Section 271D Penalty Cannot Sustain Once Underlying Assessment is Quashed — Delhi ITAT Rules on Limitation Under Section 275(1)(c)
Case Background
Case Name: DCIT Vs Harish Kumar Agrawal (ITAT Delhi)
Relevant Assessment Year: 2020-21
Court: Income Tax Appellate Tribunal, Delhi
The Delhi Bench of the Income Tax Appellate Tribunal has delivered a significant ruling affirming that a penalty imposed under Section 271D of the Income Tax Act, 1961 cannot be sustained independently once the quantum assessment forming its very foundation has been quashed. The Tribunal also clarified the correct method for computing the limitation period under Section 275(1)(c), holding that the clock starts running from the date the Assessing Officer records his satisfaction in the assessment order — and not from the date on which the Joint Commissioner or Additional Commissioner issues the penalty notice.
Facts and Background of the Case
During the course of a search operation conducted on 17.08.2020 in the case of the Pranjil Batra Group, the Assessing Officer identified certain documents and materials that led to an addition of ₹86.50 lakhs as undisclosed cash consideration allegedly received by the assessee in connection with a property transaction. The Assessing Officer concluded that acceptance of such cash consideration was in violation of the provisions of Section 269SS of the Income Tax Act, 1961. On that basis, a penalty equivalent to the said amount was imposed under Section 271D of the Act.
Aggrieved by the levy, the assessee challenged the penalty before the CIT(A). During those proceedings, a material development occurred: the ITAT had already adjudicated the assessee's quantum appeal in ITA 5652/Del/2024 vide order dated 03.06.2025, wherein it quashed the underlying assessment order. The Tribunal's observation in the quantum proceedings was as follows:
"5. We adopt the above extracted detailed discussion mutatis mutandis to conclude that the Ld. Assessing Officer's identical section 153C satisfaction herein is non-est in the eyes of law, which shifts his assessment as well. Quashed accordingly."
Relying on this development and the binding precedent of the Hon'ble Supreme Court in CIT v. Jai Laxmi Rice Mills, the CIT(A) held that once the quantum assessment stood quashed, the satisfaction recorded therein by the Assessing Officer for initiating penalty proceedings was also obliterated. Consequently, the penalty under Section 271D was deleted.
Grounds Raised by the Revenue
The Revenue filed an appeal before the ITAT challenging the CIT(A)'s order on two primary grounds:
Independence of Penalty Proceedings: The Revenue contended that a penalty under
Section 271Doperates independently of the quantum assessment. The violation ofSection 269SS— which prohibits acceptance of certain loans, deposits, or specified sums in cash beyond prescribed limits — is a standalone infraction that does not hinge upon the validity of the assessment order. The Departmental Representative drew the Tribunal's attention to CBDT Circular No. 10/2016 dated 26.04.2016 and Circular No. 9/DV/2016 dated 26.04.2016 to buttress this argument.Computation of Limitation Period: The Revenue argued that the six-month limitation prescribed under
Section 275(1)(c)of the Act should be calculated from the date on which the Additional/Joint Commissioner of Income Tax initiated the penalty proceedings — not from the date the Assessing Officer recorded satisfaction in the assessment order.
Assessee's Submissions
The assessee's representative relied upon the findings recorded in the CIT(A)'s order and the precedents cited therein. The relevant extracts from the CIT(A)'s order are reproduced below: