C-ommissioner.] 19. Thus, what sub-section (1) of Section 271D provides for is that if a person takes or accepts any loan or deposit or specified amount in contravention of the provisions of Section 26955, he shall be liable to pay by way of penalry, a sum equal to the amount of the loan or deposit or specified sum so mken or accepted. Sub-section (2) clarifies that ary penalty imposable under sub-section (1) shail be imposed by the Joint Commissioner. I I I I ::10:: ::11:: 20. It would be useful to refer to Section 27lE of the Act also at this stage which deals with penalty for failure to comply with the provisions of Section 269T of the Act. Be it stated that Section 269T of the Act provides that no branch of a banking company or a coopeftttive bank and no other company or cooperative society and no firm or other Person shall repay any loan or deposit made with it or any specified advance received by it otherwise than by an account payee cheque or account pape bank draft drawn in the name of the person r4ro had made the loan or deposit or who had paid the specified advance or by use of electronic clearing s).ttem through a bank account or through such other electronic mode as may be prescribed, if such an amount is twenty thousand rupees or more. As in the case of Section 26955, Section 269T of the Act also does not apply to the Govemment, banking company, post office savings bar,k etc. Section 27lE o{ the Act reads as under: { t ..1.'.. Penalty for failure to comply with the provisions of section 269T. 2718. l(l)) If a penon repa)s any [loan or] deposit [or specified advance] referred to in section 269T other-wise than in accordance with the provisions of that section, he shall be liable to pay, by way of penalry a sum equal to the amount of the floan or] deposit [or specified advancel so repaid.] [(2) Any penahy impos able under sub-section (1) shall be imposed bythe [Joint] C-ommissioner.l 21. Thus, sub-section (1) of Section 27lE of the Act provides that if a percon repa)6 any loan or deposit or specified advance referred to in Section 269T of the Act otherwise than in accordance with the provisions of that section, he shall be liable to payby way of penalry a sum equal to the amount of the loan or deposit or specified advance so repaid. Sub-section (2) clarifies that any penalry imposable under sub-section (1) shall be imposed by the Joint C-ommissioner. { I ::13:: 22. From an analpis of Sections 271D and2TlE of the Act, it is seen that both the provisions are pai materia to each other. X/trile Section 271D of the Act would be attracted on a person accepting loan or deposit or specified sum in contravention of Section 26955 of the Act, penalry under Section 27lE of the Act vrould be imposable on a person u,&o makes or repa)6 the loan or deposit or specified advance in contravention of Section 269T. Therefore, in a way, the two provisions are complimentaryto each other. 23. In Jai Laxmi Rice Mills Ambala City (supra), Supreme Court considered the question as to whether penalty proceedings under Section 271D of the Act is independent of the assessment proceeding ? In the facts of that case, it was found that the penalty order was issued following the assessment order. However in appeal, C-ommissioner of Income Tax (Appeals) had set aside the original assessment order with a direction to frume assessme nt de noao. In the fresh assessment order, no satisfaction was recorded by the .,14:.. assessing officer regarding initiation of penalty proceedings under Section 27lE of the Act. It was noticed that the penaity order was passed before the appeal of the assessee was allowed by the C-ommissioner of Income Tax (Appeals). It was in that context that Supreme Court held as follows: The Tribunal as well as the High Court has held that it could not be so for dre simple reason that when the original assessment order itself was set aside, the satisfaction recorded therein for the purpose of initiation of the penalty proceeding under Section 27lE worid also not survive. This according to us is the correct proposition of law stated by the FIgh C-oun in the impugned order. As pointed out above, insofar as, fresh assessment order is concemed, there was no satisfaction recorded regarding penaby proceeding under Section 27lE of the Act, though in that order the Assessing Officer wanted penaky proceeding to be initiated under Section Z7l(L)(c) of the Act. Thurs, insofar as penalty under Section 2718 ts concemed, ir was without any satisfaction and, therefore, no such ) \", i I I ::15:: peralry could be levied. These appeals are, accordingly, dismissed. 