The assessment in which the s.271E satisfaction was recorded has been set aside. Can the penalty stand?
No. The Supreme Court held that once the original assessment order was set aside, the satisfaction recorded in it for initiating penalty under s.271E did not survive, and a penalty imposed on the basis of that order could not be sustained.
Decided by the Supreme Court (Supreme Court of India - A.K. Sikri and Rohinton Fali Nariman, JJ.) on 2015-11-20, reported as [2015] 64 taxmann.com 75 (SC)/[2016] 237 Taxman 375 (SC)/[2015] 379 ITR 521 (SC)/[2016] 286 CTR 159 (SC); Civil Appeal Nos. 1457 of 2008 and 3614 of 2012. It bears on section 271E, section 269SS, section 271D, section 271(1)(c) of the Income Tax Act 1961, in Penalty and Cash Transaction Limits matters.
It gives a clean, short answer to a s.271D or s.271E penalty in every file where the assessment has been set aside or remanded and the fresh order records nothing about the cash. The department's usual answer is that penalty proceedings are independent of assessment; this decision does not disturb that, but it locates the satisfaction in the order that was set aside and lets it fall with that order.
Binding on every court and authority in India.
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For assessment year 1992-93 an ex parte assessment order was passed on 26 February 1996, on information from the Central Information Branch that the assessee was engaged in large-scale purchase and sale of wheat but was not filing returns; net taxable income was assessed at Rs 18,34,584. In framing that assessment the Assessing Officer also observed that s.269SS had been contravened and recorded satisfaction for initiating penalty under s.271E. A show cause notice went out on the strength of that order and a penalty order was passed on 23 September 1996 - before the assessee's appeal against the assessment had been heard. The Commissioner (Appeals) then allowed the appeal and set aside the assessment order with a direction to frame the assessment de novo. On remand the Assessing Officer passed a fresh assessment order which recorded no satisfaction for penalty under s.271E, only for penalty under s.271(1)(c). The Tribunal and the High Court set the penalty aside and the Revenue appealed. Two assessment years, 1991-92 and 1992-93, were before the Court.
The Revenue's appeals were dismissed. The Court approved as correct the proposition stated by the High Court that when the original assessment order was itself set aside, the satisfaction recorded in it for initiating penalty under s.271E did not survive. It then gave its own short reason for the result: the fresh assessment order passed after remand recorded no satisfaction at all in relation to s.271E - the Assessing Officer had recorded satisfaction only for penalty under s.271(1)(c) - so the s.271E penalty was levied without any satisfaction and could not be levied.
The route is short, and the order takes it in two steps. The Court recorded that the Tribunal and the High Court had held the penalty could not survive because the satisfaction on which it rested was recorded in an assessment order that had been set aside, and said in terms that this was the correct proposition of law. It then looked at the fresh assessment order made after the remand and found that it recorded satisfaction for penalty under s.271(1)(c) but none under s.271E. On that footing the s.271E penalty stood without any satisfaction behind it and could not be levied.
insofar as, fresh assessment order is concerned, there was no satisfaction recorded regarding penalty proceeding under Section 271E of the Act, though in that order the Assessing Officer wanted penalty proceeding to be initiated under Section 271(1)(c) of the Act. Thus, insofar as penalty under Section 271E is concerned, it was without any satisfaction and, therefore, no such penalty could be levied.
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Handle my notice → Ask a CA on WhatsAppNo. The Supreme Court held that once the original assessment order was set aside, the satisfaction recorded in it for initiating penalty under s.271E did not survive, and a penalty imposed on the basis of that order could not be sustained. This was decided by the Supreme Court (Supreme Court of India - A.K. Sikri and Rohinton Fali Nariman, JJ.) and bears on section 271E, section 269SS, section 271D, section 271(1)(c) of the Income Tax Act 1961. It is reported as [2015] 64 taxmann.com 75 (SC)/[2016] 237 Taxman 375 (SC)/[2015] 379 ITR 521 (SC)/[2016] 286 CTR 159 (SC); Civil Appeal Nos. 1457 of 2008 and 3614 of 2012. It gives a clean, short answer to a s.271D or s.271E penalty in every file where the assessment has been set aside or remanded and the fresh order records nothing about the cash. The department's usual answer is that penalty proceedings are independent of assessment; this decision does not disturb that, but it locates the satisfaction in the order that was set aside and lets it fall with that order. If it applies to you, the first step is this: Get the fresh assessment order and check whether it records any satisfaction on the s.269SS or s.269T contravention; if it does not, take the point first.
For assessment year 1992-93 an ex parte assessment order was passed on 26 February 1996, on information from the Central Information Branch that the assessee was engaged in large-scale purchase and sale of wheat but was not filing returns; net taxable income was assessed at Rs 18,34,584. In framing that assessment the Assessing Officer also observed that s.269SS had been contravened and recorded satisfaction for initiating penalty under s.271E. A show cause notice went out on the strength of that order and a penalty order was passed on 23 September 1996 - before the assessee's appeal against the assessment had been heard. The Commissioner (Appeals) then allowed the appeal and set aside the assessment order with a direction to frame the assessment de novo. On remand the Assessing Officer passed a fresh assessment order which recorded no satisfaction for penalty under s.271E, only for penalty under s.271(1)(c). The Tribunal and the High Court set the penalty aside and the Revenue appealed. Two assessment years, 1991-92 and 1992-93, were before the Court. The matter was decided on 2015-11-20 by the Supreme Court (Supreme Court of India - A.K. Sikri and Rohinton Fali Nariman, JJ.). On those facts the Supreme Court held as follows. The Revenue's appeals were dismissed. The Court approved as correct the proposition stated by the High Court that when the original assessment order was itself set aside, the satisfaction recorded in it for initiating penalty under s.271E did not survive. It then gave its own short reason for the result: the fresh assessment order passed after remand recorded no satisfaction at all in relation to s.271E - the Assessing Officer had recorded satisfaction only for penalty under s.271(1)(c) - so the s.271E penalty was levied without any satisfaction and could not be levied.
The route is short, and the order takes it in two steps. The Court recorded that the Tribunal and the High Court had held the penalty could not survive because the satisfaction on which it rested was recorded in an assessment order that had been set aside, and said in terms that this was the correct proposition of law. It then looked at the fresh assessment order made after the remand and found that it recorded satisfaction for penalty under s.271(1)(c) but none under s.271E. On that footing the s.271E penalty stood without any satisfaction behind it and could not be levied. In the words reproduced by the source cited on this page: "insofar as, fresh assessment order is concerned, there was no satisfaction recorded regarding penalty proceeding under Section 271E of the Act, though in that order the Assessing Officer wanted penalty proceeding to be initiated under Section 271(1)(c) of the Act. Thus, insofar as penalty under Section 271E is concerned, it was without any satisfaction and, therefore, no such penalty could be levied."
It was decided by the Supreme Court on 2015-11-20 and is reported as [2015] 64 taxmann.com 75 (SC)/[2016] 237 Taxman 375 (SC)/[2015] 379 ITR 521 (SC)/[2016] 286 CTR 159 (SC); Civil Appeal Nos. 1457 of 2008 and 3614 of 2012. Binding on every court and authority in India. A Supreme Court decision binds every assessing officer, every Commissioner (Appeals), every bench of the Income Tax Appellate Tribunal and every High Court in India. An officer who declines to follow it is acting contrary to law, and that refusal is itself a ground of appeal. On section 271E, section 269SS, section 271D, section 271(1)(c), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The Revenue's appeals were dismissed. The Court approved as correct the proposition stated by the High Court that when the original assessment order was itself set aside, the satisfaction recorded in it for initiating penalty under s.271E did not survive. It then gave its own short reason for the result: the fresh assessment order passed after remand recorded no satisfaction at all in relation to s.271E - the Assessing Officer had recorded satisfaction only for penalty under s.271(1)(c) - so the s.271E penalty was levied without any satisfaction and could not be levied. It arises in Penalty and Cash Transaction Limits matters, on section 271E, section 269SS, section 271D, section 271(1)(c) of the Income Tax Act 1961, and was decided by Supreme Court of India - A.K. Sikri and Rohinton Fali Nariman, JJ.. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Put the chronology on record - the original order, the order setting it aside, the fresh order, the date of the penalty notice - because the argument is entirely one of sequence. Take the same point where the penalty was founded on an assessment that has since been annulled, and not only where it was remanded. Keep the reasonable cause plea under s.273B in the alternative, since this point does not reach the merits of the cash transaction.
Still good law. Applied by the Rajasthan High Court in Sunil Agrawal v. ACIT [2025] 172 taxmann.com 54 (Raj.), D.B. Civil Writ Petition No. 1102/2025, decided 30 January 2025, which quashed a s.271E notice because the satisfaction had been recorded by the Assistant Commissioner after the reassessment was over rather than in the reassessment order, and treated the issue as covered by this decision. Nothing found doubts it. Note what is being applied: the proposition the Court approved at para 4, that a satisfaction recorded in an order which is set aside does not survive, rather than the Court's own narrower reason at para 5. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
This is a five-paragraph order, not a reasoned judgment, and how it is quoted matters. The sentence usually attributed to it - that the satisfaction recorded in an assessment order which is set aside does not survive - is at para 4, where the Court is summarising what the Tribunal and the High Court held before saying 'This according to us is the correct proposition of law stated by the High Court in the impugned order.' Approved, but not the Court's own formulation. The Court's own operative reason is at para 5: the fresh assessment order made after remand recorded satisfaction only for s.271(1)(c) and none for s.271E. So the decision answers the case where the fresh order is silent; it says nothing about a fresh assessment that does record satisfaction. Two oddities on the face of the order are worth knowing before citing it. It frames the question at para 1 as whether penalty under s.271D is independent of the assessment proceeding, then decides everything under s.271E. And the default found by the Assessing Officer was a contravention of s.269SS, whose penalty is s.271D, while the penalty levied and set aside was under s.271E. The order never resolves either mismatch, and never answers the independence question it poses. The order does not decide what happens where the fresh assessment order does record satisfaction under s.271E - that case is untouched. It never answers the question it sets itself at para 1, whether a penalty proceeding is independent of the assessment proceeding. It says nothing about limitation; for that the library holds cit-v-worldwide-township-projects-269ss-journal-entry and the concept section-275-limitation-for-a-penalty-order. And it leaves unexplained why a contravention of s.269SS, which attracts s.271D, was met with a penalty under s.271E. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The Revenue's appeals were dismissed. The Court approved as correct the proposition stated by the High Court that when the original assessment order was itself set aside, the satisfaction recorded in it for initiating penalty under s.271E did not survive. It then gave its own short reason for the result: the fresh assessment order passed after remand recorded no satisfaction at all in relation to s.271E - the Assessing Officer had recorded satisfaction only for penalty under s.271(1)(c) - so the s.271E penalty was levied without any satisfaction and could not be levied.
Every entry in this library links to where it was found, so you can check it yourself rather than take our word for it.
You took a cash loan and now face penalty equal to the whole amount. Is there any relief?
Valuables were found at my premises and I say they are not mine. Who has to prove ownership?
Is penalty under s.271(1)(c) criminal, quasi-criminal or civil?
The officer disallowed your claim. Does a disallowance automatically bring penalty with it?