Failure to Record Satisfaction and Violation of Section 269SS Precludes the Levy of Section 271D Penalties
Issue
Whether a penalty under Section 271D can be legally sustained when the Assessing Officer (AO) fails to record a specific finding of a Section 269SS violation or express “satisfaction” regarding penal consequences during the assessment proceedings.
Facts
The Allegation: The case involved a purported violation of Section 269SS, which prohibits the acceptance of loans or deposits in cash exceeding ₹20,000.
The Penalty: The Joint Commissioner attempted to levy a penalty under Section 271D (equal to the loan amount) for this cash transaction.
High Court Observation: The High Court noted that the AO’s assessment order contained:
No specific finding that Section 269SS was violated.
No recorded “satisfaction” that the transaction warranted penal action.
The Appeal: The Revenue filed a Special Leave Petition (SLP) against the High Court’s order with a delay of 350 days.
Decision
Jurisdictional Prerequisite: The Court held that the Joint Commissioner cannot exercise jurisdiction to levy a penalty under Section 271D unless the AO has first laid the foundation by recording a finding of violation and expressing satisfaction for penalty initiation during the assessment.
Delayed Filing: The Supreme Court noted a “gross delay” of 350 days in filing the SLP, which the Revenue failed to explain satisfactorily.
Merits of the Case: Even ignoring the delay, the Court found no “good reason” to interfere with the High Court’s ruling, as the procedural lapse (lack of recorded satisfaction) was fatal to the penalty proceedings.
Conclusion: The SLP was dismissed. [In favour of assessee]
Key Takeaways
The “Satisfaction” Rule: For a penalty to be valid, the AO must “trigger” the process during the assessment. If the assessment order is silent on the Section 269SS violation, a subsequent penalty notice is often considered void.
Section 269SS vs. 271D: While Section 269SS is the restrictive law (don’t take cash loans), Section 271D is the “punishment.” The bridge between the two is the AO’s formal satisfaction in the assessment order.
Limitation and Delay: This case highlights that the Supreme Court is increasingly intolerant of government delays in filing tax appeals (SLPs) without a valid, documented reason.