24. Reverting back to the facs of the present case, we find that petitioner had submitted reply to the show cause norice on OZ.O6.2OZZ. In his reply, petirioner mentioned that no satisfaction was recorded by the assessing officer in the assessment order as to infraction of Section 259SS of the Act. Therefore, no penalty could be levied under Section 27lD of the Act without recorded satisfacdon. In this corulection, reference was made to the decision of the Supreme Court in Jai Laxmi Rice Mills Ambala Ciry (1 supra) wherein it was clarified that provisions of Section 271E are inpai nateia uith the provisions of Section 27lD of the Act. However, this aspect of the matter was not considered by respondent No.1 while passing the impugned order. Respondent No.1 relying upon the Kerala F[gh C-ourt decision in Grihalaxmi Yision (2 supra) noted that comperent authority to levy n penalry is the Joint C-ommissioner. FIe has also referred to an :tl6t1 earlier decision of the Supreme C-oun in CIT V. Mac Data Ltd.3 wherein it was observed that assessing officer has to satisfy himself as to whether penalry proceedings should be initiated or not. Assessing officer is not required to record his satisfaction in a particular manner or reduce it into writing. Therefore, respondent No.1 imposed the penalry under Section 271D o{ the Act. 25. We are a{raid respondent No.1 had completely overlooked the decision of the Supreme Court in Jai Laxmi Rice Mills Ambala Ciry (1 supra). In the said decision as extracted above, Supreme C-ourt had concurred with the view taken by the F[gh C-ourt holding that satisfaction must be recorded in the original assessment order for the purpose of initiation of penalty proceedings under Section 271F. of the Act. We have already discussed above that provisions of Section 277E and2TlD of the Act are rnpai materia. Wherr there is a decision of the Supreme C-ourt, it is the bounden t, 3 (2013) 352 ITR 1 iil7il duryof an adjudicating authoriry be it an income tax authoriry or anyother civil authorityor for that nlatter anycourt in the country to complywith the decision of the Supreme C-ourt' 26. Article 141 of the C-onstitution of India is clear that law declared by the Supreme Court shall be binding on all courts within the territory of India. This is further clarified in Article 144, v4rich sap that all authorities, civil and judicial, in the territory of India shall act in aid of the Supreme C-oun. (e are therefore, of the unhesitant viewthat respondent No.1. overlooked the relevant considerations w&ile passing the impugned order dated.29.11.2022. 27. F:llther, issue in the present writ petition is not the competence of the Joint C-ommissioner in issuing the order of penalty. Therefore, reference to Grihalaxmi Vision (2 supra) was wholly unnecessary. I : :18: : 28. Consequently, we set aside the impugned order dated 29.1.L.2022 and remand the matter back to the file of respondent No.1 to pass a fresh order in accordance with law after giving a reasonable opportuniry of hearing to the Petrtloner. 29. Writ Petition is accordinglyaliowed. No costs. As a sequel, miscellaneous petitions, pending iI any, stand c.los.d sor-n).Pnasro ASSISTANT]RFGISTRAR sec?roff3-rrrcen To //TRUE COPY// Affairs, New Delhi. 5. The Secretary, Telangana Advocates Association Library, High Court One Fair Copy to The Hon'ble THE CHIEF JUSTICE UJJAL BJUYAN ' lFor l'tis Lordship-s Kind Perusal) . AND One Fair Copy to The Hon'ble Sri Justice C'V'BHASKAR REDDY ' lfor Xis LordshiPs Kind Perusal) 1. The Joint Commissioner of lncome Tax' Central Circle' Central Range - 2' Aavakar Bhawan, oppotii\"'i-a SiioiJm' easr'eer Bagh' Hyderabad' Te[anoana - 500004. 2. ;;;i:t\"r;itoil]iLiion\"' of lncome Tax' c-entral circle' Central circle - 2 (4)' Aavakar Bhawan, opposite'LB SiiaiJni, easneer Bagh' Hyderabad' Telangana - 500004. 3. 11 LR CoPies. i. ff\"l\" UnOdr. Secretary, Union of lndia Ministry of Law' Justice and Company Buildings, HYderabad 6. &;CE to Snin.s.nssoclATES,ndvocale tg-Pu-ci-. ^- i. il; dc i; 5Ri e.r'rniinsrr,ruA sAnun' Advocate [oPUC] 8. Two CD CoPies PSK. r GJP A/-.^ / HIGH COURT DATED:2611212022 ORDER ALLOWING THE WRIT PETITION WITHOUT GOSTS. sTAl.t p,'t 4; r-j x 1 i[il ?[?3 * CL) WP.No.44285 of 2022 I I @c6?'6 N ,&- ffi\" "