Penalty under Section 271D & 271E cannot stand once Quantum Additions are Deleted: ITAT Agra in ACIT Vs Saurabh Gupta

Background of the Dispute

The Income Tax Appellate Tribunal, Agra Bench, in the case of ACIT Vs Saurabh Gupta, dealt with a key question: Can penalties under Section 271D and Section 271E continue to exist when the very additions forming their basis have already been deleted in quantum proceedings?

The matter arose for Assessment Year 2015–16 following a search action under Section 132 in the BNR Group on **26.09.2017. Consequent to the search, assessment in the hands of the assessee was framed under Section 143(3)read withSection 153C`.

During this assessment, the Assessing Officer:

  • Treated alleged cash loans received as unexplained money under Section 69A, and
  • Treated alleged cash repayments of those loans similarly,
  • Leading to total additions of ₹2.94 crore, broken as:
    • ₹1,75,00,000 on account of cash loans stated to be received, and
    • ₹1,19,60,000 on account of cash repayments.

On the strength of these very additions, the Assessing Officer initiated and levied:

  • Penalty of ₹1,75,00,000 under Section 271D for alleged violation of Section 269SS (acceptance of loans or deposits in cash), and
  • Penalty of ₹1,19,60,000 under Section 271E for alleged violation of Section 269T (repayment of loans or deposits in cash),
  • Both vide separate orders dated 29.05.2023.

The assessee challenged these penalties before the Commissioner of Income-tax (Appeals), Kanpur, who deleted them. The Revenue then appealed before the ITAT, giving rise to the present decision.

Assessment and Penalty Proceedings – Core Facts

Search and Assessment Framework

  1. A search and seizure operation under Section 132 was conducted in BNR Group cases on 26.09.2017.
  2. Based on material allegedly found during this search, proceedings under Section 153C were initiated in the case of the assessee.
  3. Assessment was completed under Section 143(3) read with Section 153C for A.Y. 2015–16.

Additions Made by the Assessing Officer

In the course of assessment, the Assessing Officer:

  • Treated certain cash receipts, characterized by the Department as cash loans, as unexplained money under Section 69A to the extent of ₹1,75,00,000.
  • Similarly, treated cash repayments alleged to be made towards such loans as unexplained money under Section 69A to the tune of ₹1,19,60,000.

Thus, the total additions aggregated to ₹2,94,60,000 (rounded contextually as ₹2.94 crore).

Consequential Penalty Initiation

Solely founded on these additions, the Assessing Officer proceeded to:

  • Invoke Section 271D for alleged infringement of Section 269SS in respect of the cash loans received; and
  • Invoke Section 271E for alleged breach of Section 269T in respect of cash repayments.

Resultantly, penalties equal to the amounts so treated as loans received and repaid were imposed:

  • ₹1,75,00,000 under Section 271D; and
  • ₹1,19,60,000 under Section 271E.

The Assessing Officer’s satisfaction regarding violation of Section 269SS and Section 269T was recorded in the assessment order itself, which thereafter became the foundation for the penalty orders.

First Appeal: Relief Granted by CIT(A)

The assessee filed appeals before the CIT (Appeals)-4, Kanpur in Appeal No. CIT (A)-IV/KNP/10428 and CIT (A)-IV/KNP/10438, challenging the penalty orders.

Key Reasoning Adopted by the CIT(Appeals)