Jayapriya Company v. DCIT

Case snapshot

Sections / provisions: 271D

Questions before the Court / Tribunal

• Limitation for section 271D penalty: The reported decision concerns when limitation starts for a section 271D penalty and treats the Assessing Officer's satisfaction/initiation date as controlling on the facts, rendering the penalty time-barred.

Material facts and background

search action u/s 132 of the Act was conducted on Jayapriya group on 1612-2021. In the course of search, it was inter alia unearthed that, the assessee was using a remote (cloud) server. It was revealed that, the server contained a folder titled ‘DATA’ which inter alia included data pertaining to Jayapriya Company under the head ‘Investments’. According to the AO, the data also contained entries indicating receipt of ‘FD’ (fixed deposits) of Rs. 43,20,84,277/- from 153 persons. It was brought to our notice that, the Investigating authorities had randomly examined some of these persons, all of whom had denied placing any deposit or FDs with the assessee. Thereafter, the case of the assessee for the relevant year was taken up for scrutiny. The AO while completing the assessment, is

ITA No.1899/Chny/2025 & CO No.65/Chny/2025 (AY 2021-22) Jayapriya Company

:: 3 :: observed to have recorded his satisfaction at Para 11 [Page 66] of the assessment order that, the assessee had accepted fixed deposits in cash to the tune of Rs. 43,20,84,227/- during the FY 2020-21 in violation of provisions of section 269SS and which consequently attracted provisions of penalty u/s 271D of the Act. The AO in his satisfaction expressed stated that, the assessee has received cash FD’s to the tune of Rs.43.20 Cr. in violation of Section 269SS of the Act, and hence he is referring this issue to Additional Commissioner for initiation of penalty u/s.271D of the Act. The relevant Para 11 of the assessment order dated 30-12-2022 reads as under:11. Acceptance of Fixed Deposits in cash: During the course of search and seizure proceedings at No:30, Jayapriya Chit Funds Building, Main Road, Neyveli, Cuddalore Dist, Tamilnadu - 607802, a remote server (Cloud server - 103.214.132.40) was identified, data was copied and the same was seized vide annexure ANN/PVD/JPCF/ED/S. Further, on perusal of the same, it is found that the assessee group has received cash FDs during the FY 2020-21 was Rs. 43,20,84,227 which is in violation of Section 269SS of the IT Act. Hence, this...

It is seen that, the above assessment order was passed after

obtaining prior approval from Addl. CIT, Central Range – 2, Chennai and this approval is discernible from Para 17 [Page 67] of the assessment order. It was brought to our notice that, the AO accordingly forwarded the proposal to the Addl. CIT (the competent authority) to initiate and levy penalty u/s 271D of the Act.

have issued show cause dated 10.02.2023 & 27.04.2023 upon the

Appellant / assessee submissions

For this, the Ld. AR relied on CBDT Circular No. 10/2016

:: 8 :: Ld. AR, it is not in dispute that, the date for the first limb (a) of Section 275(1)(c)works out to 31-03-2023 and that, the dispute relates to the second limb (b) viz., when does the six month period from the end of the month in which action for imposition of penalty is initiated, expires. The Ld AR pointed out that, the Act has not provided the methodology to be followed for initiating penalty proceedings u/s 27D of the Act viz., how, when and by whom and therefore, according to him, the same needs to be interpreted from the language of provisions governing penalties, from analogous provisions and reported judicial decisions. In the opinion of the Ld. AR, the date on which ‘action for imposition of penalty is considered as initiated’ is to be reckoned is with reference to the date on which the AO recorded his satisfaction in the assessment order for initiation of penalty u/s 271D of the Act i.e. 30-12-2022. He submitted that, in order to levy penalty, the Courts have consistently held that, there has to be a satisfaction recorded by the AO in the assessment order for the Jt/Addl. CIT to levy penalty u/s 271D of the Act and in absence of the same, any show cause issued or...

