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Facts
The Revenue appealed against the CIT(A)'s order deleting a penalty levied under Section 271DA of the Income Tax Act. The penalty was based on an addition made by the AO under Section 153C r.w.s 143(3) for violation of Section 269ST due to cash payments.
Held
The Tribunal held that the addition made by the AO based on a 'dumb document' was not sustainable. Since the basis for the addition was deleted, the consequential penalty under Section 271DA could not be sustained.
Key Issues
Whether penalty under Section 271DA is sustainable when the primary addition on which it is based has been deleted due to being made on a 'dumb document'? Whether Section 269ST was applicable for AY 2017-18?
Sections Cited
271DA, 250, 132, 153C, 143(3), 269ST, 147, 148
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Income Tax Appellate Tribunal, ‘A’ BENCH: CHENNAI
Before: SHRI SS VISWANETHRA RAVI & MS. PADMAVATHY.S
आदेश / O R D E R
PER PADMAVATHY.S, A.M: This appeal by the Revenue is against the order of the Commissioner of Income Tax (Appeals), Chennai-19 (in short "CIT(A)") passed u/s. 250 of the Income Tax Act, 1961 (in short "the Act") dated 03.03.2025 for Assessment Year (AY) 2017-18. The Revenue raised various grounds contending the deletion of penalty levied u/s. 271DA of the Act by the CIT(A).
There is a delay of 62 days in filing the appeal by the Revenue. The Revenue has filed condonation petition/affidavit stating the reasons for delay in filing the appeal. Having heard both the parties and perused the material on record, we are of the view that there is a reasonable and sufficient cause for the delay in filing the appeal before the Tribunal. Therefore following the Hon’ble Supreme Court decision in the case of Collector, Land Acquisition Vs. MST.Katiji & Ors., (167 ITR 471) (SC), we condone the delay of 62 days in filing the appeal and admit the appeal for adjudication.
A search and seizure action u/s. 132 of the Act was conducted in the group case of M/s. SRS Mining. Based on the incriminating evidences seized and the information contained therein, the Assessing Officer (A.O) of the assessee initiated proceedings u/s. 153C of the Act. The A.O completed the assessment u/s. 153C r.w.s 143(3) of the Act after making an addition of Rs.1,00,00,000/- under the head "income from other sources" towards cash payments received by the assessee from SRS Mining which is in violation of the provisions of section 269ST of the Act. Subsequently, the A.O initiated penalty proceedings u/s. 271DA of the Act and levied a penalty of Rs. 1,00,00,000/-. Aggrieved, the assessee filed further appeal before the CIT(A). The CIT(A) deleted the penalty stating that the Co-ordinate Bench of the Tribunal had deleted the addition made in the quantum appeal and the penalty u/s. 271DA of the Act being consequential in nature cannot be sustained. The relevant findings of the CIT(A) are extracted below: “6.3 The undersigned while going through the order u/s 271DA of the Act dated 24.08.2023 passed by the Range Head, it can be seen that the penalty was levied based upon the findings of the AO in the order passed u/s 143(3) r.w.s 153C of the Act 28.03.2022. In this order, the AO has made findings that the Appellant has received a sum of Rs. 1,00,00,000/- in cash from M/s. SRS Mining. 6.4 The undersigned in the order passed u/s 250 of the Act dated 10.12.2024 vide DIN & Order ITBA/APL/S/250/2024- 25/1071073347(1) for the AY 2017-18 in the case of the Appellant has allowed the grounds raised by respectably following the decision of the jurisdictional ITAT in the following cases
DCIT Central Circle-2(4) Chennai vs. O Pannerselvam in & 582/Chny/2023 dated 05.04.2024
DCIT Central Circle-2(2) Chennai vs Karuppagounder Palaniswami in 126, 127 and 213, 214, 215/Chny/2023 dated 03.04.2024
DCIT Central Circle-2(4) Chennai vs Vaithialingam in dated 03.04.2024
DCIT Central Circle-2(4) Chennai vs Vivek Papisetty in 212 and 405/Chny/2023 dated 02.04.2024
1. DCIT Central Circle-2(4) Chennai vs P Ram Mohan Rao in ITA.No. 223,224,225/Chny dated 02.04.2024 6.5 In all the above cases the Hon'ble ITAT Chennai has categorically held that the loose note that was found and seized during the course of search u/s 132 of the Act in the case of M/s. SRS Mining has been termed as a "dumb document and considered that the addition made upon such dumb document is not sustainable.
