Whether recording of satisfaction in the assessment order is a pre-condition for initiation of penalty u/s 271DA for violation of Section 269ST?
Recently, ITAT Delhi in the case of ACIT v. Seven Seas Hospitality Pvt. Ltd., ITA Nos. 2225 & 2226/Del/2025, dated 14.11.2025), was dealing with an issue of penalty u/s 271DA & requirement of Recording Satisfaction for Violation of Section 269ST. ITAT Delhi Dismisses Revenue’s Appeal-
Let us have a Short Overview of the Case: –
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.
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?
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.
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.
The copy of the order is as under:
