KENNETH BLAH,SHILLONG vs. INCOME TAX OFFICER, WARD - 2, SHILLONG

Facts

The assessee, a State Government employee and a member of a Scheduled Tribe in Meghalaya, sold immovable property and received Rs. 85.00 lakh in cash, depositing it in a bank account. This cash receipt, exceeding Rs. 20,000/-, was considered a contravention of Section 269SS of the Income Tax Act, leading to a penalty of Rs. 85.00 lakh under Section 271D. The assessee contended that his income was exempt under Section 10(26) of the Act and therefore, the penalty provisions should not apply, but the CIT(A) upheld the penalty.

Held

The Tribunal observed that the assessee's income was exempt from tax under Section 10(26), leading to a reasonable belief that there were no tax implications for the transaction. Applying Section 273B, the Tribunal found that the assessee had a 'reasonable cause' for the failure to comply with the provisions of Section 269SS. Consequently, the Tribunal set aside the CIT(A)'s finding and directed the Assessing Officer to delete the penalty levied under Section 271D of the Act.

Key Issues

Whether a penalty under Section 271D for contravention of Section 269SS is leviable when the assessee's income is exempt under Section 10(26) and 'reasonable cause' under Section 273B is established for the cash transaction.