Court’s Decision
The Calcutta High Court granted an interim stay on penalty orders issued under Sections 271D, 271DA, and 271E of the Income Tax Act, 1961 against the petitioners, observing that the orders were passed without recording satisfaction of the Assessing Officer in the assessment orders regarding contravention of Sections 269SS, 269ST, and 269T. The Court held that prima facie, the absence of such satisfaction could render the penalty proceedings invalid and permitted the Income Tax Department to file affidavits with supporting material. The stay would continue until the end of August 2025 or until further orders.
Facts
Multiple writ petitions were filed by the petitioners challenging show-cause notices and consequential penalty orders under Sections 271D, 271DA, and 271E of the Income Tax Act for various assessment years, citing alleged violations of Sections 269SS, 269ST, and 269T regarding cash transactions. The petitioners contended that no satisfaction was recorded by the Assessing Officer in the respective assessment orders before initiating penalty proceedings, which is mandatory under law. The Income Tax Department argued that penalty proceedings were independent of assessment proceedings and could proceed even without such recorded satisfaction.
Issues
- Whether recording of satisfaction by the Assessing Officer in the assessment order regarding contravention of Sections 269SS, 269ST, and 269T is a mandatory precondition for initiation of penalty proceedings under Sections 271D, 271DA, and 271E.
- Whether the writ petitions were maintainable under Article 226 despite the availability of an alternative statutory remedy of appeal under Section 246A of the Income Tax Act.
- Whether the impugned penalty orders could be sustained in the absence of explicit recorded satisfaction by the Assessing Officer.
Petitioner’s Arguments
The petitioners argued:
- The penalty orders were invalid as they were issued without recording satisfaction regarding alleged violations in the assessment orders, which is mandatory per the Supreme Court’s judgment in Commissioner of Income Tax v. Jai Laxmi Rice Mills (2015) and Grandhi Sri Venkata Amarendra v. JCIT (2024 AP HC).
- Without such satisfaction, initiation of penalty proceedings is without jurisdiction and contrary to law.
- The writ petitions were maintainable under Article 226 even with the availability of an alternative remedy as the issue involved was a jurisdictional error, relying on Whirlpool Corporation v. Registrar of Trade Marks (1998) and Godrej Sara Lee Ltd. v. Excise Officer (2023).
- The department failed to provide certified copies of satisfaction notes despite requests, indicating non-compliance with statutory mandates.
Respondent’s Arguments
The Income Tax Department argued:
- An efficacious alternative remedy of statutory appeal under Section 246A was available, and the writ petitions should not be entertained.
- Penalty proceedings under Sections 271D, 271DA, and 271E are independent of assessment proceedings and do not require prior recording of satisfaction in assessment orders.
- The initiation of penalty was within the department’s jurisdiction, and the petitioners’ non-cooperation with the department could not be grounds for invoking Article 226.
- Even if satisfaction was not explicitly recorded, it could be examined from departmental records, and the satisfaction could be subjective or objective.
Analysis of the Law
The Court examined:
1. Article 226 of the Constitution, allowing writs despite alternative remedies in cases involving jurisdictional errors.
3. The mandatory requirement of recording satisfaction in assessment orders prior to penalty initiation as held in:
- Commissioner of Income Tax v. Jai Laxmi Rice Mills (2015) 64 taxmann.com 75 (SC)
- Grandhi Sri Venkata Amarendra v. JCIT (2024) 167 taxmann.com 352 (AP HC).
A. The precedents in Whirlpool Corporation (1998) and Godrej Sara Lee Ltd. (2023) allowing writs on pure questions of law. - CBDT Circular No. 09/DV/2016 clarifying departmental procedure for penalty initiation.
Precedent Analysis
- Commissioner of Income Tax v. Jai Laxmi Rice Mills (2015) – Held penalty under Section 271E cannot be sustained if satisfaction is not recorded in the assessment order.
- Grandhi Sri Venkata Amarendra v. JCIT (2024) – Reaffirmed the necessity of satisfaction recording in assessment orders before penalty initiation.
- Whirlpool Corporation (1998) and Godrej Sara Lee Ltd. (2023) – Clarified exceptions to the bar of alternative remedies where pure legal questions and jurisdictional errors are raised.
These precedents formed the backbone of the petitioners’ challenge and guided the Court’s interim order.
Court’s Reasoning
The Court noted:
- The core question involved was purely legal, requiring no factual dispute resolution.
- The petitioners demonstrated a prima facie case that the impugned penalty orders were passed without satisfaction being recorded in the assessment orders, potentially rendering them invalid.
- The statutory bar of alternative remedies did not apply due to the jurisdictional nature of the issue.
- The Court permitted the Income Tax Department to file affidavits or produce records to demonstrate the existence of recorded satisfaction.
- Pending the adjudication of the matter, it was appropriate to grant an interim stay on the penalty orders to protect the petitioners from coercive actions.
Conclusion
- The Calcutta High Court granted an interim stay on the operation of the penalty orders under Sections 271D, 271DA, and 271E of the Income Tax Act until the end of August 2025 or until further orders.
- Allowed the Income Tax Department to file affidavits or produce records to demonstrate satisfaction if recorded.
- Directed the matter to be listed in July 2025 for further hearing.
Implications
- Reinforces that penalty under Sections 271D, 271DA, and 271E requires satisfaction recording in the assessment order.
- Clarifies that jurisdictional errors can be challenged under Article 226 despite alternative remedies.
- Ensures interim protection for taxpayers facing penalty proceedings without statutory compliance.
Short Note on Referred Cases
- Jai Laxmi Rice Mills (2015) – Mandatory satisfaction recording before penalty under 271E.
- Grandhi Sri Venkata Amarendra (2024) – Reinforced satisfaction recording before penalty under 271D.
- Whirlpool Corporation (1998) and Godrej Sara Lee Ltd. (2023) – Jurisdictional challenges can bypass alternative remedy restrictions.
FAQs
- Is recording satisfaction necessary before imposing a penalty under the Income Tax Act?
Yes, as per the Supreme Court, the Assessing Officer must record satisfaction regarding contravention before initiating penalty proceedings under Sections 271D, 271DA, and 271E.
- Can a writ petition be filed against a penalty order despite the availability of statutory appeals?
Yes, if the issue involves a jurisdictional error or pure legal question, writs are maintainable despite alternative remedies.
- What did the Calcutta High Court decide regarding penalty orders in this case?
The Court granted an interim stay on penalty orders, observing that the absence of recorded satisfaction prima facie rendered the penalty proceedings unsustainable.