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Facts
The assessee challenged a penalty imposed under Section 271D of the Income Tax Act for allegedly violating Section 269SS by accepting cash for a property sale and as a loan from an HUF. The penalty was levied for cash received before and after an amendment to Section 269SS.
Held
The Tribunal held that cash received as advance for property sale before the amendment to Section 269SS was not a violation. It also held that the amount received from the HUF was not a loan but a transfer from the HUF to its member (kartha), thus not violating Section 269SS.
Key Issues
Whether cash receipts constituting advance for property sale and funds from HUF are violations of Section 269SS and warrant penalty under Section 271D, considering the timing of amendments and the nature of the transaction.
Sections Cited
271D, 269SS, 143(2), 142(1), 129, 10(2)
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Income Tax Appellate Tribunal, ‘B’ BENCH : BANGALORE
Before: SHRI PRASHANT MAHARISHI, VICE – & SHRI SOUNDARARAJAN K.
ORDER PER SOUNDARARAJAN K., JUDICIAL MEMBER
This is an appeal filed by the assessee challenging the order of the NFAC, Delhi dated 14/09/2023 in respect of the A.Y. 2017-18 and raised the following grounds: “
1. The orders of the authorities below in so far as levying penalty u/s 271D of the Act against the appellant are opposed to law, equity, weight of evidence, probabilities, facts and circumstances of the case.
2. The impugned order imposing penalty u/s 271D of the Act is bad in law and without jurisdiction in as much as the impugned order has been passed by the Assessment Unit, Income-tax Department and not the Joint Commissioner of Income-tax, who alone is empowered to impose penalty u/s. 271 D of the Act and therefore, the impugned order deserves to be cancelled.
3. Without prejudice to the above, the learned Assessment Unit, Income tax Department, is not justified in levying a penalty of Rs. 60,73,000/- u/s 271D of the Act rejecting the bonafide and reasonable explanation tendered by the appellant under the facts and in the circumstances of the appellant’s case.
4. Without prejudice to the above, the levy of penalty u/s 271-D of the Act is bad in law in as much as the appellant has not committed any default u/s.269SS actionable u/s 271-D of the Act in as much as the advance for sale of land was received prior to the introduction of the amendment u/s 269SS of the Act and further that the provisions of Section 271D of the Act do not stand attracted to transactions undertaken between the Individual and HUF and thus, the learned Assessment Unit, Income tax department, has not established that the appellant committed any such default actionable u/s.271D of the Act, deliberately and consequently, the impugned penalty order passed for the venial and assumed technical breach deserves to be cancelled having regard to the ratio of the decision of the Hon’ble Supreme Court in the case of HINDUSTAN STEEL LIMITED V. STATE OF ORISSA reported in 83 ITR 26 [SC].
5. Without prejudice to the above, the penalty levied is highly excessive and liable to be reduced substantially.
6. For the above and other grounds that may be urged at the time of hearing of the appeal, your appellant humbly prays that the appeal may be allowed and Justice rendered and the appellant may be awarded costs in prosecuting the appeal and also order for the refund of the institution fees as part of the costs.”
2. The brief facts of the case are that the assessee is an individual and filed his return of income on 28/02/2018. The case was selected through CASS on complete basis specifying the points that there was abnormal increase in cash deposits during the demonetisation period as compared to pre-demonetisation period and high value receipt of cash shown from third parties. Thereafter notice u/s. 143(2) was issued and notice u/s. 142(1) and notice u/s. 129 were also issued. The assessee filed the AO and assessment has been completed based on the income declared by the assessee. The AO had proposed to impose penalty u/s. 271D since the assessee had received cash more than the value prescribed u/s. 269SS of the Act. Thereafter the Joint Commissioner had issued a notice u/s. 274 r.w.s. 271D of the Act proposing to impose penalty u/s. 271D of the Act. The assessee filed their objections on 24/02/2022 and also enclosed the sale agreement dated 21/05/2015 and the registered sale agreement dated 28/09/2016 and the copy of the declaration dated 21/02/2022. The AO not accepted the explanations and documents filed by the assessee and confirmed the levy of penalty u/s. 271D of the Act. As against the said order, the assessee filed an appeal before the Ld.CIT(A) and explained that the cash of Rs. 30 Lakhs was received from one Shri M. Manjunath and Shri C. Srinivas Reddy based on the agreement dated 21/05/2015 and therefore the cash was received before the amendment made to section 269SS of the Act and therefore the cash receipt could not be considered as violation and penalty can be imposed. In respect of the balance amount of Rs. 30,73,000/-, the assessee submitted that he is also having a HUF in the name V. Ranganath Prabhakar (HUF) and he being a member of the HUF, received the said amount from the said HUF and therefore the said amount is not a loan obtained by the assessee and therefore the amount received from HUF to the member of the HUF cannot be treated as an amount received from other persons and therefore the penalty would not be imposed. Before the Ld.CIT(A), the assessee also filed the details but the Ld.CIT(A) without considering the said detail, had confirmed the penalty imposed by the AO on the ground that the assessee had received amounts by way of cash.
As against the said order, the present appeal has been filed by the assessee before this Tribunal.
The assessee filed the appeal with a delay of 426 days and enclosed an application to condone the said delay. In the said application, the assessee submitted that he is an aged person and he has no knowledge to operate the systems and therefore he has no knowledge about the order passed by the Ld.CIT(A). The assessee further submitted that when the assessee was intended to settle the issue under the DTVSV Scheme, 2024 and the auditor viewed the portal to know the status of the appeal and then only the assessee came to know about the disposal of the appeal. Thereafter the appeal was entrusted to the present counsel and the appeal was made ready and filed before this Tribunal with a delay of 426 days. The assessee submitted that the issue to be decided is about the penalty and therefore the said delay may be condoned and the penalty issue may be decided on merits.
We have considered the said submissions and also the fact that the issue before us is about the penalty levied u/s. 271D of the Act and if the delay has been condoned, and the appeal is decided on merits, no prejudice would be caused to the respondent. On the other hand, if the delay has not been condoned, the assessee would be put into great hardship and irreparable damages would be caused to him and therefore in the interest of justice, we are inclined to condone the delay of 426 days and proceeded to decide the appeal on merits.
At the time of hearing, the Ld.AR submitted that the penalty u/s. 271D could not be automatically imposed when the assessee had valid explanations for receiving the said amounts in cash and also submitted that the advance amount towards the sale of property has been received by the assessee in cash before the amendment was made to section 269SS which came into effect from 01/06/2015. Insofar as the second part of the cash receipts, the Ld.AR submitted that the amount has been received from the HUF and the assessee is the kartha in the said HUF and he received the said amount from the said HUF and deposited the said amount in his individual bank account and therefore it could not be treated as a violation u/s. 269SS and penalty could be imposed. The Ld.AR further submitted that the documents produced before the AO as Ld.CIT(A) would establishes the fact that the advance amount has been received well before the date of coming into force of amendment to section 269SS and also the assessee had received cash from the HUF not as a loan but only as an amount towards his share and therefore the transactions between the HUF and the assessee could not be treated as transactions between the other person and the assessee to allege that there is a violation as per section 269SS of the Act and therefore penalty could not be imposed u/s. 271D of the Act. The Ld.AR also filed a paper book and enclosed the various documents which were filed before the AO as well as before the Ld.CIT(A). The Ld.AR also relied on the order of the Tribunal in dated 20/05/2025 in the case of Shri Bhavanishanker Naik vs. ITO in support of their case that cash received before the amendment could not be treated as a violation u/s. 269SS of the Act. The Ld.AR also filed a case law compilation and relied on the said judgements of the Hon’ble High Courts as well as the orders of the Coordinated Benches to the proposition that the amount received from the HUF by the assessee could not be treated as a violation u/s. 269SS of the Act and therefore the penalty could not be imposed u/s. 271D of the Act.
The Ld.DR relied on the order of the lower authorities and submitted that admittedly the assessee had received the advance amount by cash and also received the amount from the HUF by cash and therefore the assessee had violated the provision u/s. 269SS of the Act and therefore the AO had rightly imposed penalty u/s. 271D of the Act.
