MALAR RESIDENCY,MADURAI vs. ITO, NON CORP, 2(3), MADURAI

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ITA 1037/CHNY/2026Status: DisposedITAT Chennai03 August 2026AY 2014-155 pages
AI SummaryRemanded

What did the Tribunal hold?

The Tribunal found that the assessee's contentions regarding non-service of show-cause notices and the nature of the transaction (partner's contribution vs. loan/deposit) required fresh examination. The matter was restored to the Assessing Officer for de novo adjudication.

What were the facts?

The assessee, a partnership firm, received Rs. 10,00,000 in cash from a partner. The Assessing Officer levied a penalty under Section 271D for alleged violation of Section 269SS, which the CIT(A) confirmed.

What were the issues?

Whether the penalty under Section 271D was validly levied, considering the alleged non-service of notices and the true nature of the cash receipt from a partner.

Which sections of the Income-tax Act were involved?

Section 271D,Section 269SS

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘A’ BENCH: CHENNAI

Before: SHRI INTURI RAMA RAO & SHRI MANU KUMAR GIRI

Hearing: 03.08.2026

आदेश / O R D E R PER MANU KUMAR GIRI, JM:

This appeal by the assessee is directed against the order of the Commissioner of Income Tax (Appeals), NFAC, Delhi [CIT(A) in short] dated 29.01.2026 confirming the penalty of Rs.10,00,000/- levied u/s. 271D of the Income Tax Act, 1961.

2.

We have heard the rival submissions and perused the material available on record.The facts, in brief, are that the assessee is a partnership firm engaged in the business of hospitality services.

ITA No. 1037/Chny/2026 (AY 2014-15) Malar Residency Vs ITO NC 2(3) :: 2 :: During the course of assessment proceedings, it was noticed that the assessee had received a sum of Rs.10,00,000/- in cash from one of its partners, Shri N. Rajendran. The Assessing Officer was of the view that the receipt was in violation of the provisions of section 269SS of the Act and, accordingly, initiated penalty proceedings u/s. 271D. Since, according to the Assessing Officer, no explanation was furnished by the assessee despite issuance of notices, penalty of Rs.10,00,000/- was levied u/s. 271D. The ld. Commissioner of Income Tax (Appeals) confirmed the levy of penalty.

3.

Before us, the ld. Authorised Representative submitted that the impugned penalty order has been passed in violation of the principles of natural justice. It was contended that none of the show-cause notices referred to in the penalty order dated 25.11.2021, 18.01.2022, 15.02.2022 and 06.05.2022 were ever served upon the assessee either through email or by post. It was further submitted that immediately upon receipt of the penalty order, the assessee addressed a letter dated 02.06.2022 seeking copies of the alleged notices and clarification regarding their service, but no response was furnished by the Department. It was argued that, had the notices been served, the assessee would have explained that the amount represented capital/current account contribution by a partner and not a loan or deposit within the meaning of section 269SS.The ld. Authorised Representative further submitted that the tax audit report in Form No. 3CD specifically records "Nil" against clause 31(a), indicating that no loan or deposit had been accepted during the relevant previous year. It was also contended that contribution by a partner to the partnership firm through the partner's current account cannot automatically be

ITA No. 1037/Chny/2026 (AY 2014-15) Malar Residency Vs ITO NC 2(3) :: 3 :: characterised as a loan or deposit so as to attract section 269SS and the consequential penalty u/s. 271D. The assessee thus pleaded that adequate opportunity may be granted to substantiate its claim before the Assessing Officer.

4.

Per contra, the ld. Departmental Representative supported the orders of the lower authorities and submitted that sufficient opportunities had been granted during the penalty proceedings. It was argued that the assessee failed to avail the opportunities and, therefore, the Assessing Officer was justified in levying penalty.

5.

We have carefully considered the rival submissions and examined the material placed before us. The assessee has consistently asserted that the show-cause notices referred to in the penalty order were never served upon it. It is also the specific case of the assessee that the transaction in question represented contribution by a partner through his current account and not acceptance of any loan or deposit. We find that this plea goes to the root of the matter because the applicability of section 269SS itself depends upon the true nature and character of the transaction.We also notice that the tax audit report in Form No. 3CD has been relied upon by the assessee to contend that no loan or deposit was accepted during the relevant year. Whether the impugned cash receipt constituted a partner's capital/current account contribution or assumed the character of a loan or deposit is a factual issue which requires proper examination on the basis of the partnership deed, capital/current account ledger, books of account and other supporting evidence. The impugned orders do not indicate any detailed examination of these aspects.

ITA No. 1037/Chny/2026 (AY 2014-15) Malar Residency Vs ITO NC 2(3) :: 4 :: 6. Further, the contention regarding non-service of the show-cause notices also deserves verification from the assessment records. Since the levy of penalty u/s. 271D carries serious civil consequences, the assessee should be afforded an effective and reasonable opportunity of presenting its case before any adverse conclusion is drawn.In these circumstances, and in the interest of substantial justice, we are of the considered opinion that the matter requires fresh examination by the Assessing Officer. We, therefore, set aside the orders of the authorities below and restore the issue relating to levy of penalty u/s. 271D to the file of the Assessing Officer for de novo adjudication.The Assessing Officer shall verify the assessee's contention regarding service of notices, examine the true nature of the receipt of Rs.10,00,000/- from the partner, consider the entries in the partner's current account, the partnership deed, the books of account, the audit report in Form No. 3CD and all other evidences that may be produced by the assessee, and thereafter decide the issue afresh in accordance with law by passing a speaking order after affording adequate opportunity of being heard to the assessee. The assessee is also directed to extend full cooperation and furnish all requisite details and documentary evidence without seeking unnecessary adjournments.

7.

We clarify that we have not expressed any opinion on the merits of the applicability of section 269SS or the consequential levy of penalty u/s. 271D and all issues whether legal or factual are left open for adjudication by the Assessing Officer.

ITA No. 1037/Chny/2026 (AY 2014-15) Malar Residency Vs ITO NC 2(3) :: 5 :: 8. In the result, the appeal of the assessee is allowed for statistical purposes. Order pronounced in the open court on the day 03rd of August, 2026 in Chennai.

Sd/- Sd/- (इंतूरी रामा राव) (मनु कुमार िग�र) (INTURI RAMA RAO) (MANU KUMAR GIRI) लेखा सद*य/ACCOUNTANT MEMBER �या�यक सद*य/JUDICIAL MEMBER

चे�नई/Chennai, +दनांक/Dated: 03rd August, 2026. SNDP, Sr. PS

आदेश क! ��त,ल-प अ.े-षत/Copy to: 1. अपीलाथ�/Appellant 2. ��थ�/Respondent 3. आयकरआयु�/CIT, Chennai / Madurai / Salem / Coimbatore. 4. िवभागीय�ितिनिध/DR 5. गाड�फाईल/GF Digitally signed SANDE by SANDEEP KUMAR EP Date: 2026.08.05 KUMAR 16:42:51 +05'30'

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