11. Another important aspect pointed out in the context of the present case by the Ld. AR was that, the assessment order dated 30-12-2022 which contained express satisfaction for initiation of penalty u/s 271D of the Act was passed by the AO with the prior approval of Addl. CIT [Para 17 / page 67 of the assessment order]. The Ld. AR thus submitted that, the approval accorded by the Addl. CIT, Central Range – 2, Chennai shows that, even the Addl. CIT was prima facie convinced and satisfied about contravention of section 269SS attracting penalty u/s.271D after verification of seized material and draft assessment order and therefore not only was the Addl. CIT aware of the purported contravention of law by the assessee but was also a party to the decision of arriving at satisfaction and recording a finding of fact for initiation of penalty proceedings u/s 271D in the assessment order dated 30-12-2022. The Ld. AR thus asserted that, the date of recording the satisfaction by the AO in the assessment order [after obtaining approval from Jt./Addl.CIT]

Revenue / respondent submissions

:: 20 :: 4. Learned counsel for the petitioners submitted that the issue involved that penalty under section 271D cannot be imposed if there was intent of AO to do so, is covered by decision of the Supreme Court in Jai Laxmi Rice Mills Ambala City (supra). 5. Learned counsel for the respondent submitted that reply filed in the present writ petition is adopted in all the connected matters. Reliance is placed upon the annexures filed with the reply to the submit that the Deputy Commissioner of Income Tax (hereafter 'DCIT') vide communication dated 01.08.2024 referred the matter to the ACIT for imposition of penalty under section 271E and the ACIT on 24.09.2024 recorded the satisfaction. It is argued that there is no requirement under section 271E for assessing officer (hereinafter 'AO') to record the satisfaction. The counsel is not able to distinguish the citation relied upon by counsel for the petitioner. 6. The reassessment order was passed on 12.03.2024 and no satisfaction was recorded for initiating the penalty proceedings under Section 271E. 7. The reliance on the reference made by the DCIT to ACIT on 01.08.2024 shall not enhance case of the department as the reference was...

:: 22 :: 21. This may yet be viewed from another angle. Going by the proposition propounded by the Revenue, if the date of recording of satisfaction by the AO [mandatory pre-requisite, as held above] is to be discarded and the date on which the Jt./Addl CIT first issues notice is to be considered, then it would lead to an anomalous situation, where the Jt./Addl CIT gets a free hand to extend the period of limitation to suit his own sweet will, as the limitation would only start when he first issues the notice, which may also be several years subsequent to the discovery and recording of satisfaction by the AO. In our considered view, such an interpretation is incongruous. In support, we gainfully refer to the decision of the Hon’ble Delhi High Court in the case of PCIT v. Thapar Homes Ltd (supra), wherein it was held that that once revenue decided to trigger penalty proceedings against assessee by recording satisfaction/finding of fact regarding violation of section 269SS, it is incumbent upon it to keep an eye on limitation period prescribed under section 275(1)(c) and it could not extend period of limitation as prescribed under section 275(1)(c) by deciding at its whim and fancy...

Court / Tribunal analysis and reasoning

:: 15 :: in each case, even though the Act does not give such discretion to any authority. Moreover, in the third situation, the question would be whether the competent authority would be divested of jurisdiction to proceed with passing the order imposing penalty as no communication was received by him. The Ld. AR therefore submitted that, such situation(s) cannot be envisaged under the law that, the date of communication by AO is to be considered as the date of commencement of proceedings u/s 271D. The Ld. AR thus reiterated that, the limitation period provided u/s 275 does not depend upon the date of communication of initiating proceedings to the competent authority by the AO but on the date of recording satisfaction/finding of fact by the AO.

:: 16 :: assessment or other orders which are the subject matter of revision u/s 263 or 264. Clause (c) covers other cases viz., penalty proceedings in other cases. It is seen that, the CBDT in their Circular No. 10/2016 (supra) has clarified that, the time limits laid down in Section 275(1)(c) would apply for levying penalty under section 271D / 271E of the Act. The relevant portion of the Circular (supra) is reproduced as under: “The issue whether the limitation for imposition of penalty under sections 271D and 271E of the Income-tax Act, 1961, (hereinafter referred to as the Act) is determined under section 275(1)(a) or section 275(1)(c) of the Act, has given rise to considerable litigation. 2. The Hon'ble Delhi High Court in the case of Commissioner of Income Tax v. Worldwide Township Projects Ltd., vide its order dated 21-5-2014 in ITA No. 232/2014, considered the issue and observed that, "It is well settled that a penalty under this provision is independent of the assessment. The action inviting imposition of penalty in acceptance of loans above the prescribed limit otherwise than through banking channels and as such infringement of Section 269SS of the Act is not related to...

:: 17 :: 19. In view of the above Circular, which is binding upon all income-tax authorities including the AO, we are of the considered view that, the time limit for passing the penalty order u/s 271D of the Act, is required to be reckoned in terms of Section 275(1)(c) of the Act. It is seen that, Section 275(1)(c) contain two limbs viz., (a) expiry of the financial year in which the act of imposition of penalty proceedings is initiated and (b) six months from the end of the month in which the penalty is initiated, whichever is later. Hence, the crucial aspect which is to be examined is which date is to be considered as the date on which ‘action for imposition of penalty is considered as initiated’. According to the Ld. AR, it is the date on which the satisfaction was recorded by the AO in the assessment order dated 30-12-2022 passed with the approval of Addl. CIT. Whereas, the Ld. CIT, DR is of the view that, the date on which the Jt.CIT issued the first notice i.e. 10.02.2023 is to be taken as the date of initiation of penalty proceedings u/s 271D of the Act. It is observed that, the ‘action for imposition of penalty’ under Section 271D of the Act, is not a one stroke process....

this series of steps, it is seen that, the most decisive and crucial step is the recording of satisfaction/finding of fact by the AO regarding violation of provisions of section 269SS and consequently attracting penalty u/s 271D, whether in the assessment order or otherwise. We find that the Hon’ble High Courts have consistently held that, the recording of satisfaction by the AO in the assessment order or otherwise, is mandatory and a condition precedent for commencement of penalty proceedings under section 271D/271E, and in absence of the same, the penalty proceedings shall stand vitiated in law. The relevant decisions taken note of by us, is as follows:-

Operative decision and relief

:: 34 :: Act. Hence, the same is hereby quashed. The additional ground of appeal taken by the assessee is therefore, allowed.”

Authorities and precedents appearing in the judgment

• CIT v. Jai Laxmi Rice Mills Ambala City
• Grandhi Sri Venkata Amarendra v. JCIT
• Sunil Agarwal v. ACIT
• Anil Sharma v. ITO
• Bhowmick Raj Singh v. JCIT
• CIT v. Hissaria Brothers
• PCIT v. Thapar Homes Ltd
• CIT v. Jitendra Singh Rathore
• PCIT v. Rishikesh Buildcon (P) Ltd
• PCIT v. JKD Capital &Finlease Ltd
• Shanbhag Restaurant v. DCIT
• Calcutta High Court in the case of CIT v. Narayani & Sons (P) Ltd

This list is machine-assisted from the judgment text and is not a substitute for checking the full citation chain in the PDF.

Ratio and legal principle

The decision turns on Limitation for section 271D penalty. The operative result is classified as Quashed Or Set Aside. Read the rule only with the statutory version, factual findings and precedent chain recorded in the full judgment.

Why this judgment matters

The case is relevant to taxpayers, advisers and litigators dealing with Limitation for section 271D penalty. Its practical value lies in the interaction between the statutory text, the evidentiary record and the procedural route followed in this case.

Practitioner action points

• Check the exact penalty charge in the show-cause notice, the assessment finding and the final penalty order; ambiguity or a changed statutory limb can be material.
• For litigation, attach the full judgment/order to the working paper and cite the paragraph/page supporting the proposition rather than relying on a headnote alone.

Full judgment and source trail

Read / download the clean local judgment copy

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