We have heard the arguments of both sides and perused the materials available on record.
We have perused the assessment order as well as the penalty order imposed by the AO for the violation committed by the assessee u/s. 269SS of the Act. In the reply to the show cause notice issued by the AO, the assessee had explained the facts in detail and also enclosed the supportive documents to show that the advance amount received by the assessee would not be a violation u/s. 269SS of the Act. We have perused the said reply in which the assessee had explained that a) On 21-05-2015 agreeing to sell 16 Guntas of Land bearing Survey Nos. 14/1 and 14/5 for a sum of Rs.40,00,000/- (Rupees Forty Lakhs Only) against which I have received Rs.30,00,000/- (Rupees Thirty Lakhs Only) as cash as advance. b) Copy of the registered sale agreement Dated 28-09- 2016 agreeing to sell my entire holding extent 1 Acre 8 Guntas for Rs.1,80,00,000/-(Rupees One Crore Eighty Lakhs Only) including the land which I have agreed to sell initially under above said agreement dated 21-05-2015.
Even though the said sale agreement dated 21/05/2015 is an unregistered one, considering the facts narrated by the assessee and the subsequent registered sale agreement dated 28/09/2016 in which the said cash payment was also mentioned, could not be treated as not a genuine one. From the beginning, the assessee had given this explanation but unfortunately, the AO without conducting any enquiry or examining the purchasers had treated the said cash payments as violation u/s. 269SS of the Act. If there is any other document to show that the assessee had received the cash payments only on 28/09/2016, the AO might have been correct in coming to the conclusion that the assessee had committed a violation. On the contrary, the assessee has demonstrated before us that the advance amounts were received on 05/04/2015, 25/04/2015 and 21/04/2015 and therefore the defence put out by the assessee could not be ignored lightly. Considering the facts as stated above, we are of the view that the assessee had properly explained the reasons for the cash receipts before the amendment made to section 269SS and therefore we are inclined to set aside the penalty insofar as the said cash receipts are concerned.
Insofar as depositing a sum of Rs. 30,73,000/-, the AO had treated the said amount received by the assessee from the HUF to the individual as a loan. We have perused the records and found that the assessee had
We have also seen that the assessee is the kartha in the HUF and from the HUF, he received the amount and so much of the said amount was deposited in his bank accounts and therefore it is the amount received by the assessee from the HUF being a member of the HUF and therefore the same could not be treated as a loan given by the HUF to the assessee. Further, there is no evidence to show that the amount could be treated as loan. In fact, the AO had not established that any interest has been paid by the assessee towards the said loan amount. Merely by mistake, it was shown as loan, it could not be treated as a loan and on that basis, the receipt of cash could not be treated as a violation committed u/s. 269SS of the Act. The assessee had clearly explained the said facts while filing reply to the penalty notice which has been extracted as below: “2. I also understand that there is a violation of the same provisions under section 269SS in depositing a sum of Rs.30,73,000/- (Rupees Thirty Lakhs Seventy Three Thousand Only) on various dates to the same bank account during the Financial Year 2016-17. As I have explained earlier, I am High School Dropout Person and I do not know the various provisions of Income Tax Act, 1961. I am assessed to tax both in my Individual capacity and as well as in my representative capacity as the Kartha of the HUF vide PAN AAJHR1542M. During the financial year 2015-16, I have deposited a sum of Rs.30,73,000/- of my HUF funds into my individual account. As I have deposited the above said amount of my HUF into my individual account, my Auditors while filing the Return of income have reflected the said amount of my HUF in my individual account as a loan received from HUF. At this juncture, I write to submit that the said amount belongs to me only in my representative capacity of the Kartha of my HUF and it makes no difference as to HUF as I am the same person who has been handling both my HUF and individual transactions. I never intended to show the above said amount as a loan, as there was no question of repayment of the said amount to HUF by me. It was only while accounting, my Auditors without ascertaining the real fact from me have reflected the said amount as loan, instead of treating it as a receipt from HUF to my individual account as being a co-parcener of my HUF. In this connection, I draw your kind attention to section 10(2) of the Income Tax Act, 1961, which reads as follows: Incomes not included in total income: “Any sum received by an individual as member of a Hindu Undivided Family, where such sum has been paid out of the income of the family, or, in the case of any impartible estate, where such sum has been paid out of the income of the estate belonging to the family” In view of the above, I understand that as I have received the said amount from my HUF as co-parcener and as such, it is exempt under the Income Tax since it is not a loan received by me from my HUF. It is only my Auditors who have committed a mistake showing the said deposited amount, without ascertaining the real nature from me and treated this as loan while presenting my individual accounts. Even, if it was presumed to be a loan, since it is between the dual capacities of the same person, it will not attract the vigorous provisions of section 269SS of the Income Tax Act, 1961, and it will not amount to any violation. Without prejudice to my above submission, I write to bring to your kind notice that it is only an entry between myself and my HUF, it will not amount to any violation of section 269SS as it was held in the following cases: a) Venkata Narayana Raju Pasuoarthy vs. Additional Commissioner of Income Tax, Range – 12 on 10-05- 2019 b) Smt. Deepika, Bangalore vs. Additional Commissioner of Income Tax, Range – 5 on 13-10-2017 c) ITAT, Kolkata in the case of Dr.B.G.Panda vis DCIT [2000] 111 Taxman 86 (Cal) (MAG) d) CIT vs Sunil Kumar Geol [2009] 315 ITR 163/183 Taxman 53, the Honourable Punjab and Haryana High Court An affidavit declaration sworn by me to this effect that the above said amount is non-returnable to the HUF and it was transferred to my individual account irrevocably as non-returnable, is enclosed herewith for your kind perusal.”
Considering the facts and circumstances of the case, the amount received from the HUF to the individual account could not be treated as a loan and also it could not be treated as a violation u/s. 269SS of the Act. We have also perused the letter of confirmation given by the HUF on 18/09/2019 which is available in page 35 of the paper book filed by the assessee. By considering the said confirmation letter and the explanation offered by the assessee, we are of the view that there is no violation committed by the assessee u/s. 269SS of the Act warranting the levy of penalty u/s. 271D of the Act.
Now we will consider the order of this Tribunal cited supra in which the Tribunal had considered the amendment made to section 269SS which has taken effect from 01/06/2015 and concluded that the advance received pursuant to agreement of sale before the amendment could not be treated as a violation u/s. 269SS and therefore the penalty could not be imposed u/s. 271D of the Act. The Tribunal had also held that as on the date of executing the agreement to sale, there were no prohibition in law against accepting cash on sale of property as such amendment was brought into Statute on 01/06/2015 only. In the present case also, the advance amount was received on well before the date of coming into force of the amendment to section 269SS and therefore it could not be treated as violation.
Insofar as the other judgments relied on by the Ld.AR reported in 303 ITR 99 (Madras) and 351 ITR 265 (Madras) in which the Division Bench of the Hon’ble Madras High Court had held that, if there were genuine and bonafide transactions and the taxpayer could not get loan or deposit by account payee cheque or DD for some bonafide reason, the authority vested with the power to impose penalty has a discretion not to levy penalty. Similarly, the Hon’ble Madras High Court in the another judgment reported in 351 ITR 265, had held that the transaction was between the father-in-law and the daughter-in-law and the genuineness of the transaction in which the amount had been paid by the father-in-law for the purchase of the property was not disputed and the cash taken by the assessee from her daughter-in-law was not a loan transaction and further held that the authority vested with the power to impose penalty has a discretion not to levy penalty.
In the present facts of the case, the assessee had properly explained that the amount of Rs. 30,73,000/- was not received as loan since the same was given by the HUF to the individual and therefore acceptance of cash could not be treated as a violation u/s. 269SS of the Act. In view of the above said facts, we came to the conclusion that the assessee had properly explained the reasons for receiving the amount in cash on both the occasions and therefore there is no need to impose penalty u/s. 271D of the Act. We, therefore set aside the orders of the AO as well as the Ld.CIT(A) and directed the AO to delete the penalty imposed u/s. 271D of the Act.
In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open court on 15th December, 2025.