ARUN KUMAR GARG T/H LEGAL HEIR DEEPALI GARG,LUCKNOW vs. ASSESSING OFFICER ASSESSMENT UNIT, LUCKNOW

IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW ‘B’ BENCH, LUCKNOW BEFORE SH. SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER AND SH. NIKHIL CHOUDHARY, ACCOUNTANT MEMBER ITA No.887/LKW/2025 A.Y. 2022-23 Arun Kumar Garg Through vs. Assessing Officer Assessment Legal Heir Deepali Garg, Unit, Income Tax Department Mahanagar, Lucknow-226006 PAN: AEPPK4628D (Appellant) (Respondent) Assessee by: Sh. Akshay Agrawal, Adv Revenue by: Sh. R.R.N. Shukla, Addl CIT DR Date of hearing: 26.02.2026 Date of pronouncement: 14.05.2026 O R D E R PER NIKHIL CHOUDHARY, A.M.: This is an appeal filed by the Legal Heir of the assessee against the orders passed by the ld. CIT(A), NFAC on 25.11.2025, wherein the ld. CIT(A) has upheld the penalty levied upon the assessee under section 271DA of the Income Tax Act, 1961 by the Assessment Unit of the Income Tax Department for the A.Y. 2022-23 on 29.07.2025. The grounds of appeal are as under:- “1. That the Commissioner of Income Tax (Appeal) has confirm the penalty imposed by the Assessing Officer without considering the facts of the case. 2. That the penalty order passed is without jurisdiction as the order should have been passed by JCIT. How ever the order has been passed by the Assessment Unit, Income tax Department. 3. The order has been passed against the merits of the case. 4. The order has been passed on the basis of information without verifying the facts of case.

ITA No.887/LKW/2025 A.Y. 2022-23 Arun Kumar Garg T/H Legal Heir Deepali Garg 5. The appellant craves leave to add to modify, substantiate and delete the grounds of appeal at the time of hearing.” 2. The facts of the case are that the assessee penalty proceedings under section 271DA of the Income Tax Act were initiated in the case of the assessee for the A.Y. 2022-23, based on information received from the jurisdiction Assessing Officer that the assessee had received an aggregate amount of Rs. 22,07,500/- in cash from the partnership M/s Distributors India, in which he was a partner. As the amount had been received otherwise than by an account payee cheque or an account payee bank draft or use of electronic clearing system through bank account, the Assessment Unit held that it constituted an apparent violation of the provisions of section 269 ST of the Income Tax Act, 1961. Consequently, a show cause notice was issued to the assessee to explain why penalty under section 271DA should not be levied. In response, the assessee filed a representation through legal heir, in which it was submitted that the assessee was a partner of the firm M/s Distributors India which operated as a CNF agent and distributor for various multinational and Indian Pharmaceuticals Companies. Each company was operating from a specified area for which a drug license was obtained. A list of eight such companies was provided. It was further submitted that as operations of these companies were handled by the managers of those companies, they required day to day cash for petty expenses such as diesel expenses, labour expenses, local conveyance, petty stationary, refreshment for visitors and staff, petty housekeeping material, packing material, telephone expenses, electric consumables, computer toner, inward freight etc,. This cash was given to the respective managers by Arun Garg which was received by him as imprest from the firm. The manager submits their detailed expense sheet on monthly basis which were duly audited and entered in the books of accounts. It was submitted that while the Registered

ITA No.887/LKW/2025 A.Y. 2022-23 Arun Kumar Garg T/H Legal Heir Deepali Garg Head Office of the firm was at Attalika Complex 22, Kutchary Road, Lucknow and the bankers were also located there, the major operations were out of Transport Nagar which were situated 25 to 30 away from head Office. Hence, cash was given from head office to partners of firm as imprest to meet the cash requirements of managers for the purposes of business expenditures. Since, the cash had been received by Sh. Arun Garg as imprest in his capacity as partner of the firm, the provisions of section 269 ST did not apply to him. Accordingly, it was prayed that the notice under section 271DA may kindly be cancelled. However, the ld. AO did not accept this submission. He held that for the purposes of the Income Tax Act, the partnership firm was distinct from its partners and any person was prohibited from receiving an amount of Rs. 2 Lacs or more in cash from another, ‘person’. Therefore, he held that transaction fell within the ambit of the provision. Furthermore, the argument that their amount was received as, ‘imprest’ is an internal accounting arrangement between the partner and the firm. The characterization of the transaction in the books of accounts, does not alter the fact that there was a, ‘receipt of money’ by the assessee from the firm. Section 269 T applied to receipt of money, irrespective of the purpose or subsequent application of the funds and no exemption was provided for partner/firm transactions. For penalty under section 271DA to be waived, the assessee had to show that there was, ‘good and sufficient cause’ for the failure to make compliance with the provisions of law. He held that the reasons offered by the assessee did not constitute good and sufficient reason. The assessee could easily have withdrawn cash from bank or used other banking channels to fund the business expenses directly from the bank account instead of routing them as cash receipt through partner. In view of the above, the Assessment Unit levied penalty under section 271DA of the

ITA No.887/LKW/2025 A.Y. 2022-23 Arun Kumar Garg T/H Legal Heir Deepali Garg amount of cash received in contravention of section 269 ST i.e. Rs. 22,07,500/-. 3. Aggrieved with this order, the assessee went in appeal before the ld. CIT(A). The ld. CIT(A) records that during the course of appeal three notices were issued to the assessee for compliance and it was clearly mentioned that if compliance was not made, the matter would be decided ex parte. Since compliance had not been made, the ld. CIT(A) decided to proceed with the matter ex parte. He held that after the first day of April, 2025, the AO could levy the penalty under section 271DA and therefore, the technical ground raised by the assessee that it had been levied by an officer other than a Joint Commissioner was not relevant. Regarding the merits of the case, the ld. CIT(A) upheld the view of the of the AO that such huge amount of expenses could have been incurred through banking channels and there was no need for cash to be handed to the partner for distribution. As the appeal was held to be unreasonable, he held it fit to be rejected and accordingly he confirmed the penalty under section 271DA.

ITA No.887/LKW/2025 A.Y. 2022-23 Arun Kumar Garg T/H Legal Heir Deepali Garg as imprest on account of the firm, to be re-conciled against amounts later. Since, this did not constitute a transfer within the meaning of the Income Tax Act, there could be no levy of penalty under section 271DA for a transaction which essentially remain within the firm. It was, therefore, prayed that the order of the ld. CIT(A) had been passed without considering this legal point and was therefore, bad in law.

ITA No.887/LKW/2025 A.Y. 2022-23 Arun Kumar Garg T/H Legal Heir Deepali Garg 7. In the result, the appeal of the assessee is held to be allowed for statistical purposes. Order pronounced in the open court on 14.05.2026. Sd/- Sd/- [SUDHANSHU SRIVASTAVA] [NIKHIL CHOUDHARY] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 14/05/2026 Sh Copy forwarded to: 1. Appellant – 2. Respondent – 3. CIT DR , ITAT, 4. CIT, 5. The CIT(A) By order Sr. P.S.