6.6 As the main addition itself was directed to be deleted by the undersigned, there exist no case to sustain the sum of Rs. 1,00,00,000/- levied as penalty for the AY 2017-18. When the basis for levy of penalty itself does not exists, the penalty upon such findings can no longer hold good as the case of the assessee is squarely covered by the legal maxim "sublato Fundmento Credit opus" in essence, it signifies that if the fundamental basis or premise of something is taken away, the entire structure or argument built upon it will collapse.
6.7 Further, it has been observed that the appellant, in his written submission, has raised another issue regarding the applicability of Section 269ST of the Act. The appellant contends that this provision is applicable only from 01.04.2017, i.e., the Financial Year (FY) 2017-18, relevant to Assessment Year (AY) 2018-19, and not to AY 2017-18. Upon examining the issue raised, it is evident that the provision in question, Section 269ST of the Act, was introduced by the Finance Act, 2017, with effect from 01.04.2017, which pertains to FY 2017-18 and is relevant for AY 2018-19. However, the case of the assessee pertains to FY 2016-17, relevant to AY 2017-18, and therefore falls outside the scope of the provisions of Section 269ST of the Act.
6.8 On similar facts and circumstances where the AO imposed penalty u/s 271D of the act which was introduced in the Finance Act 2017 and came into effect from 01.04.2017, the Hon'ble ITAT Pune Bench in the case of Pandharinath Tukaram Pathare vs. ACIT (NFAC) Delhi in its order in dated 28.03.2023 has considered the above issue. The findings of the Hon'ble ITAT is reproduced here as under.
"The applicable provision in this case should have been sec, 269ST of the Act. Now this provision le sec. 269ST has been introduced by the Finance Act, 2017 w.e.f. 01-04-2017 i.e. for F.Y. 2017-18 relevant to A.Y. 2018-19, whereas the case of the assessee falls in F.Y. 2016-17 relevant to A.Y. 2017-18 and thus it is outside the rigors of provisions of section 2695T also, meaning thereby the A.O has applied wrong provision to the facts of assessee's case and has imposed penalty u/s 271D of the Act. When the very basis of imposing penalty for contravention of substantive provision is applied wrongly, then there cannot be any legal sustenance of such a penalty order"
In light of the above, the undersigned is of the view that when the very basis for imposing a penalty for contravention of a substantive provision is incorrectly applied for the AY 2017-18, such a penalty order cannot be legally sustained.
6.9 In view of the above discussions, the undersigned is of the considered view that there exists no case to sustain the penalty levied vide order u/s 271DA of the Act dated 24.08.2023 in the case of the Appellant for the AY 2017-18 when the basis of addition itself was flawed by the jurisdictional tribunal in the case laws cited supra with respect to the findings made in the case of M/s. SRS Mining. Accordingly, all the grounds raised by the appellant upon the levy of penalty u/s 271DA of the Act are hereby treated as allowed both upon merits and legality and the AO is hereby directed to delete the penalty of Rs. 1,00,00,000/- for the AY 2017- 18.
In the result the appeal filed is treated as allowed.”
We have heard the both the parities, perused the material available on record. The penalty u/s. 271DA is levied for contravention of the provisions of Section 269ST of the Act for sum equal to the amount of such receipt. Section 269ST prohibits receipt of cash from a single person, in a single day towards a single transaction a sum of Rs.2,00,000/- or more in other than account payee cheque. In the present case, the A.O has initiated the penalty proceedings based on the addition made in the quantum proceedings u/s.153C towards violation of Section 269ST of the Act. We in this regard notice that the CIT(A) in assessee's case has considered identical issue to pass a consolidated order for A.Y 2015-16 to 2017-18 deleting the addition made towards violation of provisions of section 269ST. We further notice that the Department preferred appeal against A.Y 2015-16 and 2016-17, which is dismissed by the Co-ordinate Bench (ITA No.628 & 629/Chny//2025 dated 04.08.2025) has deleted the addition made under the proceedings u/s. 153C of the Act stating that the addition made by the A.O based on "dump documents" cannot be sustained. We also noticed that the Department has not preferred any appeal against the order passed by the CIT(A) deleting the quantum addition for A.Y 2017-18. Accordingly, we see merit in the arguments of the Ld. AR that the issue pertaining to the deletion of the quantum addition towards violation of provisions of section 269ST in assessee's case has reached finality. Considering that the penalty u/s. 271DA of the Act being consequential in nature and that the quantum addition made towards violation of the provisions of Section 269ST of the Act be deleted on merits, we are of the view that the penalty levied by the A.O does not have a leg to stand and accordingly is liable to be deleted. In view of this discussion, we see no infirmity in the order of the CIT(A) in deleting the penalty u/s. 271DA of the Act.
In the result, the appeal of Revenue is dismissed. Order pronounced on 10th day of December, 2025 at Chennai.