Penalty u/s 271DA – Requirement of Recording Satisfaction for Violation of Section 269ST – ITAT Delhi Dismisses Revenue’s Appeal

(ACIT v. Seven Seas Hospitality Pvt. Ltd., ITA Nos. 2225 & 2226/Del/2025, dated 14.11.2025)**

1. Background

The Revenue filed two appeals against the orders of CIT(A)-30, New Delhi deleting penalty imposed u/s 271DA for alleged violation of Section 269ST on the basis that the Assessing Officer had not recorded any satisfaction in the assessment order regarding such violation.

The core issue in both appeals was whether penalty u/s 271DA can be sustained if the AO has not recorded satisfaction in the assessment order regarding violation of Section 269ST.

The DR argued that Section 271DA does not require satisfaction to be recorded, and therefore, penalty initiated by the Joint Commissioner on reference from the AO was valid.

2. Facts in Brief

• A search was conducted on the Seven Seas Group on 03.05.2018.

• Alleged unaccounted sales were quantified by the AO.

• Assessment order u/s 153A was passed without any satisfaction or reference regarding violation of Section 269ST or initiation of penalty u/s 271DA.

• Penalty notices were later issued by the JCIT based on a report of DCIT, and penalty of ₹12.40 crore was imposed u/s 271DA.

The assessee argued that the penalty was void since:

• No satisfaction for violation of Section 269ST was ever recorded in the assessment order.

• Penalty u/s 271DA is pari materia to penalty u/s 271D/271E, and thus the Supreme Court judgment in CIT v. Jai Laxmi Rice Mills (379 ITR 521) applies.

CIT(A) accepted this contention and quashed the penalty.

Revenue appealed before ITAT.

3. Core Issue:-Whether recording of satisfaction in the assessment order is a pre-condition for initiation of penalty u/s 271DA for violation of Section 269ST?

4. Key Legal Principles Applied

4.1 Pari materia – 271DA aligned with 271D / 271E

ITAT accepted CIT(A)’s finding that:

• Purpose of Sections 269ST and 269SS/269T is identical – restriction on cash transactions to curb black money.

• Therefore, penalty provisions u/s 271DA, 271D, 271E are pari materia.

Thus, jurisprudence on 271D/271E applies equally to 271DA.

4.2 Supreme Court in CIT v. Jai Laxmi Rice Mills (2015) 379 ITR 521 (SC)

ITAT relied heavily on this binding judgment:

Ratio:

• If assessment order does not contain satisfaction of AO for initiating penalty u/s 271D/271E, penalty is invalid.

• Even after a fresh assessment, fresh satisfaction is mandatory.

Held applicable to 271DA

CIT(A) and ITAT held that Jai Laxmi Rice Mills applies equally to 271DA because:

• AO is the primary authority who examines facts.

• JCIT cannot independently initiate penalty without AO’s satisfaction.

• Absence of satisfaction → penalty void.

4.3 CBDT Circular No. 09/DV/2016 dated 26.04.2016

CIT(A) and ITAT both held:

• The Circular deals only with limitation u/s 275(1)(c).

• It does not override Supreme Court law on satisfaction requirement.

• Circular relied on Kerala HC decision in Grihalaxmi Visions, which predated the Supreme Court ruling in Jai Laxmi Rice Mills.

• Hence Circular is per incuriam to the extent inconsistent with Supreme Court ruling.

JCIT vs Smt. S.B. Patil ITA no. 200004/2016 by Hon’ble High court of Karnataka dated 26/03/2018

3. Grandhi Sri Venkata Amarendra ns JCIT 167 taxmann.com 352 by Hon’ble High court of Andhra Pradesh dated 03/10/2024

4. ACIT center circle 5 New Delhi vs M/s Narsi Iron & Steel pvt.ltd. ITA no. 2866/DEL/2013 ITAT Delhi dated 29/06/2018

5. ITO vs Smt. Lakshmi Vishwanath vs Additional CIT Range 64 New Delhi ITA no. 3115/DEL/2017 dated 06/11/2017

6. Shri Lal Singh Chouhan vs JCIT ITA no. 104/IND/2020 dated 27/07/2021 ITAT Indore bench

7. Pritvi Singh Poonia vs JCIT ITA no. 3109/AHD/2015 ITAT Ahmedabad dated 21/03/2017

Decision:- ITAT Delhi dismissed Revenue’s appeals holding:

When the Assessing Officer does not record satisfaction in the assessment order regarding violation of Section 269ST, penalty u/s 271DA cannot be imposed.

Penalty order was correctly quashed by the CIT(A).