Rajasthan HC: Penalty Under Section 271E Cannot Proceed Without AO's Satisfaction Recorded in Reassessment Order

Overview

The Rajasthan High Court, in a batch of writ petitions decided by a common order, ruled in favour of the assessee by quashing penalty proceedings initiated under Section 271E of the Income Tax Act, 1961. The Court held that the absence of satisfaction recorded by the Assessing Officer (AO) within the reassessment order itself is fatal to any subsequent penalty proceedings under Section 271D or Section 271E. The decision draws directly from the binding precedent laid down by the Supreme Court in Commissioner of Income Tax Vs Jai Laxmi Rice Mills Ambala City [(2015) 379 ITR 521 (SC)].

Case Identification

Factual Background

For the purpose of adjudicating the entire batch of petitions, the High Court drew the relevant facts from D.B. Civil Writ Petition No. 1102/2025, since all petitions raised identical questions of law and fact.

Sequence of Events

1. A search was conducted at the premises of the petitioner, Hari Mohan Dangayach.
2. Following the search, proceedings were initiated under Section 148 of the Income Tax Act, 1961, for Assessment Year 2012-2013.
3. These proceedings culminated in a reassessment order dated 12.03.2024, which resulted in additions of:
   • Rs. 9,90,000/- under Section 69A of the Act
   • Rs. 23,785/- under Section 69C of the Act
4. The reassessment order was passed with the approval of the Additional Commissioner of Income Tax (ACIT).
5. Subsequently, on 01.10.2024, a notice was issued to the petitioner for imposition of penalty under Section 271E.
6. The petitioner responded on 16.10.2024, raising objections grounded in the Supreme Court ruling in Jai Laxmi Rice Mills (supra), contending that the reassessment order contained no recorded satisfaction for initiating proceedings under Section 271E.
7. The objections were rejected by the department, and a further notice dated 03.01.2025 followed.
8. The petitioner approached the Rajasthan High Court by way of a writ petition challenging these notices, including those dated 01.10.2024, 03.01.2025, and 13.01.2025.

Legal Issues Framed

The core question before the Court was:

Whether penalty proceedings under Section 271D or Section 271E of the Income Tax Act, 1961 can be validly initiated and sustained in the absence of specific satisfaction recorded by the concerned Assessing Officer in the reassessment order itself?

Arguments Raised

On Behalf of the Assessee

Counsel for the petitioners advanced the following contentions: