The Supreme Court of India in PCIT vs Parivar Television Pvt. Ltd. has dismissed the Revenue’s Special Leave Petition and upheld the deletion of the penalty imposed under Section 271D of the Income-tax Act, 1961, on the ground that the assessment order did not record any satisfaction for initiating penalty proceedings. 

Facts of the Case:
The dispute arose out of a search on the Jayraj Group, including premises of Parivar Television Pvt. Ltd. A block assessment order was completed on 31 December 2003 for the period from 1 April 1995 to 19 December 2001, determining undisclosed income. The assessment order did not refer to initiating penalty proceedings under Section 271D for alleged violation of Section 269SS relating to receipt of cash loans or deposits. 

Subsequent to the assessment, a reference was made on 14 May 2004 and the Additional Commissioner imposed penalty under Section 271D on 20 June 2005. The Commissioner of Income Tax (Appeals) upheld the penalty in 2006, and on further appeal, the Tribunal remanded the matter to the CIT(A) for examination of additional evidence. The CIT(A) partially confirmed the penalty in 2016, following which the assessee again appealed to the Tribunal. 

Contentions and Tribunal Decision:
The assessee contended that no satisfaction regarding initiation of penalty proceedings under Section 271D was recorded in the original assessment order and relied on the Supreme Court’s decision in CIT v. Jai Laxmi Rice Mills, which held that absence of recorded satisfaction renders a penalty under Section 271E unsustainable. Since Sections 271D and 271E are pari materia, the same principle was urged to apply. The Tribunal found that the Assessing Officer had not referenced Section 271D nor recorded satisfaction for penalty initiation in the assessment order and quashed the penalty. 

Revenue’s Challenge and Supreme Court Ruling:
The Revenue challenged the Tribunal’s decision before the High Court under Section 260A, raising substantial questions of law regarding the application of Jai Laxmi Rice Mills and the Tribunal’s focus on absence of recorded satisfaction. The High Court upheld the Tribunal’s decision based on the binding Supreme Court precedent that penalty proceedings must be founded on satisfaction recorded in the assessment order, and where such satisfaction is absent or the order containing it is set aside, the penalty cannot survive. 

On appeal to the Supreme Court via Special Leave Petition, the Court noted that the High Court’s reliance on Jai Laxmi Rice Mills fully covered the issue. Finding no merit in the petition, the Supreme Court dismissed it and disposed of pending applications. Consequently, the Court confirmed that penalty proceedings under Section 271D cannot be sustained without satisfaction recorded in the assessment order and any penalty imposed without such foundation is legally invalid. 

Principle Established:
Penalty proceedings under Section 271D must be based on satisfaction regarding contravention of Section 269SS recorded in the assessment order itself. Absence of such recorded satisfaction invalidates the penalty.